I.T Elective 5:AIS MIDTERM - ACTIVITY SEATWORK(LAB)

John Edwin M. Serrano

BSIT 3A

I.T Elective 5: Accounting Information System(LAB)

Hello, My name is John Edwin M. Serrano. A 3rd Year BSIT Student from Gordon College, College of Computer Studies. This blog is my seatwork in I.T Elective 5: Accounting Information System(LAB).

1. Transaction Cycle - An interconnected chain of business transactions. A small number of cycles that deal with the buying and selling of goods, paying suppliers and employees, and repaying lenders can be used to organize the majority of these transactions.

In an Accounting information systems, TPS is the most fundamental system that is responsible for recording of Transaction in Journals and vouchers and distributing necessary information for daily operations.

There are three main Subsystems of TPS including the revenue cycle, the expenditure Cycle and the conversion cycle. all of these cycles support different objectives. All of these have similar characteristics. For example, all three capture financial transactions, record the effects of transactions, and produce information about transactions to support day-to-day activities.

Subsystems of Expenditure Cycles

Purchases/accounts payable system. This system identifies the need to acquire physical inventory (such as raw materials) for example Places an order with the vendor. After receiving goods the purchases system records the event by increasing inventory and establishing an account payable to be paid at a later date.

Cash disbursements system is responsible for authorizing the payment, disburses the funds to the vendor and records the transaction by reducing the cash and accounts payable accounts. 

Payroll system is another example of TPS that collects labor usage data for each employee, computes the payroll, and disburses paychecks to the employees. 

Fixed asset system works with transactions involving the acquisition, maintenance, and disposal of its fixed assets. These are relatively permanent items that collectively often represent the organization’s largest financial investment. Examples of fixed assets include land, buildings, furniture, machinery, and motor vehicles. 

2. Expenditure Cycle - It is a collection of tasks related to purchasing and paying for goods and services.

3. Conversion Cycle - Used by accounting software to record the use of labor, materials, and overhead in the production of a good or service.

The Conversion Cycle

The cost accounting system is major in this cycle and it monitors the flow of cost information related to production. It generated cost Information which is useful for inventory valuation, budgeting, cost control, performance reporting and management decisions.

 4.  Revenue Cycle - a routine set of business operations and related information processing tasks related to providing consumers with goods and services and collecting payment for those sales.

The Revenue Cycle

Firms sell their finished goods to customers through the revenue cycle. All transactions that include cash sales and credit sales are recorded and processed by this cycle of TPS. Revenue cycle transactions also have a physical and a financial component, which are processed separately.

Sales order processing subsystem is responsible for preparing sales orders, granting credit, shipping products (or rendering of a service) to the customer and  billing customers. Cash receipts. For credit sales, some period of time (days or weeks) passes between the point of sale and the receipt of cash.

Process of Revenue Cycle

• Receive order from a customer
• Processing the order by making goods ready for delivery
• Billing and preparing invoices
• Delivery of goods and invoices to a customer
• Delivery received by a customer
• Accounts receivable records recorded
• Payment by customer

Importance of Revenue Cycle

The revenue cycle is maintained and used to check cash flow of the organization, cash flow by evaluating its profit-making activities. It helps the management decide on improvements possible by comparing the cycle of the organization with any available cycle of the competitors. It merely applies a check to the personnel involved in the process to reduce the errors. Automating the repetitive process also helps the organization provide timely and effective customer service.

Management of Revenue Cycle helps reduce the credit period of receiving payments from the customer and lower the cases or probability of bad debts. It plays a vital role in the proper billing and receipt in the case of a healthcare facility by providing facilities for tracking registration of patients, administering personal data and insurance-related information, scheduling the appointments and billing, and receipt of the bills. Before proper implementation of the cycle organization should evaluate its fixed cost and cost-effectiveness, it also should measure whether it would be more beneficial to implement this system.

Advantages

The biggest advantage that an organization gains from the management of the cycle is the reduction in the time of receipt of the product or services of the organization to the interested customers & reduction in the time of payment received from the customers.

Adaptation of Revenue Cycle Management also helps reduce the time & cost of the management by automating the repeated processes. The cycle study helps the management decide the structure of the process, which will provide the best results and will have the best controls in managing the cycle.

It provides overall better accuracy in the billing of the product or services provided by the organization and better accounting of the transaction. The study of delay in the receipt of the payment received from the customers helps the management study the blockage of cash inflow from the different transactions, which helps the management make decisions regarding the credit periods provided to a variety of customers for maintaining the cash flow within the organization, in health industry cycle help to track all the revenue because there is the involvement of insurance company. In a few cases, payment is received directly from the patient. In some cases, they receive part payment from the patient and part payment from the insurance company. In a few cases, they receive payment directly from the insurance company, this requires lots of control, so the revenue cycle helps track all these transactions.

