AEC 07 |
ACCOUNTING
INFORMATION
SYSTEM
2nd Year BS Accountancy & BS Management Accounting
University of Southern Mindanao- Kabacan
Instructor: Lady Enginee Alocelja, CPA
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TRANSACTION CYCLES
AND BUSINESS
PROCESSES
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WHAT IS ACCOUNTING INFORMATION SYSTEM?
AIS, James Hall 7e Figure 1-4
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FRAMEWORK FOR INFORMATION SYSTEM
The AIS is composed of three major subsystems:
(1) the transaction processing system (TPS), which supports daily business operations with
numerous reports, documents, and messages for users throughout the organization;
(2) the general ledger/financial reporting system (GL/FRS), which produces the traditional
financial statements, such as the income statement, balance sheet, statement of cash
flows, tax returns, and other reports required by law; and
(3) the management reporting system (MRS), which provides internal management with
special-purpose financial reports and information needed for decision making such as
budgets, variance reports, and responsibility reports.
AIS, James Hall 7e Figure 1-3
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FRAMEWORK FOR INFORMATION SYSTEM
The TPS is central to the overall function of the information system by converting economic
events into financial transactions, recording financial transactions in the accounting
records (journals and ledgers), and distributing essential financial information to
operations personnel to support their daily operations.
TPS applications process financial transactions that consists of three major subsystems
called cycles: the revenue cycle, the expenditure cycle, and the conversion cycle.
AIS, James Hall 7e Figure 1-3
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TRANSACTION CYCLES
AIS, James Hall 7e Figure 2-1
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EXPENDITURE CYCLE
a process that companies use to purchase goods and services from external vendors or
suppliers. It is an acquisition of materials, property, and labor in exchange for cash.
Purchases/accounts payable system. This system recognizes the need to acquire physical inventory (such as raw materials) and
places an order with the vendor. When the goods are received, the purchases system records the event by increasing inventory and
establishing an account payable to be paid at a later date.
Cash disbursements system. When the obligation created in the purchases system is due, the cash disbursements system
authorizes the payment, disburses the funds to the vendor, and records the transaction by reducing the cash and accounts payable
accounts.
Payroll system. The payroll system collects labor usage data for each employee, computes the payroll, and disburses paychecks to
the employees. Conceptually, payroll is a special-case purchases and cash disbursements system. Because of accounting
complexities associated with payroll, most firms have a separate system for payroll processing.
Fixed asset system. A firm’s fixed asset system processes transactions pertaining to the acquisition, maintenance, and disposal of its
fixed assets. These are relatively permanent items that collectively often represent the organization’s largest financial investment.
Examples of fixed assets include land, buildings, furniture, machinery, and motor vehicles.
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CONVERSION CYCLE
The Conversion Cycle is a group of recurring business activities and data processing operations
associated with converting input resources, such as raw materials, labor, and overhead into finished
goods or services for sale. The conversion cycle is composed of two major subsystems: the production
system and the cost accounting system.
Production system involves the planning, scheduling, and control of the physical product through the manufacturing process. This
includes determining raw material requirements, authorizing the work to be performed and the release of raw materials into
production, and directing the movement of the work-in-process through its various stages of manufacturing.
Cost Accounting monitors the flow of cost information related to production. Information this system produces is used for inventory
valuation, budgeting, cost control, performance reporting, and management decisions, such as make or-buy decisions. .
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REVENUE CYCLE
The accounting process that records and keeps track of revenue generated from sales, from order
placement to payment. It involves processing cash sales, credit sales, and the receipt of cash following a
credit sale..
Sales order processing. The majority of business sales are made on credit and involve tasks such as preparing sales orders, granting
credit, shipping products (or rendering of a service) to the customer, billing customers, and recording the transaction in the accounts
(accounts receivable, inventory, expenses, and sales).
Cash receipts. For credit sales, some period of time (days or weeks) passes between the point of sale and the receipt of cash. Cash
receipts processing includes collecting cash, depositing cash in the bank, and recording these events in the accounts (accounts
receivable and cash).
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ACCOUNTING RECORDS
MANUAL SYSTEM COMPUTER-BASED SYSTEM
Magnetic Files Counterparts:
Documents Master Files
Journals Transaction Files
Ledgers References Files
Archive Files
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ACCOUNTING RECORDS
1. DOCUMENTS
A document provides evidence of an economic event and may be used to initiate transaction
processing. Some documents are a result of transaction processing.
Source documents are used to capture and formalize transaction data that the transaction cycle
needs for processing. Economic events result in some documents being created at the beginning
(the source) of the transaction.
