Chapter 4 Accounting Information Systems

Accounting Information Systems (AIS) summarizes financial data organize the data into useful form results of the information communicated to management for decision making Data processing is the means of accomplishing the above objectives

Enterprise Resource Planning System (ERP) Comprehensive information system integrates financial and nonfinancial information about customers, operations, and suppliers in a single database Provides timely information

Cost benefit principle – benefits of system > cost of system Control principle – safeguards to protect assets and ensure data is reliable (garbage in/garbage out) Compatibility principle – AIS system fits in the organization’s culture Flexible principle – be able to flexible to accommodate changes in volume and organization changes Design of AIS System

Accounting Cycle Analyze transactions Record the transaction Post the entries and prepare a trial balance Adjust the accounts and prepare an adjusted trial balance Close income statement accounts to Retained Earnings and prepare closing trial balance Prepare financial statements

Internet – companies transact business directly with vendors, suppliers, and clients Spreadsheets – Excel and Access Computerized grid of rows and columns of data and formulas General Ledger systems – Peachtree, Quickbooks Posting – batch posting or real-time basis Computerized Accounting Systems

Internet World’s largest computer network Companies can publish computerized versions of their annual reports EDGAR – SEC’s online warehouse of financial information for public companies Extensible Business Reporting Language (XBRL) computer language that allows users to assess financial info on the Web to perform computations and summarizations for reporting

Internet (continued) Electronic Data Interchange (EDI) – ecommerce facilitated through private networks Supply-chain management – manufacturers use the internet to track supplies and materials on a daily or hourly basis and may include a link to customers Event-to-knowledge (E2K) – management – uses the internet to convey information to internal and external users after a transaction has occurred

Types of Accounts Balance Sheet Accounts (permanent accounts) - balances extend past the end of the accounting period Revenue and Expense Accounts (temporary accounts) – they are nominal nature because their year end balances are zero out and these balances are transferred to Retained Earnings

Closing Entries Serves 2 purposes Sets the stage for the new accounting period by closing the revenue and expense accounts to Retained Earnings Summarization of period’s revenues and expenses to the Income Summary which is used to prepare financial statements

Four closing entries  Temporary credit balances closed – revenue accounts (debited) Income Summary (credited)  Temporary debit balances are closed expense accounts (credited) Income Summary (debited)  Close the Income Summary Net profit or loss (credited or debited) Retained earnings (credited or debited)  Dividends account is closed into RE

Post Closing Trial Balance Prepared after Closing Entries Verify that debits = credits Dividend Account and all revenues and expenses have a zero balance Balance Sheet Accounts are the only accounts with balances Assets, Liabilities, Retained Earnings and Contributed Capital

Reversing entries Adjusting entries made at the end of each accounting period to bring revenues and expenses into conformity with the matching rule and into conformity with accrual accounting principles The adjusting entries for most transactions are followed in the next period by the receipt or payment of cash

Working papers Working papers help accountants to organize their work and to provide evidence in support of the financial statements numbers Work sheet - working paper used for accounting purposes to provide an audit trail for preparation of the statements (usually not seen by management)

Work Sheet Example See Chapter 3 power point presentation (slides 17-24)