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Accounting Information Systems - Assignment Example

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The paper “Accounting Information Systems” is a meaty example of a finance & accounting assignment. Data refers to raw facts that cannot be used in making feasible business decisions; for instance, a cash receipt contains raw facts. Information on the other hand refers to data that has been processed or transformed so as to help in making business decisions; for instance, cash receipts journal…
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Extract of sample "Accounting Information Systems"

Name: Tutor: Course: Date: Establish and Maintain Accounting Information Systems / Internal Controls Question 24 PART A 1. Data refers to raw facts that cannot be used in making feasible business decisions; for instance, a cash receipt contains raw facts (data). Information on the other hand, refers to data that has been processed or transformed so as to help in making business decision; for instance, cash receipts journal (Hall 38). 2. Transaction processing system and accounting information system are same; this is justifiable because both involve analysis of transactional information used in making business decisions by the stakeholders such as operational managers, bookkeepers and accountants so as to enhance the operational efficiency of the business. 3. Accounting information system has a great role in business decision making because it analyzes business transactions and operations of the business. It is from the statements of financial performance, cash flows, financial position and management that enable businesses to comply with the federal rules and regulations (Hall 62). 4. The weaknesses associated with John William’s accounting information result from: Accuracy: John does not maintain proper documents to evidence his transactions and this implies that the details kept in his book/diary are not accurate. Completeness: since John does not keep cash transactions on business documents and gives the accountant with a shoebox of paper works that he had managed to retain. This means the information presented by the accountant is not complete due to missing transactions. Validity: John only writes up amounts owing in his diary and there are no business documents that can be used to validate each transaction. Reliability: John does not provide the accountant with all transactions and this makes it questionable to have him rely on the information provided by the accountant. Timeliness: John is said to be visiting his accountant once a year so as to obtain his financial statements; this is not frequent enough to make the information reliable for decision making. He ought to visit the accountant more frequently so as to make the information valid and reliable (Hall 336). Understandability: John is not knowledgeable in interpreting financial statements; hence the format of information is not understandable to him for effective decision making. PART B 1. To: The Chief Accountant From: The Trainee Accountant (Andre Lee) In the course of the last three months, I have observed the accounting information system used in SMC and noticed that data is entered to the system in an ad hoc manner. The information is not reaching all personnel who need it and systems used to process data are inefficient, making it difficult for some managers to understand the information given. It is significant that the accounting information system is augmented to avoid these inefficiencies in inputting, processing data and providing information for decision-making. The benefits of putting in place a better accounting information system are: Financial reporting: financial reports offered by the business ought to be reliable; it should be accurate and verifiable so that no transaction is omitted. Profit maximization: if an accounting system is reliable, verifiable and complete; a business will be in a position to manage its costs and enhance profit maximization. Statutory reporting: the business has a legal duty to report on issues such GST and superannuation guarantee. If the accounting information system produces reliable information then our tasks to external bodies will be made easier (Hall 428). Protection of assets: managers have roles of protecting the assets of business organizations, and this calls for a need to have controls put in place so as to safeguard the assets. Employee protection: employees are imperative resources within an organization in its bid to maximize profits. There is a need to have them be able to undertake their duties in confidence of controlling accounting information systems so as to remove any suspicion from them in the event that assets are misplaced or misappropriated. 2. a. System analysis involves determining how the existing accounting information system is collecting data and ascertaining if the information provided is appropriate to the needs of users of the system (Hall 193). b. System documentation involves the study of data input, processing of data and output of information to the required business stakeholders or stored for future decision-making. c. System requirements refer to the format in which the documented information is presented and reported; for instance, the ledger, balance sheet, income statements and other financial statements. 