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The Traditional Accounting Information System
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TO USE OR PRINT this presentation click : http://videosliders.com/r/1311 • ============================================================== • The Traditional Accounting Information System Chapter 3 • ,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 the limitations of the traditional accounting system architecture Describe how the traditional accounting system architecture limits accounting’s ability to enhance value • ,Pacioli: The Father of Traditional Accounting 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”. • Pacioli documented the double entry, chart of account classification scheme used to record and store accounting data. 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: the memorandum book, • the journal and 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 • ,Rules for Accounting Chart of Accounts See Exhibit 3-1 • classify and summarize financial measurements • nominal accounts vs real accounts One compendium of sample charts of accounts and accounting procedures for different industries is The Encyclopedia of Accounting Systems 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.” Assets = Liabilities + Owner’s Equity ,Current Assets Cash110 Accounts Receivable130 Allowance for Doubtful Accounts140 Inventory 160 Prepaid Insurance180 Notes Receivable190 Property, Plant, and Equipment:200 Land210 Building220 Accumulate Depreciation Building230 Equipment240 Accumulated Deprec. Equipment 250 Current Liabilities: Accounts Payable310 Long-Term Debt: Bonds Payable410 Stockholder’s Equity: Common Stock510 Capital in Excess520 Retained Earnings550 Revenue and Expense Summary590 Revenue: Revenue 610 Interest Revenue620 Rent Revenue630 Expenses: Purchases710 Freight on Purchases720 Purchase Returns730 Selling Expenses740 General and Admin. Expenses750 Interest Expense760 Extraordinary Loss (pretax)770 Exhibit 2-1 Sample Chart of Accounts Account Title Account Account Title Account • ,Exhibit 3-2: Steps in the Accounting Cycle and Their Objectives During the accounting period • ,At the end of the accounting period Exhibit 3-2: Steps in the Accounting Cycle and Their Objectives • ,Exhibit 3-2: Steps in the Accounting Cycle and Their Objectives At the beginning of the next accounting period • ,Financial statements and notes Nonfinancial systems Business event Audit statements and notes Information customers Accounting Cycle Process Analyze business event data Record transaction data Post journal data to the ledger Prepare and adjust the trial balance Prepare statements and notes Financial statements and notes Journals Ledgers Trial balance Ignore event data Correct and adjust Financial statement notes Irwin/McGraw-Hill Ó The McGraw-HillCompanies, Inc., 2000 • ,Step : Identify Accounting Transactions to be Recorded 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 • Exchanges of re
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