AIS, James Hall 7e Figure 2-2
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ACCOUNTING RECORDS
1. DOCUMENTS
A document provides evidence of an economic event and may be used to initiate transaction
processing. Some documents are a result of transaction processing.
Product documents are the result of transaction processing rather than the triggering mechanism
for the process.
AIS, James Hall 7e Figure 2-3
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ACCOUNTING RECORDS
1. DOCUMENTS
A document provides evidence of an economic event and may be used to initiate transaction
processing. Some documents are a result of transaction processing.
Turnaround documents are product documents of one system that become source documents for
another system.
AIS, James Hall 7e Figure 2-4
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ACCOUNTING RECORDS
2. JOURNALS
A journal is a record of a chronological entry. At some point in the transaction process, when all
relevant facts about the transaction are known, the event is recorded in a journal in chronological
order.
AIS, James Hall 7e Figure 2-5
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ACCOUNTING RECORDS
2. JOURNALS
A journal is a record of a chronological entry. At some point in the transaction process, when all
relevant facts about the transaction are known, the event is recorded in a journal in chronological
order.
Special Journals Special journals are used to record specific classes of transactions that occur in
high volume. Such transactions can be grouped together in a special journal and processed more
efficiently than a general journal permits.
AIS, James Hall 7e Figure 2-5
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ACCOUNTING RECORDS
2. JOURNALS
A journal is a record of a chronological entry. At some point in the transaction process, when all
relevant facts about the transaction are known, the event is recorded in a journal in chronological
order.
Registers The term register is often used to denote certain types of special journals. For example,
the payroll journal is often called the payroll register. We also use the term register, however, to
denote a log. For example, a receiving register is a log of all receipts of raw materials or
merchandise ordered from vendors. Similarly, a shipping register is a log that records all
shipments to customers.
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ACCOUNTING RECORDS
2. JOURNALS
A journal is a record of a chronological entry. At some point in the transaction process, when all
relevant facts about the transaction are known, the event is recorded in a journal in chronological
order.
General Journals Firms use the general journal to record nonrecurring, infrequent, and dissimilar
transactions. For example, we usually record periodic depreciation and closing entries in the
general journal.
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ACCOUNTING RECORDS
3. LEDGERS
A ledger is a book of accounts that reflects the financial effects of the firm’s transactions after they
are posted from the various journals. Whereas journals show the chronological effect of business
activity, ledgers show activity by account type.
The general ledger (GL) summarizes the activity for each of the organization’s accounts. The
general ledger department updates these records from journal vouchers prepared from special
journals and other sources located throughout the organization.
Subsidiary ledgers are kept in various accounting departments of the firm, including inventory,
accounts payable, payroll, and accounts receivable. This separation provides better control and
support of operations.
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ACCOUNTING RECORDS
3. LEDGERS
A ledger is a book of accounts that reflects the financial effects of the firm’s transactions after they
are posted from the various journals. Whereas journals show the chronological effect of business
activity, ledgers show activity by account type.
AIS, James Hall 7e Figure 2-8
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ACCOUNTING RECORDS
3. LEDGERS
A ledger is a book of accounts that reflects the financial effects of the firm’s transactions after they
are posted from the various journals. Whereas journals show the chronological effect of business
activity, ledgers show activity by account type.
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AUDIT TRAIL
An audit trail is a date and time-stamped record of the history and details around a transaction,
work event, product development step, control execution, or financial ledger entry. Almost any type
of work activity or process can be captured in an audit trail, whether automated or manual.
Example: Verify the accuracy of Accounts Receivable
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COMPUTER-BASED SYSTEMS
TYPES OF FILES
1) Master Files -A master file generally contains account data. The general ledger and subsidiary ledgers are
examples of master files. Data values in master files are updated from transactions.
2). Transaction Files - A transaction file is a temporary file of transaction records used to change or update
data in a master file. Sales orders, inventory receipts, and cash receipts are examples of transaction files.
3) Reference Files- A reference file stores data that are used as standards for processing transactions. For
example, the payroll program may refer to a tax table to calculate the proper amount of withholding taxes for
payroll transactions.
4) Archive Files - An archive file contains records of past transactions that are retained for future reference.
These transactions form an important part of the audit trail. Archive files include journals, prior period payroll
information, lists of former employees, records of accounts written off, and prior-period
ledgers.
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COMPUTER-BASED SYSTEMS
AIS, James Hall 7e Figure 2-11
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SYSTEM FLOW CHARTS
A system flowchart is the graphical representation of the physical relationships among key
elements of a system. These elements may include:
Organizational departments
Manual activities
Computer programs
Hard-copy accounting records (documents, journals, ledgers, and files), and;
Digital records (reference files, transaction files, archive files, and master files).
