Transcript Accounting cycle

Chapter 2
Transaction Processing
in the AIS
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Outline
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•
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Objectives
Definition of accounting
Accounting cycle
Coding systems
Role of human judgment and information
technology
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Objectives
When you finish this chapter, you should be able
to:
– 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
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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.
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Definition of accounting
• 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
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Accounting cycle
• The process of identifying and measuring
economic events that leads to
communication and decision making
• Ten steps explained on the slides that
follow
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Accounting cycle
• Obtain information
about external
transactions from
source documents.
–
–
–
–
Check stubs
Invoices
Receipts
Remittance advices
• Analyze transactions.
–
–
–
–
–
Accounts affected?
Increase or decrease?
Account type?
Debit or credit?
Debits equal credits?
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Accounting cycle
• Record transactions
in a journal.
– General journal is the
most common
– Sometimes referred to
as the “book of original
entry”
– Transactions recorded
chronologically
• Post transactions to
ledger.
– Reorganizes
information by account
– Often handled with
information technology
today
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Accounting cycle
• Prepare an
unadjusted trial
balance.
– Verifies the equality of
debits and credits in
the ledger
– Does not indicate an
error-free AIS
• Record and post
adjusting entries.
– Account for timing
differences between
cash and accrual
– Six types
• Accrued expenses &
revenue
• Prepaid expenses &
deferred revenue
• Bad debts &
depreciation
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Accounting cycle
• Prepare an adjusted
trial balance.
– Same purpose as
unadjusted trial
balance
– Only difference is in
the timing
• Prepare financial
statements.
– Income statement
– Statement of changes
in equity
– Balance sheet
– Statement of cash
flows
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Accounting cycle
• Close temporary
accounts to retained
earnings.
– Year-end only
– Also called “nominal”
accounts
– Revenues, expenses,
gains & losses
• Prepare post-closing
trial balance.
– Same purpose as
other trial balances
– Difference, once
again, is timing
– Contains only balance
sheet accounts
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Coding systems
• Used for the chart of accounts
• Importance
– efficiency of data capture, entry and analysis
– frequency of use and familiarity
– consistency and understanding of use
– saving on computer resources
– similar items can be related
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Classifying and Coding Data
•
Types of coding
1.
2.
3.
4.
5.
•
Sequential
Block
Significant digit
Hierarchical
Mnemonic
Discussed in the following slides
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Sequential Coding
• Assigns numbers in chronological sequence
• Limited flexibility
– Additions can be made only at the end of a sequence
– Deletions result in unused numbers unless the numbers are
recycled
– Codes tell nothing about the object’s attributes
• Examples include
– Student ID numbers
– “Wait” ticket at Post Office
• Example based on employee ID codes:
001 - 1st hired
002 - 2nd hired
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Block Coding
• Groups of numbers are dedicated to particular
characteristics of the objects being identified
• Universal product code example:
73805
Mfg
Code
80248
Product
Code
• Employee ID code example:

