Baccinsx CM Week8 Act102 Mrlazaro

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Subject Code: BACCINSX
Subject Title: Accounting Information System
Subject Description: Accounting information Systems (AIS) introduces students to the

systems that underlie bookkeeping, accounting, financial reporting,
tax reporting, and auditing in all business firms. Such systems are
increasingly complex and in a continual state of flux do to rapidly
changing technologies and security risks. In this course, the students
learn about the development of standards and practices for
accounting information systems and gain hands-on experience in,
the use of electronic spreadsheet software for advanced business
analysis, and to gain hands-on experience with a commercial
accounting software package. The highlight of this course is the
actual hands-on on the most sought-after Enterprise Resource
Planning (ERP) software, SAP Business One.
No. of Units: 3
Class Schedule: ACT102: Face-to-Face: Saturday 8:00am – 12:00pm
Course Learning Outcomes:

At the end of the course, the student will be able to:
● Understand why IT in general is important to accounting and auditing, Explain the
role, purpose and importance of an accounting information system and examine how
an AIS can add value to an organization, and its role in company strategy and
decision making.
● Use the relationship between ethics and decision-making, understand what risk
assessments are and how the impact accounting roles and describe the threats and
computer fraud faced by modern information systems.
● Differentiate control concepts and frameworks in the internal environment of a
company. Determine appropriate internal controls to reduce the risk in an
organization and apply the common internal controls to accounting information
systems
● Create and use data flow diagrams and flowcharts to understand, evaluate, and
document information systems to make a model and diagram of different business
systems and processes.
● Identify the business activities and information processing operations in the revenue,
expenditure, production and human resources management (HRM)/payroll cycles,
and general ledger and determine the different risks and controls that is related to the
different business operations.
● Utilize the data processing cycle, data collection and processes, types of information
output, and enterprise resource planning (ERP).
SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 admissions-nubaliwag@nu.edu.ph
About the Instructor:
PROF. MARK ANTHONY R. LAZARO, LPT, MBA
● Administrative Payroll Specialist – Philippine Airlines, 2016 to Present
● Licensed Professional Teacher – October 2022
● Master in Business Administration – Baliuag University, 2022
● Continuing Professional Teacher Education (CPTE) – Baliwag Polytechnic College, 2019
● Bachelor of Science in Accountancy – Baliuag University, 2015
● Bachelor of Science in Business Administration, Baliuag University, 2013
Topic 5
The Expenditure Cycle Part 1:
Purchases and Cash Disbursements Procedures
Objectives:
• Fundamental tasks performed during purchases and cash disbursement processes
• Functional areas involved in purchases and cash disbursements and the flow of these
transactions through the organization
• Documents, journals, and accounts that provide audit trails, promote the maintenance of
records, and support decision making and financial reporting
• Risks associated with purchase and cash disbursements activities and the controls that
reduce these risks
• Operational features and the control implications of technology used in purchases and
cash disbursement systems
Purchase Requisition Purchasing

1 2
PROCUREMENT CYCLE
(SUBSYSTEM)
Receiving/
Cash Disbursements Inspection
3
5
Accounts Payable
4
Goals of the Expenditure Cycle
▪ The goal of providing needed resources to organization can be broken down into several
objectives:
▪ purchase from reliable vendors
▪ purchase high quality items
▪ obtain best possible price
▪ purchase only items that are properly authorized
▪ have resources available when they are needed
▪ receive only those items ordered
▪ ensure items are not lost, stolen, or broken
▪ pay for the items in a timely manner
DFD for Purchase System
A Purchase System
▪ Begins in Inventory Control when inventory levels drop to reorder levels

▪ A purchase requisition (PR) is prepared and copies to sent to Purchasing and Accounts
Payable (A/P)
▪ Purchasing prepares a purchase order (PO) for each vendor and sends copies to Inventory
Control, A/P, and Receiving
▪ Upon receipt, Receiving counts and inspects the goods.
▪ A blind copy of the PO is used to force workers to count the goods.
▪ A receiving report is prepared and copies sent to the raw materials storeroom, Purchasing,
Inventory Control, and A/P.
▪ A/P eventually receives copies of the PR, PO, receiving report, and the supplier’s invoice.
▪ A/P reconciles these documents, posts to the purchases journal, and records the liability in
the accounts payable subsidiary ledger.
▪ A/P periodically summarizes the entries in the purchases journal as a journal voucher which
is sent to the General Ledger (G/L) department.
Inv-Control or Purchases DR
Accts Payable-Control CR
▪ A/P also prepares a cash disbursements voucher and posts it in the voucher register.
▪ G/L department:
▪ posts from the accounts payable journal voucher to the general ledger
▪ reconciles the inventory amount with the account summary received from inventory
control
Manual Purchase System
DFD for Cash Disbursements System
Cash Disbursements System

