P.O. Box 342-01000 Thika
Email: [email protected]
Web: www.mku.ac.ke
DEPARTMENT OF INFORMATION
TECHNOLOGY
COURSE CODE: BIT 2101
COURSE TITLE: ACCOUNTING INFORMATION SYSTEMS
Instructional manual for BBIT – Distance Learning
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P.O. Box 342-01000 Thika Email: [email protected] Web: www.mku.ac.ke
DEPARTMENT OF INFORMATION
TECHNOLOGY
COURSE CODE: BIT 2101
COURSE TITLE: ACCOUNTING INFORMATION SYSTEMS
Instructional manual for BBIT – Distance Learning
- COURSE OUTLINE
- CHAPTER ONE
- OVERVIEW OF ACCOUNTING INFORMATION SYSTEMS
- 1.1 Accounting Methods and Objectives
- 1.2 The Accounting Process
- Chapter Review Questions
- OVERVIEW OF ACCOUNTING INFORMATION SYSTEMS
- CHAPTER TWO
- ACCOUNTING TRANSACTION CYCLES
- 2.1 Introduction to accounting cycles
- 2.2 The cycles of Business Activities
- 2.3 Transaction Cycles...................................................................................................................
- Chapter Review Questions
- ACCOUNTING TRANSACTION CYCLES
- CHAPTER THREE
- DEVELOPING ACCOUNTING SYSTEMS
- 3.1 The qualities of a successful system
- 3.2 Accounting Information systems development approaches
- Chapter Review Questions
- DEVELOPING ACCOUNTING SYSTEMS
- CHAPTER FOUR
- SETTING UP A QUICKBOOKS BUSINESS...................................................................................................
- 4.1 Getting started Checklist.........................................................................................................
- 4.2 Creating your company file
- 4.3 Creating your customer and vendor list
- Chapter Review Questions
- SETTING UP A QUICKBOOKS BUSINESS...................................................................................................
- CHAPTER FIVE
- MAIN QUICKBOOKS FEATURES
- 5.1 Getting Around QuickBooks
- 5.2 Finding your data in QuickBooks centers................................................................................
- 5.3 Using in-product Help
- Chapter Review Questions
- MAIN QUICKBOOKS FEATURES
- CHAPTER SIX
- QUICKBOOKS BASICS
- 6.1 Working with QuickBooks lists
- 6.2 Writing checks versus paying bills...........................................................................................
- 6.3 QuickBooks Essential Tasks
- 6.4 Adding Customers Vendors and other accounts
- 6.5 Setting up sales tax
- 6.6 Setting up your Payroll
- Chapter Review Questions
- QUICKBOOKS BASICS
- CHAPTER SEVEN
- QUICKBOOKS OPERATING FEATURES
- 7.1 Creating an Estimate
- 7.2 Creating an Invoice..................................................................................................................
- 7.3 Entering sales receipts
- 7.4 Receiving a Payment
- 7.5 Making a Deposit
- 7.6 Paying Bills
- 7.7 Writing Checks
- 7.8 Issuing Credits or Refunds.......................................................................................................
- 7.9 Paying Employees
- 7.10 Using Reports
- Chapter Review Questions
- QUICKBOOKS OPERATING FEATURES
- SAMPLE EXAM QUESTIONS
COURSE OUTLINE
BIT 2102: ACCOUNTING INFORMATION SYSTEMS Purpose of the course To overview the information systems that support the business financial accounting systems of an organization and to provide practical skills in accounting information systems development and use.