001-100 fabrication department
101-200 assembly department
Within the department block, codes are assigned to individual
employees
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Significant Digit Coding
• Assigns meanings to specific digits
• Significant digit coding works well for
inventory items
• Also works well for employee ID codes
• The following slide shows examples using
inventory and employee ID codes
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Significant Digit Coding
Example based on an Inventory item
16
2
Product
group
17
Part or
subassembly
4389
Warehouse
Unique item
identifier
Example based on employee ID codes
2
Work
center
0
Exempt or
nonexempt
4
623
Pay rate
code
Unique
employee
identifier
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Hierarchical Data Coding
• Like significant digit codes, hierarchical codes
also attach specific meaning to particular
character positions
• Items are ordered in descending order where
each successive rank order is a subset of the
rank above it
• Reading from left to right in a hierarchical
code, each digit is a subcategory of the digit
to its left
• A 5 digit postal code is an example of
hierarchical data coding
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Hierarchical Data Coding
Example based on Postal zip code
0
18
Section of
country
90
Region within
section
Locality (town
within region)
Example based on employee ID codes
01
Company
division
3
Plant
9
Department
623
Unique
employer ID
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Mnemonic Data Coding
College course numbering:
AC340 - Accounting Information Systems
EN101 - English Composition
Example Based on Employee ID Codes:
F
Female
M
Married
C
Caucasian
623
Unique
employee ID
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OTHER CODING SCHEMES
• SELF-CHECKING DIGIT CODE– FOR EXAMPLE, 4362-3214-5
– WHERE, (4+3+6+2) = 15 MINUS (3+2+1+4)
=10 = 5 IS THE LAST DIGIT
• COLOUR CODING
– PINK COPY TO THE BILLING
DEPARTMENT
– WHITE COPY TO THE SALES
DEPARTMENT
– YELLOW COPY TO THE CUSTOMER
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Decision Support Systems: DSS
• Information systems that assist managers with
unstructured decisions by retrieving data and
generating information
• Possesses interactive capabilities
• Can answer ad-hoc inquires
• Provide data modeling facilities such as
spreadsheets
• Supports non-recurring, relatively unstructured
decision making
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Executive Information System: EIS
• Information systems often considered a
subset of DSS, that combine
information from the organization and
the environment
• Organize and analyze the information
• In a form suitable for managers to make
decisions
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Group Support Systems: GSS
• Computer based systems that support collaborative
intellectual work such as
–
–
–
–
–
Idea generation
Elaboration
Analysis
Synthesis
Decision making
• GSS use technology to solve the time and place
dimension problems associated with group work
• Also known as GDSS or Group Decision Support
Systems
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Expert Systems: ES
• An information system that emulates
the problem solving techniques of
human experts
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Knowledge
engineer
Expert Systems
Knowledge
base
Human
expert
Knowledge
acquisition
facility
Inference
engine
User interface
(includes
explanation
facility)
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User
Human expert - possesses relevant
knowledge
Knowledge engineer - has skill to
extract knowledge and encode in
knowledge base
Knowledge base - contains relevant
expertise, in the form of rules
Inference engine - executes line of
reasoning based on facts and rules
User interface - provides for user input
to system and displays output. Contains
explanation facility to let user ask Why?
How? etc. 27
FILE MANAGEMENT
• FILE MANAGEMENT COMPRISES THE
FUNCTIONS THAT COLLECT,
ORGANIZE, STORE, RETRIEVE, AND
MANIPULATE DATA MAINTAINED IN
TRADITIONAL DATA FILE-ORIENTED
ENVIRONMENTS
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HIERARCHY OF DATA
 CHARACTER IS A BASIC UNIT OF DATA SUCH AS
LETTER, NUMBER, OR SPECIAL CHARACTER
 FIELD IS A COLLECTION OF RELATED
CHARACTERS, SUCH AS A CUSTOMER NAME OR
CUSTOMER NUMBER
 RECORD IS A COLLECTION OF RELATED DATA
FIELDS PERTAINING TO A PARTICULAR ENTITY
(PERSON, PLACE, OR THING, SUCH AS A
CUSTOMER RECORD)
 FILE IS A COLLECTION OF RELATED RECORDS,
SUCH AS A CUSTOMER FILE OR SALES BUSINESS
EVENT DATA FILE
 RECORD LAYOUT DEPICTS THE FIELDS
COMPRISING A RECORD
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DATA WAREHOUSING
• DATA WAREHOUSING IS THE USE OF
INFORMATION SYSTEM FACILITIES TO FOCUS ON
THE COLLECTION , ORGANIZATION, INTEGRATION,
AND LONG-TERM STORAGE OF ENTITY-WIDE
DATA.
• PROVIDES USERS WITH EASY ACCESS TO LARGE
QUANTITIES OF VARIED DATA FROM ACROSS THE
ORGANIZATIONLEADS TO ENHANCED DECISIONMAKING CAPABILITIES
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DATA MINING
• DATA MINING IS THE ABILITY TO EXPLORE,
AGGREGATE, AND ANALYZE LARGE QUANTITIES
OF VARIED DATA FROM ACROSS THE
ORGANIZATION
• COMPLEMENTARY TO DATA WAREHOUSING
• BETTER UNDERSTANDING OF ORGANIZATION’S
– BUSINESS PROCESSES
– TRENDS
– POTENTIAL OPPORTUNITIES TO IMPROVE THE
EFFICIENCY OF THE ORGANIZATION
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INTELLIGENT AGENT

A SOFTWARE COMPONENT
INTEGRATED INTO A DSS OR OTHER
SOFTWARE TOOL (E.G., WORD, EXCEL)
THAT PROVIDES AUTOMATED
ASSISTANCE AND/OR ADVICE ON THE
USE OF THE SOFTWARE.
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KNOWLEDGE MANAGEMENT

PROCESS OF CAPTURING, STORING,
RETRIEVING, AND DISTRIBUTING
THE KNOWLEDGE OF THE
INDIVIDUALS IN AN ORGANIZATION
FOR USE BY OTHERS TO IMPROVE
THE QUALITY AND / OR EFFICIENCY
OF DECISION MAKING.
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Neural Networks
Computer-based systems of hardware and
software.
 Mimic human brain’s ability to recognize
patterns, predict outcomes with incomplete
information.
 Derive knowledge from data; must be
“trained”.

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Role of human judgment and
information technology
• Human judgment
– Design source
documents
– Recognize recordable
transactions
– Estimate amounts
– Interpret accounting
rules
• Information
technology
– Posting journal entries
– Closing the accounts
– Preparing trial
balances
– Producing financial
statements
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