Accounting Information Systems: False L.O. 1 Moderate

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The key takeaways are that accounting information systems provide financial data to businesses and include personnel, records, and procedures. Computerized and manual systems are described as well as how spreadsheets are used.

The three components of a computerized accounting information system are the hardware, software, and the network. A manual system involves journalizing transactions, posting accounts, and preparing financial statements.

The three stages of data processing are inputs, processing, and outputs. Inputs are the original transactions or events, processing is the recording and classifying of inputs, and outputs are the reports used for decision making.

CHAPTER 7

Accounting Information Systems

LEARNING OBJECTIVES

1. Describe an effective accounting information system.


2. Understand both computerized and manual accounting systems.
3. Understand how spreadsheets are used in accounting.
4. Use the sales journal, the cash receipts journal, and the accounts
receivable ledger.
5. Use the purchases journal, the cash payments journal, and the accounts payable
ledger.

TRUE/FALSE

1. Only large corporations need accounting information systems.

False L.O. 1 Moderate Page: 282

2. The three components of a computerized accounting information system are the hardware, software, and
the network.

False L.O. 1 Moderate Page: 283

3. The combination of personnel, records, and procedures that a business uses to provide financial data is the
accounting information system.

True L.O. 1 Easy Page: 282

4. In a manual system, processing includes journalizing transactions, posting the accounts, and preparing the
financial statements.

True L.O. 2 Easy Page: 284

5. The three stages of data processing are inputs, processing, and outputs.

True L.O. 2 Easy Page: 283

6. Outputs are the reports used for decision making.

True L.O. 2 Easy Page: 284

7. Spreadsheets, or electronic work sheets, are computer programs that link data by means of formulas and
functions.

True L.O. 3 Easy Page: 287

8. Spreadsheets are organized as a rectangular grid composed of cells.

181
True L.O. 3 Moderate Page: 287

9. A cell can contain words and numbers but not formulas.

False L.O. 3 Easy Page: 287

10. Cash sales are recorded in the sales journal.

False L.O. 4 Moderate Page: 289

11. The general journal is used to record all transactions that do not fit one of the special journals.

True L.O. 4 Easy Page: 297

12. A subsidiary ledger is a group of accounts that provides supporting details on individual balances, the total
of which appears in a general ledger account.

True L.O. 4 Moderate Page: 290

13. Transactions in the sales journal are posted both to the general ledger and the accounts receivable
subsidiary ledger.

True L.O. 4 Moderate Page: 290

14. The sum of the account balances in the accounts receivable subsidiary ledger should equal the balance in
the accounts payable account in the general ledger.

False L.O. 4 Moderate Page: 290

15. The seller would record the return of merchandise sold on account in the sales journal.

False L.O. 4 Moderate Page: 298

16. A control account is an account whose balance equals the sum of the balances in a group of related
accounts in a subsidiary ledger.

True L.O. 4 Moderate Page: 291

17. The purchases journal is designed to account for purchases of inventory, supplies, and other assets on
account.

True L.O. 5 Easy Page: 293

18. Credit postings to the accounts receivable general ledger account come from the cash receipts journal and
the purchases journal.

False L.O. 5 Difficult Page: 290

19. The column total for Other Accounts in the cash payments journal is not posted to the general ledger.

True L.O. 5 Moderate Page: 295


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Accounting Information Systems

20. The accounts payable account in the general ledger controls the accounts payable ledger.

True L.O. 5 Moderate Page: 295

183
MULTIPLE CHOICE

21. A combination of personnel, records, and procedures that a business uses to provide financial data is known as
a(n):
a) processing
b) input
c) output
d) accounting information system

d L.O. 1 Easy Page: 282

22. An effective accounting information system:


a) allows employees flexibility in setting the working hours
b) should be designed to meet all the requirements of management, regardless of the costs involved
c) includes control, compatibility, flexibility, and a favorable cost/benefit relationship
d) includes all of the above

c L.O. 1 Moderate Page: 282

23. Accounting information systems cope with heavy transaction loads by:
a) hiring temporary personnel
b) specialization
c) computerization
d) both b and c are correct

d L.O. 1 Moderate Page: 282

24. The set of programs that drive the computer is referred to as:
a) the server
b) software
c) input
d) output

b L.O. 1 Moderate Page: 283

25. Keeping accurate records of accounts receivable is an example of which feature of a good accounting information
system?
a) favorable cost/benefit relationship
b) compatibility
c) control
d) flexibility

c L.O. 1 Moderate Page: 282

26. The Hide and Seek Company has retail outlets at both large malls and small strip malls throughout the U.S. Its
accounting information system is able to track total revenues by store, by type of mall, by size of the store, by
state, and by region. This is an example of which feature of a good information accounting system?
a) flexibility
b) favorable cost/benefit relationship
c) control
d) compatibility

