ACCIST Reviewer PDF

ACCIST MIDTERMS Exam Coverage Transaction is a business event. Chapter 1 to 4 1. Financial Transactions - example: - 20 Multiple Choice purchase of an airline ticket...

ACCIST MIDTERMS Exam Coverage Transaction is a business event. Chapter 1 to 4 1. Financial Transactions - example: - 20 Multiple Choice purchase of an airline ticket - 20 True or False 2. Non Financial Transactions - example: - 4-5 Essay Questions airline reservation ACCIST REVIEWER Transforming the Data into Information CHAPTER 1 (According to the general AIS Model) 1. Data Collection Internal Information Flows 2. Data Processing Horizontal flows of information used primarily at 3. Data Management the operations level to capture transaction and 4. Information Generation operations data Characteristics of Useful Information Vertical flows of information 1. Relevance - downward flows are instructions, quotas, 2. Timeliness and budgets 3. Accuracy - upward flows are aggregated transaction 4. Completeness and operations data 5. Summarization Centralized data processing uses a single system for all operations, making it simpler but less scalable and prone to single points of failure. Distributed data processing spreads tasks across multiple systems, enhancing scalability and fault tolerance but increasing complexity and costs. Choose based on your needs for scalability and management. A system is called a subsystem when it is viewed Advantages of Distributed Data Processing as a component of a larger system. 1. Cost Reduction 2. Improved cost control A subsystem is considered a system when it is the 3. Improved user satisfaction focus of attention. 4. Improved backup of data AIS (Accounting Information System) focuses on Disadvantages of Distributed Data Processing financial data, handling both financial transactions 1. Mismanagement (like sales) and related nonfinancial data (like 2. Hardware and software incompatibility adding new vendors). It's mainly used by 3. Redundant tasks and data accountants and financial professionals. 4. Lack of standards MIS (Management Information System) focuses Manual Process Model on operational data, managing nonfinancial Transaction processing, information processing, transactions (like tracking customer complaints) and accounting are physically performed by people, that AIS doesn't usually handle. MIS is used by usually using paper documents. managers and executives to help make decisions and manage business operations. 1 REA Data Model Example - Resources (e.g. assets) 2. Product documents describe the features - Events (affect changes in resources) and usage of a product (e.g., user - Agents (individuals and departments) manuals). 3. Turnaround documents are output documents sent to users, who then return them with additional information (e.g., utility bills). Two Primary Types of Journal 1. General journals record all types of transactions, providing a comprehensive financial overview. CHAPTER 2 2. Special journals focus on specific Transaction Processing transaction types, like sales or purchases, making it easier to manage repetitive Expenditure Cycle is focused on purchasing, cash transactions disbursement payroll and fixed assets. Two Types of Ledger Two Parts of a Transaction 1. General ledgers are master accounts that 1. Physical Component - acquisition of goods consolidate all financial transactions, 2. Financial Component-cash disbursements providing a comprehensive overview. Major Subsystem 1. Purchasing/ Accounts Payable 2. Subsidiary ledgers are detailed subsets of 2. Cash Disbursement the general ledger. 3. Payroll 4. Fixed Assets Audit Trail 1. It tracks every action taken, like changes in Conversion cycle focuses on production planning financial data. and controlling and cost accounting or turning 2. Helps in finding and fixing errors, ensuring investments in inventory into cash. accuracy, and protecting against fraud. 3. Provides a clear record of who did what and Major Subsystem when, which is useful for audits and checks. 1. Production, Planning and Control 4. Makes the financial system more 2. Cost Accounting trustworthy and reliable. Revenue cycle focuses on sales order processing Four Magnetic Files of Computer-Based System and cast receipts. 1. Master File - contains account data (e.g. general and subsidiary ledger) Major Subsystem 2. Transaction File - temporary file used to 1. Sales Order Processing update data in master file 2. Cash Receipts 3. Reference File - used as standards for processing transactions Manual System 4. Archive File - contains past transactions for 1. Source documents are original records future references capturing transaction details (e.g., invoices). 2 Data Flow Diagrams (DFD) - Describes the flow of Real Time Processing data within the organization using symbols. - Processing transactions as it occurs like transactions with low volumes and do not Entity-Relationship Diagrams (ERD) - used to share common records. represent the relationships between entities (REA). Data Coding Schemes Cardinality 1. Sequential Codes - 1. One to One sequential order like 2. One to Many numerical and can be 3. Many to Many either ascending or descending System Flowchart 2. Block Codes - represents whole classes of items 3. Group Codes - represents items or events involving 2 or more pieces of related data. 4. Alphabetical Codes - same purpose as numeric code (sequential codes). 