Question

identify the basic concepts of an accounting information system and describe the nature and purpose of a subsidiary ledger

Answer 1

Solution-
An accounting information system is a way of tracking all accounting and business activity for a company. Accounting information systems generally consist of six primary components: people, procedures and instructions, data, software, information technology infrastructure, and internal controls.
The basic principles in developing an accounting information system are cost-effectiveness, useful output, and flexibility.

Cost Effectiveness-Accounting information must be cost-effective.
Useful Output / Necessity-Accounting information system must be able to provide a necessary result.
Flexibility-In accounting information system there must be provision for inclusion of changed information needed by different users.

Working information must be understandable, relevant, reliable, timely and accurate. The designer of information system will always take the necessity and knowledge of accounting information users into consideration.

Most companies use a computerized accounting system. Smaller companies use entry-level software such as QuickBooks or Peachtree. Larger companies use custom-made software packages, which often integrate all aspects of the organization.

A subsidiary ledger contains the details to support a general ledger control account. For instance, the subsidiary ledger for accounts receivable contains the information for each of the company's credit sales to customers, each customer's remittance, return of merchandise, discounts. With these details in the subsidiary ledger, the Accounts Receivable account in the general ledger can report summary amounts for the accounts receivable activity.
A subsidiary ledger is a group of accounts with a common characteristic. It facilitates the recording process by freeing the general ledger from details of individual balances.
The purpose of subsidiary ledger is it can provide insight into customer demographics by profitability, prevent internal fraud, monitor past-due obligations, organize different aspects of revenues, and avoid customer overpayments.The general ledger is not able to provide this much detail and so having a subsidiary ledger, or any for that matter, is a real benefit to a company's operations. It can greatly assist in making helpful adjustments to a company's business model in providing the insight needed to achieve higher revenues and targeted business expansion. It can also help with managing current assets and current liabilities.