McGraw-Hill/Irwin

Accounting Information Systems © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Introduction to Computerized Accounting

System
Accounting Information Systems:
Basic Concepts and Current Issues
1st edition

Robert L. Hurt

1
 Objectives
When you finish this introduction, you should be able
to:
 Define what is accounting information system
 Define what is accounting and its cycle
 Describe common chart of accounts coding system
 Define internal control and risk exposure
 Record and process the sales/collection process
 Record and process the Acquisition/payment
process
 Produce the relevant reports

2
Definition of AIS
 Interrelated activities, documents and
technologies
 Collect data and process it
 Report information
 Diverse group of internal and external
decision makers

3
Typical AIS structure
 Inputs  Storage
Such as source documents
Paper-based or electronic
 Processes  Internal controls
Journals, ledgers,
Designed to safeguard
information technology
assets, promote
 Outputs operating efficiency,
General purpose financial encourage adherence to
statements and other management rules and
reports ensure reliable financial
reports

4
Definition of accounting

According to the American Accounting

Association, accounting is the process of
identifying, measuring, and communicating
economic information to permit informed
judgments and decisions by users of the
information.

5
Definition of accounting
 Identifying
Not all business events lead
to recordable
transactions in the AIS
 Measuring
Accountants must follow
GAAP in deciding what
dollar amounts to record
for transactions
 Communicating
Financial accounting
information is
communicated primarily
through the general
purpose financial
statements
6
Accounting cycle

 The process of
 Remember the ten
identifying and
measuring economic steps in the accounting
events that leads to
communication and cycle
decision making

7
Coding systems
 Used for the chart of accounts
 Importance
 efficiency of data capture, entry and analysis
 frequency of use and familiarity
 consistency and understanding of use
 saving on computer resources
 similar items can be related

8
Coding systems
 Sequential
 Items are numbered in
order
 Checks in a checkbook
 Block coding
 Items coded in blocks
 All assets start with “1”
 Hierarchical coding
 Specialized form of block
coding
 Groups of digits have
meaning
 Mnemonic coding
 Assist in memory
 State abbreviations (e.g.,
CA for California)
9
Role of human judgment and
information technology
 Human judgment
 Design source
documents
 Recognize recordable
transactions
 Estimate amounts
 Interpret accounting rules
 Information technology
 Posting journal entries
 Closing the accounts
 Preparing trial balances
 Producing financial
statements
10
Use of IT examples in Accounting
Information System
 Relational databases
 Access, Oracle
 Object-oriented: tables, forms, queries, reports,
macros, modules, pages
 Fast, efficient searches; easy data entry with
forms; simple computations in queries and reports

11
Use of IT examples in Accounting
Information System
 General ledger systems
 Quickbooks, Peachtree
 Often organized in modules
 Used for completing the steps in the accounting
cycle

12
Definition of internal control

Most definitions of internal  Internal control

control contain four necessarily involves
people in the
common elements: organization
 Internal control is a  Internal controls provide
process
that reasonable
 Internal controls are assurance in a few
designed to provide common areas
reasonable assurance

13
Internal control purposes

Broadly speaking, internal controls should help

organizations:
 Safeguard their assets
 Ensure the reliability of financial statements
 Promote operating efficiency
 Encourage compliance with management’s
directives

14
Risk exposures

One good way to start designing internal

controls is to think about an organization’s
risks. Among the many good ways to think
about risk is Brown’s taxonomy.

15
Risk exposures
 Operational risk
 Systems risk: related to
information technology
 Human error risk: people
in the organization might
make mistakes
 Financial risk
 Market risk: changes in
stock prices, investment
values, interest rates
 Credit risk: customers’
unwillingness or inability
to pay their debts
 Liquidity risk: insufficient
cash to pay debts
16
Risk exposures
 Hazard risk  Strategic risks
Officers’ and directors’
liability: people might
break laws, resulting in
personal penalties
 Legal and regulatory risk:
people might break laws,
resulting in penalties for
the organization
 Business strategy risk:
poor decision making
related to market
competition
17
Examples

Although every organization’s approach to

internal control is slightly different, certain
controls are common in many organizations.
The following slides contain some examples.