5. Mnemonic Codes - alphabetic characters in the form of acronyms. Benefits of Data Coding 1. Concisely represents large amounts of Computer Flowchart complex information 2. Provide a means of accountability 3. Identifications of unique transactions and accounts 4. Provides an effective audit trail Chapter 3 Ethics, Fraud and Internal Control Sarbanes-Oxley Act - U.S. federal law passed in 2002 that aims to Program Flowchart protect investors by making corporate disclosures more reliable and accurate. - It was created in response to major accounting scandals such as Enron and WorldCom Two Main Question in Business Ethics (1) What is right in conducting their business? Batch Processing (2) How do they achieve it? - Transactions accumulated over time and then processed together 3 Four Areas of Ethics in Business a. Bribery - giving, offering, soliciting 1. Equity and receiving things of value 2. Rights b. Illegal Gratuities - similar to bribery 3. Honesty but transaction occurs after the fact. 4. Exercise of Corporate Power c. Conflict of Interest - occurs when personal interests influence an Computer Ethics - nature and social impact of accountant’s judgment, leading to computer technology biased decisions. d. Economic Extortion - use of force Levels of Computer Ethics such as demanding payments or 1. Pop favors as a condition for awarding 2. Para business or contracts. 3. Theoritical 3. Asset Misappropriation - in which assets Fraud - False representation of a material fact such as cash, inventory and supplies are made by one party to another with the intent to either directly or indirectly diverted to the deceive and induce the other party to justifiable perpetrator’s benefit. rely on the fact of their injury or loss. Eight types of Asset Misappropriation Employee Fraud - designed to directly convert a. Skimming - stealing cash before it cash or other assets to the employee’s benefit. is recorded in the books b. Cash Larceny - stealing cash after it Management Fraud - often escapes detection until is recorded in the books the organization has suffered irreparable damage c. Billing Schemes - issuing of false or loss. payment to suppliers d. Check Tampering - forging and The Fraud Triangle changing the fact in the check e. Payroll Fraud - distribution of fraudulent paychecks to an existent or nonexistent employee f. Expense Reimbursement - makes a claim for reimbursement of false expense g. Theft of Cash - direct theft of cash on hand h. Non-cash Misappropriations - theft or misuse of assets such as inventory. Fraud Schemes 1. Fraudulent Statements - misstating the Three Levels of Internal Control - (1) Preventive financial statements to make it appear Controls (2) Detective Controls and (3) Corrective better than it is. Controls 2. Corruption - involves executive, manager Exposure - it pertains to the absences or or employee of the organization in collusion weakness of control which could lead to with an outsider destruction, theft, corruption and disruption. Four Types of Corruption 4 Chapter 4 Sales Return Procedures Revenue Cycle 1. Prepare Return Slip 2. Prepare Credit Memo Revenue cycle is the direct exchange of finished 3. Approved Credit Memo goods or services for cash in a single transaction 4. Update Sales Journal between a seller and a buyer. 5. Update Inventory and Accounts Receivable Records Two Phase of Revenue Cycle 6. Update General Ledger 1. Physical Phase - transfer of assets or services from seller to buyer Cash Receipts Procedures 2. Financial Phase - involves the receipt of 1. Open Mail and Prepare Remittance Advice cash by the seller in payment of the account receivable Remittance Advice - it is a form of turnaround document wherein it contains information needed to Two Major Subsystems of Revenue Cycle service individual customers’ accounts. 1. Sales Order Processing Subsystem 2. Cash Receipts Subsystem 2. Record and Deposit Checks 3. Update Accounts Receivable Sales Order Processing Subsystem - tasks 4. Update General Ledger involved in receiving and processing a customer 5. Reconcile Cash Receipts and Deposits order, filling the order and shipping products to the customer, billing the customer at the proper time, Revenue Cycle Controls and correctly accounting for the transaction. 1. Transaction Authorization 2. Segregation of Duties Sales Order Procedures 3. Supervision 1. Receive Order 4. Accounting Records 2. Check Credit 5. Access Controls 3. Pick Goods 6. Independent Verification 4. Ship Goods Physical Systems - encompasses all tangible Bill of Lading - It is a contract between the seller components of a business process and the shipping company to transport the goods to the customer. It establishes legal ownership and Manual Systems - Involves paper-based responsibility for assets in transit. processes where transactions are recorded and tracked using physical documents 5. Bill Customer Roles of Each Department in Each Processing Sales Journal - used for recording completed Systems sales transactions and in which later on Sales Order Processing summarized into a sales journal voucher. 