Chapter2 Transaction Processing in the AIS
Human Judgment and information technology
Information Technology
used to
General financial statements and other reports
Close nominal accounts
Post transactions
Not essential in the accounting cycle
Useful and common
Human Judgment
Essential in the accounting cycle
Used to
Estimating ampunts and interpreting accounting rules
Recognizing recordable transactions
Designing source documents
Coding systems
Commonly applied to
Chart of accounts
Inventory items
Source documents
Mnemonic codes--by their nature
Used for inventory items
Memory aid
Hierarchical codes--more sophisticated
Used for complex chart of accounts
Specializws form of block coding
Block coding--quite common
Often for chart of accounts
Codes assigned in blocks
Sequential coding--simply numbers items in sequence
Often foe source documents
Numbers in order
The accounting cycle
Transaction types
External treansactions
Internal transactions
Other internsl controls
Information technology controls
Audits
Proper authorizations
Common source documents
Transaction limits
Physical security
Sequential numbering
Closing entries
Balances in temporary accounts transferred to Retained Earnings
Dividends
Expenses
Revenues
Prepare the AIS for a new fiscal year
Financial Statements
Statement if changes in equity--same period of time as income statement
Statement of cash flows
Financing
Investing
Operating
Balance sheet--Financial position at a specific point in time
Income statement--financial activity on the accrual basis for a specified period of time
Adjusting entries
Types
Estimates
Uncolletible accounts
Depreciation
Credit Contra asset
Deferrals--cash first, service second
Prepaid Expense
Credit Asset
Debit Liability
Accruals--service first,cash second
Expense
Credit Liability
Debit Expense
Revenue
Credit Revenue
Debit Asset
Purpose--To account for timing differences between cash flow and accrual basis revenue&expense
Important steps
End of the fiscal year
Prepare post-closing trial balance
Record and post closing entries
Prepare financial statements
Prepare adjusted trial balance
Record and post adjusting entries
Throughout the fiscal year
Prepare a trial balance
Post to the ledger
Record transactions in the journal
Analyze transactions
Obtain transaction information from source documents
Steps completed each period to :
Prepare general purpose financial statements.
Record transactions in the AIS;
Measure related dollar amounts;
Identify recordable transactions;
Differentiate Accounting and Bookkeeping
Bookeeping
It's part of accounting; not it's totality.
The elements of accounting associated with
Accounting
By users of the information.
Economic information to permit informed judgments and decisions
The process of
Communicating
Measuring
Identifying
