1. ACCOUNTING INFORMATION SYSTEMS
Core Concepts of
ACCOUNTING INFORMATION SYSTEMS
Moscove, Simkin & Bagranoff
Developed by:
Marianne Bradford, Ph.D.
Bryant College
John Wiley & Sons, Inc.

2. Chapter 4 Transaction Processing: Fundamentals and Major Processing Cycles
Introduction
Transaction Processing Fundamentals
Collecting and Reporting Accounting Information
Transaction Processing Cycles 2

3. Introduction
AISs depend on the flow of data through various organizational subsystems.
Effective transaction processing systems ensure capture of appropriate data and accurate information reporting.
Transaction processing cycles organize transactions related to an organization’s business processes.

4. Transaction Processing Fundamentals
The accounting cycle begins when accounting personnel analyze a transaction from a source document.
A source document is a piece of paper or electronic form that records a business activity such as the purchase or sale of goods.

5. Journals Accounting personnel record transactions in a journal.
The journal is a chronological record of business events by account.
A journal may be a general journal or a special journal.
A general journal allows any type of accounting transaction to be recorded.
A special journal captures specific types of transactions.

6. Ledgers A ledger may be a general ledger or a subsidiary ledger.
A general ledger is a collection of detailed monetary information about an organization’s assets, liabilities, revenues, and expenses.
A subsidiary ledger contains detailed records pertaining to a particular account in the general ledger.

7. Trial Balances
Once an AIS records journal entries and posts them to the general ledger, the system can create a trial balance.
Three end of period trial balances are needed:
A preadjusting trial balance after all entries have been posted;
An adjusted trial balance after adjustments have been recorded and posted;
A postclosing trial balance after temporary accounts have closing entries have been recorded and posted.

8. Financial Statements
Financial statements are the primary output of a financial accounting system.
These statements include:
Income Statement
Statement of Owners Equity
Balance Sheet
Statement of Cash Flows

9. Coding Systems
AISs depend on coding to record, store, classify and retrieve financial data.
Computer systems most often use numeric or alphanumeric codes for processing accounting transactions.
Purposes of coding:
Uniquely identify transactions and accounts
Compress data
Aid in classification process
Convey special meanings

10. Types of Codes
Mnemonic Codes give visible clues concerning the objects they represent.
Sequence Codes assign numbers or letters in consecutive order.
Block Codes are sequential codes in which specific blocks of numbers are reserved for particular uses.
Group Codes reveal two or more dimensions or facets pertaining to an object.

11. Design Considerations in Coding
Codes should serve some useful purpose.
Codes should be consistent.
Codes should be standardized throughout the organization.
Codes should plan for future expansion.

12. Collecting and Reporting Accounting Information
Design of an effective AIS begins by considering outputs from the system.
Outputs of an AIS include:
reports to management
reports to investors and creditors
files that retain transaction data
files that retain current data about accounts

13. Considerations in Report Design
Reports that only list exceptional conditions are exception reports.
Reports should be useful to managerial decision-making without creating information overload.
Format should be convenient, contain fundamental identification, and be consistent.

14. Transaction Processing Cycles
An AIS consists of one or more transaction processing cycles or applications.
These cycles group transactions related to an organization’s business processes.
The objective of grouping like transactions is to simplify information processing.

15. The Revenue Cycle
The revenue cycle begins with a customer order for goods or services and ends with the collection of cash from the customer.
The primary objective is to achieve timely and efficient revenue collection.
An organization that generates revenues, but fails to collect these revenues on a timely basis, may find itself in a position where it cannot pay its bills.

16. Objectives of the Revenue Cycle
Tracking sales of goods and/or services to customers.
Filling customer orders.
Billing customers for goods and services
Collecting payment for goods and services.
Forecasting sales and cash receipts.

17. Inputs to the Revenue Cycle
Sales Order - prenumbered and usually prepared in multiple copies; used to prepare sales invoice
Sales Invoice - prepared after shipment of goods or providing of a service
Remittance Advice - serve as source document for credits to accounts receivable
Shipping Notice - warehouse prepares after goods are released for shipment
Debit/Credit memo - issued for sales returns and allowances; debit memos increase amount customer owes

18. Outputs of the Revenue Cycle
Financial Statement Information
Customer Billing Statement - includes customer account activity such as sales, returns, and cash receipts
Accounts Receivable Aging Report - contains data concerning the status of open balances of all active credit customers arranging the overdue amounts by time periods

19. Outputs of the Revenue Cycle
Bad Debt Report - customer accounts written off.
Cash Receipts Forecast - all data gathered from source documents in revenue transactions are inputs to this forecast.
Customer Listing - shows customer codes, contacts, shipping and billing addresses, credit limits, and billing terms.
Sales Analysis Reports - captures detailed data about each sale in order to monitor sales activities and plan production and marketing efforts.