d L.O. 1 Difficult Page: 282


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CHAPTER 7
Accounting Information Systems
27. The Sound Company has recently decided to add drums to its musical instrument product line. The accounting
information system feature which would allow this change to be handled efficiently is:
a) compatibility
b) flexibility
c) favorable cost/benefit relationship
d) control

b L.O. 1 Difficult Page: 282

28. A computerized storehouse of information is referred to as a(n):


a) database
b) server
c) processor
d) both a and c are correct

a L.O. 1 Difficult Page: 283

29. The main computer in a network, where the program and data are stored is called the:
a) database
b) hardware
c) server
d) software

c L.O. 1 Moderate Page: 283

30. The system of electronic linkages that allows different computers to share the same information is known as the:
a) network
b) database
c) management system
d) input system

a L.O. 1 Moderate Page: 283

31. Hardware is the electronic equipment that includes:


a) computers, disk drives, and monitors
b) disk drives, software, and servers
c) servers, databases, and software
d) all of the above

a L.O. 1 Moderate Page: 283

32. Three components that form a computerized accounting system include:


a) hardware, software, and output
b) hardware, software, and company personnel
c) hardware, company personnel, and input
d) company personnel, output, and input

b L.O. 1 Moderate Page: 283

185
33. Inputs would include:
a) sales receipts
b) an income statement
c) a balance sheet
d) none of the above

a L.O. 2 Moderate Page: 283

34. Outputs would include:


a) a balance sheet
b) sales receipts
c) bank deposit slips
d) purchase invoices

a L.O. 2 Moderate Page: 284

35. Design of an accounting system begins with the:


a) chart of accounts
b) general ledger
c) previous year’s financial statements
d) opening trial balance

a L.O. 2 Easy Page: 284

36. A list of options for choosing computer functions is known as the:


a) server
b) menu
c) software
d) input

b L.O. 2 Easy Page: 285

37. Computerized accounting for similar transactions in a group or batch is referred to as:
a) hardware
b) batch processing
c) software
d) unit processing

b L.O. 2 Easy Page: 285

38. The three stages of data processing are:


a) inputs, outputs, and processing
b) source documents, processing, and decision making
c) processing, reports, and decision making
d) inputs, decision making, and outputs

a L.O. 2 Moderate Page: 283, 284

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Accounting Information Systems
39. Computerized accounting systems are organized by:
a) outputs
b) inputs
c) function
d) networks

c L.O. 2 Easy Page: 283

40. Computerized processing of related functions on a continuous basis is known as:


a) batch processing
b) accuracy processing
c) quick processing
d) on-line processing

d L.O. 2 Moderate Page: 285

41. SAP, Oracle and PeopleSoft are examples of:


a) menus
b) enterprise resource planning systems
c) on-line processors
d) batch processors

b L.O. 2 Moderate Page: 286

42. Modules are:


a) integrated units that work together
b) computerized accounting packages
c) a group of batch processing transactions
d) a group of on-line processing transactions

a L.O. 2 Moderate Page: 287

43. Computer programs that link data by means of formulas and functions are referred to as:
a) inputs
b) menus
c) spreadsheets
d) networks

c L.O. 3 Easy Page: 287

44. The ______________ indicates a cell is active in a computerized spreadsheet.


a) grid
b) cursor
c) module
d) program

b L.O. 3 Moderate Page: 287

187
45. Each cell in a spreadsheet is defined by:
a) a row number and a column letter
b) a row number and a label
c) a formula and a column number
d) formulas and labels

a L.O. 3 Moderate Page: 287

46. Posting the entries in the sales journal to the accounts receivable subsidiary ledger should be done:
a) on a weekly basis
b) only at the end of the accounting period
c) at the end of each month
d) on a daily basis

d L.O. 4 Moderate Page: 290

47. Customers’ individual accounts are included in a subsidiary ledger referred to as the:
a) accounts payable ledger
b) controlling ledger
c) accounts receivable ledger
d) general ledger

c L.O. 4 Moderate Page: 290

48. Which of the following is recorded in the sales journal?


a) return of merchandise purchased for cash
b) sale of merchandise for cash
c) sale of merchandise on account
d) return of merchandise purchased on account

c L.O. 4 Moderate Page: 289

49. The sales journal is used for the sale of:


a) merchandise for cash
b) merchandise on account
c) assets other than merchandise for cash
d) assets other than merchandise on account

b L.O. 4 Easy Page: 289

50. Every subsidiary ledger must have its own:


a) subsidiary account
b) control account
c) general account
d) general ledger

b L.O. 4 Easy Page: 291

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Accounting Information Systems

