Chapter 2 – Transaction Processing in the AIS
Objectives.
•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
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.
•Identifying
Not all business events lead to recordable transactions in the AIS
•Measuring
Accountants must follow GAAP in deciding what dollar amounts to record for transactions
•Communicating
Financial accounting information is communicated primarily through the general purpose financial statements
Accounting cycle.
The process of identifying and measuring economic events that leads to communication and decision making
Ten steps in the traditional Accounting Cycle:
1.Obtain information about external transactions from source documents.
oCheck stubs
oInvoices
oReceipts
oRemittance advices
2.Analyze transactions.
oAccounts affected?
oIncrease or decrease?
oAccount type?
oDebit or credit?
oDebits equal credits?
3.Record transactions in a journal.
oGeneral journal is the most common
oSometimes referred to as the “book of original entry”
oTransactions recorded chronologically
4.Post transactions to ledger.
oReorganizes information by account
oOften handled with information technology today
5.Prepare an unadjusted trial balance.
oVerifies the equality of debits and credits in the ledger
oDoes not indicate an error-free AIS
6.Record and post adjusting entries.
oAccount for timing differences between cash and accrual
oSix types
oAccrued expenses & revenue
oPrepaid expenses & deferred revenue
oBad debts & depreciation
7.Prepare an adjusted trial balance.
oSame purpose as unadjusted trial balance
oOnly difference is in the timing
8.Prepare financial statements.
oIncome statement
oStatement of changes in equity
oBalance sheet
oStatement of cash flows
9.Close temporary accounts to retained earnings.
oYear-end only
oAlso called “nominal” accounts
oRevenues, expenses, gains & losses
10.Prepare post-closing trial balance.
oSame purpose as other trial balances
oDifference, once again, is timing
oContains only balance sheet accounts
Coding systems
•Used for the chart of accounts
•Importance
oefficiency of data capture, entry and analysis
ofrequency of use and familiarity
oconsistency and understanding of use
osaving on computer resources
osimilar items can be related
•Types of Coding Systems
1.Sequential
oItems are numbered in order
oChecks in a checkbook
2.Block coding
oItems coded in blocks
oAll assets start with “1”
3.Hierarchical coding
oSpecialized form of block coding
oGroups of digits have meaning
4.Mnemonic coding
oAssist in memory
oState abbreviations (e.g., CA for California)
oRole of human judgment and information technology
Human judgment .
oDesign source documents
oRecognize recordable transactions
oEstimate amounts
oInterpret accounting rules
Information technology.
oPosting journal entries
oClosing the accounts
oPreparing trial balances
oProducing financial statements
ACC 3113 – Accounting Information SystemsChapter 2 | Page 1