CHAPTER 1 AND 2 their separation from the

company.
Accounting Information System
-a set of interrelated activities, documents, AIS STRUCTURE
and technologies design to collect data, 1.Inputs
process it and report information to a -Include documents such as sales invoice
diverse group of internal and external and purchase order
decision makers in an organization. 2.Process
-Include computers and satellites but AIS
A well designed accounting information does not necessarily requires technology
system related to the conceptual framework 3.Outputs
by: -Include general financial statement, internal
1. Capturing data on the elements of reports and various analyses.
financial statement 4.Storage
2. Transforming those data into -Data should be stored in paper
relevant and reliable information form ,electronically or both
3. Recognizing and adapting to the 5. Internal Control
cost benefit constraint. -examples are daily backup of data,
separation of duties(custody, authority and
recordkeeping)
BUSINESS PROCESS
OBJECTIVES OF AIS
1. Sales or Collection Process 1. Support day to day operation
● activity that includes taking a 2. Support decision making of
customer's order to collecting internal decision makers
payment from customers 3. Fulfill obligations related to
2. Acquisition or payment Process stewardship
● Purchasing inventory on
account and paying vendors USERS OF AIS
invoices ● Management
3. Conversion Process ● Employee
● Combining three resources ● Government
to create a product and sell it ● Supplier
through sales or Collection ● Customer
Process ● Bankers
4. Financing Process
● Acquire external financing in BENEFITS OF HAVING AIS
the form of debt 1. Information can be prepared on time
5. Human Resource Process 2. Produce more accurate and
● Activities include hiring presentable acctg information
employees, evaluation of 3. Information can be accessed and
performance of employees, retrieve quickly
paying them and managing
 4. Save time and cost in the long run -The conceptual system determines
preparation and safe keeping of the nature of the information
information. required, its sources, its destination,
and the
ROLE OF ACCOUNTANTS IN THE AIS accounting rules that must be
1. Accountants as System Users applied.
● Accountants must provide clear
picture of their needs to the Accountants as System Auditors
designers of the system -Form opinions based on a
2. Accountants as System systematic process.
Designers -To evaluate selected components
● Responsible for conceptual system of the accounting information
3. Accountants as System Auditors System to establish their degree of
● To express their opinions to the compliance with organizational
computer system objectives and internal control
standard.
Accountants as Information System
Users Comparisons Manual Vs Computer
-Accountants must be able to clearly Based System
convey their needs 1. Accounting records
to the systems professionals 2. Processing
(programmer) who design
the system.
- accountant must specify Manual System Accounting Records
accounting rules and
techniques to be used, internal Journals - a record of chronological entry
control requirement ● special journals - specific classes
and special algorithms such as of transactions that occur in high
depreciation frequency
models. ● general journal - nonrecurring,
-The accountant should actively infrequent, and
participate in systems dissimilar transactions
development projects to ensure
appropriate systems Ledger- a book of financial accounts
design. ● general ledger - shows activity for
each account listed on the chart of
Accountants as System Designers accounts
● subsidiary ledger - shows activity
-The accountant function is by detail for each account type
responsible for the
conceptual system, while the Computer Files
programmer function is responsible
for the physical system. Master File- generally contains account
data. Data values in master files are
updated from transactions. (e.g., general 1. External transactions involve
ledger and subsidiary file) exchanges of goods and services
Transaction File - a temporary file holding with other individuals and business
transaction records that will be used to entities-suppliers, share-holders,
update data in a master file. (e.g: Sales government agencies, employees,
orders, inventory receipts, and cash and the like.
receipts.) 2. Internal transactions include
Reference File - stores data that are used adjusting entries, closing entries,
as standards for processing transactions. and reversing entries
(e.g: the payroll program may refer to a tax
table to calculate the proper amount of
withholding taxes for payroll transactions, GENERAL PURPOSE FINANCIAL
Price lists used to prepare customer STATEMENTS
invoices,Lists of authorized suppliers and
customer credit files for approving credit Income statement
sales.) ● summarizes the results of business
Archive File - An archive file contains operations on the accrual basis for a
records of past transactions that are specified period of time.
retained for future references. (e.g: journals, ● reports revenues, expenses, gains,
prior-period payroll information, list of former and losses from the accounting
employees, records of accounts information system.
written off, etc.)
Statement of changes in shareholders'
equity
ACCOUNTING CYCLE ● reports changes in capital stock and
retained earnings accounts for the
1. Obtain information about external same period of time as the income
transactions from source documents. statement.
2. Analyze transactions. ● Net income increases retained
3. Record the transactions in a journal. earnings; net losses and declaration
4. Post from the journal to the general of dividends decrease retained
ledger accounts. earnings. Capital stock can increase
5. Prepare an unadjusted trial balance. or decrease for a variety of reasons,
6. Record adjusting entries and post to the most common of which is
the general ledger accounts. issuance of new shares.
7. Prepare an adjusted trial balance.
8. Prepare financial statements. Balance sheet
9. Close the temporary accounts to ● shows the financial position of an
retained earnings (at year-end only). organization at a specific point in
10. Prepare a post-closing trial balance time.
(at year-end only). ● It contains assets (listed in order of
their liquidity), liabilities (listed with
the most current due dates first), and
2 TYPES OF TRANSACTIONS equity (which comes from the
 statement of changes in ● more sophisticated form of block
shareholders'equity). coding.
● ● each digit/block of digits conveys
Statement of cash flows important information to people who
● the relative newcomer to the know the code.
general-purpose financial ● Hierarchical coding is also very
statements. common in government AIS. They
● Developed in the late 1980s by the use a system called"fund
Financial Accounting Standards accounting."
Board,the statement of cash flows
reports inflows and outflows of cash Mnemonic codes
for a specified period of time. ● help people remember the meaning
● Cash flows on the statement fall into of the code. Keep in mind that data
three categories: operating, about products and customers are
investing, and financing. commonly stored in master files.
Accountants can choose between
the direct and the indirect methods
of calculating operating cash flows. HUMAN JUDGEMENT
1. Designing source documents
2. Recognizing recordable
CODING SYSTEM transactions
3. Estimating amounts and
Sequential coding interpreting accounting rules
● simply numbers items in sequence.
● In automated accounting information
systems, transactions might be
assigned sequential numbers by a
computer as a method of internal
control.

Block coding
● quite common in a chart of accounts.
Numbers are assigned in blocks;
each block is reserved for a
particular kind of account. For
example, all current asset accounts
might start with "1," while equity
accounts might start with "5." Thus,
you can tell what kind of account
you're dealing with simply by looking
at its first digit.

Hierarchical codes