51. The total of the customer accounts receivable ledger at the end of the accounting period must equal the:
a) total of the creditors’ accounts payable ledger
b) total of the accounts payable account in the general ledger
c) total of the accounts receivable account in the general ledger
d) total of the accounts receivable credit column in the cash receipts journal

c L.O. 4 Easy Page: 290

52. In which journal would the receipt of a note receivable plus accrued interest be recorded:
a) sales journal
b) purchases journal
c) cash receipts journal
d) cash payments journal

c L.O. 4 Easy Page: 291

53. The accounts receivable credit column of the cash receipts journal is:
a) posted in summary at the end of the month and by individual amounts on a daily basis
b) posted by individual amounts only at the end of the month
c) not posted
d) posted in summary only at the end of the month

a L.O. 4 Moderate Page: 291

54. Assuming the use of special journals, the sale of equipment in exchange for a promissory note would be recorded
in the:
a) sales journal
b) cash payments journal
c) cash receipts journal
d) general journal

d L.O. 4 Moderate Page: 297

55. Assuming the use of special journals, the sale of merchandise to Jerri Blackwell on account would be recorded in
the:
a) sales journal
b) accounts receivable journal
c) general journal
d) cash receipts journal

a L.O. 4 Moderate Page: 289

56. Assuming the use of special journals, the sale of merchandise to Landon Browning for cash would be recorded in
the:
a) cash receipts journal
b) cash payments journal
c) general journal
d) sales journal

189
a L.O. 4 Moderate Page: 291
57. The receipt of a note receivable in exchange for equipment would be recorded in the:
a) general journal
b) sales journal
c) cash receipts journal
d) long-term asset journal

a L.O. 4 Moderate Page: 297

58. Assuming the use of special journals, the borrowing of $80,000 from the bank by signing a note payable would
be recorded in the:
a) cash receipts journal
b) sales journal
c) cash payments journal
d) general journal

a L.O. 4 Moderate Page: 293

59. Gere Company returned defective supplies and received a cash refund. Assuming the use of special journals, this
entry would be recorded in the:
a) sales journal
b) cash payments journal
c) cash receipts journal
d) general journal

c L.O. 4 Moderate Page: 293

60. Clooney Enterprises returned office supplies to the dealer and received a full cash refund. Assuming the use of
special journals, this entry would be recorded in the:
a) general journal
b) cash receipts journal
c) cash payments journal
d) none of the above

b L.O. 4 Moderate Page: 293

61. Garner Enterprises received payment within the discount period from a customer who had purchased
merchandise on account. The sales invoice was for $2,000, and credit terms were 3/15 n/30. In the cash receipts
journal, $1,940 will appear under the:
a) cash debit column
b) accounts receivable credit column
c) sales revenue credit column
d) cash credit column

a L.O. 4 Difficult Page: 291

62. Welch Industries received payment after the expiration of the discount period from a customer who had
purchased merchandise on account. The sales invoice was for $3,000, and credit terms were 3/15 n/30. The cost
of the merchandise was $1,800. In the cash receipts journal:
a) $3,000 will appear in the accounts receivable credit column
b) $3,000 will appear in the accounts receivable debit column
c) $3,000 will appear in the sales revenue credit column
d) $90 will appear in the sales discounts debit column
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Accounting Information Systems

a L.O. 4 Difficult Page: 291


Table 1

On March 1, Deed Company received a check from Carter Company


for payment of an invoice dated February 23 for $3,000 with credit
terms of 2/10 n/30. On February 28, Carter had returned $200 of the
merchandise because it was defective.

63. Referring to Table 1, how would this transaction be recorded in Deed’s cash receipts journal?
a) debit Cash $3,000; credit Accounts Receivable-Carter Company $3,000
b) debit Cash $2,744 and Sales Discounts $56; credit Accounts Receivable-Carter Company $2,800
c) debit Cash $2,744; credit Accounts Receivable-Carter Company $2,744
d) debit Cash $2,800; credit Accounts Receivable-Carter Company $2,800

b L.O. 4 Moderate Page: 291

64. Referring to Table 1, when will the cash receipt be posted to Carter Company’s account receivable account in the
accounts receivable subsidiary ledger?
a) on March 31, because special journals are always posted monthly
b) on March 1, because subsidiary ledgers are posted daily
c) any time, it doesn’t matter when subsidiary ledgers are posted
d) none of the above

b L.O. 4 Moderate Page: 291

65. Referring to Table 1, how would this transaction be recorded in Deed’s cash receipts journal if payment is made
on March 15?
a) debit Cash $2,800; credit Accounts Receivable-Carter Company $3,000
b) debit Accounts Receivable-Carter Company $3,000; credit Cash $2,744 and Sales Discounts $56
c) debit Cash $2,800; credit Accounts Receivable-Carter Company $3,000 and Sales Discounts $56
d) debit Cash $2,800; credit Accounts Receivable-Carter Company $2,800

d L.O. 4 Moderate Page: 291

66. On April 10, Hot Company received a check from Cold Company for payment of an invoice dated March 24 for
$2,000 with credit terms of 2/10 n/30. On March 28, Cold had returned $200 of the merchandise because it was
defective. How would this transaction be recorded in Hot’s cash receipts journal?
a) debit Cash $1,800; credit Accounts Receivable-Cold Company $1,800
b) debit Cash $2,000; credit Accounts Receivable-Cold Company $2,000
c) debit Cash $1,764; credit Accounts Receivable-Cold Company $1,764
d) debit Cash $1,764 and Sales Discounts $36; credit Accounts Receivable-Cold Company $1,800

a L.O. 4 Moderate Page: 291

191
67. The end-of-month balance in Northington Company’s cash receipts journal cash column is $22,550. How will
this column be posted?
a) The total will be posted to the cash account as a debit.
b) The total will be posted to the cash account as a credit.
c) The individual amounts are posted on a daily basis.
d) The total is not posted.

