2: Accounting Systems Flashcards
What are the three phases of the operation of an accounting system?
Input, processing and output.
What is the distinction between information and data?
Data are recorded facts.
Information is data that have been processed in some way to provide useful information to the user.
What are the three phases of the development of an accounting system?
Systems analysis, systems design, and systems implementation and review.
What are the important considerations that need to be made in developing an accounting system?
Cost vs benefits, compatibility with the organisation and personnel of the business, flexibility to adapt to expansion and changes in the business, and an effective system of internal control.
What is the importance of a system of internal control?
It encompasses all procedures adopted by an entity to control its activities and protect its assets.
There are two aspects to internal control. Contrast each.
Administrative Controls: Refer to operational efficiency and adherence to prescribed policies.
Accounting Controls: Refer to methods used to protect assets and ensure the reliability of accounting records.
What are the principles of internal control systems?
- Clearly established lines of responsibility
- Separation of record keeping and custodianship
- Division of responsibility for related transactions
- Mechanical and electronic devices
- Adequate insurance
- Internal auditing
- Programming controls
- Physical controls
- Other controls
What are the limitations of internal control systems?
- High costs
- Breakdown of systems
- Employee collusion
- Computer fraud
What are subsidiary ledgers?
Subsidiary ledgers record detailed information in accounts outside the general ledger.
What are control accounts?
Control accounts are summary general ledger accounts supported by the detail of a subsidiary ledger.
Name some advantages to using a subsidiary ledger.
(1) Relieves the general ledger of a mass of detail.
(2) Allows division of labour among staff maintaining the ledgers.
(3) Provides effective internal control through periodic comparison of the schedule of the subsidiary ledger with the balance in the control account.
What are four widely used special journals?
- Sales Journal
- Purchases Journal
- Cash Receipts Journal
- Cash Payments Journal
When special journals are used, what transactions are recorded in the general journal?
- Infrequent transactions (such as sales returns and allowances)
- Adjusting and closing entries at the end of the accounting period
- Recording correcting entries to the accounts
What would be considered an abnormal balance in an account?
One that differs from what would be normally expected…for example, a credit balance in an account receivable.
Explain an account set-off.
Account set-offs occur when an entity offsets an amount in one account against another account.
Example An entity might offset the abnormal balance (debit) in an account in the accounts payable subsidiary ledger against a customer’s account in the accounts receivable subsidiary ledger.
