Chapter 3
Essential Elements and Basic Activities of
Accounting Systems
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Learning Objectives
Discuss the significant similarities between paper-
based accounting systems and computerized
accounting systems.
Identify the essential elements of a paper-based
accounting system.
Understand the basic activities of a paper-based
accounting system.
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Learning Objectives (cont.)
Identify the essential elements of a computerized
accounting system.
Understand the basic activities of a computerized
accounting system.
Compare batch posting in a computerized
accounting system to real-time posting.
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Why Review Paper-based
Accounting Systems?
Paper-based Accounting Systems:
- Provide a simple and familiar context in which to
understand the issues of computerized accounting
system.
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Similarities Between Paper-based and
Computerized Accounting Systems
Essential elements:
- Where data are captured, recorded, processed,
stored, and reported?
Basic activities:
- How data are captured, recorded, processed,
stored, and reported in the essential elements?
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Paper-Based Accounting Systems
Essential Elements:
- Source documents
- Accounts
- Chart of accounts
- Journals (special and general)
- Ledgers (subsidiary and general)
- Outputs
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Paper-Based Accounting Systems
(cont.)
Source Documents Samples:
- Purchase order
- Bill of lading
- Cash receipts prelist
- Time card
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Paper-Based Accounting Systems
(cont.)
Accounts:
- Classifies monetary measurements of business
activities of a similar nature
- Number varies with needs of the organization
Chart of Accounts:
- List of all account names and codes
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Paper-Based Accounting Systems
(cont.)
Journals:
- Book of Original Entry
* Special
* General
Ledgers:
- Transaction data by account
* General
* Subsidiary
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Paper-Based Accounting Systems
(cont.)
Accounting System Outputs Samples:
- Sales order
- Sales invoice
- Schedule of aged accounts receivable
- Receiving report
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Paper-Based Accounting Systems
(cont.)
Accounting System Outputs Samples (cont.):
- Balance Sheet
- Statement of Income
- Statement of Changes in Ownership Equity
- Statement of Cash Flows
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Paper-Based Accounting Systems
(cont.)
Basic Activities :
- Completing source documents
- Recording transactions in appropriate journals
- Posting (copying) data from the journals to the
appropriate accounts in the subsidiary ledgers
and the general ledger
- Preparing output documents and reports
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Computerized Accounting Systems
Essential Elements:
- Source Documents
- Reference Files
- General Ledger Master File
- Subsidiary Ledger Master Files
- Open Files
- Transaction Files
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Computerized Accounting Systems
Essential Elements (Cont.):
- Other Files
* Scratch
* Backup
* Archive
* Program
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Computerized Accounting Systems
Essential Elements (Cont.):
- Outputs
* The major difference in outputs from a
computerized system and a paper-based
system is in the number and speed with which
outputs from a computerized system can be
generated.
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Computerized Accounting Systems
Basic Activities:
- Preclassifying transactions according to types
(such as sales, cash receipts, purchases, cash
disbursements)
- Creating a transaction file for each class of like
transactions for each data capturing period
- Updating, or posting to, the subsidiary ledger
master files and open files
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Computerized Accounting Systems
Basic Activities (cont.):
- Summarizing transaction files and transferring
the summarized data to a general journal
transaction file
- Updating, or posting to, the general ledger
master file
- Preparing documents and reports
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Batch Versus Real-Time Posting
Batch Posting:
- Advantages
Can use proof list to check input BEFORE posting
to catch errors.
Posting/updating done when no conflicting activity
- Disadvantage
Master and open files up to date only after batch
posted
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Batch Versus Real-Time Posting
Real-time Posting:
- Advantage:
Availability of up-to-the-minute information
- Disadvantages:
Entering erroneous data
Expensive in resources, personnel time
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Batch Versus Real-Time Posting
Best Uses of Batch and Real-Time Posting:
- Real-time:
when up-to-date information is critical
- Batch:
all other times to minimize costs and to
ensure the maximum number of
data-entry errors have been eliminated from
transaction files before posting occurs
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Summary
- A review of a paper-based accounting
system is a good start point for understanding
computerized accounting system.
- The essential elements and basic activities of
paper-based and computerized accounting
system are reviewed and introduced .
- Many accounting systems today have the
capability of real-time posting.
© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved.