a L.O. 4 Moderate Page: 291

68. Which of the following transactions are recorded in the purchases journal?
a) purchase of store supplies for cash
b) purchase of inventory on account
c) purchase of inventory for cash
d) return of supplies purchased on account

b L.O. 4 Easy Page: 295

69. A purchase of supplies for cash is recorded in the:


a) cash receipts journal
b) purchases journal
c) cash payments journal
d) general journal

c L.O. 5 Moderate Page: 296

70. Currie Enterprises paid a creditor on account. Assuming the use of special journals, this entry would be recorded
in the:
a) cash receipts journal
b) purchases journal
c) general journal
d) cash payments journal

d L.O. 5 Moderate Page: 296

71. The purchase of office equipment for cash would be recorded in the:
a) cash payments journal
b) cash receipts journal
c) either the cash payments journal or the purchases journal
d) purchases journal

a L.O. 5 Moderate Page: 296

72. The individual amounts in the accounts payable credit column of the purchases journal are posted:
a) individually to the accounts payable account in the general ledger
b) individually to the accounts payable subsidiary ledger
c) individually to the purchases account in the general ledger
d) in total to the accounts payable subsidiary ledger

b L.O. 5 Difficult Page: 295

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Accounting Information Systems
73. Amounts are posted individually from the purchases journal to the:
a) credit column of the creditors’ accounts in the accounts payable subsidiary ledger
b) credit column of the inventory account in the general ledger
c) credit column of the accounts receivable account in the general ledger
d) debit column of the cash account in the general ledger

a L.O. 5 Difficult Page: 295

74. Which of the following is recorded in the cash payments journal?


a) cash payment of an accounts receivable
b) adjusting entry for expired insurance
c) adjusting entry for depreciation
d) cash payment on an accounts payable

d L.O. 5 Moderate Page: 295

75. The payment of a note payable plus the accrued interest would be recorded in the:
a) cash payments journal
b) general journal
c) purchases journal
d) sales journal

a L.O. 5 Moderate Page: 295

76. Entries in the purchases journal are posted to the:


a) general ledger only
b) general ledger and the accounts payable ledger
c) accounts payable subsidiary ledger and the purchases ledger
d) accounts payable subsidiary ledger only

b L.O. 5 Moderate Page: 295

77. A document issued by a seller to credit a customer's account for returned merchandise is referred to as a:
a) credit memorandum
b) debit memorandum
c) seller’s memorandum
d) accounts receivable memorandum

a L.O. 5 Moderate Page: 297

78. A document issued by a purchaser when returning merchandise is referred to as a:


a) seller’s memorandum
b) accounts payable memorandum
c) credit memorandum
d) debit memorandum

d L.O. 5 Moderate Page: 298

193
79. Jetson Company records returns and allowances in the general journal. On June 25, Jetson issued a $120 debit
memo for merchandise purchased on credit from Crimson Company because part of the merchandise that was
sent was not what Jetson ordered. What entry does Jetson make?
a) no entry is required by Jetson
b) Accounts Payable-Crimson Company 120
Inventory 120
c) Accounts Receivable-Crimson Company 120
Sales Returns and Allowances 120
d) Accounts Payable-Crimson Company 120
Accounts Receivable-Crimson Company 120

b L.O. 5 Difficult Page: 298

80. Jets Company records returns and allowances in the general journal. On August 16, Jets issued a $150 credit
memo to Celtics Company for merchandise sold on credit on August 1. What entry does Jets make?
a) no entry is required by Jets Company
b) Accounts Payable-Celtics Company 150
Inventory 150
c) Accounts Receivable-Celtics Company 150
Sales Returns and Allowances 150
d) Sales Returns and Allowances 150
Accounts Receivable-Celtic Company 150

d L.O. 5 Difficult Page: 298

81. Big Industries purchased merchandise from Small Company paying $5,000 in cash and promising to pay the
remaining $5,000 in 30 days. Assuming the use of special journals, Big Industries would record this entry in the:
a) cash payments journal
b) general journal
c) sales journal
d) cash receipts journal

