BACT 306

COMPUTERISED
ACCOUNTING AND
INFORMATION SYSTEMS
THEORITICAL BACKGROUND
Defined:

Accounting Cycle
Accounting Defined
It is the collection and recording of data, analyzing
and interpreting the result which is made available
to interested parties for decision making purposes
and for the society’s benefit in general.
What is an Information System?
An information system is the set of formal procedures by which data are
collected, processed into information, and distributed to users.
What is a System?
A group of interrelated multiple components or subsystems that serve a common
purpose
System or subsystem
a. A system is called a subsystem when it is viewed as a component of a
larger system.
b. A subsystem is the smaller unit of a system. A subsystem is considered a
system when it is the focus of attention.
Why is accounting an information system?
Accounting is an information system because it is involved in:
1. Collection of data…input
2. Analyzing, classifying and recording data…Processing
3. Preparation of reports and interpretation for the use of interested
parties….Output
Data is obtained from business documents such as invoices, debit/credit notes,
cheques, bank statements, receipts
Accounting as an information system.
 It identifies, collects, processes, and communicates economic information about a
firm using a wide variety of technologies.
 It captures and records the financial effects of the firm’s transactions.
 It distributes transaction information to operations personnel to coordinate many key
tasks.
Accounting is a part of the business total information system, whose role is to provide
accounting information to ‘clients’. Clients/Users require financial information on which
to base decisions.
 The Features of accounting information
system
1. identifying and capturing relevant information ie,
financial information);
2. recording in a systematic manner the information
collected;
3. analyzing and interpreting the information collected;
4. Reporting the information in a manner that suits the
needs of users.
AIS versus MIS
 Accounting Information Systems (AIS) process
• financial transactions; e.g., sale of goods
• and nonfinancial transactions that directly affect the processing of financial transactions; e.g., addition of newly approved
vendors
 Management Information Systems (MIS) process
• nonfinancial transactions that are not normally processed by traditional AIS; e.g., tracking customer complaints

AIS Subsystems
 Transaction processing system (TPS)

supports daily business operations

 General Ledger/ Financial Reporting System (GL/FRS)

produces financial statements and reports

 Management Reporting System (MRS)

produces special-purpose reports for internal use

Management must design an accounting system that:
 Balances costs with benefits- (cost benefit analysis)
 Produces effective (useful) reports
 Is able to adapt to future needs
 Has adequate internal controls
These are factors to consider in the design of an accounting system
THE ACCOUNTING CYCLE
Accounting Cycle traces transactions from the time of
collecting data through to the time of preparing financial
statements for reporting to interested parties
Stages of Accounting Cycle
1. Gathering financial data from docs: Cash receipts, cheques, PIS, Payment
Vouchers, DN, CN, BS, Invoices
2. Recording and Classifying of data in subsidiary books
3. Making Postings of records made in Subsidiary Ledger to main Ledger
4. Extraction of Trial Balance
5. Preparation of financial Statements for decision making purposes
STAGE ONE:
Gathering Financial Data Resulting From Business Transactions
1. Business Transactions and Types of Transactions
 -Cash Transactions
 -Credit Transactions
2. Business Documents/Financial Data:
 Cash receipts, Invoices, Cheque Stubs, PIS, Payment Vouchers, DN, CN,
BS
3. An Account:
 Need to open files for all business documents….more later
 Need to pick every receipt (fuel, restaurants, car repairs, etc)
 STAGE TWO:
Recording and Classifying Of Data into Subsidiary Books
 Books of Accounts
 Subsidiary Books
1. Cash Book
2. Purchases Day Book
3. Sales Day Book
4. Returns Inwards Day Book
5. Returns Outwards Day Book
6. Petty Cash Book
7. Journal/Journal Proper
Grouping of business documents according to the nature of the biz
transaction
 STAGE THREE
Making Postings Of Records Made in Subsidiary Books to Ledger
B-Ledger :[Sales A/c, Purchases A/c, Salaries A/c., Land & Building A/c, etc]
Double Entry Principle/Rule:
 Debit Side vrs Credit Side
 Receiver Giver
 Receipts Payments
 Purchases Sales
 Expenses/Costs Income
 Losses Gains
 Assets Liabilities/Capital
Cash Book
 Entries
 BRS –monthly
STAGE FOUR
Extraction of a Trial Balance to Test the Arithmetical Accuracy of The Postings in
The Ledger
 Trial Balance
 Errors That Do/do Not Affect The Agreement of The TB
 Preparation of Accounts Reconciliation Statements
e.g Bank Reconciliation Statements, Account Reconciliations, Control Accounts
Reconciliation, etc The essence is for auditing purposes and remedial corrective action
purposes
STAGE FIVE
Preparation of Final Accounts (Financial Statements) For Reporting To Interested
Parties for Decision Making Purposes
Trial Balance to Financial Statements
Chart of Accounts
i. Statement of Comprehensive Income… Net Profit
ii. Statement of Changes in Equity…..Capital Changes
iii. Statement of Cash flows…Cash flows (Inflows vrs Outflows) position
iv. Statement of Financial Position… Accounting Equation [A = C+L] ….What are they?
v. Notes to the Accounts
 STATEMENT OF COMPREHENSIVE INCOME
 Trading Profit and Loss Account/Income Statement
Kinds of Expenditure
Capital Expenditure Vrs Revenue Expenditure

