Professional Documents
Culture Documents
Toaz - Info Report Chapter 6 Summary PR
Toaz - Info Report Chapter 6 Summary PR
Business activities begin with the acquisition of materials, 3.) The Revenue Cycle
property, and labor in exchangefor cash—the expenditure
Firms sell their finished goods to customers through the
cycle
revenue cycle, which involvesprocessing cash sales, credit
Thus, transaction has two parts: aphysical component (the sales, and the receipt of cash following a credit sale.
acquisition of the goods) and a financial component (the
The primary subsystems of the revenue cycle are
cashdisbursement to the supplier).
a. Sales order processing. The majority of business sales
The major subsystems of the expenditure cycle are:
are made on credit andinvolve tasks such as preparing
a. Purchases/accounts payable system. This system sales orders, granting credit, shipping products
recognizes the need to acquirephysical inventory and (orrendering of a service) to the customer, billing
places an order with the vendor. customers, and recording the transactionin the
b. Cashdisbursements system. When the obligation accounts (accounts receivable [AR], inventory,
created in the purchases systemis due, the cash expenses, and sales).
disbursements system authorizes the payment, b. Cash receipts. For credit sales, some period of time
disburses the fundsto the vendor, and records the (days or weeks) passes betweenthe point of sale and
transaction by reducing the cash and accounts the receipt of cash. Cash receipts processing
payableaccounts. includescollecting cash, depositing cash in the bank,
c. Payroll system. The payroll system collects labor usage and recording these events in the accounts(AR and
data for each employee,computes the payroll, and cash).
ACCOUNTING RECORDS 2. General Journals. Firms use the general journal to
record nonrecurring, infrequent,and dissimilar
Manual Systems transactions. For example, we usually record periodic
A. Documents depreciation andclosing entries in the general journal.
Figure 6.7 shows one page from a general journal.
A document provides evidence of an economic event and
may be used to initiate transactionprocessing. Some A journal voucher is actually a special source document
thatcontains a single journal entry specifying the general
documents are a result of transaction processing.
ledger accounts that are affected.Journal vouchers are used
to record summaries of routine transactions,
1. Source Documentsare used to capture and formalize
nonroutinetransactions, adjusting entries, and closing
transaction data that the transaction cycleneeds for entries.
processing. C. Ledgers
2. Product Documentsare the result of transaction
processingrather than the triggering mechanism for A ledger is a book of accounts that reflects the financial
the process. For example, a payroll check toan effects of the firm’s transactionsafter they are posted from
employee is a product document of the payroll system. the various journals.
3. Turnaround Documentsare product documents of
onesystem that become source documents for another There are two basic types of ledgers:
system.
1. General Ledgers summarizes the activity for each of
B. Journals
the organization’saccounts. The general ledger
A journal is a record of a chronological entry. The journal department updates these records from
holds acomplete record of transactions and thus provides a journalvouchers prepared from special journals and
means for posting to accounts. other sources located throughout the organization.
2. Subsidiary Ledgers contain the details of the
There are two primary types of journals: individual accounts that constitute a particular control
account.
1. Special Journals. Special journals are used to record
specific classes of transactionsthat occur in high The Audit Trail
volume.
a. sales journal The accounting records described previously provide an
b. cash receipts journal audit trail for tracing transactions from source documents
c. cash disbursements journal to the financial statements. Of the many purposes of the
d. purchases journal audit trail, most important to accountants is the year-end
e. payroll journal.
audit.
Registeris often used to denote certain types of special
Computer-Based Systems
journals.
Types of Files
Audit trails in computer-based systems are less observable
than in traditional manual systems, but they still exist.
DOCUMENTATION TECHNIQUES
Figure6.12
2. Entity relationship (ER) diagram is a documentation
technique used to represent the relationship between
entities. Entities are physical resources, events, and agents
about which the organization wishes to capture data.
3. System Flowcharts is the graphical representation of the The primary objective should be to provide an unambiguous
physical relationships amongkey elements of a system. description of the system. With this in mind, certain rules and
These elements may include organizational departments, conventions need to be observed:
manualactivities, computer programs, hard-copy accounting
1. The flowchart should be labeled to clearly identify the
records, and digital records. System flowcharts also describe
system that it represents.
the type of computer media being employedin the system,
such as magnetic tape, magnetic disks, and terminals. 2. The correct symbols should be used to represent the
various entities in the system.
