(6) Accounting information systems Flashcards
Principles of accounting information systems
- Cost effectiveness: cost should be <= benefits
- Useful output (qualitative characteristics)
- Flexibility: adapt to changing factors, changing environment
Phases in developing an accounting system
- Analysis: planning and identifying info needs and sources
- Design: creating forms, documents, procedures, job descriptions and reports
- Implementation: installing the system, training personnel, and making the system fully operational
- Follow up: monitoring effectiveness and correcting any weaknesses
What is internal control?
Internal control is an essentail part of risk management. It consists of all the processes used by management and staff to:
- provide effective and efficient operations
- comply with laws, regulations and internal policies
What do internal controls enable organisations to do?
- safeguard assets from employee theft, robbery and unauthorised use
- enhance the completeness, accuracy and reliability of its accounting records
- reducing the risk of errors (unintentional mistakes) and irregularities (intentional mistakes and misrepresentations) in the accounting process
- permit the timely preparation of financial information
What are the 2 types of internal controls?
- Administrative controls – provide operational efficiency and adherence to policies and procedures prepared by management
- Accounting controls – methods and procedures used to protect assets and ensure that accounting records are reliable (e.g. segregation of duties)
What are the principles of internal control?
- Establishment of responsibility
- Segregation of duties
- Documentation procedures
- Physical, mechanical and electronic controls
- Independent internal verification
Limitations of internal control
- cost vs benefits
- human imperfection
- business size
What is forensic accounting?
The application of accounting knowledge and skills to issues arising in the context of civil and criminal litigations and investigation
Examples of forensic investigation areas include:
- bankruptcy and insolvency
- asset identification and valuation
- divorce and family law
- falsifications and manipulations of accounts
- transaction reconstruction and measurement
Describe the transformation of accounting data to accounting information.
business transactions –> source documents –> journals –> ledgers –> trial balance –> reports
Accounting information systems involve 3 phases:
- input
- processing
- output
Explain the purpose of journals and ledgers.
Journals: purpose is to record transactions/events (CHANGE)
Ledgers: purpose is to calculate account balances (BALANCE)
What are subsidiary ledgers?
Subsidiary legders are groups of accounts with a common characteristic.
2 common ones:
- a/c receivable
- a/p receivable
- this account for separate individuals/entities
- the total equals the balance in the general ledger
- it is outside the general ledger and is not used in the trial balance
What is a control account?
A control account in the general ledger provides a summary of the details in the subsidiary ledgers
What do we do if control and subsidiary accounts are involved?
Hint: 2 changes are required – journalising & posting
- In journalising, both the control and subsidiary
ledger accounts must be identified - In posting, there must be a dual posting – once
to the control account and once to the subsidiary
account
What are the advantages of subsidiary ledgers?
- Show transactions in a single account providing up to date information
- Free the general ledger of excessive details –individual account details are kept in the subsidiary ledger
- Provide effective internal control – compare the total of the individual subsidiary ledger accounts with the general ledger control account balance
- Allows for segregation of duties
What are special journals?
Special journals are used to record similar types of transactions that occur regularly
- Sales journal (all sales of inventory on account)
- Purchases journal (all purchases of inventory on account)
- Cash receipts journal (all cash received)
- Cash payments journal (all cash paid)
When do we record in the general journal?
When the transactions are not recorded in any of the special journals (i.e. Sales journal, Purchases journal, Cash receipts journal, and Cash payments journal)
Describe the Sales journal. Include column headings.
Sales journal records all credit sales of inventory
(Columns from left to right) Column 1: Date Column 2: Account debited Column 3: Invoice no. Column 4: Ref.
Column 5:
A/C Receivable DR
Sales CR
Column 6:
Cost of Sales DR
Inventory CR
Why do we use Special journals for ‘similar transactions;?
- increases recording efficiency
- like transactions are grouped together
- one line per transaction record - lowers processing and ledger posting time & costs
- batch posting of totals to the ledger accounts - increases data accuracy and control
- cross totalling and allows overview and total of like transactions - increases flexibility & task separation/specialisation
- allows flexibility in design of documents and journal
columns to meet the needs of the business and to improve work flow
Describe the Cash Receipts journal. Include column headings.
Used to record all receipts of cash, including:
- cash sales of inventory, cash collected from a/c receivable, etc.
Column headings (left to right):
Column 1: Date
Column 2: Account credited
Column 3: Ref.
Column 4:
Cash DR
Column 5:
Discount allowed DR
Column 6:
A/C receivable CR
Column 7:
Sales CR
Column 8:
Other a/c’s CR
Column 9:
Cost of Sales DR
Inventory CR
Describe the Purchases journal. Include column headings.
Used to record all purchases of inventory on account
Column headings (left to right):
Column 1: Date
Column 2: Account credited
Column 3: Ref.
Column 4:
Inventory DR
Accounts payable CR
Describe the Cash Payments journal. Include column headings.
Used to record all cash payments, including:
- cash purchase of inventory, cash payment to settle a/c payable, etc.
Column headings (left to right): Column 1: Date Column 2: Cheque no. Column 3: Account debited Column 4: Ref.
Column 5:
Inventory DR
Column 6:
A/C payable DR
Column 7:
Cash DR
Column 8:
Discount received CR
Column 9:
Other a/c’s DR
What is the modifed accounting process?
- Record a transaction in a journal
- Post individual amounts to:
(1) subsidiary ledger accounts
(2) other accounts
(3) accounts DR or CR in General Journal
on a daily basis plus posting references
Finish Step 1 and Step 2 for each transaction.
- Post special journals’ column totals to general ledger accounts at the end of the month plus posting references
