accounting information systems 9 th edition marshall b. romney paul john steinbart

Accounting Information Systems9th Edition

Marshall B. Romney

Paul John Steinbart

Overview of Business Processes

Chapter 2

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Learning Objectives

1 Explain the three basic functions performed by an accounting information system (AIS).

2 Describe the documents and procedures used in an AIS to collect and process transaction data.

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Learning Objectives

3 Discuss the types of information that can be provided by an AIS.

4 Describe the basic internal control objectives of an AIS and explain how they are accomplished.

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Introduction: S&S, Inc.

The grand opening of S&S is two weeks away.

Scott and Susan recognize that they need qualified accounting help and have hired a full-time accountant, Ashton Fleming.

Ashton is responsible for creating an accounting information system (AIS).

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Introduction: S&S, Inc.

What types of questions run through Ashton’s head? How am I going to organize things?Where do I start?What information does S&S need in

order to operate effectively?How can that information be

provided?

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Introduction: S&S, Inc.

How am I going to collect and process data about all the types of transactions that S&S will engage in?

How do I organize all the data that will be collected?

How should I design the AIS so that the information provided is reliable and accurate?

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Learning Objective 1

Explain the three basic functions performed by an accounting information system (AIS).

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Introduction

This chapter addresses the three basic functions performed by an AIS.1 To collect and store data about the

organization’s business activities and transactions efficiently and effectively

2 To provide information useful for decision making

3 To provide adequate controls to ensure that data are recorded and processed accurately

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Introduction

The chapter provides an overview of how an AIS fulfills the three basic functions performed by an AIS.

It describes the documents and procedures that are needed to capture and process data about the typical business activities engaged by an organization.

It also discusses the types of information reports that can be produced by the AIS.

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The Three Basic Functions Performed by an AIS

1 The efficient and effective processing of data about a company’s transactions: Capture transaction data on source

documents. Record transaction data in journals, which

present a chronological record of what occurred.

Post data from journals to ledgers, which sort data by account type.

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The Three Basic Functions Performed by an AIS

2 To provide management with information useful for decision making:In manual systems, this information is

provided in the form of reports that fall into two main categories:

– financial statements– managerial reports

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The Three Basic Functions Performed by an AIS

3 To provide adequate internal controls:Ensure that the information produced

by the system is reliable.Ensure that business activities are

performed efficiently and in accordance with management’s objectives.

Safeguard organizational assets.

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Learning Objective 2

Describe the documents and procedures used in an AIS to collect and process transaction data.

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Capture Transaction Data on Source Documents

The first basic function of the AIS is the efficient and effective processing of data about a company’s transactions.

Source documents are special forms used to capture transaction data on source documents.

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Capture Transaction Data on Source Documents

Control over data collection is improved by prenumbering each source document.

Accuracy and efficiency in recording transaction data can be further improved if source documents are properly designed.

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Credit memo Support adjustments tocustomer accounts.

Common Source Documentsand Functions

Revenue Cycle

Source Document Function

Sales order Record customer order.

Delivery ticket Record delivery to customer.

Deposit slip Record amounts deposited.

Remittance advice Receive cash.

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Check Pay for items.

Common Source Documentsand Functions

Expenditure Cycle

Source Document Function

Purchase order Request goods from vendors.

Purchase requisition Request that purchasingdepartment order goods.

Receiving report Record receipt ofmerchandise.

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Common Source Documentsand Functions

Human Resources Cycle

W4 forms Collect employeewithholding data.

Time cards Record time worked by employees.

Job time tickets Record time spent onspecific jobs.

Source Document Function

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Common Source Documentsand Functions

General Ledger & Reporting System

Source Document Function

Journal voucher Record entry posted togeneral ledger.

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Record Transaction Datain Journals

After transaction data have been captured on source documents, the next step is to record the data in a journal.

A journal entry is made for each transaction showing the accounts and amounts to be debited and credited.

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Record Transaction Datain Journals

The general journal records infrequent or nonroutine transactions.

Specialized journals simplify the process of recording large numbers of repetitive transactions.

What are the four most common types of transactions?