1. Sales Department - Sales order is recorded with essential details. Journal Voucher - summaries of transactions, 2. Credit Department Approval - Once credit adjusting entries, and closing entries are all entered is approved, sales order copies are sent to into the general ledger via this method. billing, warehouse, and shipping departments. 6. Update Inventory Records 3. Warehouse Procedures - Locates 7. Update Accounts Receivable inventory and prepares it for shipping. 8. Post to General Ledger 5  4. Shipping Department - Prepares the bill of 2. Account Number and Inventory Number - lading and ships the product. are both secondary keys and neither of 5. Billing Department - Bills the customer and these keys uniquely identifies sales order enters a transaction into the sales journal. records. 6. Accounts Receivable, Inventory Control, and General Ledger Keystroke - The clerk converts the hard-copy shipping notices to digital form to produce a Sales Return Procedures transaction file of sales orders. 1. Receiving Department - Process Begins: Returned products are received, counted, Edit Run - recalculates the batch control totals to and inspected for damage then prepares a reflect any changes due to the removal of error return slip. records. 2. Sales Department - Upon receipt of the return slip, the sales clerk prepares a credit memo. 3. Processing the Credit Memo - Reverse the original sales transaction. Cash Receipts Procedures 1. Mailroom - Process Begins: Customer payments and remittance advice arrive. 2. Cash Receipts Department - The cashier records checks in the cash receipts journal. 3. Accounts Receivable Department - The AR department uses remittance advice to update and reduce customer account balances. 4. General Ledger Department - The general ledger clerk reconciles the information and posts to the control accounts. 5. Controller’s Officer - They compare deposit slips, account summaries, and journal vouchers to ensure accuracy and prevent misappropriation. Computer-Based Accounting System Automation - involves using technology to improve the efficiency and effectiveness of a task. Reengineering - involves radically rethinking the business process and the workflow. Sales Order File - Three Key Fields 1. Sales Order Number - is the primary key and only field that uniquely identifies each record in the file. 6 ACCIST REVIEWER liability in the accounts payable subsidiary CHAPTER 5: The Expenditure Cycle Part 1: ledger. Purchases and Cash Disbursements and Procedures A/P periodically summarizes the entries in the purchased journal as a journal voucher Procurement Cycle (Subsystem) which is sent to the General Ledger (G/L) 1. Purchase Requisition department. 2. Purchase 3. Receiving/ Inspections Inv-Control or Purchases DR 4. Accounts Payable Accts Payable-Control CR 5. Cash Disbursements A/P also prepares a cash disbursements Goals of the Expenditure Cycle - The goal of voucher and posts it in the voucher register. providing resources to an organization includes buying from trusted vendors, selecting high-quality G/L Department: items, getting the best price, purchasing only - posts from the accounts payable approved items, ensuring resources are available journal voucher to the general ledger when needed, receiving only ordered items, - reconciles the inventory amount with preventing loss or damage, and paying on time. the account summary received from inventory control Manual Purchases System Begins in Inventory Control when inventory Periodically, A/P searches the open levels drop to reorder levels vouchers payable file for items with payments due: A purchase requisition (PR) is prepared and - A/P sends the voucher and copies to sent to Purchasing and Accounts supporting documents to Cash Payable (A/P) Disbursements - A/P updates the accounts payable Purchasing prepares a purchase order (PO) subsidiary ledger for each vendor and sends copies to Inventory Control, A/P, and Receiving Cash Disbursements: - prepares the check Upon receipt, Receiving counts and - records the information in a check inspects the goods. register (cash disbursements - A blind copy of the PO is used to journal) force workers to count the goods. - returns paid vouchers to accounts payable, mails the check to the A receiving report is prepared and copies supplier sent to the raw materials storeroom, - sends a journal voucher to G/L: Purchasing, Inventory Control, and A/P. Accounts Payable DR Cash CR A/P eventually receives copies of the PR, PO, receiving report, and the supplier's G/L department receives: invoice. - the journal voucher from cash disbursements A/P reconciles these documents, posts to - a summary of the accounts payable the purchases journal, and records the subsidiary ledger from A/P 7  The journal voucher is used to update the Purchasing - a computer program identifies general ledger. inventory requirements The accounts payable control account is The following methods are used for reconciled with the subsidiary summary authorizing and ordering inventories: ○ the system prepares POs and sends Computer-Based Accounting System them to Purchases for review, signing, and distributing Automation - use technology to improve efficiency ○ the system distributes POs directly and effectiveness to the vendors