Computerized Accounting Applications AC 203 2025 PDF

Computerized Accounting AC 203 Applications Topic O2 Management Accounting Systems Dr. Patrick Mbwile Department of Accounting University of Dar es Salaam Business School 17 November 2022 ...

Computerized Accounting AC 203 Applications Topic O2 Management Accounting Systems Dr. Patrick Mbwile Department of Accounting University of Dar es Salaam Business School 17 November 2022  Management Accounting Systems In managerial accounting information system information flows in two directions.  Top-down flow. Originates from events that occur at the top management level Strategic directives and company-wide goals disseminated from executive leadership Budget allocations and performance benchmarks set by top management Policy changes and corporate governance decisions affecting accounting practices Example: A corporation's shift towards sustainability reporting influencing management accounting priorities AC 203 Department of Accounting Page-2 University of Dar es Salaam Business School  Management Accounting Systems In managerial accounting information system information flows in two directions.  Bidirectional Communication: Integrated systems allow for real-time reporting and agile responses to both top-down and bottom-up information Example: Cloud-based accounting software enabling dynamic cross-departmental collaboration and decision-making AC 203 Page-3 Department of Accounting University of Dar es Salaam Business School  Management Accounting Systems In managerial accounting information system information flows in two directions.  Bottom-up flow. When events occur at the lower levels Operational data and transactional input from front- line activities Feedback loops from departmental performance to inform strategic realignment Cost and revenue data from individual units shaping financial planning Example: Front-line sales data driving adjustments in budget forecasts for the next quarter AC 203 Page-4 Department of Accounting University of Dar es Salaam Business School  Organizations Structure  Provides the environment through which information flows.  For management AIS to function properly this environment must have the following characteristics; - The organization must establish a structure that distinguishes each of its segments. - The organization must issue a clear statement of authority and responsibility for the manager of each segment. - Each employee should report to only one higher-level manager. - Top management should clearly define all superior- AC 203 subordinate relationships among employees. Page-5 Department of Accounting University of Dar es Salaam Business School  Policy Statements - Identify managements’ expectations concerning the behaviour of the organization employees. - Provides guidelines for employees on how to carry out specific duties contained in job description. - Common policy statements includes Financial Regulations and Accounting Manuals. - Also code of conduct/ethical guidelines. AC 203 Page-6 Department of Accounting University of Dar es Salaam Business School  Data Accumulation  Responsibility accounting systems provides top- down and bottom-up information flows.  This system produces a performance report for each responsibility centre summarizing budgeted costs and revenues to provide top-down flow, and actual costs and revenues for bottom-up flow (see illustration 2.9, p. 33).  The system accumulates much of data by the processes of classification and coding. AC 203 Page-7 Department of Accounting University of Dar es Salaam Business School  Classification  This occurs when the system groups transactions by responsibility centres and by account from the chart of accounts. Example: During a particular months, the system may classify TShs. 910,000 labour expenditure as a production department A’s wages and salaries expense. In manual IS, accountant perform this classification, while on a computer-based, either a person or computer may do it. AC 203 Page-8 Department of Accounting University of Dar es Salaam Business School  Coding  This occurs when the system assigns to a transaction a combination of characters that distinguish the classifications to which it belongs.  This is done through/using a Chart of Accounts  The overall objective is providing information for decision making AC 203 Page-9 Department of Accounting University of Dar es Salaam Business School  Advantages of Coding in AIS  Concisely represent large amounts of complex information that would otherwise be unmanageable  Provide a means of accountability over the completeness of the transactions processed.  Identify unique transactions and accounts within a file  Support the audit function by providing and effective audit trail. AC 203 Page-10 Department of Accounting University of Dar es Salaam Business School  Coding Techniques In designing coding system, the following guidelines will result in a better coding system  The code should be consistent with its intended use  The code allows for growth in the number of items to be coded  The coding system is as simple as possible in order to minimize costs, facilitate memorization of coding categories ad ensure employee acceptance  The coding system should be consistent with organization structure and across different divisions of an organization. AC 203 Department of Accounting Page-11 University of Dar es Salaam Business School  Classification (Cont.) Responsibility accounting system classifies a transaction in two ways.  According to the proper account in the Chart of Accounts  According to the Responsibility Centre The system then codes the transactions using the proper account code for that account and the proper responsibility code for that responsibility centre. AC 203 Page-12 Department of Accounting University of Dar es Salaam Business School  Types of Codes i. Responsibility Codes  Codes that distinguish each responsibility centre from others in the organization chart (See Illustration 2-12, p. 36).  