a L.O. 5 Moderate Page: 281

82. Perkins issued a $500 credit memo to a customer, Susan Richardson, for inventory that Richardson returned
because it was not what she had ordered. What entry does Perkins make?
a) Accounts Receivable-Richardson 500
Sales Returns and Allowances 500
b) Sales Returns and Allowances 500
Accounts Payable-Richardson 500
c) Accounts Payable-Richardson 500
Sales Returns and Allowances 500
d) Sales Returns and Allowances 500
Accounts Receivable-Richardson 500

d L.O. 5 Difficult Page: 297

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Accounting Information Systems
83. Perkins issued a $500 credit memo to a customer, Susan Richardson, for inventory that Richardson returned
because it was not what she had ordered. What entry does Richardson make?
a) Accounts Payable-Perkins 500
Inventory 500
b) Inventory 500
Accounts Payable-Perkins 500
c) Accounts Payable-Perkins 500
Accounts Receivable-Perkins 500
d) Accounts Payable-Perkins 500
Sales Returns and Allowances 500

a L.O. 5 Difficult Page: 298

84. Ruby Company purchased inventory from Diamond Company, and received a credit memo from Diamond
Company. Diamond Company had charged Ruby Company $3.85 rather than $3.58 for each of the 100 items
ordered. What entry will Ruby Company make?
a) Sales Returns and Allowances 27
Inventory 27
b) Accounts Payable-Diamond Company 27
Inventory 27
c) No entry is required because Ruby Company did not issue the memo.
d) Inventory 27
Accounts Payable-Diamond Company 27

b L.O. 5 Difficult Page: 298

85. Ruby Company purchased inventory from Diamond Company, and received a credit memo from Diamond
Company. Diamond Company had charged Ruby Company $3.85 rather than $3.58 for each of the 100 items
ordered. What entry will Diamond Company make?
a) Sales Returns and Allowances 27
Inventory 27
b) Sales Returns and Allowances 27
Accounts Receivable-Ruby Company 27
c) Accounts Payable-Ruby Company 27
Inventory 27
d) Inventory 27
Accounts Payable-Ruby Company 27

b L.O. 5 Difficult Page: 298

86. The account that is credited for every transaction entered in the purchases journal is:
a) cash
b) purchase discounts
c) accounts payable
d) sales discounts

c L.O. 5 Easy Page: 295

195
87. The entries in a purchases journal are posted to the ______ subsidiary ledger.
a) accounts payable
b) purchases
c) accounts receivable
d) sales

a L.O. 5 Easy Page: 295

88. The ______ journal is used by the seller to record the return by a customer of merchandise sold for cash.
a) general
b) sales
c) cash receipts
d) cash payments

d L.O. 5 Moderate Page: 295

89. The accounts payable subsidiary ledger has postings from which sets of journals?
a) purchases, general, and cash payments
b) purchases, cash receipts, and sales
c) sales, cash payments, and general
d) purchases, general, and cash receipts

a L.O. 5 Difficult Page: 295

90. Adjusting entries:


a) are recorded in the general journal
b) are recorded in the cash receipts journal
c) are recorded in the cash payments journal
d) are not recorded when a company uses special journals

a L.O. 5 Moderate Page: 297

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CHAPTER 7
Accounting Information Systems
MATCHING

a) network
b) spreadsheet
c) accounting information system
d) special journal
e) software
f) on-line processing
g) subsidiary ledger
h) menu
i) general journal
j) control account

91. ______________ Set of programs or instructions that cause the computer to perform the work desired
92. ______________ The combination of personnel, records, and procedures that a business uses to meet the need
for financial data
93. ______________ An account whose balance equals the sum of the balances in a group of related accounts in a
subsidiary ledger
94. ______________ Journal used to record all transactions that do not fit one of the special journals
95. ______________ Book of accounts that provides supporting details on individual balances, the total of which
appears in a general ledger account
96. ______________ A computer program that links data by means of formulas and functions
97. ______________ An accounting journal designed to record one specific type of transaction
98. ______________ Computerized processing of related functions on a continuous basis
99. ______________ A list of options for choosing computer functions
100. ______________ The system of electronic linkages that allows different computers to share the same
information
Solution:

91. e
92. c
93. j
94. i
95. g
96. b
97. d
98. f
99. h
100. a

L.O. all Moderate Page: all

197
PROBLEMS AND CRITICAL THINKING EXERCISES

101. Describe the four features of a good accounting information system and give an example of each.

Solution:

a) Control over operations. Examples: control over cash payments; accurate recordkeeping for accounts
receivable; insuring against theft of inventory.

b) Compatibility with the business’s specific operations and organizational structure. Examples: tracking the
events of a business having many branch offices and summarizing those events by office, by region, or by
sales type; summarizing the accounting information of a business operating in many countries and adjusting
for foreign currency translations.

c) Flexibility in response to changes in the business. Examples: the system’s ability to adapt to major changes
such as the adding of a product line, buying an existing business, or opening a new store.

d) Favorable cost/benefit relationship. Example: paying for customized programming instead of purchasing an
existing software package because the incremental benefits to be derived from the specialized information
obtained exceeds the additional costs incurred.