18
Examples
 Adequate  Bank reconciliation
documentation
 Batch control totals
 Background checks
 Data encryption
 Back-up computer files
 Document matching
 Back-up power
supplies
 Edit checks

19
Examples
 Firewalls  Physical security
 Insurance and bonding  Preformatted data entry
screens
 Internal audits
 Prenumbered
 Limit checks documents
 Lockbox systems  Restrictive
endorsements of
checks

20
Examples
 Daily deposit of cash All internal controls have
receipts
 Segregation of duties
 User training
associated costs—
financial, operational
and behavioral. The
key is ensuring that the
benefits outweigh the
costs.
21
Record and process the
following transactions

 Sales / collection
 Acquisition / payment

22
Steps in the sales / collection process

1. Take customer order 5. Bill the customer

2. Approve customer 6. Collect payment

credit
7. Process uncollectible
3. Fill the order based receivables as
on approved credit necessary

4. Ship the product

23
Steps in the sales / collection process
Payment

Order info Customer

1.0
Take Billing info
order.
Credit info
Delivered goods

Order total

4.0
Bill client.

2.0 Approved credit

Check 3.0
credit. Fill & ship
order

5.0
Receive
payment
Figure 8.2
Sales / collection DFD

24
Documents
 Customer order
 Summarizes items
ordered and prices
 Originates in sales
department
 Terminates in warehouse
 Picking list
 Guides selection of items
from warehouse
 Originates in warehouse
 Terminates in shipping
department
25
Documents
 Packing list  Bill of lading
 Specifies contents of  Specifies freight terms
shipment  FOB destination or
 Originates in shipping shipping point
department  Freight prepaid or collect
 Terminates with  Originates in shipping
customer department
 Terminates with common
carrier

26
Documents
 Customer invoice  Customer check
 Bills client  Remits payment
 Originates in billing  Originates with customer
department  Terminates with cash
 Terminates with receipts department
customer

27
Documents
 Remittance advice
 Provides source
document for AIS
 Originates with customer
 Terminates with
accounting
 Deposit slip
 Transmits cash receipts
to bank
 Originates with cash
receipts department
 Terminates with bank
28
Information technology

 Maintain customer lists

 Generate sequentially-numbered forms
 Look up inventory status
 Identify unpaid and past-due invoices
 Record transactions in the accounting
information system

29
Acquisition / payment steps

1. Request goods / 4. Receive goods /

services based on services
monitored need
5. Disburse cash
2. Authorize a purchase
6. Process purchase
3. Purchase goods / returns as necessary
services

30
Inventory database
Acquisition / payment steps
Inventory Receiving information
information

1.0
Requisition
inventory.
vendor

Requisition
data
Purchase order
A / P database

Vendor database
2.0 Payment
Prepare purchase information Purchase
order. Vendor information information

Order information

Authorization
3.0 information 4.0
Receive Disburse
inventory. cash.

31
Documents
 Purchase requisition  Purchase order
 Requests that the  Specifies items ordered,
purchasing department shipping terms and other
order goods / services information about the
 Originates in an purchase
operating department  Originates in the
 Terminates in the purchasing department
purchasing department  Terminates with vendor

32
Documents
 Receiving report
 Ensures that ordered
goods have been
received in good
condition
 Originates in receiving
department
 Terminates in various
departments
 Vendor invoice
 Requests payment from
buying organization
 Originates with vendor
 Terminates in accounting
department of buyer
 Check
 Pays the vendor
 Originates in accounting
 Terminates with vendor
33
Information technology

 Online vendor payments

 Bar codes
 Vendor lists
 Inventory status checks
 Transaction recording in the AIS

34
Information technology
 Other than those reports issued in the aspect of
sales/collection and acquisition/payment processes,
there are a number of useful reports
 Fixed assets register (e.g. additions and disposals)
 Bank reconciliation
 Trial balance
 Profit and loss account
 Balance sheet
 Cash flow statement
 A widely used accounting software - MYOB
http://www.myob.com.hk/eng/products/accounting.aspx

35