Chapter 2 - Transaction processing in the AIS. When you''ve finished studying this chapter, and completing the activities at its conclusion, 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 coding systems and how they are used in the AIS; explain how human judgment and information technology affect the accounting cycle.
Chapter Transaction Processing in the AIS Copyrightâ2016McGrawưHillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGrawưHillEducation Outline ã • • • • • Learning objectives Accounting and bookkeeping Accounting cycle Internal controls Coding systems Human judgment and information technology 22 Learning objectives 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 coding systems and how they are used in the AIS Explain how human judgment and information technology affect the 23 Accounting and bookkeeping • Accounting • Bookkeeping Accounting is the The part of process of identifying, accounting measuring, and associated with communicating identifying and economic information measuring economic to permit informed information judgments and 24 Accounting and bookkeeping • Identifying • Measuring – Recognizing events – that give rise to journal entries vs those that not – Historical cost, such as supplies Present value, such as long-term bonds payable Market value, such as certain investments in marketable securities 25 Accounting cycle • Ten steps used to gather data, • Two groups – Steps that occur process it and throughout the create general fiscal year purpose financial – Steps that occur at 26 Accounting cycle • Steps that occur throughout the fiscal year 1) Obtain information about external transactions from source documents 2) Analyze transactions 4) Post from the journal to the general ledger accounts 5) Prepare an unadjusted trial balance 27 Accounting cycle • Steps that occur at the end of the fiscal year 6) 7) Record adjusting journal entries and post to the ledger accounts 8) Prepare financial statements 9) Close the temporary accounts to retained earnings 10) Prepare a postclosing trial Prepare an Some organizations preparebalance adjusting adjusted trial balance entries multiple times throughout the year, such as at the end of each quarter 28 Internal controls • Policies, processes & procedures designed to: • Accounting cycle controls – Numbering source documents sequentially – Safeguard assets – Ensure reliable financial reporting – Promote operating efficiency Enforcing transaction limits – Using general ledger / other appropriate – – Encourage compliance with 29 Coding systems • Methods for identifying source documents for • Four broad types – Sequential – Block – Hierarchical – Mnemonic easier reference later 210 Coding systems • Sequential – – Documents are numbered in sequence Example: checks in your checkbook • Block – First digit specifies a group – Example: simple chart of accounts 101 103 201 301 305 401 501 505 Cash Accounts receivable Equipment Accounts payable Wages payable Bonds payable Capital stock Retained earnings 211 Coding systems • Hierarchical – • Mnemonic Groups of digits have meaning Example: more complex chart of accounts department – 03.514.101 • account number Code is a reminder of its meaning – Example: accounting CPA, Certified Public Accountant certifications • CFE, Certified Fraud Examiner • EA, Enrolled Agent • geographic location – CMA, Certified Management Accountant 212 Human judgment & information technology • • Often incorporated • Human judgment in accounting Determining which information events lead to journal systems entries Information technology is not • Information technology Spreadsheets, 213 214 ... objectives Accounting and bookkeeping Accounting cycle Internal controls Coding systems Human judgment and information technology 2? ?2 Learning objectives Differentiate accounting and bookkeeping... judgment and information technology affect the 2? ?3 Accounting and bookkeeping • Accounting • Bookkeeping Accounting is the The part of process of identifying, accounting measuring, and associated... and associated with communicating identifying and economic information measuring economic to permit informed information judgments and 2? ?4 Accounting and bookkeeping • Identifying • Measuring –