Components of the Income Statement [Format]

1. Trading Account…Gross Profit
2. Profit & Loss Account….Net Profit
Transactions
A transaction is a business event.
 Financial transactions
• economic events that affect the assets and equities of the organization
• e.g., purchase of an airline ticket

 Nonfinancial transactions
• all other events processed by the organization’s information system
• e.g., an airline reservation — no commitment by the customer
Data Sources
Data sources are financial transactions that enter the information system from internal and
external sources.
External financial transactions are the most common source of data for most organizations.
Examples are sale of goods and services, purchase of inventory, receipt of cash, and
disbursement of cash (including payroll).
Internal financial transactions involve the exchange or movement of resources within the
organization.
Examples are movement of raw materials into work-in-process (WIP), application of labor
and overhead to WIP, transfer of WIP into finished goods inventory, and depreciation of
equipment
USERS OF THE FINANCIAL STATEMENT/ACCOUNTING
INFORMATION
These financial statements are produced not for their own sake but for the uses to
which they can be put by various groups interested in different aspects of the
report.
(Internal Vrs External Users)
1. Management…..planning, implementing plans and enforcing control system
2. Shareholders…..ROI, Profitability, Continuity of business, Growth of
Investment
3. Employees……..Fairness of remuneration, Security of Job,
4. Government Agencies…….GDP, SSNIT, PAYE, Corporate Tax
5. Debenture Holders……Long term solvency, Payments of Capital+ Interest
6. Creditors……….Ability to pay (Liquidity position), Stock Turnover
USERS - CONTINUATION

7. Prospective Investors….ROI,
Profitability, Gearing/Leverage Financial
8. Analysts……Solvency, Liquidity, Profitability
9. Bankers……..Solvency, Rate of Cash Inflows, Profitability
10. Consumers……...Good Quality Goods, Fairness of Prices
11. General Public……CSR
12. Competitors…….Financial Position, Performance for Comparison
Characteristics of Useful Information
 Regardless of physical form or technology, useful information has the
following characteristics:
• Relevance: serves a purpose
• Timeliness: no older than the time period of the action it supports
• Accuracy: free from material errors
• Completeness: all information essential to a decision or task is present
• Summarization: aggregated in accordance with the user’s needs
Transforming the Data into Information
Functions for transforming data into information according to the general AIS
model:
1. Data Collection
2. Data Processing
3. Data Management
4. Information Generation
1. Data Collection
 Capturing transaction data
 Recording data onto forms
 Validating and editing the data
2. Data Processing
 Classifying
 Transcribing
 Sorting
 Batching
3. Data Management
 Storing
 Retrieving
 Deleting

4. Information Generation
 Compiling
 Arranging
 Formatting
 Presenting
EXAMPLES OF ACCOUNTING SOFTWARE
1. Sun systems 4. Tally
2. Accpac 5. Topaz
3. Quick Books 6. Peachtree
4. Sage 7. Simply
Accounting
5. Microsoft Dynamics, Oracle and Xero.
Characteristics of Useful Information
 Regardless of physical form or technology, useful information has
the following characteristics:
• Relevance: serves a purpose
• Timeliness: no older than the time period of the action it
supports
• Accuracy: free from material errors
• Completeness: all information essential to a decision or task is
present
• Summarization: aggregated in accordance with the user’s needs
 Advantages of a Computerized Accounting System over a Manual Accounting System
Computerized Systems:
 Simplify the record-keeping process.
 Easy to use and quick with information processing
 are generally more robust and accurate .
 provide management with current account balance information to support decision
making/financial mgt
 has great potential to increase productivity,
 streamline workflow,
 reduce data redundancy and error reconciliation,
Elements of Computerized Accounting System/Modules
1. Accounts Payable: Allows you to manage invoices and bills that you must pay.
2. Accounts Receivable: Allows you to manage receipts, billing, and income.
3. Payroll: Handles employee payroll within the accounting system.
4. Benefits Management: Allows for employee budget management, accrued vacation time
reporting, and other budget reporting.
5. Budgeting: Lets you create and manage a budget
6. Assets: Lets you manage non-current and current assets, calculate depreciation, and perform
other asset management.
7. Reporting: Integrates your data with existing reporting standards, so that you can comply with
regulations that affect your business.
8. Project Reporting: Lets you manage the assets and workflow for multiple projects at one time.
9. Inventory Control: Lets you to know inventory levels at any time and to manage expiry,
damaged goods and theft
Factors to consider in the selection of Accounting Software
Selecting accounting software is a critical process. It needs to have proper evaluation and
knowledge to select the right one:
1. Size of your business
2. Allocated budget/cost considerations
3. Recommendations from experts
4. Know your problems/The nature of your problems
5. Outcome of not buying accounting software
6. The industry in which you are in
7. After Sale Support
8. Usage and learning difficulty
9. Features, advantages and benefits (FABs)
10. Training