Accounting Information Systems

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System Descriptions

• Accounting Information Systems

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The Cash Receipts Cycle

• The points to think about are
• Why do we do all of the things that we do?
• How can we tell this story more efficiently and
  (perhaps) effectively?
• We will tell the story sort of like a play with
  characters acting out parts.

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Why do we care about accounting information
systems?

• What do accounting information systems do as
  compared to manual entry systems?
• Another way of asking this question is What do
  we wish to accomplish with our system?

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Why do we care about accounting information
systems?

• There are several related answers to this
  question, including the following
• Make certain that the transaction information
  that is recorded fully and correctly reflects the
  transactions which have occurred.
• Provide some protection against theft and
  fraudulent financial statements.
• Provide managers with the type of information
  that they require to make decisions.

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• The first two items are termed control
  characteristics of the system. How does the
  system (the way you process information)
  influence the likelihood of errors and fraud?
• The third item relates to the efficiency of the
  information system at providing useful
  information for management decisions.

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Control Characteristics
All transactions which were entered into were
recorded. In other words, there are no
transactions (such as purchases for credit) which
exist, but which did not get recorded (Input
completeness ).All transactions which were
recorded actually occurred (Input validity) . We
want to make sure that transactions did not
accidentally get recorded twice and that no
fraudulent transactions were recorded.All
transactions which occurred and which were
recorded were properly authorized (Input
validity). Suppose the mailroom clerk sold the
company truck for 25.00 to his best friend!All
recorded transactions are recorded and
transcribed accurately (Input accuracy). We want
to make sure (first of all) that everything got
entered correctly! The double-entry system of
bookkeeping helps with this.
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Transaction cycles

• When a company sells its product, it increases
  one asset (either cash or accounts receivable)
  and decreases another (inventory).
• Profit comes from the difference in value between
  the asset received and the asset given up.
• We can think of the sale and purchase of
  inventory as cycles. You continually have to
  purchase new items to sell or you will go out of
  business.

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Knowledge about the relationships between sales,
accounts receivable, and cash receipts
(inventory, purchases, accounts payable, and cash
disbursements) can be used to decrease the
possibility of errors and theft. Example
Problem A customer calls and says that he
received an invoice from your company and that he
never purchased anything. Solution Establishin
g documentation procedures that tie recorded
transactions to existing transactions.
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The Sales Transactions Players

• Sales manager
• Accounts Receivable clerk
• Shipping Clerk
• Mailroom clerk
• Cashier
• General Ledger Clerk
• What role does each perform?

Sales and Cash Receipts
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Sales(approving the transaction)

• Sales Dept
• From the Purchase Order, fill out the Charge Sale
  Invoice document, leaving blank the verified by
  space then give it to A/R. This is a Sales Order
  Header.

• Accts Receivable
• Approve the transaction and complete the Sales
  Order. This will be an invoice when the items
  have been shipped. Send 2 copies of the invoice
  to Shipping (one is a packing slip). Send an
  approved copy back to Sales.

• Sales Dept
• Send the vendor acknowledgement back to the
  customer. Inform the customer of the sales order
  number for future correspondence, give them
  someone to contact and an estimated date.

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Sales (executing the transaction)

• Shipping
• Fills the order, notes the quantity shipped and
  computes the extension and total sale. Sends a
  copy to the customer (as a packing slip).
• Fills in the BOL and returns to A/R.

• Accts Receivable
• Record the account receivable in the A/R
  subsidiary ledger (This is like a file for
  this particular customer).
• Send a copy of the complete invoice to the G/L
  department.
• Send a copy of the complete invoice to the
  customer.

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Sales(recording the sale in the General Journal)

• G/L department (accounting)
• Record the invoice from Accounts Receivable.

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SALES
Sales clerks receives a PO
Prepares Sales Order Header
Forwards to Accounts Receivable for approval
Prepare S/O
Accounts Receivable
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A/R
Checks the A/R subsidiaryledger
Approves the transaction and annotates the SO
header makingit a Sales Order
Returns Sales Order to salesclerk.
Send copies to shipping (one isPacking Slip)
Sales
Shipping
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SALES
Prepare vendor acknowledgement
Send to customer
Customer
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SHIPPING
Fills the order, notes the quantity shipped and
computes the extension and total sale. Sends a
copy to the customer (as a packing slip).
Fills in the BOL and returns to A/R.
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A/R
Record the account receivable in the A/R
subsidiary ledger (This is like a file for this
particular customer).
Send a copy of the complete invoice to the G/L
department.
Send a copy of the complete invoice to the
customer.
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G/L
Record the invoice from Accounts Receivable.
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Sales and Cash Receipts
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Sales and Cash Receipts

• Remember that we are focusing on the sales and
  cash receipts transactions.
• See Quiz to verify which ones apply to S CR
• It always helps to read ahead but it may also
  help to think ahead.
• Read flowcharts for understanding prior to
  transaction
• Think about the S CR Universe

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Sales and Cash Receipts Universe
Sale Sale
Cash Receipt Y N
Cash Receipt Y Cash Sale Loan
Cash Receipt N Account Sale Product Return
Or Charge-Off