Disadvantages

For proper adaptation of revenue cycle management, training for the employees is necessary. If any part of the cycle makes any mistake, that thing could impact the whole cycle. Proper implementation requires expertise in accounting which may increase the company’s cost.

As explained, the cycle of the healthcare industry is complicated. The organization you have implemented this cycle will have to allocate different departments to different people so that one person won’t control all the process. For this, the organization requires hiring human resources that might increase the company’s fixed cost. There are chances of missing some important aspects of recording revenue in this industry.

Conclusion

It is an accounting process that differs from industry to industry. The service industry revenue cycle is short, and in a manufacturing company, it is a bit longer than in the service industry. It is vital to follow the cycle so that an organization can track all the revenue and the amount receivable from the debtor and track non-payment from debtors. But the organization should also consider its cost before implementing the proper revenue cycle system if it is cost-effective.

5. Source Document - Any document that documents a transaction, including checks, bills, invoices, and receipts, is a source paper. Every time a business makes or receives a payment, a source document is generated.

• purchase merchandise inventory to sell to customers;
• record returns of some of the inventory;
• record sales made to customers at the sales price;
• record the cost of the goods sold at the amount Macy’s paid to purchase them;
• record payments from customers;
• record returns from customers;
• purchase other kinds of items needed for operations, like office supplies and fixed assets;
• pay for prior purchases;
• pay for rent, utilities, and other services;
• pay employees;
• enter all of these transactions;
• post all transactions;
• record adjusting journal entries;
• record closing journal entries;
• keep track of its receivables, payables, and inventory; and
• produce financial statements for internal and external users as well as other reports useful to managers in assessing various performance measures needed to evaluate the success of the company.

 6. Product Document - Users produce and print documents like contracts, receipts, and   statements using pre-set templates.

Some common source documents

Every business must record every economic transaction on their books and have enough evidence to support it. Some common source documents used are described below:

Sales order

A sales order is a document generated by the seller upon receiving a purchase order from a buyer. To accept the purchase order, the seller issues an order confirmation specifying the product details: the product or service with the price, the quantity, the delivery terms, and the seller and buyer details.

Based on the sales older the seller can generate an invoice for the buyer.

Invoice

When a company sells any product or service to another party, it issues an invoice or a bill. The invoice shows the description of the product, the parties involved in the transaction, the date, the quantity and the price.

Any time an invoice is issued there is a copy for the buyer and another for the seller.

Cash Receipt

A receipt is a financial source document that provides proof that cash was transferred from one party to the other.

The receipt contains the names of the two parties involved in the transaction, the date, the amount of money transferred and the currency.

For example, when a person or a company pays for a product, a cash receipt is supplied as proof of money transferred.

A check from a cash register

The check printed from a cash register provides proof that a purchase was paid for in cash or by card.

Purchase order

A purchase order is a source document issued by the buyer to the seller. Initially, it requests a product or a service, but it is a binding agreement once the seller accepts the purchase order.

Sometimes the purchase order comes after a previous process of negotiation. During that stage, both parties, the buyer and the seller, agree on the terms and conditions.

A purchase order contains the description of the items, the quantities to purchase, the price, the delivery dates, and the payment terms.

Delivery note

The delivery note is a document that is sent together with a shipment of goods that provides proof that the goods or products have been delivered.

The delivery note usually shows the names of the parties, delivery location, the date, and the descriptions and quantities of items in the transaction.

A copy signed by the buyer is returned to the vendor as proof of delivery.

Goods received note

The goods received note (GRN) is like the delivery note, but in this case, it will be issued by the buyer.

It also shows the name of the parties involved in the transaction, the description, the quantities of items in the transaction, the date, and delivery location.

The goods received note can be sent to the seller when the transaction has been completed. It is used to match received goods to invoices received from vendors.

Debit note

The debit note can be sent from the buyer to the seller together with returned goods. In this case, the buyer notifies the seller that they do not intend to pay for the goods if purchased on credit, or they expect a refund or credit from the seller if goods have already been paid for.

Also, the debit note can be sent from the seller to the buyer when the amount payable by the buyer increases. In this case, the seller notifies the buyer that in their accounts they have increased the amount what the buyer owes to the seller. Formally, it can serve as a request for extra payment from the buyer, e.g. when there were changes to the original invoice.

Credit note

The credit note can be sent by the seller when the buyer has returned the product to the seller, fully or partially. In this case, the credit note indicates that the buyer does not need to pay for these products if purchased on credit, or that the seller now owes the buyer a refund, if the buyer already paid for the products.

Also, the credit note can be sent from the buyer to the seller, in response to receiving a debit note, to acknowledge a seller’s claim.

Time card

The time card is an internal document that companies use for registering the working hours of the personnel and pay wages. The time card records the name of the employee, the working day, the entry time and the exit time.

