Chapter 2 Transaction Processing in the AIS ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT...

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


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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


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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.


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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


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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


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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?


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


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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


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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


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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


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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


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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)


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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


Chapter 2 Transaction Processing in the AIS ACCOUNTING INFORMATION SYSTEMS BASIC CONCEPTS & CURRENT...

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