Accounting Information

Systems

Subsystems
Transaction Processing Systems
It is central to the overall function of the
IS by:
Converting economic events into financial
transactions
Recording financial transactions in the
accounting records (journal & ledgers)
Distributing essential financial information
to operations personnel to support their
daily operations.
TPS (contd.)

It deals with business events that occur

frequently.
A firm may process thousands of daily
transactions
TPS comprises three transaction cycles:
Revenue Cycle
Expenditure Cycle
Conversion Cycle
Expenditure Cycle

Business activities begin with

acquisition of materials, property, and
labor in exchange for cash.
Major Sub-Systems
Purchases/Accounts Payable System
Cash Disbursement System
Payroll System
Purchase/Accounts Payable
System
This system recognizes the need to
acquire physical inventory (such as raw
material) and places an order with the
vendor
When goods are received, the purchase
system records the event by increasing
inventory & establishing an account
payable to be paid at a later date.
Cash Disbursement System

Authorizes the payment, disburses the

funds to the vendor, and records the
transaction by reducing the cash and
accounts payable account when
obligations created in the purchase
system falls due.
Payroll System
It collects labor usage data for each
employee, computes the payroll, and
disburses paychecks to the employees.
Conceptually, payroll is a special-case
purchases and cash disbursement
system.
Most organizations have separate
system for payroll processing.
Conversion Cycle
It is comprised of two major subsystems
Production planning and control
Determining raw material requirements
Authorizing the work to be performed
Release of raw materials into production
Directing the movement of WIP
Cost Accounting
Monitors the flow of cost information related to production
Information produced by this system is used for inventory
valuation, budgeting, cost control, performance reporting
and management decisions (make or buy)
Revenue Cycle

Firms sell their finish goods to

customers
It involves:
Processing cash sales
Credit sales
Receipt of cash following a credit sale
Primary Sub-systems
of Revenue Cycle
Sales order processing
Majority of business sales are made on credit and
involves the ff tasks:
Preparing sales orders
Granting credit
Shipping products (or rendering service) to customer
Recording transaction in the accounts
Cash receipts
For credit sales, some period of time (days or weeks)
passes between the point of the sale and the receipt of
the cash.
Cash receipts processing involves
Collecting cash
Depositing cash
Recording the events in the accounts.
General Ledger/Financial
Reporting System
Activities of the GL/FRS are exclusively
accounting tasks
Pertain only to the accuracy and
reliability of accounting information
Potential Exposures
A defective audit trail
Unauthorized access to the general ledger
GL accounts that are out of balance w/
subsidiary accounts
GL accounts balances that are wrong
because of unauthorized or incorrect journal
vouchers.
Consequences are:
Litigation
Significant financial loss
Regulatory agency sanctions
GL/FRS Control Issues
Transaction authorization
Journal voucher a document that authorizes an entry to the GL (cash
receipts, sales order)
Segregation of duties
GL Clerks should not:
Have record keeping responsibility for special journals or
subsidiary ledgers.
Prepare journal vouchers
Have custody of physical asset
Access control
Vouchers should be pre-numbered and posted only by authorized
individuals
Accounting records
Audit trail
Independent verification
Two operational reports:
Journal voucher listing
Balances the debits and credits of the transactions
GL Change Reports
Reflects the effects of journal voucher transactions
Fixed Asset System

Fixed assets
are the property, plant, and equipment
used in the operation of a business.
Relatively permanent items that often
collectively represent the largest financial
investment by the organization.
Fixed Asset System

Processes transactions pertaining to the

acquisition, maintenance, and disposal
of its fixed assets
It will support management decisions,
financial reporting, and reporting to
regulatory agencies and will posses
adequate internal controls.
FAS Objectives
Process the acquisition of fixed assets as needed
and in accordance w/ formal management approval
and procedures.
Maintain adequate accounting records of asset
acquisition, cost, description, and physical location
in the organization
Maintain accurate depreciation records for
depreciable assets in accordance with acceptable
methods
Provide management with information to help it
plan future fixed asset investments.
Properly record the retirement and disposal of fixed
assets
Logic of Fixed Assets
Asset Acquisition
A departmental manager recognizing the need to
obtain or replace an existing fixed asset.
Delivery to the user through the custodian, it is
monitored by the fixed asset department and not
the warehouse.
Asset Maintenance
Adjusting the fixed asset subsidiary account
balances as the assets depreciate overtime or
with usage.
Asset Disposal
When an asset has reached the end of its useful
life or when management decides to dispose it
Removal from the fixed asset subsidiary ledger
Disposal requires approval
Management Reporting System

Produces the financial and non-financial

information needed by organization
management to plan and control its
business activities.
Factors that Influence the MRS
The decision making process
Discussed in decision theory
Management Principles
Formalization of tasks (organizational chart)
Responsibility & Authority refers to an
individuals obligation to achieve desired results
Span of Control refers to the number of
subordinates directly under a managers control
Management by Exception suggests that
managers should limit their attention to potential
problem areas
Factors (contd.)
Management Function, Level, and Decision
Type
Discussed in decision theory
Problem Structure
Structure of a problem reflects how well the
decision maker understands the problem.
3 elements
Data
Procedures
Objectives
Unstructured Problems
When any of the three characteristics identified are not known
Types of Management Report

Reports
are the formal vehicle for conveying
information to managers
A written message presented on sheets of
paper
Types (contd.)
Report Objectives
Reduce the level of uncertainty associated with a
problem facing the decision making
To influence the behavior of the decision maker in
a positive way
Programmed Reports
Provide information to solve problems that users
have anticipated
2 classes:
Scheduled time frame (weekly, monthly, yearly)
On Demand triggered by events, not by passage of
time.
Ad Hoc Reports
Beyond the information needs.