I. Overview of accounting information systems A. Introduction to Accounting Information Systems B. Accounting Methods and Objectives C. The accounting process II. Accounting Transaction Cycles A. Introduction to Accounting Cycles B. The cycles of business Activities C. Transaction Cycles; Financial, Expenditure, conversion and revenue cycles
III. Developing Accounting Systems A. Qualities of a successful system B. Accounting Information systems development approaches IV. Setting up A QuickBooks business/company A. Creating a Company B. Creating customers vendors and items lists C. Numbering accounts in QuickBooks V. Main QuickBooks features. A. QuickBooks working area B. QuickBooks customers, vendor and employee centers C. Using QuickBooks help
VI. QuickBooks basics A. Working with QuickBooks lists B. Paying bills C. Essential tasks such as Adding an Account D. Income and Expense accounts and Balance sheet accounts E. Setting up sales tax F. Setting up payroll
ACCOUNTING INFORMATION SYSTEMS - TOPICS - DETAILS
CHAPTER ONE
OVERVIEW OF ACCOUNTING INFORMATION SYSTEMS
Introduction
An Accounting Information System (AIS) is a system that collects, records, stores, and processes data to produce information for decision makers. It can: Use advanced technology; or be a simple paper-and-pencil system; or, be something in between, technology is simply a tool to create, maintain, or improve a system. The functions an of AIS are to: Collect and store data about events, resources, and agents. Transform that data into information that management can use to make decisions about events, resources, and agents. Provide adequate controls to ensure that the entity’s resources (including data) are available when needed, Accurate and reliable
The study of accounting information systems analyzes how events affecting an organization are recorded, summarized, and reported. These events are recorded using that organization’s system of human and computer resources, summarized using accounting methods and objectives, and reported as information to interested persons both within and outside of the organization. Accounting information systems exist in many forms of organizations, whether proprietorships, partnerships, corporations, nonprofit foundations, or households. While the complexity of each accounting information system differs, each is similar in three important ways: Each contains a
Learning Objectives By the end of this chapter the learner shall be able to; i. Define an Accounting Information system(AIS) and explain the functions of an AIS ii. Explain the accounting methods and objectives iii. Explain the accounting process
similar structure (of human and computer resources), similar processes (the use of accounting methods), and similar purposes (to provide information).
1.1 Accounting Methods and Objectives
All accounting information systems record, process, and report events using accounting methods to achieve accounting objectives. These objectives determine the system’s scope, which in turn determines the nature of the events and the method of accounting. However, all systems record events in money and use the same conceptual accounting process.
For the publicly held corporation, the accounting information system’s scope must comply with generally accepted accounting principles (GAAP). GAAP is necessary to produce financial statements intended for parties external to the organization. With ‖GAAR any event that has a determinable monetary impact on the organization must be recognized as an accounting transaction. A system whose objective is to record, process, and report past transactions as financial statements in accordance with GAAP is a financial accounting information system. A Usually the scope of an orga.nization’s system for processing data is broader than & that required by GAAP. For example, when an accounting system includes budgetary forecasts, it recognizes future transactions and estimates their monetary impact. Whether short-term annual budgets or long-term ones, budgets provide vital financial information for managing the organization. Budgeting and other such accounting systems intended primarily for use within the organization constitute managerial accounting information systems. Both the financial and the managerial systems are components of the organization’s management information system (MIS). The MIS is the combination of people, procedures, and machines intended to provide information for management decision making. It recognizes events beyond those of a purely financial nature.
information explaining the general ledger’s control account total. Common subsidiary ledgers include the accounts payable subsidiary ledger, the property ledger, among others.
Prepare a Trial Balance. This is step three in the accounting cycle. During an accounting period, accounting information systems journalize and post a large number of transactions. Prior to producing accounting reports, the system summarizes the effect of all the events in a trial balance.
Prepare Adjusting Entries. The fourth step in the accounting cycle is the preparation of adjusting entries. Sometimes accountants make these journal entries at the end of a reporting period to match the expenses of the period with the revenues generated by them. Other adjusting entries correct previous errors in journalizing transactions. An accountant or bookkeeper prepares adjusting entries, records them in the journal, and posts them to the ledger. These alter the account balances shown in the trial balance.
Prepare Adjusting Entries. The fourth step in the accounting cycle is the preparation of adjusting entries. Sometimes accountants make these journal entries at the end of a reporting period to match the expenses of the period with the revenues generated by them. Other adjusting entries correct previous errors in journalizing transactions. An
accountant or bookkeeper prepares adjusting entries, records them in the journal, and posts them to the ledger. These alter the account balances shown in the trial balance.
CHAPTER TWO
ACCOUNTING TRANSACTION CYCLES
2.1 Introduction to accounting cycles
This chapter will describe the technology that accounting information systems use and the information system controls that prevent and detect errors and threats to these systems. To make it easier to under- my stand these procedures, they are structured by accounting transaction cycle. Different accountants describe transaction cycles in different ways. Transaction cycles emphasize the continuous nature of all business and accounting processes. Transaction cycles demonstrate how events early in a transaction cycle affect events and records later in the cycle. A weakness in internal control affecting a transaction may mean that records created later in that same cycle are misstated.
