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8.

2 Conventional Financial Statements

Basic Reporting Requirements in the Financial Process


1. Balance Sheet 2. Income Statement 3. Statement of cash flows

Data comparisons, absolute changes and percentage changes facilitates the readers understanding of the present financial position of the company

Comparative Analysis
Horizontal Analysis Common-dollar statements/Vertical Analysis each item is shown as a percentage of some base amount (e.g., Total assets-balance sheet; Sales-income statements)

Three parts of a Cash Flow Statement that complies with Statement of Financial Accounting Standard
1. Cash flow from operating activities 2. Cash flow from investing activities 3. Cash flow from financing activities

8.4 Account Coding for the Financial Purposes

Chart of Accounts
the listing of account names stored in the financial process along with the codes assigned to the accounts Some packages provide account number structures with overall fixed lengths, a fixed number of fields, and fixed field lenghts

Coding Scheme Example


01 Current assets 02 Tangible long-term assets 03 Intangible long-term assets 04 Current liabilities 05 Long-term liabilities 06 Equity 07 Revenue 08 Cost of goods sold 09 Selling expenses 10 Administrative expenses 11 Other revenues and expenses 12 Income taxes

Immediately following the block code in the account identifier is a sequence code that specifies the order of accounts within each goup. E.g. 0901 Sale salaries expense 0904 Travel expense 0907 Advertising expense 0912 Sale literature expense

Extensible Business Reporting Language (XBRL)


A new standard for communication of financial information among businesses and through the Internet. Allows financial information to e reported in a context, a sort of bar code for financial information Facilitates the handling of financial data, while reducing the potential for errors and permits the automatic checking of information

Types of Accounts
1. Master account 2. Sub-accounts 3. Normal Accounts accounts that have no subaccounts 01100.00 Cash 01100.01 Petty Cash 01100.02 Checking account 01100.03 Payroll cash account

8.6 Budgeting

Some of the more sophisticated AIS packages include a comprehensive budgeting module that encompasses sales, production, purchasing, and human resources, as well as the financial process Such budgeting model permits you to project amounts

8.8 Posting in the GL Module

The transfer of data to the GL module from other modules can be made in summary or in detail, depending on the software design and the available user options An advantage of detail data transfers is that a complete audit trail is available in the GL module Disadvantages of detailed transfers are: (1) increased processing time (2) additional storage space required (3) Difficulty locating unusual entries due to large amounts of data in the GL master file records

Batch posting versus Real-time posting


General rule: Posting must occur frequently enough that data are current when required for reporting or making inquiries

Provisional Posting
Sometimes called pencil posting Applies only when batch posting is used Permits a user to change recorded transactions only so long as they have not been permanently posted

8.10 Controls in Financial Process

Transaction Risks
Unauthorized transactions Incorrect, nonrecorded, and/or fictitious transactions Unauthorized or incorrect adjusting entries Incomplete information Incorrect transfer of information Information transferring errors Improper allocation Transaction activity not being reported in the proper accounting period Incorrect reported account balances Improper tax calculations

Performance Reviews
Budget Tracking and Performance Evaluation Internal Audit External Reporting

Physical Controls The financial reporting function should be separated from the day-today recording of routine accounting transactions, and file maintenance functions, with proper oversight by management.
Segregation of Duties File maintenance and recording of adjusting and closing entries should be separated from the routing transaction processing

Information Processing
Authorization Controls Data Verification Controls Processing Controls

8.12 End-of-Period Processing

At the end of each interim fiscal period, an interim closing occurs The more popular designs now retain transaction detail for the entire year or even longer Soft closings subject to proper controls, entries can still be made in the earlier interim periods