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Week 5 Horngren, Chapter 8, Accounting Information Systems When We Have Collected the Data from Transactions and Then Analysed A

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Week 5 Horngren, Chapter 8, Accounting Information Systems When We Have Collected the Data from Transactions and Then Analysed A Week 5 Horngren, Chapter 8, Accounting Information Systems When we have collected the data from transactions and then analysed and summarised the economic effect of those transactions the process has involved entering all the transactions in the general journal and then posting to accounts in the general ledger. This is very tedious and time consuming and in the end means that an awful lot of effort has been expended for very little benefit. In the days before computers, when double entry bookkeeping was first introduced and labour was very cheap and plentiful this was the method that was used. Accounting information loses its relevance if it becomes out of date and businesses now-a- days need reliable information that is produced soon after the event. Computers and specialised journals have helped improve the accounting systems so that quick and reliable information can be accessed by businesses when they need it. This week we will look at these improvements to the accounting information systems. The learning objectives are to: Describe an effective accounting system, Understand both computerised and manual accounting systems, Understand how spreadsheets are used in accounting, Use the sales journal, the cash receipts journal, and the accounts receivable subsidiary ledger, Use the purchases journal, the cash payments journal and the accounts payable subsidiary ledger. Effective accounting information systems Businesses need accounting information systems, which are made up of trained personnel, records and procedures which can produce reports as and when they are needed. If these systems are to be efficient they require internal controls, compatibility, and flexibility and should be cost effective in the cost-benefit trade off. Internal controls are necessary to keep the records accurate and to safeguard the assets. They usually consist of a division of duties so that no one person is responsible for authorising a transaction, recording the effects of that transaction, and having custody of any assets etc that are a part of that transaction. A compatible accounting system means that it is set up so that the accounting information needs of the business are dealt with using the resources that are available throughout the whole of the business wherever its activities are based. Businesses that survive are the ones that not only can react to change but can anticipate it. This includes the accounting systems which must be able to deal with a new mix of products, new branches, branch closures, new clients, new legislation, eg GST, new rates of pay, new methods of payment, eg internet sales. In short they need to be flexible. Each business must decide which accounting information system will best meet their needs at a price that will stay within their budget. Accurate timely information at a price that the business can afford. Have a look at pages 322 to 323 of the study text. Week 6 Accounting Information Systems 1/6 Components of a computerised accounting system There are three components of a computerised accounting system. Hardware, Software and trained personnel. The hardware comprises the equipment and the network, the software the computer programs, which can be purchased off the shelf, whilst other larger firms will have their own systems specifically designed for them for both accounting and management information, and trained personnel. You don’t have a blind person driving a bus. Each of these three elements is essential to the efficient running of the system. How computerised and manual accounting systems work Computer systems have replaced manual systems in many businesses, however for both computerised and manual systems the principles behind them are the same. Data Inputs enter the information into the systems, the data is then processed, and then Outputs are created in the form of reports. In the manual system the data will be inputted from source documents, receipts, invoices, etc which will be processed through entry in the journals, and then posted to the ledger. A trial balance is usually extracted to test the accuracy of the debits and credits and then the output will be the preparation of financial statements. In a computerised system data can be inputted from source documents, also via ordering, sending of accounts, payments, receipts and from the email and internet. Once the original entry for the transaction has been entered the posting and report preparation happens automatically within the system. The trial balance is a report, as are the financial statements, and they can be printed by selecting the appropriate item on the menu. Designing an accounting system In both the manual and the computerised systems the chart of accounts is very important. This lists the accounts that are going to be used by the business. It is always a good idea to list them according to the place that they will occupy in the financial statements. Whereas in the manual system the accounts appear in the ledger, either as a loose leaf , or in pages of a book, and will be identified by a name and a page number, in the computerised system they will be given a number and data will be allocated to these accounts by the use of that number. Software accounting packages like MYOB and Quickbooks have charts of accounts listed on an industry by industry basis. These charts will have many more accounts than many business will require. The trick is to select the accounts that your business actually needs. Although the Exhibit 8-3 shows how Assets are usually given a coding starting with 100, Liabilities, 200, equity 300, revenue 400 and expenses 500, it is important not to list the different accounts next to one another. Instead of listing Cash at Bank as 111 and Accounts Receivable as 112 it would have been better to list Cash at Bank as 110 and Accounts Receivable as 115. That way if the business wants to open up another bank account or to open a petty cash account there is room for expansion without having to alter all the account numbers. The only accounts that are likely to be together are those with contra accounts. Eg doubtful debt provision and accumulated depreciation accounts. Have a look at pages 323 to 325 of the study text. Week 6 Accounting Information Systems 2/6 Processing transactions In the manual system transactions have been entered so far in the general journal. In order to streamline the system so that it becomes less bulky and more efficient Cash Receipts are to be entered in a Special Journal, the Cash receipts Journal, Cash Payment s through the Cash Payments Journal, Credit Sales through the Sales Journal and Credit Purchase through the Purchases Journal. Where the business has few sales or purchase returns these would be processed though the General Ledger, but if there were many entries then there would be separate a Sales Returns Journal and a Purchases Returns Journal. All other transactions including adjustments, closing and reversing entries would be entered in the General Journal. In a computerised system transactions are organised by function and are entered via a menu. With MYOB the menu has: Cheque Book which deals with payments, except those to suppliers, bank deposits, and bank reconciliations. Sales, for recording all sales, cash and credit, receipts from customers, sales returns and credit allowances. Purchases, for purchase orders, payments to suppliers, purchase returns and credit allowances. There are also options dealing with payroll, inventory recording and for businesses which provide services that are billed on a time basis, time billing. MYOB and Quickbooks come as an integrated accounting system. This means that the different options that are available can be used on their own or can be linked to others. Eg if you decide to purchase goods on credit using the purchase option in the menu, because this can be linked, then automatically accounts payable, purchases, inventory and cost of goods sold, and the accounts payable’s individual account for the supplier will all be updated. Spreadsheets were designed to help businesses develop and update budgets. They are computer programs where data can be linked by means of formulae and functions. Essentially a spreadsheet is a grid with rows and columns which comprises of many cells. These cells are identified by their row number and column number. They can be updated and because cells can be linked to each other by formula etc it means that when one cell is changed, eg changing a budget estimate, the subtotals and totals in other cells will automatically be updated as well. Have a look at page 326 of the study text. Special journals In order to streamline the accounting system the entries of similar transactions are no longer entered in the general journal but are placed in special journals, where there is a special journal for each type of similar transactions. This has the benefit that no narrative is needed as the only entry in a special journal will be of a particular type and it also means that one total can be posted to the accounts in the general ledger rather than hundreds of individual entries. Week 6 Accounting Information Systems 3/6 The sales journal deals with credit sales, the purchases journal with credit purchases, the cash receipts journal with all cash receipts including cash sales, the cash payments journal with all cash payments including cash purchases, and all other transactions are entered in the general journal, including transfers between general ledger accounts. Besides reducing the volume of posting the selection of special journals and their design can be tailored to the needs of the business. An important feature of special journals is the selection of columns to deal with those transactions that occur most frequently.
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