Using this method, the responsibility centre with the most zeros in its codes is at the highest level in organization structure. AC 203 Page-13 Department of Accounting University of Dar es Salaam Business School  Types of Codes ii. Accounting Codes  In financial AIS, each account in the chart of accounts has a unique account code.  Helps to uniquely identify each account in the chart of accounts for each responsibility centre. AC 203 Page-14 Department of Accounting University of Dar es Salaam Business School  Other 710 Wages 720 Supplies Total Cost by Code Description Accounting Codes Accounts and Salaries Expense Responsibility 1000 President TShs. X TShs. X TShs. X TShs. XX 2000 Vice - President Counsel X X X XX Vice - President 3000 X X X XX Manufacturing 3100 Superintendent Factory 1 X X X XX 3200 Superintendent Factory 2 X X X XX 3300 Superintendent Factory 3 X X X XX Total Cost by Account XX XX XX XXX From the above illustration, wages paid to people working in the office of President will be charged to 1000-710. Likewise supplies used in the office of President will be changed to 1000-720 etc.  Types of Codes iii. Budget Codes  These work like Account codes however, when designing the system the designer add one digit to the account code to distinguish between budgeted and actual amounts. E.g. assume the digit 0 indicates actual amounts and the digit 9 signifies budget amounts, then the actual wages and salaries expense for the office of President is recorded in account 1000-0-710 while the budgeted amount will be recorded in 1000-9-710. AC 203 Page-16 Department of Accounting University of Dar es Salaam Business School  Types of Coding Structure Sequential Codes - Assigns unique identifiers to data items in sequence. - Accountants commonly assign them to the documents processed by an AIS. These include cheques, sales orders, purchase orders, invoices etc. - Easy-to-use sequential codes enable an accountant to keep a record of documents on hand and to identify their unauthorized use. - Example cheques issued by cash payment system have unique identifying numbers in an increasing sequence e.g. Cheque No. 10034, cheque No. 10035, etc. - However sequential codes are less flexible. AC 203 Page-17 Department of Accounting University of Dar es Salaam Business School  Types of Coding Structure Block Codes  System designer here reserve certain adjacent numbers in the sequence for certain classification.  Block codes – allow future expansion of the chart of accounts. Account Category Block Current Assets 100-199 Property, Plant and Equipment 200-299 Current Liabilities 300-399 Long-term Debt 400-499 Stakeholders Equity 500-599 Revenue 600-699 Expenses 700-799 AC 203 Page-18 Department of Accounting University of Dar es Salaam Business School  Group Codes - An extension of block codes in which the position of each character in the group has significance. - The position represents a different characteristics of the data classification. - Usually are used as account codes and has the form of xxxx-x-xxx - Often group codes are structured so that the interpretation of each succeeding digit depends on the digit immediately to its left.  Advantages of Group Codes: Flexibility; it is easy to add or delete items/groups without affecting others. Also one can reassign meaning to a group of codes without affecting other items. AC 203 Page-19 Department of Accounting University of Dar es Salaam Business School  Mnemonic Codes  Identify data items with combination of letters and numbers.  The design team chooses the combination so that clerks can more easily remember the associated data items.  Help to prevent errors in data entry. E.g. shortened version of customers’ names.  However, if there are many similar data items, the mnemonics many also be similar which may confuse clerks and cause errors. E.g. customers many have similar names etc. AC 203 Page-20 Department of Accounting University of Dar es Salaam Business School  Additional Notes  Coding structures help to classify, summarize and retrieve data.  Coding structures should be adaptable to changing needs within a company e.g. A three digit employee code becomes inadequate once a company hires more than 999 employees.  Furthermore, producing comparable information from data codes in different ways require different systems; maintaining redundant system is expensive and inefficient. Accountants, therefore participating in system design must choose an appropriate coding structure AC 203 Page-21 Department of Accounting University of Dar es Salaam Business School  Quick Review  Responsibility Centre an organizational unit where a manager controls financial measures recorded and reported by a managerial accounting information system. It may be either a cost centre (e.g. production department), a profit centre (e.g. sales office, regions, divisions), or an investment centre (e.g. subsidiary).  Chart of Accounts is a created list of the accounts used by a business entity to define each class of items for which money or the equivalent is spent or received. AC 203 Page-22 Department of Accounting University of Dar es Salaam Business School  Quick Review  Sequence Digit Position Meaning - Items numbered consecutively  Block - Specific range of numbers are 1–2 Product Line, associated with a category size, and so on 10000–199999 = Electric Range 3 Color  Group - Positioning of digits in code provide meaning 4–5 Year of  Mnemonic Manufacture - Letters and numbers - Easy to memorize 6–7 Optional Features - Code derived from description of item 1241000 12 = Dishwasher  Chart of accounts 4 = White - Type of block coding. A list of all general ledger accounts used. 10 = 2010 00 = No Options AC 203 Page-23 Department of Accounting University of Dar es Salaam Business School  Quick Review  Review Questions (Boockholdt, J. L. Chapter 2 Questions 2-24, 2-25) AC 203 Page-24 Department of Accounting University of Dar es Salaam Business School