Chapter 5: Accounting Systems

Controlling Account

The account in the general ledger that summarizes the balances of the accounts in a subsidiary ledger. (Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account. The sum of the balances of the accounts in a subsidiary ledger must equal the balance of the related controlling account.)

Subsidiary Ledger

A ledger containing individual accounts with a common characteristic. (A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger.)

Process Methods

Are the means by which the system collects, summarizes, and reports accounting information. These methods may be either manual or computerized.

Risk Assessment

Changes in customer requirements, competitive threats, regulatory changes, changes in economic factors such as interest rates, and employee violations of company policies and procedures. Management should assess these risks and take necessary actions to control them so that the objectives of internal control can be achieved.

Control Procedures

Established to provide reasonable assurance that business goals will be achieved, including prevention of fraud.

Information and Communication

Information about the control environment, risk assessment, control procedures, and monitoring are needed by management to guide operations and ensure compliance with reporting, legal, and regulatory requirements.

Employee Fraud

Is the intentional act of deceiving an employer for personal gain.

Special Journals

Journals designed to be used for recording a single type of transaction.

Monitoring

Monitoring the internal control system locates weaknesses and improves control effectiveness.

Invoice

The bill that the seller sends to the buyer.

Purchases Journal

The journal in which all items purchased on account are recorded.

Accounting System

The methods and procedures used by a business to collect, classify, summarize, and report financial data for use by management and external users. (The methods and procedures for collecting, classifying, summarizing, and reporting a business' financial and operating information.)

Control Environment

The overall attitude of management and employees about the importance of controls.

Internal Controls

The policies and procedures used to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations. Businesses use internal controls to guide their operations and prevent abuses of their systems.

General Ledger

The primary ledger, when used in conjunction with subsidiary ledgers, that contains all of the balance sheet and income statement accounts.

Cash Payments Journal

The special journal in which all cash payments are recorded.

Cash Receipts Journal

The special journal in which all cash receipts are recorded.

Accounts Receivable Subsidiary Ledger

The subsidiary ledger containing the individual accounts with customers. (The individual accounts with customers are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger or customers ledger. The controlling account in the general ledger that summarizes the debits and the credits to the individual customer account is accounts receivable.)

Accounts Payable Subsidiary Ledger

The subsidiary ledger containing the individual accounts with suppliers. (The individual accounts with creditors are arranged in alphabetical order in a subsidiary ledger called the accounts payable subsidiary ledger or creditors ledger. The related controlling account in the general ledger is accounts payable.)

General Journal

The two-column form used for entries that do not "fit" in any of the special journals.

E-Commerce

The use of the Internet for performing business transactions.