L.O. 1 Moderate Page: 282

102. Many companies are computerizing their accounting systems. Discuss some of the benefits of a computerized
accounting system.

Solution:

Computerized accounting systems are able to handle large volumes of transactions efficiently and more reliably
than manual systems. The tedious and frequently error-ridden task of posting becomes a simple and speedy
process, which the computer can do automatically. The preparation of financial statements, often requiring a
work sheet, is handled through the pushing of a button. Access to the information contained in a computerized
accounting system is readily available to managers for decision making.

L.O. 2 Moderate Page: 283

103. Describe some of the applications of spreadsheets in accounting.

Solution:

Spreadsheets can be used to prepare the various financial reports that are the end result of the accounting
information system. Specifically, a spreadsheet can be used to prepare an income statement, a statement of
owner’s equity, a balance sheet, and a statement of cash flows. The power of a spreadsheet is apparent when
enormous amounts of data must be analyzed. The spreadsheet will be updated automatically after making
changes to a number or numbers.

L.O. 3 Moderate Page: 287

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104. Using the information in the following unidentified journals, state how the selected numbers would be posted
using the selections below.

1) Posted to a general ledger account as a debit


2) Posted to a general ledger account as a credit
3) Posted to a subsidiary ledger account as a debit
4) Posted to a subsidiary ledger account as a credit
5) Posted to the general ledger as a debit and a credit
6) Not posted

Date Account Debited Acc. Rec. Dr. Cost of Goods Sold Dr


Sales Rev. Cr. Inventory Cr.
Feb. 9 Williams Company 4,540 2,300
10 Brighton Industries 11,900 b) 5,550
26 Davis Enterprises c) 9,000 g) 4,250
28 Totals a) 25,440 12,100

Debits Credits
Date Cash Sales Acc. Sales Rev. Other Acct. Amount CGS Dr.
Dis. Rec. Inv. Cr.
Sept. 8 3,000 3,000 1,750
10 2,500 Ross, Capital 2,500
13 50 Int. Revenue 50
15 582 18 600 Jane Gibson
30 e) 6,132 d) 18 600 3,000 Totals f) 2,550 h) 1,750

a) 25,440 ______________
b) 5,550 ______________
c) 9,000 ______________
d) 18 ______________
e) 6,132 ______________
f) 2,550 ______________
g) 4,250 ______________
h) 1,750 ______________

199
Solution:

a) 5
b) 6
c) 3
d) 1
e) 1
f) 6
g) 6
h) 5

L.O. 4 Difficult Page: 293

105. Wink Associates reported the following transactions during December:

Dec. 8 Sold $2,000 of merchandise to Bruce Company for cash. The cost of the merchandise was $1,250.

10 Owner invested $3,400 into the business.

15 Collected $580 from Lucille Adams on account.

16 Issued a credit memo for $650 to Susan Wilson for merchandise she purchased on credit several days
ago. The cost of the returned merchandise was $250.

Record the above transactions in either the cash receipts journal or the general journal.

Cash Receipts Journal


Debits Credits
Date Cash Sales Acc. Rec. Sales Rev. Other Acct. Amount CGS Dr.
Dis. Inv. Cr.

General Journal
Date Accounts Debit Credit

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Accounting Information Systems
Solution:

Cash Receipts Journal


Debits Credits CGS Dr.
Date Cash Sales Acc. Rec. Sales Rev. Other Acct. Amount Inv. Cr.
Dis.
Dec. 8 2,000 2,000 1,250
10 3,400 Capital 3,400
15 580 580 Lucille Adams
30 5,980 580 2,000 Totals 3,400 1,250

General Journal
Date Accounts Debit Credit
Dec.16 Sales Returns and Allowances 650
Accounts Rec.-Susan Wilson 650
Inventory 250
Cost of Goods Sold 250

L.O. 4 Moderate Page: 293

106. Given the following unidentified journal, write an explanation for each entry.

Debits Credits CGS Dr.


Date Cash Sales Acc. Rec. Sales Rev. Other Acct. Amount Inv. Cr.
Dis.
Aug. 8 4,000 4,000 2,250
10 2,500 Ruff, Capital 2,500
15 540 540 Lucille Adams
27 490 10 500 Marshall Field
31 7,530 10 1,040 4,000 Totals 2,500 2,250

Solution:

August 8 Sold merchandise with a cost of $2,250 for $4,000 cash.


August 10 Owner invested $2,500 cash in the business.
August 15 Received $540 on account from Lucille Adams, no discount.
August 27 Received $490 on account from Marshall Field, $10 sales discount.

L.O. 4 Moderate Page: 293

107. J and R Sporting Goods reports these selected transactions for the month of August:

201
Aug. 9 Issued invoice No. 159 for sale on account to Evans Company, $3,500, term 1/10 n/30. The cost of the
merchandise was $2,200.

