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Chapter 2
Transaction Processing in the AIS
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
McGraw-Hill/IrwinAccounting Information Systems © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
2-2
Outline
• Objectives
• Definition of accounting
• Accounting cycle
• Coding systems
• Role of human judgment and information technology
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
2-3
Objectives
When you finish this chapter, you should be able to:• Differentiate “accounting” and “bookkeeping”
• List, discuss and complete, in order, the steps in the accounting cycle
• Identify common internal controls associated with the accounting cycle
• Describe common chart of accounts coding systems
• Explain how human judgment and information technology impact the accounting cycle
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
2-4
Definition of accounting
According to the American Accounting
Association, accounting is the process of
identifying, measuring, and communicating
economic information to permit informed
judgments and decisions by users of the
information.
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
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Definition of accounting
• IdentifyingNot all business events lead
to recordable transactions in the AIS
• MeasuringAccountants must follow
GAAP in deciding what dollar amounts to record for transactions
• CommunicatingFinancial accounting
information is communicated primarily through the general purpose financial statements
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
2-6
Accounting cycle
• The process of
identifying and
measuring economic
events that leads to
communication and
decision making
• Ten steps explained on
the slides that follow
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
2-7
Accounting cycle• Obtain information
about external transactions from source documents.• Check stubs
• Invoices
• Receipts
• Remittance advices
• Analyze transactions.• Accounts affected?
• Increase or decrease?
• Account type?
• Debit or credit?
• Debits equal credits?
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
2-8
Accounting cycle• Record transactions in a
journal.• General journal is the
most common
• Sometimes referred to as the “book of original entry”
• Transactions recorded chronologically
• Post transactions to ledger.• Reorganizes information
by account
• Often handled with information technology today
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
2-9
Accounting cycle
• Prepare an unadjusted trial balance.• Verifies the equality of
debits and credits in the ledger
• Does not indicate an error-free AIS
• Record and post adjusting entries.• Account for timing
differences between cash and accrual
• Six types• Accrued expenses &
revenue• Prepaid expenses &
deferred revenue• Bad debts & depreciation
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
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Accounting cycle
• Prepare an adjusted trial balance.• Same purpose as
unadjusted trial balance
• Only difference is in the timing
• Prepare financial statements.• Income statement
• Statement of changes in equity
• Balance sheet
• Statement of cash flows
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
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Accounting cycle
• Close temporary accounts to retained earnings.• Year-end only
• Also called “nominal” accounts
• Revenues, expenses, gains & losses
• Prepare post-closing trial balance.• Same purpose as other
trial balances
• Difference, once again, is timing
• Contains only balance sheet accounts
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
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Coding systems
• Used for the chart of accounts
• Importance• efficiency of data capture, entry and analysis• frequency of use and familiarity• consistency and understanding of use• saving on computer resources • similar items can be related
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
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Coding systems
• Sequential• Items are numbered in
order
• Checks in a checkbook
• Block coding• Items coded in blocks
• All assets start with “1”
• Hierarchical coding• Specialized form of
block coding
• Groups of digits have meaning
• Mnemonic coding• Assist in memory
• State abbreviations (e.g., CA for California)
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES
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Role of human judgment and information technology
• Human judgment • Design source
documents
• Recognize recordable transactions
• Estimate amounts
• Interpret accounting rules
• Information technology• Posting journal entries
• Closing the accounts
• Preparing trial balances
• Producing financial statements
ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT ISSUES