System flowcharts also describe the type of computer media being employed in the system,
such as magnetic tape, magnetic disks, and terminals.
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SYMBOL SET FOR REPRESENTING MANUAL PROCEDURE
AIS, James Hall 7e Figure 2-17
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SYMBOL SET FOR REPRESENTING MANUAL PROCEDURE
SCENARIO:
1. A clerk in the sales department receives a hard-copy customer order by mail and manually prepares four hard copies of a
sales order.
2. The clerk sends Copy 1 of the sales order to the credit department for approval. The other three copies and the original
customer order are filed temporarily, pending credit approval.
3. The credit department clerk validates the customer’s order against hard-copy credit records kept in the credit department.
The clerk signs Copy 1 to signify approval and returns it to the sales clerk.
4. When the sales clerk receives credit approval, he or she files Copy 1 and the customer order in the department. The clerk
sends Copy 2 to the warehouse and Copies 3 and 4 to the shipping department.
5. The warehouse clerk picks the products from the shelves, records the transfer in the hard-copy stock records, and sends
the products and Copy 2 to the shipping department.
6. The shipping department receives Copy 2 and the goods from the warehouse, attaches Copy 2 as a packing slip, and ships
the goods to the customer. Finally, the clerk files Copies 3 and 4 in the shipping department.
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SYMBOL SET FOR REPRESENTING MANUAL PROCEDURE
AIS, James Hall 7e Figure 2-20
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SYMBOL SET FOR REPRESENTING COMPUTER PROCESSES
AIS, James Hall 7e Figure 2-21
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SYMBOL SET FOR REPRESENTING COMPUTER PROCESSES
SCENARIO:
1. A clerk in the sales department receives a customer order by mail and enters the information into a computer terminal that is networked
to a centralized computer program in the computer operations department. The original customer order is filed in the sales department..
2. A computer program edits the transactions, checks the customers’ credit by referencing a credit history file, and produces a transaction
file of sales orders.
3. The sales order transaction file is then processed by an update program that posts the transactions to corresponding records in AR and
inventory files.
4. Finally, the update program produces three hard copies of the sales order. Copy 1 is sent to the warehouse, and Copies 2 and 3 are sent
to the shipping department.
5. On receipt of Copy 1, the warehouse clerk picks the products from the shelves. Using Copy 1 and the warehouse personal computer (PC),
the clerk records the inventory transfer in the digital stock records that are kept on the PC. Next, the clerk sends the physical inventory and
Copy 1 to the shipping department.
6. The shipping department receives Copy 1 and the goods from the warehouse. The clerk reconciles the goods with Copies 1, 2, and 3 and
attaches Copy 1 as a packing slip. Next, the clerk ships the goods (with Copy 1 attached) to the customer. Finally, the clerk records the
shipment in the hardcopy shipping log and files Copies 2 and 3 in the shipping department.
** Facts 2, 3, and 4 relate to activities that occur in the computer operations department
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SYMBOL SET FOR REPRESENTING COMPUTER PROCESSES
AIS, James Hall 7e Figure 2-23
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TRANSACTION CYCLES AND
BUSINESS PROCESSES
REVENUE CYCLE
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REVENUE CYCLE
Revenue cycle is the direct exchange of finished goods or services for cash in a single transaction between
a seller and a buyer. More complex revenue cycles process sales on credit. Many days or weeks may pass
between the point of sale and the subsequent receipt of cash. This time lag splits the revenue transaction
into two phases:
(1) The physical phase, involving the transfer of assets or services from the seller to the buyer; and
(2) the financial phase, involving the receipt of cash by the seller in payment of the account receivable.
As a matter of processing convenience, most firms treat each phase as a separate transaction. Hence, the
revenue cycle actually consists of two major subsystems:
(1) the sales order processing subsystem and
(2) the cash receipts subsystem.
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REVENUE CYCLE
Three processes that constitute the revenue cycle for most organizations (retail,
wholesale, and manufacturing):
1. Sales order procedures
2. Sales return procedures, and
3. Cash receipts procedures.
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REVENUE CYCLE
Sales order procedures include the tasks involved in receiving and processing a
customer order, filling the order and shipping products to the customer, billing
the customer at the proper time, and correctly accounting for the transaction.
RECEIVE CHECK PICK
ORDERS CREDIT GOODS
Receipt of a customer Before processing the order The receive order activity
order indicating the further, the customer’s forwards the stock release
type and quantity of creditworthiness needs to document (also called the
merchandise desired. be established. picking ticket) to the pick
goods function, in the
warehouse.
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DFD OF SALES ORDER PROCESSING SYSTEM
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