10 Issued invoice No. 160 for sale on account to Sails and Boats, $4,300, terms 2/15 n/45. The cost of the
merchandise was $2,450.

20 Issued a credit memo to Sails and Boats for $2,800 for merchandise returned. The cost of the returned
merchandise was $1,595.

Record the above transactions in either the sales journal or the general journal.

Sales Journal
Date Account Debited Acc. Rec. Dr. Cost of Goods Sold Dr
Sales Rev. Cr. Inventory Cr.

General Journal
Date Accounts Debit Credit

Solution:

Sales Journal
Date Account Debited Acc. Rec. Dr. Cost of Goods Sold Dr
Sales Rev. Cr. Inventory Cr.
Aug. 9 Evans Company 3,500 2,200
10 Sails and Boats 4,300 2,450
31 Totals 7,800 4.650

General Journal
Date Accounts Debit Credit
Aug. 20 Sales Returns and Allowances 2,800
Accounts Rec.-Sails and Boats 2,800
Inventory 1,595
Cost of Goods Sold 1,595

L.O. 4 Moderate Page: 293-297

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Accounting Information Systems
108. Describe in detail the process of posting data from the sales journal of a company using a perpetual inventory
system. Where does it go, when is it posted, and what steps are followed?

Solution:

The sales journal records credit sales. Each line in the journal represents a single sale and the dollar value of
each sale is entered in the accounts receivable debit and sales revenue credit column. At the end of each month,
the total of this amount column is posted as a debit to accounts receivable and a credit to sales in the general
ledger. An S with a page number immediately following is entered in the reference columns of these two
accounts, indicating the source of the entry. The completion of this posting process is indicated by writing the
account numbers for accounts receivable and sales right beneath the total of the amount column.

On a daily basis, the amount of each sale is debited to the individual customer’s account in the accounts
receivable subsidiary ledger. Again, an S followed by a page number is written in the reference column of each
customer’s account for each entry. A checkmark is placed in the reference column next to each individual
amount in the sales journal. This indicates that the amount has been posted.

Since the company is using the perpetual inventory system, the sales journal contains a column for a debit to cost
of goods sold and a credit to inventory. The total of this column is posted at the end of each month when the
total of the accounts receivable debit and sales revenue credit column is posted.

L.O. 4 Moderate Page: 293

109. Indicate the proper journal to use to record each of the following transactions. Use S for sales journal, P for
purchases journal, CR for cash receipts journal, CP for cash payments journal, and J for general journal.

a) _________________ Payment of accrued salaries


b) _________________ Owner withdrawal of cash
c) _________________ Owner investment of cash
d) _________________ Purchase of land for cash
e) _________________ Receipt of payment on account
f) _________________ Sales of furniture in exchange for a note receivable
g) _________________ Made a cash refund to a customer for returned merchandise
h) _________________ Payment for the purchase of inventory within the discount period
i) _______________ Returned merchandise, receiving a cash refund
j) _________________ Sale of merchandise on account
k) _________________ Owner investment of equipment
l) _________________ Purchase of supplies on account
m) _________________ Sale of merchandise for cash
n) _________________ Purchase of merchandise for cash

203
Solution:

a) CP
b) CP
c) CR
d) CP
e) CR
f) J
g) CP
h) CP
i) CR
j) S
k) J
l) P
m) CR
n) CP

L.O. 4, 5 Moderate Page: 289-295

110. Identify all the journals in which the following accounts would be debited or credited. Use P for purchases
journal, S for sales journal, CP for cash payments journal, CR for cash receipts journal, and J for general journal.
Some accounts may be used in more than one journal.

a) Cost of goods sold ____________________


b) Accounts receivable ____________________
c) Depreciation expense ____________________
d) Cash ____________________
e) Accounts payable ____________________
f) Sales revenue ____________________
g) Sales returns and allowances ____________________
i) Inventory ____________________

Solution:

a) CR, S, J
b) S, J, CR
c) J
d) CR, CP
e) P, CP, J
f) CR, S
g) J
i) CR, CP, P, S, J

L.O. 4, 5 Difficult Page: 289-295

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Accounting Information Systems
111. Indicate how the following columns are posted from the sales journal, cash payments journal, and the cash
receipts journal. Use the following letters to indicate your answer:

a) In total only
b) Individually only
c) In total and individually

1) ___________ Other accounts debit column of the cash payments journal


2) ___________ Accounts payable debit column of the cash payments journal
3) ___________ Cash debit column of the cash receipts journal
4) ___________ Accounts receivable debit and sales revenue credit column of the sales journal
5) ___________ Cash credit column of the cash payments journal
6) ___________ Accounts receivable credit column of the cash receipts journal
7) ___________ Inventory debit column of the cash payments journal
8) ___________ Other accounts credit column of the cash receipts journal
9) ___________ Cost of goods sold debit and inventory credit column of the sales journal
10) ___________ Sales discounts debit column of the sales journal

Solution:

1) b
2) c
3) a
4) c
5) a
6) c
7) a
8) b
9) a
10) a

L.O. 4, 5 Difficult Page: 289-295

205
112. Burton Company uses special journals along with the general journal to record its daily transactions. Using the
following abbreviations, identify the appropriate journal in which to record each transaction.