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Record Transaction Datain Journals

1 Credit sales2 Cash receipts3 Purchases on account4 Cash disbursements

Record Transaction Datain Journals Sales Journal

Invoice Account Account Post

Date Number Debited Number Ref. Amount

Dec. 1 201 Lee Co. 120-122 800.00

Dec. 1 202 May Co. 120-033 700.00

Dec. 1 203 DLK Co. 120-111 900.00

TOTAL: 2,400.00

120/502

Page 5

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Post Transactions to Ledgers

Ledgers are used to summarize the financial status, including the current balance, of individual accounts.

The general ledger contains summary-level data for every asset, liability, equity, revenue, and expense account of an organization.

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Post Transactions to Ledgers A subsidiary ledger records all the

detailed data for any general ledger account that has many individual subaccounts.

What are some commonly used subsidiary ledgers?– accounts receivable– inventory– accounts payable

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Post Transactions to Ledgers

What is the general ledger account corresponding to a subsidiary ledger called?– control account

A control account contains the total amount for all individual accounts in the subsidiary ledger.

Post Transactions to Ledgers

Sales Journal Page 5Invoice Account Account Post

Date Number Debited Number Ref. AmountDec. 1 203 DLK Co. 120-111 900.00

TOTAL 2,400.00

120/502

General Ledger Account: Accounts Receivable Account Number: 120 Date Description Post Ref Debit Credit Balance Dec. 1 Sales SJ5 2,400

2,400

Post Transactions to Ledgers

Sales Journal Page 5Invoice Account Account Post

Date Number Debited Number Ref. AmountDec. 1 203 DLK Co. 120-111 900.00

TOTAL 2,400.00

120/502

General Ledger Account: Credit Sales Account Number: 502 Date Description Post Ref Debit Credit Balance Dec. 1 Sales SJ5 2,400 2,400

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What is an Audit Trail?

An audit trail provides a means to check the accuracy and validity of ledger postings.

Observe that the posting reference for $2,400 credit to the sales account in the general ledger, SJ5, refers back to page 5 of the sales journal.

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What is the Chart of Accounts?

The chart of accounts is a list of all general ledger accounts used by an organization.

It is important that the chart of accounts contains sufficient detail to meet the information needs of the organization.

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Learning Objective 3

Discuss the types of information that can be provided by an AIS.

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Financial Statements

The second function of the AIS is to provide management with information useful for decision making.

The preparation of financial statements consists of a sequence of activities.

What are these activities?

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Financial Statements

Prepare a trial balance. Make adjusting entries. Prepare the adjusted trial balance. Produce the income statement. Make closing entries. Produce the balance sheet. Prepare the statement of cash flows.

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Managerial Reports

The AIS must also be able to provide managers with detailed operational information about the organization’s performance.

What reports does management need?– inventory status– budgets– performance reports

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Managerial Reports

What is a budget? A budget is the formal expression of

goals in financial terms. What are some types of budgets?

– cash– operating– capital

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Managerial Reports

What is a performance report? A performance report lists the

budgeted and actual amounts of revenues and expenses and also shows the variances, or differences, between these two amounts.

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Magic Co. Monthly Performance Report Budget Actual Variance

Sales $32,400 $31,500 ($900)

Cost of Goods 12,000 14,000 (2,000)

Gross Margin $20,400 $17,500 ($2,900)

Other Expenses 9,000 7,000 2,000

Operating Income $11,400 $10,500 ($900)

Managerial Reports

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Learning Objective 4

Describe the basic internal control objectives of an AIS and explain how they are accomplished.

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Internal Control Considerations

The third function of an AIS is to provide adequate internal controls to accomplish three basic objectives:

1 Ensure that the information is reliable.2 Ensure that business activities are

performed efficiently.3 Safeguard organizational assets.

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Internal Control Considerations

What are two important methods for accomplishing these objectives?

1 Provide for adequate documentation of all business activities.

2 Design the AIS for effective segregation of duties.

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Adequate Documentation

Documentation allows management to verify that assigned responsibilities were completed correctly.

What did Ashton encounter while working as an auditor that gave him a firsthand glimpse of the types of problems that can arise from inadequate documentation?– failure to bill for repair work

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What is Segregation of Duties? Segregation of duties refers to

dividing responsibility for different portions of a transaction among several people.

What functions should be performed by different people?– authorizing transactions– recording transactions– maintaining custody of assets

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End of Chapter 2