Lecture Accounting information systems: Basic concepts and current issues (4/e): Chapter 2 - Robert L. Hurt

Chapter 2
Transaction Processing
in the AIS
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Outline
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•
•
•
•
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Learning objectives
Accounting and bookkeeping
Accounting cycle
Internal controls
Coding systems
Human judgment and information
technology

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Learning objectives
1.

2.

3.

4.

5.

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

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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

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Accounting and bookkeeping
•

Identifying

•

Measuring
–

Recognizing events
–

that give rise to
journal entries vs.
those that do not

–

Historical cost,
such as supplies
Present value,
such as long-term
bonds payable
Market value, such
as certain
investments in
marketable
securities

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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
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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.

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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.

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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

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Coding systems
•

Methods for
identifying source
documents for

•

Four broad types
–

Sequential

–

Block

–

Hierarchical

–

Mnemonic

easier reference
later
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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

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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
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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,

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