Sales Journal S
Purchases Journal P
Cash Receipts Journal CR
Cash Payments Journal CP
General Journal J

a) Purchased supplies on account, $375. ______________


b) Received $3,000 from a customer on account. ______________
c) Purchased inventory for cash, $2,300. ______________
d) Returned merchandise previously bought on account for
credit, $1,670. ______________
e) Paid the weekly employees’ wages, $5,300. ______________
f) Sold merchandise for cash, $2,460. ______________
g) Purchased office equipment for cash. ______________
h) Paid for merchandise previously bought on account,
taking the 2% discount $2,345. ______________
i) Borrowed $10,000 from the bank by signing a note
payable with interest at 8%. ______________
j) Made a $350 adjusting entry for expired insurance. ______________

Solution:

a) P
b) CR
c) CP
d) J
e) CP
f) CR
g) CP
h) CP
i) CR
j) J

L.O. 4, 5 Moderate Page: 289-295

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CHAPTER 7
Accounting Information Systems
113. Tom and Jerry Company uses special journals along with the general journal to record its daily transactions.
Using the following abbreviations, identify the appropriate journal in which to record each transaction.
Sales Journal S
Purchases Journal P
Cash Receipts Journal CR
Cash Payments Journal CP
General Journal J

a) Sold merchandise on account, $5,800. ___________


b) A customer purchased additional inventory on account,
credit terms 2/10 n/30, $3,500. ___________
c) A customer who had previously purchased merchandise
on account returned defective merchandise for credit. ___________
d) Purchased inventory on account, $4,680. ___________
e) Purchased office furniture, no money down, with 60 days
to pay, $1,850. ___________
f) Closed the income summary account to capital, net
income was $65,000. ___________
g) Collected $3,600 from cash sales. ___________
h) Purchased a used copy machine paying $3,200 cash. ___________
i) Received a check for $3,210 from a customer who was
paying off his account in full. ___________
j) Paid the telephone bill for the month, $230. ___________

Solution:

a) S
b) S
c) J
d) P
e) P
f) J
g) CR
h) CP
i) CR
j) CP

L.O. 4, 5 Moderate Page: 289-295

207
114. Austin Painting and Accessories reports the following transactions for the month of March.

May 2 Purchased inventory on credit from Paint Suppliers, terms 2/10 n/30, $4,000.
7 Purchased supplies on credit from Office Wholesalers, terms 2/10 n/45, $750.
9 Returned $2,700 of inventory purchased on April 2 to Paint Suppliers for full credit.
10 Purchased office equipment on account from Officeland, terms 3/15 n/45, $4,700.

Record the above transactions in the purchases journal and the general journal.

Purchases Journal
Credit Debits
Date Account Acc. Pay. Inv. Supplies Other Acct. Amount
Credited

General Journal
Date Accounts Debit Credit

Solution:

Purchases Journal
Credit Debits
Date Acct. Credited Acc. Pay. Inv. Supplies Other Acct. Amount
May 2 Paint Suppliers 4,000 4,000
7 Office 750 750
Wholesalers
10 Officeland 4,700 Office 4,700
Equipment
30 Totals 9,450 4,000 750 4,700

General Journal
Date Accounts Debit Credit
May 9 Accounts Payable-Paint Suppliers 2,700
Inventory 2,700

L.O. 5 Moderate Page: 290-293

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CHAPTER 7
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115. During November, Elite Fitness had the following transactions:

Nov. 3 Purchased inventory from Laser Outfitters for cash, $2,050.


5 Purchased inventory from Health Foods for $3,500 cash.
9 Purchased $800 of supplies for cash.
10 Purchased equipment for cash, $430.
17 Made a $250 payment on a note payable.
25 Received and paid utility bill, $375.
30 Owner withdrew $1,000 for personal use.
30 Paid Star Bushnell, a creditor, $750 on account.

Record the above transactions in the cash payments journal.

Cash Payments Journal


Debit Credit
Date Account Debited Other Acct. Acc. Pay. Cash

Solution:

Cash Payments Journal


Debit Credit
Date Account Debited Other Acct. Acc. Pay. Cash
Nov. 3 Inventory 2,050 2,050
5 Inventory 3,500 3,500
9 Supplies 800 800
10 Equipment 430 430
17 Note Payable 250 250
25 Utilities Expense 375 375
30 Withdrawals 1,000 1,000
30 Star Bushnell 750 750
30 Totals 8,405 750 9,155

L.O. 5 Moderate Page: 295

209

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