20. The Purchasing Cycle
The purchasing cycle begins with a request for goods or services and ends with the payment of cash to the vendor.
Purchase may be for either goods or services and for cash or on credit.

21. Objectives of the Purchasing Cycle
Tracking purchases of goods and/or services from vendors
Tracking amounts owed
Maintaining vendor records
Controlling inventory
Making timely and accurate vendor payments
Forecasting purchases and cash outflows

22. Inputs to the Purchasing Cycle
Purchase Requisition - shows items requested by stores and may indicate the name of the vendor
Purchase Order - based on purchase requisition but also includes vendor information and payment terms
Vendor Invoice - includes items shipped by vendors, prices, shipping terms and discounts provided
Receiving Report - reflects the count and condition of received goods
Bill of lading – accompanies the goods sent
Packing slip – included in the merchandise package
Debit/Credit Memoranda - debits or credits accounts payable

23. Outputs of the Purchasing Cycle
Financial Statement Information
Vendor Checks - should be supported by a voucher and signed by a person designated by management
Check Register - lists all checks issued for a particular period
Discrepancy Reports - used to identify any differences among quantities on the purchase order, receiving report, and vendor invoice
Cash Requirements Forecast - predicts future payments and payment dates by reference to outstanding purchase order, unbilled receiving reports and vendor invoices

24. The Resource Management Cycle
Organizations use resources to produce goods or services sold to generate revenues.
Two other resources besides inventory requiring attention by an AIS are human resources and fixed assets.

25. Human Resource Management
An organization’s human resource management activity includes the personnel function and the payroll function.
The personnel function is responsible for hiring employees and maintaining personnel records.
The payroll function is responsible for maintaining the accounting records related to employee remuneration.

26. Objectives of Human Resource Management
Hiring, training, and employing workers
Maintaining employee earnings records
Complying with regulatory reporting requirements
Reporting on payroll deductions
Making timely and accurate payments to employees
Providing an interface for personnel and payroll activities

27. Inputs to Human Resource Management
Personnel Action Forms - document the hiring of new employees or changes in employee status
Time Sheets - used to track hours worked
Payroll Deduction Forms - authorize the payroll system to deduct amounts from gross pay for items such as retirement, insurance, or union dues
Tax Withholding Forms - authorize payroll to reduce gross pay by the appropriate withholding tax.

28. Outputs of Human Resource Management
Financial Statement Information
Employee Listings - shows current employees and may contain address and other demographic information
Paychecks - the final documents in the process; subject to strict internal controls
Check Registers - used to make journal entries for salary and payroll tax expenses

29. Outputs of Human Resource Management
Deduction Reports - contain summaries of deductions for employees as a group
Tax (Regulatory) Reports - reports the government requires for income tax, social security tax, and unemployment tax information
Payroll Summaries - used by management in analyzing expenses

30. Fixed Asset Management
Fixed assets are assets with usable lives of more than one year.
The objective of a fixed-asset management system is to manage the purchase, maintenance, valuation and disposal of an organization’s fixed assets.

31. Objectives of Fixed Asset Management
Tracking purchases of fixed assets
Recording fixed asset maintenance
Valuing fixed assets
Allocating fixed asset costs (recording depreciation)
Tracking fixed asset disposals

32. Inputs to Fixed Asset Management
Purchase Requisition
Receiving Reports
Supplier Invoices
Construction Work Orders - if the company builds the asset
Repairs and Maintenance Reports - notifies a company’s AIS to update expense or asset accounts for repairs and maintenance
Fixed Asset Change Forms - used as the basis for transferring fixed assets from one location to another, retiring, selling or trading-in fixed assets

33. Outputs of Fixed Asset Management
Financial Statement Information
Fixed Asset Register - lists identification numbers for each fixed asset and each assets location
Depreciation Register - shows depreciation expense and accumulated depreciation for each fixed asset
Repair and Maintenance Reports - show the current period’s repair and maintenance expenses as well as each fixed asset’s repair and maintenance history
Retired Assets Report - shows all assets disposed of during the accounting period

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35. Chapter 4 36