▪ Periodically, A/P searches the open vouchers payable file for items with payments due:
▪ A/P sends the voucher and supporting documents to Cash Disbursements
▪ A/P updates the accounts payable subsidiary ledger
▪ Cash Disbursements:
▪ prepares the check
▪ records the information in a check register (cash disbursements journal)
▪ returns paid vouchers to accounts payable, mails the check to the supplier
▪ sends a journal voucher to G/L:
Accounts Payable DR
Cash CR
▪ G/L department receives:
▪ the journal voucher from cash disbursements
▪ a summary of the accounts payable subsidiary ledger from A/P
▪ The journal voucher is used to update the general ledger.
▪ The accounts payable control account is reconciled with the subsidiary summary.
Cash Disbursements System
Computer-Based Accounting Systems
▪ CBAS technology can be viewed as a continuum with two extremes:

▪ automation - use technology to improve efficiency and effectiveness
▪ reengineering – use technology to restructure business processes and firm
organization
Levels of Automating and Reengineering Ordering
▪ Computer generates PR
▪ Purchases manually generates PO
▪ Computer generates PO (no PR needed)
▪ PO not sent until manually reviewed
▪ Computer-generated PO is automatically sent without manual review
▪ Electronic Data Interchange (EDI)
▪ Computer-to-computer communication without PO
Expenditure Cycle Database
▪ Master Files
▪ supplier (vendor) master file
▪ accounts payable master file
▪ merchandise inventory master file
▪ Transaction and Open Document Files
▪ purchase order file
• open purchase order file
▪ supplier’s invoice file
▪ open vouchers file
▪ cash disbursements file
▪ Other Files
▪ supplier reference and history file
▪ buyer file
▪ accounts payable detail file
Computer-Based Purchases
▪ A Data Processing dept. performs routine accounting tasks.
▪ Purchasing - a computer program identifies inventory requirements
▪ The following methods are used for authorizing and ordering inventories:
▪ the system prepares POs and sends them to Purchases for review, signing, and
distributing
▪ the system distributes POs directly to the vendors and internal users, bypassing
Purchases
▪ the system uses electronic data interchange (EDI) and electronically places the
order without POs
▪ Other tasks performed automatically by the computer:
▪ updates the inventory subsidiary file from the receiving report
▪ calculates batch totals for general ledger update
▪ closes the corresponding records in the open PO file to the closed PO file
▪ validates the voucher records against valid vendor files
Computer-Based Cash Disbursements

▪ Tasks performed automatically by the computer:
▪ the system scans for vouchers currently due
▪ prints checks for these vouchers
▪ records these checks in the check register
▪ batch totals are prepared for the general ledger update procedure
Batch Purchases System
Batch Purchases System (continued)
Advantages of Real-Time Data Input & Processing Over Batch Processing
▪ Shortens the time-lag in record-keeping; hence, records are more current
▪ Eliminates much of the routine manual procedures, such as transcribing information onto
paper documents
▪ Eliminates much of the storage and shuffling of paper documents
▪ Reduces data entry correction procedures
Reengineered Purchases/ Cash Disbursements System
Summary of Internal Controls
General Internal Controls

▪ Organization controls
▪ segregation of duties
▪ Documentation
▪ Asset Accountability Controls
▪ Management Practices
▪ Data Center Operations Controls
▪ Authorization Controls
▪ Access Controls
Authorization Controls
▪ Purchases of inventory should be authorized by the Inventory Control department, not by
purchasing agents
▪ Accounts Payable authorizes the payments of bills, not the cash disbursements clerk, who
writes the checks
How do these controls change in a CBAS?
Computer-Based Authorization Controls
▪ Authorizations are automated.
▪ programmed decision rules must be debugged
▪ Automating inventory in EDI and JIT
▪ faulty inventory model can lead to over-purchasing or under-purchasing
▪ Cash disbursements may automate check printing and signing.
▪ programming logic must be flawless
▪ automated signing only below a dollar threshold
Traditional Segregation of Duties