3. The system implementation phase for Alex Business will involve the following aspects: Creating a scheme detailing when the system will be implemented; these plan details the people responsible for undertaking specific tasks during implementation so as to avoid time and money wastage. Installing and testing of appropriate equipment such as cash registers, electronic funds transfers and computer systems suitable to the tasks required (Hall 229). Selecting and training personnel so as to have capable, competent and well-trained people operate the accounting information system. Implementation and testing the documented system so as to enhance systematic and coordinated procedures and practices so as to achieve organizational objectives. 4 The key concepts of internal control include: a. Documented procedures; this ensures that all operating procedures, rules and regulations used by business organizations are documented. b. Qualified personnel; people operating the accounting information systems ought to be well trained and qualified so as to undertake all tasks assigned in the system (Hall 103). c. Segregation of duties; people given tasks in the accounting system should be given tasks in a way that prevents misappropriation of assets. d. Authorization; all documents ought to be signed by people who are given authority to sign them. e. Physical controls; all assets ought to be protected and made accessible to people who have the mandate to access and use them. 5. Client’s concerns involve the assessment of the performance of the organization based on the report and recommendations delivered by the internal auditors (Hall 227). The auditors’ concern on the other hand, is to assess whether the business organization follows the auditing and accounting information standards in recording and reporting its financial position and performance. This aids auditors to advise the management on how to effectively conduct their business processes. 6. The five components of internal control include; a. Plan of organization; there is a need to have segregation of function and responsibility between departments so as to ensure that each department is accurate and complete. b. System authorization and record procedure; this is aimed at transferring authority within the organization so as to endorse transparency and accountability c. Sound practices to be followed in performance of duties and functions so as to reduce dysfunctions related to inconsistent treatment of similar items and duplication of duties (Hall 119). d. Competent personnel; successful operations of the business organization ought to have the right caliber of personnel to operate it. This means that employees ought to be screened before being employed coupled with regular training. e. Clerical controls so that no one person is responsible for entries relating to a transaction. The accuracy of the each person ought to be checked and verified by another officer working independently from the other. 7. Internal audit is part of the internal control environment as it is conducted by internal auditors who assess the internal operations of the business. For instance, information relating to accounting and managerial tasks are evaluated to ensure that they are in compliance with the accounting, auditing and federal rules (Hall 139). The information from internal controls is basically used for internal decision making by managers and this makes internal audit to be part of the internal control environment. Question 25 PART A 1. The process of establishing a credit purchase system involves the following steps; Ordering: This involves placement of a purchase requisition initiated by authorized senior personnel that is then approved by a departmental head. Receiving: Goods from the suppliers are received and accepted at the approved goods inward location; where the inwards officer checks the goods to verify their quality and quantities based on the order/requisition made previously. Storing: This involves proper housing and safeguarding of the goods received so as to protect them from being misappropriated (Gelinas, Dull & Wheeler 205). Accounting: The goods stored are recorded and all transactions pertaining to them are held by officers in charge so as to aid in effective decision making. The process of establishing a credit sales system in an organization involves the following steps; Providing credit: the credit management department reviews the customer’s credit worthiness so as to ascertain his or her ability to repay the debt. Preparing sales documentation: This involves recording of the order details from the customer on a Standardized Order Form. This information is then processed by the authorized officers from specific organizational departments such as the stores and the accounting department. Sales returns documentation may also be prepared in cases where goods have been returned by the customers due to Accounting for debtors: This task is separated from the sales and credit approval functions. This helps in updating the customer accounts by the accounting department so as to make the sales. The debtors’ accounts are reviewed regularly so as to ensure that the customers’ credit limit is not exceeded. 2. a. This should be authorized for payment when the purchase order and the goods received report are viewed to evidence that goods were ordered and have been delivered (Gelinas, Dull & Wheeler 339). b. This should only be authorized when the purchase order and the goods received report are viewed to evidence that goods were ordered and have been delivered. c. This should only be authorized for payment when evidence has been offered that the vehicle was serviced. d. This should only be authorized for payment when evidence has been provided that the computer stationery was ordered and had been delivered/ received. e. This should only be authorized for payment when evidence has been provided that the firm used the convention center in the previous month. A letter to the council requesting the use of the premises may validate this. f. This should only be authorized for payment when evidence has been provided of the loan document. 