1. Pertemuan 09 The Traditional Accounting Information System Matakuliah: M0034 /Informasi dan Proses Bisnis Tahun: 2005 Versi: 01/05

2. Learning Outcomes Pada akhir pertemuan ini, diharapkan mahasiswa akan mampu : Menjelaskan siklus akuntansi

3. Outline Materi Tahapan Akuntansi dan tujuannya Sistem Akuntansi Tradisional

4. By Hollander, Denna, Cherrington PowerPoint slides by: Bruce W. MacLean, Faculty of Management, Dalhousie University Accounting, Information Technology, and Business Solutions, 2nd Edition  The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill The Traditional Accounting Information System Chapter 3

5. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Objectives Describe the nature of the traditional accounting cycle and its relationship to business events Describe the impact of IT on the traditional accounting system Describe how the traditional accounting system architecture limits accounting’s ability to enhance value Describe the limitations of the traditional accounting system architecture

6. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Pacioli: The Father of Traditional Accounting n Pacioli was not really the inventor, but was “the first accountant to combine his knowledge with the technology that enabled authors to print books using a movable type and a printing press to instruct the world on the subject in print”. n Pacioli documented the double entry, chart of account classification scheme used to record and store accounting data. n To keep the accounts in balance, Pacioli proposed a rigorous process for recording, maintaining, and reporting accounting data. Pacioli suggested the use of three books: ä the memorandum book, ä the journal and ä the ledger. The memorandum book should include notations of every transaction, large and small, in whatever currency was being used and in as much detail as time and circumstance allowed. The journal was the source for the ledger, where the double entry bookkeeping was done. It was in the ledger that the businessman could learn before anyone else whether he was a success or a failure

7. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Rules for Accounting n Chart of Accounts See Exhibit 3-1 ä classify and summarize financial measurements ä nominal accounts vs real accounts n One compendium of sample charts of accounts and accounting procedures for different industries is The Encyclopedia of Accounting Systems n Charles Sprague “ Any occurrence [accounting transaction] must be either an increase or a decrease of values, and there are three classes of values [assets, liabilities, and equity]... in every transaction at least two of the occurrences must appear... on opposite sides of the above list.” n Assets = Liabilities + Owner’s Equity

8. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Exhibit 2-1 Sample Chart of Accounts n Current Assets ä Cash110 ä Accounts Receivable130 ä Allowance for Doubtful Accounts140 ä Inventory 160 ä Prepaid Insurance180 ä Notes Receivable190 n Property, Plant, and Equipment: 200 ä Land210 ä Building220 ä Accumulate Depreciation Building230 ä Equipment240 ä Accumulated Deprec. Equipment 250 n Current Liabilities: ä Accounts Payable310 n Long-Term Debt: ä Bonds Payable410 n Stockholder’s Equity: ä Common Stock510 ä Capital in Excess520 ä Retained Earnings550 ä Revenue and Expense Summary590 n Revenue: ä Revenue 610 ä Interest Revenue620 ä Rent Revenue630 n Expenses: ä Purchases710 ä Freight on Purchases720 ä Purchase Returns730 ä Selling Expenses740 ä General and Admin. Expenses750 ä Interest Expense760 ä Extraordinary Loss (pretax)770 Account TitleAccountAccount TitleAccount

9. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Exhibit 3-2: Steps in the Accounting Cycle and Their Objectives During the accounting period

10. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Exhibit 3-2: Steps in the Accounting Cycle and Their Objectives At the end of the accounting period

11. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Exhibit 3-2: Steps in the Accounting Cycle and Their Objectives At the beginning of the next accounting period

12. Financial statements and notes Audit statements and notes Journals Record transaction data Ledgers Post journal data to the ledger Trial balance Prepare and adjust the trial balance Business event Nonfinancial systems Information customers Accounting Cycle Process Analyze business event data Ignore event data Correct and adjust Financial statement notes Prepare statements and notes Financial statements and notes Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000

13. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step : Identify Accounting Transactions to be Recorded n The purposes of this first step are to identify the business events that can be considered accounting transactions and to collect relevant economic data about those transactions. Accounting transactions are the business events that cause a change in the organization’s assets, liabilities, or owner’s equity. These events include ä Exchanges of resources and obligations between the reporting firm and outside parties ( reciprocal transfers or non-reciprocal transfers) ä Internal Events within the firm that affect its resources or obligations but that do not involve outside parties ä Economic and environmental events beyond the control of the company (changes in values) n Accounting transactions are typically accompanied by a source document prepared by someone other than the accountant

14. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 2 - Journalize Accounting Transaction Data n Measure and record the economic impact of transactions n Transactions are recorded in a journal - Debit, Credit, date, account number, amounts,and descriptions n General journal and Special Journals n Historical Cost Principle n Posting References and page numbers

15. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 3: Post Journal Data to Ledgers n The process of transferring transaction data from the journals to the ledger accounts is called posting n General Ledger and Subsidiary Ledgers n Totals of Special Journal Columns are posted n An audit trail should provide the capability to trace an individual transaction from its initial recording all the way through the accounting process to the final figures in the financial statements n Reconciliation is the process of summing the subsidiary ledgers and comparing the total with the balance in the general ledger control account

16. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 4: Prepare Unadjusted Trial Balance n The unadjusted trial balance is a list of general ledger accounts and their account balances n Convenient method of determining that the sum of the Debit account balances equals the sum of the Credit account balances n If the trail balance does not balance the source of the error must be investigated

17. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Exhibit 3-5 Unadjusted Trail Balance Illustrated Click to Open

18. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 5: Journalize and Post Adjusting Entries n Adjusting entries are required when their is no source document to trigger a transaction ä Passage of time ( interest or depreciation) ä Correct Errors ä Record Changes in Estimates ä Recording Deferrals ä Recording Accruals ä Reclassifying balances ä Recognizing inventory losses Source documents from earlier transactions are the primary information sources for adjusting entries.

19. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 6: Prepare Adjusted Trial Balance n The adjusted trial balance lists all the account balances that will appear in the financial statements (with the exception of retained earnings, which does not yet reflect the current year’s net income and dividends). n The purpose of the adjusted trial balance is to confirm debit-credit equality, taking all Adjusting journal entries into consideration. Confirm Debit Credit Balance n Source for preparation of the Financial Statements

20. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 7 Prepare Financial Statements n The primary objective of financial accounting is to provide information that is useful to decision-makers. Financial statements can be produced for a period of any duration. However, monthly, quarterly, and annual statements are the most common. n The income statement, retained earnings statement, and balance sheet are prepared directly from the adjusted trial balance. n The temporary account balances are transferred to the income statement, and the permanent account balances are transferred to the balance sheet. FS

21. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 8 Journalize and Post Closing Entries n Closing entries reduce the temporary accounts (e.g., revenues, expenses, and dividends) to a zero (closed) balance. n Closing entries are recorded in the general journal at the end of the accounting period and are posted to the appropriate ledger accounts. n Permanent accounts are not closed because they carry asset, liability, and owner's equity balances to the next accounting period. n The retained earnings account is the only permanent account involved in the closing process.

22. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 9 Prepare Post-Closing Trial Balance n A post-closing trial balance lists only the balances of the permanent accounts after the closing process is finished. (The temporary accounts have zero balances.) n This step is taken to check for debit-credit equality after the closing entries are posted. n Firms with a large number of accounts find this a valuable procedure because the chance of error increases with the number of accounts and postings. n The retained earnings account is now stated at the ending balance and is the only permanent account with a balance different from the one shown in the adjusted trial balance.

23. Irwin/McGraw-Hill  The McGraw-Hill Companies, Inc., 2000 Step 10 Journalize and Post Reversing Entries n At the beginning of the next period, the accountant may prepare and post reversing entries to compensate for the difference in timing between the occurrence of an actual economic reality, and the recording of the economic event in the accounting system. n Reversing entries use the same accounts and amounts as adjusting entries but with the debits and credits reversed. n These entries reverse adjusting entries made at the end of one period and prepare the accounting records for normal processing of business events in the new period.

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