� Chapter 7 Accounting systems

Chapter

7Accounting systems

Learning checks

The three phases of the operation of an accounting system are input, processing and output.

Data are recorded facts; information is data that have been processed in some way to provide useful information to the user.

The installation of an accounting system consists of three phases: systems analysis, systems design, and systems implementation and review.

Four important considerations in establishing an accounting system are cost versus bene�ts, compatibility with the organisation and personnel of the business, �exibility to adapt to expansion and changes in the business, and an effective system of internal control.

A system of internal control encompasses all procedures adopted by an entity to control its activities and protect its assets.

Administrative controls refer to operational ef�ciency and adherence to prescribed policies. Accounting controls refer to methods used to protect assets and ensure the reliability of accounting records.

Among the principles of internal control systems are lines of responsibility, separation of record keeping and custodianship, division of responsibility for related transactions, mechanical and electronic devices, insurance, internal auditing, programming controls and physical controls.

Limitations of internal control systems include high costs, breakdown of systems, employee collusion and computer fraud.

Subsidiary ledgers record detailed information in accounts outside the general ledger.

Control accounts are summary general ledger accounts supported by the detail of a subsidiary ledger.

The use of a subsidiary ledger (�) relieves the general ledger of a mass of detail, (2) allows division of labour among staff maintaining the ledgers, and (3) provides effective internal control through periodic comparison of the schedule of the subsidiary ledger with the balance in the control account.

Four widely used special journals are the sales journal, the purchases journal, the cash receipts journal and the cash payments journal.

When special journals are used, the general journal is then used for infrequent transactions (such as sales returns and allowances), for adjusting and closing entries at the end of the accounting period, and for recording correcting entries to the accounts.

An abnormal balance in an account is one that differs from that normally expected, e.g. a credit balance in an account receivable.

Account set-offs occur when an entity offsets an amount in one account against another account, e.g. an entity might offset the abnormal balance (debit) in an account in the accounts payable subsidiary ledger against a customer�s account in the accounts receivable subsidiary ledger.

Electronic spreadsheets can be used to analyse business data and develop business budgets by using �what if?� analyses.

General ledger software, such as MYOB and QuickBooks, consists of integrated modular programs covering the major functional areas of accounting. The modules provide input to the general ledger module, which is central to all packages.

General ledger integrated software includes inputting data from source documents (such as invoices, bank statements and receiving reports), processing that data via the various modules (such as sales, banking and inventory), and outputting information in the form of special or general reports.

Chapter 7 Accounting systems2

There are two ways to enter data into a computerised accounting system depending on the nature of the transaction: (�) information is extracted from source documents and entered into the system using an entry screen in a form similar to the source document being recorded (e.g. a purchases invoice received from a supplier); (2) data are entered and a source document is generated in the one process (e.g. a sales invoice for a customer).

Computerised accounting systems have the advantages of speed of processing, automatic posting, automatic production of reports and hence reduction in processing costs.

Computerised accounting systems can be subject to power failures, viruses, system failures and hackers.