Chapter 4

Accounting Information Systems

Accounting Information Systems (AIS)

summarizes financial dataorganize 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 CycleAnalyze transactions Record the transaction Post the entries and prepare a trial

balanceAdjust the accounts and prepare an

adjusted trial balanceClose 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

InternetWorld’s largest computer networkCompanies can publish computerized

versions of their annual reportsEDGAR – 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 EntriesServes 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 = creditsDividend Account and all revenues

and expenses have a zero balanceBalance 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)