AIS
Fundamentals
CHAPTER 1
ACCOUNTING
BOOKKEEPING
ACCOUNTING
• Based on American Accounting
Association (AAA):
“Accounting is the process of identifying, measuring,
and communicating economic to permit informed
judgments and decisions by users of the
information.”
BOOKKEEPING
Bookkeeping process:
The part of accountant
devoted to identifying
and measuring the
economic information
ACCOUNTING CYCLE
1.
Obtain information about external transaction from source
document
2. Analyze transaction
3. Record transaction in a journal
4. Post from the journal to the general ledger accounts
5. Prepare an unadjusted trial balance
6. Record adjusting entries and post to the general ledger accounts
7. Prepare an adjusted trial balance
8. Prepare financial statements
9. Close the temporary accounts to retained earnings(at year end
only)
10. Prepare a post-closing trial balance (at year end only)
EXTERNAL TRANSACTION
Exchange of goods and
service with other
individuals and business
entities- suppliers,
shareholders, government
agencies, employees, and
the like.
INTERNAL TRANSACTION
Include adjusting entries,
closing entries. and
reversing entries
Common internal controls Associated
with source documents
• Sequential Numbering
-The checks in your checkbook are numbered
sequentially. Thus, you know if a check had been
used out of sequence, which may indicate an internal
control breach
• Physical Security
-keeping important documents physically
secure is also important
• Transaction limits
– A purchasing agent, for example, might not be
authorized to issue purchase orders over a certain
amount. Requiring a second signature or
supervisory approval can cut down on errors and
potential misuse of assets.
Transaction analysis involves five (5)
steps
• Identify the accounts affected by the transaction
• Identify the effect of the transaction of each
account
• Determine the element of financial statements
represented by each account
• Based on the principles of debit and credit,
determine which kind of entry is required for
each account
• Verify that, each transactions, the total debits
equal the total credits
General Journal
Trial balance
TYPE
DESCRIPTION
EXAMPLE
GENERAL FORMAT
OF ADJUSTMENT
Accrued
Revenues
An organization provides
service to its customers
before collecting cash
Unbilled
client fees
Dr anAsset
Cr a revenue
Accrued
expenses
An organization receives
service before paying cash
Unpaid
employee
wages
Dr an expense
Cr a liability
Defered
Revenue
An organization receives
cash before providing
services to clients
Insurance
premiums
Dr a liability
Cr a revenue
TYPE
DESCRIPTION
EXAMPLE
GENERAL FORMAT
OF ADJUSTMENT
Prepaid
expenses
An organization uses up
assets that have previously
been paid for
Supplies
Dr an expense
Cr an asset
Uncollectible
accounts
Estimates an amounts clients Bad debts
will be unable or unwilling to
pay
Dr an expense
Cr a contra-asset
Depreciation
Periodic allocation of an
asset’s cost to the periods
that benefit from its use
Dr an expense
Cr a contra-asset
Equipment
Four general purpose financial
statement
•
•
•
•
Income statement
Statement of changes in shareholder’s equity
Balance sheet/Statement of financial position
Statement of Cash flow
CODING SYSTEMS
• Williamson(2006) list five important reasons for
maintaining a clear, logical chart of accounts:
– Efficiency of data capture, entry and analysis
– Frequency of use and familiarity
– Consistency and understanding of use within the
organization
– Saving on computer processing time and storage
– Similar items can be related by means of a coding
system, whereas a verbal description could be very
inefficient
• Williamson identified four (4) common coding
systems often used in organization:
– Sequential coding- simply numbers items in
sequence.
– Block coding-is quite common in a chart of
accounts. Number are assigned in block; each
block is resevered for a particular kind of account
– Hierarchical codes- are a more sophisticated
form of block coding. In hierarchical coding,
each digit/block of digits conveys important
information to people who know the code.
– Mnemonic codes- by their nature, help people
remember the meaning of the code.
CODING
SYSTEM
EXAMPLE
FORMAT
Sequential
Purchase number orders
101.102,103
Block
Quickbooks standard chart of
accounts for retail companies
Current assets: 101,105,109
Plant assets: 202,206,208
Current liabilities: 301,303,305
Hierarchical
State University
101-11-08-81
101: Big City campus
11: academic affairs division
08:college of business
81: accounting department
Mnemonic
Inventory items
DVR: digital video recorder
FSTV: flat-screen television
Human judgment and information
technology
• Designing source documents
• Recognizing recordable transactions
• Estimating amounts and interpreting
accounting rules
Thank
You