▪ Warehouse (stores)
▪ Inventory control
▪ Accounts payable
▪ General ledger
▪ Requisitioning
▪ Purchases
▪ Purchases returns and allowances
▪ Cash disbursements
Segregation of Functions
▪ Custody of the asset, inventory, by the Warehouse must be separate from recordkeeping
for the assets by the Inventory Control.
▪ Custody of the asset, cash, by Cash Disbursements must be kept separate from
recordkeeping for the asset by A/P.
Computer-Based Segregation of Functions

▪ Extensive consolidation by the computer of tasks traditionally segregated
▪ computer programs authorize and process purchase orders
▪ computer programs authorize and issue checks to vendors
Supervision
▪ Within the expenditure cycle, supervision is of highest importance in the Receiving
department, where the inventory arrives and is logged in by a receiving clerk. Need to
minimize:
▪ failures to properly inspect the assets
▪ theft of the assets
Computer-Based Supervision
▪ Automation often leads to a collapsing of the traditional segregation of duties.
▪ requires greater supervision
▪ Supervision takes on new aspects as technology advances.
▪ electronic monitoring
▪ Supervision because more difficult as the workplace becomes more sophisticated.
▪ employees may have advanced IT training
Accounting Records
▪ Must maintain adequate records for:
▪ accounts payable
▪ vouchers payable
▪ checks
▪ general ledger
▪ subsidiary ledgers
Computer-Based Accounting Records

▪ Accounting records rest on the reliability and security of stored digitalized data.
▪ Accountants should be skeptical about the accuracy of hard-copy printouts.
▪ Backups - the system needs to ensure that backups of all files are continuously kept
▪ Most automated systems still have a lot of paper documents.
▪ This is good for audit trail purposes but is often inefficient.
▪ As the system becomes increasing paperless, maintaining an audit trail becomes
more difficult.
Access Controls
▪ Access to:
▪ inventories (direct)
▪ cash (direct)
▪ accounting records (indirect)
Computer-Based Access Controls

▪ Magnetic records are vulnerable to both authorized and unauthorized exposure and should
be protected
▪ must have limited file accessibility
▪ programs must be safeguarded and monitored
Independent Verification
▪ A/Payable dept. verifies much of the work done within the expenditure cycle.
▪ PR, PO, receiving reports, and suppliers’ invoices must be checked and verified by
A/P.
▪ G/Ledger dept. verifies:
▪ the total obligations recorded equal the total inventories received
▪ the total reductions in accounts payable equal the total disbursements of cash
Computer-Based Independent Verification

▪ Automating the accounting function reduces the need for verification by reducing the
chances of fraud and error in the expenditure cycle.
▪ However, the need for verification shifts to the computer program and the programmers
where fraud and error may still be present.
ACTIVITY
1. UNRECORDED LIABILITIES
You are auditing the financial statements of a New York City company that buys a product from
a manufacturer in Los Angeles. The buyer closes its books on June 30. Assume the following
details:
Terms of trade FOB shipping point

June 10, buyer sends purchase order to seller
June 15, seller ships goods
July 5, buyer receives goods
July 10, buyer receives seller’s invoice
Required
a. Could this transaction have resulted in an unrecorded liability in the buyer’s financial
statements?
b. If yes, what documents provide audit trail evidence of the liability?
c. On what date did the buyer realize the liability?
d. On what date did the buyer recognize the liability?
New assumption:
Terms of trade free on-board destination
e. Could this transaction have resulted in an unrecorded liability in the buyer’s financial
statements?
f. If yes, what documents provide audit trail evidence of the liability?
g. On what date did the buyer realize the liability?
h. On what date did the buyer recognize the liability?
2. ACCOUNTING RECORDS AND FILES