Flowcharting Manual Activities
3. All symbols on the flowchart should be labeled.
1. A clerk in the sales department receives a hard-copy
customer order by mail and manually prepares four hard 4. Lines should have arrowheads to clearly show the process
copies of a sales order. flow and sequence of events.
2. The clerk sends Copy 1 of the sales order the credit 5. If complex processes need additional explanation for
department for approval. The other three copies and the clarity, a text description should be included on the flowchart
original customer order are filed temporarily, pending credit or in an attached document referenced by the flowchart.
approval.
Steps in preparing Flowchart
3. The credit department clerk validates the customer’s
order against hard-copy credit records kept in the credit a. Lay out the Physical Areas of Activity.
b. Transcribe the Written Facts into Visual Format.
Figure 6. 20
To signify the filing system used, the file symbol will usually
contain an “N” for numeric (invoice number), “C” for
chronological (date), or “A” for alphabetical order (customer
name).
6. The program loops back to Step 1, and the process is 5. Record layout diagrams are used to reveal the internal
repeated until the EOFcondition is reached. structure of the records that constitute a file or database
table. The layout diagram usually shows the name, data
Figure 6.25 type, and length of each attribute (or field) in the record.
Detailed data structure information is needed for such tasks
as identifying certain types of system failures, analyzing error
reports, and designing tests of computer logic for debugging
and auditing purposes.
Figure6. 27
eXtensible business reporting language (XBRL) – is the October 2005, U.S banking regulators have required
Internet standard specifically designed for business reporting quarterly “call reports” to be filed in XBRL.
and information exchange. April 2005, the SEC began a voluntary financial reporting
- Is a derivative of another Internet standard called XML program.
(eXtensible markup language) . September 2006, the SEC announced its new electronic
reporting system to receive XBRL filings.
XML (eXtensible markup language) – is a metalanguage May 2008, the SEC issued rules requiring large publicly
for describing markup languages. held companies to adopt XBRL.
Since early 2003, the Tokyo Stock Exchange has accepted
The term extensible means that any markup language
XBRL information
capable of storing data in relational form in which tags (or
In 2007, the Canadian Marketplace gain practical
formatting commands) are mapped to data values.
knowledge in preparing, filing and using XBRL.
eXtensible business reporting language (XBRL)
CONTROLLING THE FRS
- is an XML-based language that was designed to
SOX legislation requires that management design and
provide the financial community with a standardized method
implement controls over the financial reporting process.
for preparing, publishing, and automatically exchanging
financial information, including financial statements of The potential risks to the FRS include:
publicly held companies.
1. A defective audit trail
- Is typically used for reporting aggregated financial 2. Unauthorized access to the general ledger.
data, but can also be applied to communicating information 3. GL accounts that are out of balance with subsidiary
pertaining to individual transactions. accounts.
4. Incorrect GL account balances because of unauthorized
STEPS IN XBRL REPORTING PROCESS or incorrect journal vouchers.
The general ledger provides verification control for the The general ledger function serves as an independent
accounting process. Therefore, individuals with access verification step within the accounting information system.
authority to GL accounts should not:
TWO OPERATIONAL REPOTS
1. Have record-keeping responsibility for special journals or
subsidiary ledgers. 1. Journal Voucher Listing - provides relevant details
2. Prepare journal vouchers. about each journal voucher listing and the GL change
3. Have custody of physical issues. report.
2. General Ledger Report –presents the effects of journal
ACCESS CONTROLS voucher postings to the GL accounts.
Unauthorized access to the GL accounts can result in INTERNAL CONTROL IMPLICATION OF XBRL
errors, fraud and misrepresentation in financial statements.
TAXONOMY CREATION – Taxonomy may be generated
incorrectly, which results in an incorrect mapping between
data and taxonomy elements that could result in material
ACCOUNTING RECORDS misrepresentation of financial data.
An audit trail facilitates error preventionand correction TAXONOMY MAPPING ERROR – the process of mapping
when the data files are conveniently and logically organized. the internal database accounts to the taxonomy tags needs
Also, the general ledger and other files that constitute the to be controlled.
audit trail should be detailed and rich enough to:
VALIDATION OF INSTANCE DOCUMENTS- once the
1. Provide the ability to answer inquiries. mapping is complete and tags have been stored in the
2. Be able to reconstruct files if they are completely or
internal database, XBRL instance documents (reports) can
partially destroyed.
be generated.
3. Provide historical data required by auditors
4. Fulfill government regulations; and