MODULE 3:

Accounting Information System

Stages of Data Processing
Elements of Financial Statement
The Accounting Equation
Debits and Credits-Double Entry
Types and Effects of Transaction
INFORMATION SYSTEM-
 collection of people, procedure, software,
hardware and data which works together to
provide information essential to running an
organization.
ACCOUNTING INFORMATION
SYSTEM
 combination of personnel, records
and procedures that a business uses
to meet its need for financial
information. An effective accounting
information system should achieve
the following objectives:
 To process the information efficiently at the
least cost (cost- benefit principle)
 To protect entity’s assets, to ensure that data
are reliable, and to minimize wastes and the
possibility of theft or fraud (control principle).
 To be in harmony with the entity’s
organizational and human factors
(compatibility principle).
 To be able to accommodate growth in the
volume of transactions and for organizational
changes (flexibility principle).
ECONOMIC ACTIVITIES FLOW
The
Accounti
ng
Process
Accounti
Economic ng
Activities Informati
on

Decision
Makers
TYPES OF ACCOUNTING INFORMATION SYSTEM
 Manual Systems- utilize paper- based
journals (general and special) and ledgers
(general and subsidiary). They rely on
human processing and may be prone to
error.
 Computer- Based Systems- replace paper
records with computer records. They
maintain accounting data separately from
other operating data..
TYPES OF ACCOUNTING INFORMATION SYSTEM
 Database Systems- Relational database
systems such as enterprise resource planning
(ERP) depart from the “accounting equation”
method of organizing data. These ERP
systems such as SAP, Oracle and PeopleSoft
capture data, financial and non- financial
and store that information in a data
warehouse. Database systems reduce
inefficiencies and redundancies that often
exist in transaction-based systems
STAGES OF DATA PROCESSING

Input Processing Output

ELEMENTS OF FINANCIAL STATEMENTS
 Financial Position
 Asset- A present economic resource
controlled by the entity as a result of past
events. An economic resource is a right that
has the potential to produce economic
benefits.
 Liability-A present obligation of the entity to
transfer an economic resource as a result of
past events.
 Equity-The residual interest in the assets of
the entity after deducting all its liabilities.
ELEMENTS OF FINANCIAL STATEMENTS
 Financial Performance
 Income-Increases in assets, or decreases in
liabilities, that result in increases in equity,
other than those relating to contributions
from holders of equity claim
 Expense- Decreases in assets, or increases in
liabilities, that result in decreases in equity,
other than those relating to distributions to
holders of equity claims.
THE ACCOUNT
 it may be defined as a detailed record of the
increases, decrease and balance of each
element that appears in an entity’s financial
statements. The simplest form of the
account is known as the “T” account because
of its similarity to the letter “T”.
THE ACCOUNTING EQUATION

 Assets = Liabilities +Owner’s Equity

 The logic of debiting and crediting is related
to the accounting equation. Transactions
may require addition to both sides (left and
right sides), subtractions from both sides
(left and right sides), or an addition and
subtraction on the same side (left or right
sides).
DEBITS AND CREDITS- THE DOUBLE-ENTRY
SYSTEM
 Accounting is based on a double-entry system
which means that the dual effects of business
are recorded. A debit side entry must have a
corresponding credit side entry. For every
transaction, there must be one or more accounts
debited and one or more accounts credited and
must be equal both sides. Each transaction
affects at least two accounts.
 Increases in assets are recorded as debits while
decreases in assets are recorded as credits.
Conversely, increases in liabilities and owner’s
equity are recorded by credits and decreases are
entered as debits.
 Income increases owner’s equity and
expense decreases owner’s equity.
Hence, increases in income are recorded
as credits and decreases as debits.
Increases in expenses are recorded as
debits and decreases as credits.
 An accounting event is an economic
occurrence that causes changes in an
enterprise’s assets, liabilities, and/or equity.
 A transaction is a particular kind of event
that involves the transfer of something of
value between two entities.
TYPES AND EFFECTS OF TRANSACTION
  Source of Assets (SA)- An asset account increases and a
corresponding claims(liabilities or owner’s equity) account
increases. Examples: (1) Purchase of supplies on account;
(2) Sold goods on cash on delivery basis.
 Exchange of Assets (EA)- One asset account increases and
another asset account decreases. Example: Acquired
equipment for cash.
 Use of Asset (UA)- An asset account decreases and a
corresponding claims (liabilities or equity) account
decreases. Example: (1) Settled accounts payable (2) Paid
Salaries of employees.
 Exchange of Claims (EC)- One claims (liabilities or owner’s
equity) account increases and another claims account
decreases. Example: Received utilities bill but did not pay.