Transaction

Processing in
the AIS
 BOOKKEEPING
ACCOUNTING
 ACCOUNTING
• Based on American Accounting
Association (AAA):
“Accounting is the process of identifying,
measuring, and communicating economic to permit
informed judgments and decisions by users of the
information.”
BOOKKEEPING
Bookkeeping process:
The part of accountant
devoted to identifying
and measuring the
economic information
 ACCOUNTING CYCLE
1. Obtain information about external transaction from source
document
2. Analyze transaction
3. Record transaction in a journal
4. Post from the journal to the general ledger accounts
5. Prepare an unadjusted trial balance
6. Record adjusting entries and post to the general ledger accounts
7. Prepare an adjusted trial balance
8. Prepare financial statements
9. Close the temporary accounts to retained earnings(at year end only)
10.Prepare a post-closing trial balance (at year end only)
EXTERNAL TRANSACTION INTERNAL TRANSACTION
Exchange of goods and Include adjusting entries,
service with other closing entries. and
individuals and business reversing entries
entities- suppliers,
shareholders, government
agencies, employees, and
the like.
Common internal controls Associated
with source documents
• Sequential Numbering
-The checks in your checkbook are numbered
sequentially. Thus, you know if a check had been
used out of sequence, which may indicate an internal
control breach
• Physical Security
-keeping important documents physically
secure is also important
• Transaction limits
– A purchasing agent, for example, might not be
authorized to issue purchase orders over a certain
amount. Requiring a second signature or
supervisory approval can cut down on errors and
potential misuse of assets.
Transaction analysis involves five (5) steps

• Identify the accounts affected by the transaction

• Identify the effect of the transaction of each account
• Determine the element of financial statements
represented by each account
• Based on the principles of debit and credit,
determine which kind of entry is required for each
account
• Verify that, each transactions, the total debits equal
the total credits
General Journal
Trial balance
TYPE DESCRIPTION EXAMPLE GENERAL FORMAT
OF ADJUSTMENT
Accrued An organization provides Unbilled client Dr anAsset
Revenues service to its customers fees Cr a revenue
before collecting cash
Accrued An organization receives Unpaid Dr an expense
expenses service before paying cash employee Cr a liability
wages
Defered An organization receives Insurance Dr a liability
Revenue cash before providing premiums Cr a revenue
services to clients
TYPE DESCRIPTION EXAMPLE GENERAL FORMAT
OF ADJUSTMENT
Prepaid An organization uses up Supplies Dr an expense
expenses assets that have previously Cr an asset
been paid for
Uncollectible Estimates an amounts clients Bad debts Dr an expense
accounts will be unable or unwilling to Cr a contra-asset
pay
Depreciation Periodic allocation of an Equipment Dr an expense
asset’s cost to the periods Cr a contra-asset
that benefit from its use
 Four general purpose financial
statement
• Income statement
• Statement of changes in shareholder’s equity
• Balance sheet/Statement of financial position
• Statement of Cash flow
 CODING SYSTEMS
• Williamson(2006) list five important reasons for
maintaining a clear, logical chart of accounts:
– Efficiency of data capture, entry and analysis
– Frequency of use and familiarity
– Consistency and understanding of use within the
organization
– Saving on computer processing time and storage
– Similar items can be related by means of a coding
system, whereas a verbal description could be very
inefficient
• Williamson identified four (4) common coding
systems often used in organization:
– Sequential coding- simply numbers items in
sequence.
– Block coding-is quite common in a chart of
accounts. Number are assigned in block; each
block is resevered for a particular kind of account
– Hierarchical codes- are a more sophisticated
form of block coding. In hierarchical coding,
each digit/block of digits conveys important
information to people who know the code.
– Mnemonic codes- by their nature, help people
remember the meaning of the code.
CODING EXAMPLE FORMAT
SYSTEM
Sequential Purchase number orders 101.102,103
Block Quickbooks standard chart of Current assets: 101,105,109
accounts for retail companies Plant assets: 202,206,208
Current liabilities: 301,303,305
Hierarchical State University 101-11-08-81
101: Big City campus
11: academic affairs division
08:college of business
81: accounting department
Mnemonic Inventory items DVR: digital video recorder
FSTV: flat-screen television
 Human judgment and information
technology
• Designing source documents
• Recognizing recordable transactions
• Estimating amounts and interpreting
accounting rules
Thank
You