3. The weaknesses of the accounting information system that are not protecting the carrying of cheque are; Before a cheque is prepared, documentation is necessary in form of purchase order, the goods received report and the invoice ought to be presented to the bookkeeper. There is a need to provide 30-day documentary evidence to prove that goods were delivered. The bookkeeper has too many related responsibilities as he not only prepares the cheque but also signs it and this may result in errors in the accounting information system. 4. Cleaners Equipment Ltd Payment system is indicated in the following flow chart; PART B 1. The accounting system to be used in order to protect cash registers should involve the following steps; The cash register should be regularly totaled and the details of the amounts recorded on the register for sales, returns and account payments entered onto a cash register proof sheet (Gelinas, Dull & Wheeler 571). The takings of cash, cheques and electronic funds transfer documents ought to be counted and compared to the amount disclosed on the register and the cash register proof sheet and ensure that the amounts agree. The payments received, cash register tape and cash register proof sheet should be forwarded to the cashier for safe keeping and further processing. A copy of the cash register proof sheet should be forwarded to the accounting department. 2. The strengths of Jim & Jay Ltd payroll system include; The system has segregated the functions of personnel, payroll and accounting so as to avoid cases of funds misappropriation. The payroll department calculates and processes then pays, independent of the personnel and accounting departments. However, the firm’s payroll system has the following weaknesses; The personnel department is responsible for maintaining employee’s personal information, receives the time cards and approves the time sheets (Gelinas, Dull & Wheeler 428). This means there is a possibility of the personnel staff to create a fictitious employee and authorize hours to be paid to the employee. This means that the personnel and time keeping functions ought to be separated. The personnel department receives the pay advice and employee pays after they have been processed by the payroll department. There is a need for forwarding the pay advice to the pays officer for distribution so as to avoid creating fictitious employees within the organization (Gelinas, Dull & Wheeler 332). 3. Computer accounting information system has the following benefits to an organization; It ensures that an organization operates in an orderly and efficient manner. It ensures that assets of an organization are protected so as to achieve its financial objectives. It ensures that financial records of business organizations are accurate and up-to-date; this will then aid in assessing the performance of the business. Enables an organization to detect irregularities in the accounting process; the detected errors are then corrected by people in responsible positions. 4. To: The Managing Director of Milinda Management Ltd. From: The Accountant RE: Control Issues in the accounting information system. Having determined your systems requirements, you should now turn your attention to the Systems Design phase. This stage needs you to design the various control centers, business documents, policies and procedures and applicable control measures in your accounting information system that will aid the system to offer you system requirements needed (Gelinas, Dull & Wheeler 619). If a computer accounting package is introduced into the accounting information system, there should be no significant changes required to the existing policies, procedures and input documentation. For purchases of stock and non-current assets purchase orders ought to be raised and authorized before they are processed. However, the introduction of the computer accounting package may need alterations in the accounting information system especially in input documentation to ensure codes required by the computer system are included. This will aid in ensuring that the assets of the organization are safeguarded from people with selfish intentions (Gelinas, Dull & Wheeler 122). 5. The accounting software names include; Attache, Business Manager, Pastel, MYOB, Sybiz and Quicken. 6. To: The Management of XYZ Ltd. From: The Accountant I have undertaken a cost-benefit analysis of your proposal to outsource some of your accounting requirements and determined that you would reduce your annual costs by xxxx. Accounting (Outsource to accounting firm) Benefit Casual labor costs (20hrs x $25.50 x 52 weeks) x 3 people $79,560 Superannuation @ 9% $7,160 Total benefits $86,720 Costs Part –time bookkeeper $30,000 Superannuation @ 9% $2,700 Outsourcing cost ($2650 x 12 months) $31,800 Total costs $64,500 Net Benefits $22220 Whilst the proposal has substantial cost saving, you should consider benefits derived from the accounting firm in relation to their up-to-date knowledge in accounting issues, efficiency of reporting and other expert advice on taxation and other aspects. There is therefore a need for outsourcing (Gelinas, Dull & Wheeler 126). Works Cited Hall, J. Accounting Information Systems. Edition7. Cengage Learning, 2010. Gelinas, U, Dull, R & Wheeler, P. Accounting Information Systems. Edition9. Cengage Learning, 2011. Read More
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