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Unformatted text preview: CHAPTER 7 Accounting Information Systems ANSWERS TO QUESTIONS 1. (a) An accounting information system involves collecting and processing data and disseminating financial information. (b) Disagree. An accounting information system applies regardless of whether manual or comput- erized procedures are used to process the transaction data. 2. There are three principles for developing an accounting information system: Cost awareness. The system must be cost-effective; that is, the benefits obtained from the infor- mation disseminated must outweigh the cost of providing it. Useful output. To be useful, information must be understandable, relevant, reliable, timely, and accurate. Flexibility. The system should be able to accommodate a variety of users and changing informa- tion needs. 3. Cost awarenessThe system must be cost-effective; that is, the benefits obtained from the infor- mation disseminated must outweigh the cost of providing it. In this case, the cost appears to out- weigh the benefits. 4. The phases of an accounting system are: Analysis, which involves planning and identifying information needs and sources. Design, which includes creating forms, documents, procedures, job descriptions, and reports. Implementation, which consists of installing the system, training personnel, and making the system wholly operational. Follow-up, which involves evaluating and monitoring effectiveness and efficiency and correcting any weaknesses. 5. A subsidiary ledger is a group of accounts with a common characteristic. The accounts are assem- bled together to facilitate the accounting process by freeing the general ledger from details con- cerning individual balances. The advantages of using subsidiary ledgers are that they: Permit transactions affecting a single customer or single creditor to be shown in a single ac- count, thus providing necessary up-to-date information on specific account balances. Free the general ledger of excessive details relating to accounts receivable and accounts payable. As a result, a trial balance of the general ledger does not contain potentially thou- sands and thousands of individual account balances. Assist in locating errors in individual accounts by reducing the number of accounts combined in one ledger and by using controlling accounts. Permit a division of labor in posting by having one employee post to the general ledger and (a) different employee(s) post to the subsidiary ledgers. 6. (a) (1) Individual transactions are generally posted daily to the subsidiary ledger. (2) In contrast, postings to the control accounts are usually made in total at the end of the month. (b) A control account is a general ledger account that summarizes subsidiary ledger data. Subsid- iary ledger accounts keep track of specific account activity (i.e., specific debtors or creditors)....
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- Fall '11