Accounting Systems Flashcards
operation of accounting systems
the operation of an accounting system has three basic phases
- input
- processing
- output
source documents
serve as input entered into journals, which become a chronological record of the transactions
the statements provide useful information for decision making and evaluation of the entity by parties outside the entity and by insiders
converting data to information
the two terms data and information are often used synonymously, yet a useful distinction between them can be made
- data is recorded facts
- information is data that has been processed in some prescribed manner so as to be more useful to a potential user
development of an accounting system
the system may be designed in‐house and installed by a member of the entity’s own accounting department
the installation and/or revision of an accounting system consists of three phases
systems analysis
- the objective of the systems analysis phase is to gather facts that provide a thorough understanding of a business’s information requirements and the sources of information
systems design
- a new system is developed or improvements are made to an existing system in the systems design phase based on the facts gathered through systems
systems implementation and review
- this is the final phase in the development or revision of an accounting system
- major reviews are usually accomplished gradually rather than all at once to help ensure reliable data flows
considerations in accounting system development
costs versus benefits
- the major benefit comes from the output of the system, which provides timely, reliable and relevant information to managers
compatibility
- the system should be appropriate to the size and nature of the business operations
flexibility/adaptability
- flexibility within an accounting system allows these structural changes to take place without major disruptions to business operations
internal control
- information provided by the system is timely, reliable and relevant to the decision‐making needs of management and external users
subsidiary ledgers (format)
a large amount of detailed information about a certain general ledger account must be kept in a separate ledger called a subsidiary ledger
the total of the balances of which should equal the balance of the related control account in the general ledger
internal control
a system designed to help managers control operations
all procedures adopted by an entity to control its activities and protect its assets are described collectively as an internal control system
objectives of internal control is to ensure the reliability of accounting information
a system of internal control helps a business to
- safeguard its resources against waste, fraud and inefficiency
- promote the reliability of accounting data
- encourage compliance with business policies and government regulations
internal control principles
clearly established lines of responsibility
separation of record keeping and custodianship
fraud and theft
mechanical and electronic devices
adequate insurance
internal auditing
programming controls
physical controls
other controls
limitations of internal control systems
absolute assurance not possible
the size of an entity’s operations can influence the effectiveness of internal controls
good controls can break down due to tiredness, indifference or carelessness
heavy reliance on segregation of duties of employees
computer fraud is prevalent in computerised accounting systems
the general can be used to record all types of transactions
sales
purchases of fixed assets on credit
drawings of fixed assets or inventory
cash receipts
cash payments
sales returns and allowances
purchases returns and allowances
adjusting entries
closing entries
reversing entries
special journals (format)
sales journal
purchases journal
cash receipts journal
cash payments journal
sales journal
it is used solely for recording sales of inventory on credit
other columns can be added to the sales journal to satisfy the needs of a specific entity
advantages of the sales journal
each transaction recorded on a single line.
entries do not require a narration.
eliminates posting separate debits and credits during the month
procedure of the sales journal
from each sales invoice, enter the date of the sale, invoice number, customer’s name and amount of sale on a line in the sales journal
at the end of each day, post each sale to the related customer’s account in the subsidiary ledger
at the end of each month, total the accounts receivable column of the sales journal and post the total amount as a debit to the accounts receivable control account in the general ledger
add the account balances of the accounts receivable subsidiary ledger to verify that the total is equal to the accounts receivable control account balance in the general ledger
purchases journal
the purchases journal can be set up as either a single‐purpose or a multipurpose journal
cash purchases of inventory are recorded in the cash payments journal.
the transactions are recorded in the cash payments journal, if purchased on credit, they are recorded in the general journal
from the tax invoice received from the supplier, enter the recording date, invoice date, supplier’s name and credit terms
at the end of each day, post each purchase for the full amount owing, including GST, to the related supplier’s account in the subsidiary ledger
at the end of each month, total the amount columns of the purchases journal and post the total of the accounts payable column as a credit to the accounts payable control account in the general ledger
add the account balances of the accounts payable subsidiary ledger to verify that the total is equal to the accounts payable control account balance in the general ledger