Indicate which department—accounts payable, cash disbursements, data processing, purchasing,
inventory, or receiving—has ownership over the following files and registers:
a. open purchase order file
b. purchase requisition file
c. open purchase requisition file
d. closed purchase requisition file
e. inventory
f. closed purchase order file
g. valid vendor file
h. voucher register
i. open vouchers payable file
j. receiving report file
k. closed voucher file
l. check register (cash disbursements journal)
3. ACCOUNTING DOCUMENTS
Required
Answer the following questions.
a. Which department is responsible for initiating the purchase of materials?
b. What is the name of the document generated by the department identified in (a) above?
c. Typically, multiple copies of a purchase order are prepared. One copy should go to the vendor,
and one is retained in the purchasing department. To achieve proper control, which other
departments should receive copies of the purchase order?
d. What documents does the accounts payable clerk review before setting up a liability?
e. Which document transfers responsibility for goods sold to a common carrier?
MULTIPLE-CHOICE QUESTIONS
1. Which document helps to ensure that the receiving clerks actually count the number of goods
received?
a. packing list
b. blind copy of purchase order
c. shipping notice
d. invoice
2. When the goods are received and the receiving report has been prepared, which ledger may be
updated?
a. standard cost inventory ledger
b. inventory subsidiary ledger
c. general ledger
d. accounts payable subsidiary ledger
3. Which statement is NOT correct for an expenditure system with proper internal controls?
a. Cash disbursements maintain the check register.
b. Accounts payable maintains the accounts payable subsidiary ledger.
c. Accounts payable is responsible for paying invoices.
d. Accounts payable is responsible for authorizing invoices.
4. Which duties should be segregated?

a. matching purchase requisitions, receiving reports, and invoices and authorizing payment
b. authorizing payment and maintaining the check register
c. writing checks and maintaining the check register
d. authorizing payment and maintaining the accounts payable subsidiary ledger
5. Which documents would an auditor most likely choose to examine closely to ascertain that all
expenditures incurred during the accounting period have been recorded as a liability?
a. invoices
b. purchase orders
c. purchase requisitions
d. receiving reports
6. Which task must still require human intervention in an automated purchases/cash disbursements
system?
a. determination of inventory requirements
b. preparation of a purchase order
c. preparation of a receiving report
d. preparation of a check register
7. Which one of the following departments does not have a copy of the purchase order?
a. the purchasing department
b. the receiving department
c. accounts payable
d. general ledger
8. Which document typically triggers the process of recording a liability?

a. purchase requisition
b. purchase order
c. receiving report
d. supplier’s invoice
9. Which of the following tasks should the cash disbursement clerk NOT perform?
a. review the supporting documents for completeness and accuracy
b. prepare checks
c. approve the liability
d. mark the supporting documents paid
10. Which of the following is true?

a. The cash disbursement function is part of accounts payable.
b. Cash disbursements is an independent accounting function.
c. Cash disbursements is a treasury function.
d. The cash disbursement function is part of the general ledger department.

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Baccinsx CM Week8 Act102 Mrlazaro

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DISCLAIMER: The information content provided in this course material is designed to provide

Subject Code: BACCINSX

Subject Title: Accounting Information System

Subject Description: Accounting information Systems (AIS) introduces students to the

Class Schedule: ACT102: Face-to-Face: Saturday 8:00am – 12:00pm

Course Learning Outcomes:

Purchase Requisition Purchasing

DFD for Purchase System

▪ Begins in Inventory Control when inventory levels drop to reorder levels

Manual Purchase System

Cash Disbursements System

Computer-Based Accounting Systems

▪ CBAS technology can be viewed as a continuum with two extremes:

Levels of Automating and Reengineering Ordering

Computer-Based Cash Disbursements

Batch Purchases System (continued)

Reengineered Purchases/ Cash Disbursements System

General Internal Controls

How do these controls change in a CBAS?

Traditional Segregation of Duties

How do these controls change in a CBAS?

Computer-Based Segregation of Functions

How do these controls change in a CBAS?

How do these controls change in a CBAS?

Computer-Based Accounting Records

How do these controls change in a CBAS?

Computer-Based Access Controls

How do these controls change in a CBAS?

Computer-Based Independent Verification

Terms of trade FOB shipping point

2. ACCOUNTING RECORDS AND FILES

4. Which duties should be segregated?

8. Which document typically triggers the process of recording a liability?

10. Which of the following is true?

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