The time card has evolved over time, from the traditional paper time card to the magnetic card or fingerprint records.

Bank statement

A bank statement is used to enter payments into the accounting system and match them to invoices. During an audit, the bank statement allows to verify that the payments entered into the accounting system, the movements shown in the bank accounts in the company’s records, actually happened, and show who the receiving/sending party was.

7.  Turnaround Document - a computer-generated electronic form that is given to the recipient with instructions to fill it out and send it back to the issuer.

8. Special Journals - It makes a particular kind of transaction easier and more efficient and it speeds up their publication.

The larger the business, the greater the likelihood that that business will have a large volume of transactions that need to be recorded in and processed by the company’s accounting information system. You’ve learned that each transaction is recorded in the general journal, which is a chronological listing of transactions. In other words, transactions are recorded into the general journal as they occur. While this is correct accounting methodology, it also can create a cumbersome general journal with which to work and may make finding specific pieces of information very challenging. For example, assume customer John Smith charged an item for $100 on June 1. In the general journal, the company would record the following.

9. General Journals - a place where data is first entered, with distinct columns for dates, serial numbers, and records of debits and credits on each page.

General Journal in Accounting

The general journal sometimes referred to as the nominal journal, is a journal used to record transactions which do not belong in any of the other special journals such as the sales, purchases, cash receipts and cash disbursement journals. The general journal is simply a list of journal entries in chronological order, and is used to save time, avoid cluttering the general ledger with too much detail, and to allow for segregation of duties.

 

General Journal Entries

The general journal is a book of prime entry and the entries in the journal are not part of the double entry posting. Typically, the general journal entries record transactions such as the following:

• Opening entries
• Adjusting entries
• Correcting entries
• Accounting period end closing entries
• Allowance for doubtful accounts
• Fixed asset purchases and sales
• Depreciation adjustments
• Goods taken for personal use
• Transfer between subsidiary ledger personal accounts

The information recorded in the journal is used to make postings to the relevant accounts in the general ledger.

Information Listed in the General Journal

The information in the general journal is taken from the relevant source documents, and each entry includes the following:

• Transaction date
• Debit: Account title, general/subsidiary ledger reference, and amount
• Credit: Account title, general/subsidiary ledger reference, and amount
• Reason for the journal entry

10. General Ledgers - gathers real-time financial activity from numerous business entities, arranges and reconciles it, and provides data for consolidated financial reports.

11. Subsidiary Ledgers - details about a general ledger control account. After being recorded in a subsidiary ledger, information is periodically aggregated and uploaded to a control account in the main ledger.

Impersonal Ledger

The impersonal ledger records transactions relating to income, expenses, assets, liabilities and capital. The impersonal ledger is sub-divided as follows.

Real Ledger

The real ledger contains accounts relating to assets and liabilities. It should be noted that although accounts receivable and accounts payable are real accounts they are also personal accounts and therefore held in the personal ledger.

Real accounts are balance sheet accounts and are therefore permanent accounts.

Cash is also an asset account in the real ledger but due to the level of detail required in the cash account it is normal for a business to maintain a separate subsidiary ledger known as the cash book

Private Ledger

The private ledger contains accounts relating to the management and ownership of the business, including the personal accounts of owners. As the name implies it is used to maintain the privacy of the individuals involved.

Personal Ledger

The personal ledger records transactions relating to persons such as a customer or a supplier. It should be noted that the personal ledger is not used for the capital and current accounts of the owners, these are maintained in the private ledger referred to above.

12. Audit Trail -  the tracking down of the origins of accounting, commerce, or other financial data.

Audit trails are the manual or electronic records that chronologically catalog events or procedures to provide support documentation and history that is used to authenticate security and operational actions, or mitigate challenges. Numerous industries use versions of an audit trail to provide a historical record of progression based on a sequence of events. These records provide proof of compliance and operational integrity. Audit trails can also identify areas of non-compliance by providing information for audit investigations. Whether it is logging the design changes of a product build, keeping the record of financial transactions for an e-commerce site, communication transactions, healthcare activity, or legitimizing the outcome of an election, an audit trail validates actions and outcomes. Audit trail records will contain details that include date, time, and user information associated with the transaction.

IT plays an important role in the general process of industry- or regulation-specific audit logs and trails. However, the department itself has a unique and densely populated log process where the numerous and varied activities of users, systems, and applications are constantly monitored to prevent misuse, hacking, or corruption of information. IT professionals use this system for validation as an essential tool to analyze operations and technical controls for computer systems. Used to validate and monitor activity, an audit trail provides a tool to maintain information and system integrity.

13. Digital Audit Trail - contains all of the documentation necessary to track the various steps of a commercial transaction. Along with other very important financial information, invoices and receipts are included. Contracts and salary details are also included.