Accounting systems are designed to record summarize, and report the results of economic events for a wide range of organizations. Even though businesses differ in their operations, all of them engage in a cycle of business activities. Each activity has certain economic events common to most; these economic events produce accounting transactions that must be processed by the accounting system.
Learning Objectives By the end of this chapter the learner shall be able to; i. Explain the relevance of accounting cycles in business organizations today ii. Explain the economic activities engaged by organizations iii. Explain the concept of transaction cycles such as Financial, Expenditure, conversion and revenue cycles.
2.2 The cycles of Business Activities
As mentioned earlier all businesses engage in a cycle of business activities that are common to most businesses. These activities are; Capital investment, input acquisition, conversion and sales.
Capital Investment. The cycle of business activities begins when capital is invested in a business. Generally accepted accounting principles (GAAP) require recognizing the business as an entity separate from the sources of this capital. These sources may be the owners of the business, or they may be creditors. If the source is the owners, the investment is owners’ equity. If the source is creditors, the investment is either long- term debt or current liabilities. In many businesses, most of the capital is used to purchase long-term productive assets. The business uses the productive assets to increase its capital. Periodically, the business reports the results of its operations to the sources of its capital.
Capital investment comprises two significant economic events: raising capital and using capital to acquire productive assets. Another event that occurs during this activity is not economic in the sense of the other two: Periodically the business reports to its sources of capital. This is necessary to maintain those sources when additional capital is needed later.
Input Acquisition. The second component of the cycle of business activities is the acquisition of materials and overhead items such as supplies. These inputs are used to
Summary
Normal business operation consists of a series of economic events. This series results from the cycle of business activities that describes how all accounting entities operate. An accounting system records economic events in the form of accounting transactions, summarizes those transactions, and reports them in some useful way. Thus, you can consider business activities as cycles of accounting transactions. In fact, the study of transaction cycles is a convenient way to understand how most accounting systems work.
2.3 Transaction Cycles
A transaction cycle is a set of accounting transactions that occur in a normal sequence. They record the economic events of a component in the cycle of business activities. For example, a sales transaction is normally followed by a shipping transaction, a billing transaction, and a cash receipts transaction. These constitute a cycle.
The four accounting transaction cycles are; the financial cycle, the expenditure cycle, the conversion cycle, and the revenue cycle.
Financial Cycle. The financial cycle consists of those accounting transactions that record the acquisition of capital from owners and creditors, the use of that capital to acquire productive assets, and the reporting to owners and creditors on how it is used.
The two significant economic events in the financial cycle are raising capital and using that capital to acquire property, plant, and equipment. A third event—not really an economic one—is periodic reporting to the sources of capital. The basic financial statements provide periodic reporting. These statements include the balance sheet, the income statement, and the statement of cash flows. The summaries in these statements come from the general ledger. Periodic reporting to the sources of capital enables a business to raise additional capital. For this reason, you can view the series of transactions as a cycle.
The three accounting application systems that record the events in the financial cycle are the property the journal entry, and the financial reporting systems.
Expenditure Cycle. The expenditure cycle consists of those transactions incurred to acquire material and overhead items for the conversion process of the business. This processes transactions representing the following economic events: requesting the items, receiving the items, recording the obligation to pay for the items, and paying for them.
Conversion Cycle. The conversion cycle contains those transactions incurred when inputs are converted into salable goods or services. One economic event exists in the conversion cycle. Materials, labor, and overhead are consumed in the conversion process. In manufacturing and service companies, either actual or standard material and labor costs are recorded in a cost ledger as conversion occurs. Overhead costs are allocated in the cost ledger, usually based on the amount of labor used. These costs become associated with the products and are matched with revenue when the products are sold.
In merchandising companies, costs of conversion are recorded when incurred and matched against revenue in the same period. Depending on the type of organization, the conversion cycle contains either two or three application systems. Manufacturing and service companies use the cost accounting system to record material, labor, and overhead costs. All types of organizations use the payroll system. It ensures that employees are paid for their labor. Manufacturing and merchandising companies use the inventory system to maintain records of inventory on hand.
In merchandising and manufacturing companies, the systems of the conversion cycle provide interfaces between the expenditure and revenue cycles. Because it contains only one event, the conversion cycle cannot be represented as a circle as can the other cycles.