and internal users, Reengineering - use technology to restructure bypassing Purchases business processes and firm organization ○ the system uses electronic data interchange (EDI) and electronically Levels of Automating and Reengineering places the order without POS Ordering Other tasks performed automatically by the 1. The computer generates Purchase Requisition computer: - Purchases manually generates PO ○ updates the inventory subsidiary file 2. The Computer generates Purchase Order from the receiving report - PO not sent until manually reviewed ○ calculates batch totals for general 3. Computer-generated PO is automatically sent ledger update without manual review ○ closes the corresponding records in 4. Electronic Data Interchange EDI the open PO file to the closed PO - Computer-to-computer communication file without PO ○ validates the voucher records against valid vendor files Expenditure Cycle Database Tasks performed automatically by the Master Files computer: supplier (vendor) master file ○ the system scans for vouchers accounts payable master file currently due merchandise inventory master file ○ prints checks for these vouchers ○ records these checks in the check Transaction and Open Document Files register purchase order file ○ batch totals are prepared for the ○ open purchase order file general ledger update procedure supplier's invoice file open vouchers file Advantages of Real-Time Data Input and cash disbursements file Processing Over Batch Processing Other Files Real-time data input and processing offer key Supplier reference and history file advantages over batch processing. It reduces the Buyer file time lag in record-keeping, making records more Accounts Payable detail file up-to-date. It also cuts down on manual tasks, reduces the need for physical document storage, Computer-Based Purchases and minimizes data entry errors, streamlining the A Data Processing dept. performs routine entire process. accounting tasks. 8 Summary of Internal Controls Manual segregation of functions requires separate people or departments to handle custody and recordkeeping of assets, like inventory or cash. In computer-based segregation of functions, tasks are consolidated by software, where programs handle both authorization and processing, such as generating purchase orders or issuing checks, reducing the need for separate roles. Supervision Manual supervision involves close oversight in the Receiving department to prevent mistakes and theft when logging inventory. In contrast, computer-based supervision involves General Internal Controls automated processes that merge traditional roles, 1. Organization controls increasing the need for electronic monitoring. This - segregation of duties advanced system requires closer supervision, 2. Documentation especially as employees often have specialized IT 3. Asset Accountability Controls skills. 4. Management Practices 5. Data Center Operations Controls Accounting Records 6. Authorization Controls Manual accounting records rely on physical 7. Access Controls records for accounts payable, vouchers, checks, and ledgers, while computer-based accounting Manual authorization controls rely on specific records depend on secure, reliable digital data. employees, such as the Inventory Control Computer systems need regular backups and often department for purchases and Accounts Payable still use paper for auditing, but as they go for payment approval. paperless, tracking becomes harder. In contrast, computer-based authorization Access Controls controls automates these approvals, using Manual access controls involve physical oversight programmed rules for decisions. However, of inventories, cash, and accounting records, automated systems require flawless programming requiring direct human handling. to avoid issues like incorrect inventory orders or unintended payments. In contrast, computer-based access controls protect magnetic records from both authorized and Traditional Segregation of Duties unauthorized access, using limited file accessibility 1. Warehouse (stores) and ongoing monitoring to safeguard digital data 2. Inventory control and programs. 3. Accounts payable 4. General ledger Independent Verification 5. Requisitioning Manual independent verification relies on the 6. Purchases Accounts Payable department to check documents 7. Purchases returns and allowances like purchase requests, purchase orders, and 8. Cash disbursements invoices, with the General Ledger department ensuring recorded obligations match received 9 inventory and payments match cash Accounts Payable dept: disbursements. ○ prepares a cash disbursements voucher for the total amount of the In computer-based independent verification, payroll automation minimizes human error, but verification ○ sends copies to the Cash focuses on the accuracy of software and Disbursements and G/L depts. programming. Cash Disbursements dept: ACCIST REVIEWER ○ reviews and signs the paychecks CHAPTER 6: The Expenditure Cycle Part 2: and forwards them to a paymaster Payroll Processing and Fixed Asset Procedures for distribution to the employees ○ writes a check for the payroll and Manual Payroll System deposits it into the payroll imprest Personnel dept. uses personnel action account forms to: - activate new employees G/L dept. makes the following journal - change the pay rate of employees entries: - change marital status and/or number of dependents - terminate employees Production employees fill out two forms: ○ Job tickets - account for the time spent by the worker on each production job ○ Time cards - used to capture the total time worked each pay period G/L dept. makes a journal entry to transfer for payroll calculations the cash from the operating bank account to the payroll imprest account: Cost Accounting dept: Cash - Payroll Imprest Account DR ○ uses the job tickets to allocate labor Cash - Operating Account CR costs to WIP accounts ○ summarizes these charges in a Payroll Controls labor distribution summary which Transaction authorization - the personnel is forwarded to G/L dept. action form helps prevent: ○ terminated employees from Payroll dept receives personnel action receiving checks forms and time cards. Uses them to: ○ wage rates from being improperly ○ prepare the payroll register changed for current employees ○ enter the information into the employee payroll records Segregation of Duties - timekeeping and ○ prepare paychecks personnel functions should be separated ○ send paychecks to Cash Disbursements and a copy of the Supervision - need to monitor employees payroll register to Accounts Payable to ensure they are not "clocking in" for one another 10  Accounting Records - audit trail includes: Timekeeping - enters the attendance file time cards, job tickets, disbursement daily vouchers, labor distribution summary, Data Processing - still uses batch payroll register, subsidiary ledger accounts, processing and prepares all reports, the general ledger accounts checks, and updates the general ledger Access Controls - need to prevent Reengineered Human Resource Management employees from having improper access to: Systems differ from automated manual and batch ○ accounting records, such as time systems because they use direct access storage cards which can be altered and terminals to process transactions in real time. ○ unsigned checks This setup allows instant access to personnel files, enabling departments to handle inquiries and tasks Independent Verification: immediately, unlike batch systems that delay ○ verification of time cards processing. ○ distribution of paychecks to authorized employees The Fixed Asset System ○ verification of accuracy of payroll Fixed Assets - property, plant, and equipment register by A/P dept. used in the operation of a business ○ G/L dept. reconciles the labor distribution summary and the payroll Life of a Fixed Asset disbursement voucher Computer-Based Payroll Systems Payroll is well-suited to batch processing and sequential files. ○ Most employees on the master file receive paychecks periodically. The computer program performs the detailed record-keeping, check-writing, and general ledger functions. Reengineered HRM Systems Payroll can be reengineered as a part of Objectives of FAS human resource management (HRM). The objective of a Fixed Assets System is to IT can process a wide range of manage fixed assets by ensuring assets are personnel-related data, including: acquired with management approval, keeping ○ employee benefits accurate records of their cost, description, and ○ labor resource planning location, tracking depreciation, aiding future ○ employee skills and training investment planning, and properly recording the ○ pay rates, deductions, and disposal of assets. paychecks ○ Evaluations Asset Acquisition Asset acquisition starts when a department Key Features of Reengineered HRM manager decides to replace an old fixed Personnel - can make changes to the asset or add a new one. employee file in real time A purchase requisition is completed, and Cost Accounting - enters job cost data items over a certain cost may need either daily or in real time authorization. 11  The Fixed Asset System (FAS) department records any gains or losses from the manages record-keeping for these disposal, and prepares journal voucher acquisitions. records to ensure accurate financial reporting of asset disposals. Asset Maintenance Asset maintenance involves updating asset FAS Controls account balances as they lose value over time, based on a set depreciation schedule. Authorization ensures formal approval for high-cost decisions like acquisitions and changes in Any physical improvements to assets are depreciation methods. This helps prevent improper also recorded, which raises the account spending or mismanagement. balance and updates the depreciation calculations in the system. Supervision involves continuous oversight to prevent theft and misuse of assets. Monitoring Asset Disposal physical locations and employee activities ensures Asset disposal is the process of removing proper handling of assets. an asset from records when it reaches the end of its useful life or is no longer needed. Independent Verification requires internal auditors to regularly check FAS records. They assess This involves updating records, stopping factors like useful life, asset conditions, and fair depreciation, and completing necessary value to ensure accuracy in financial reporting and forms and reports to document the disposal. calculations. Computer-Based Fixed Asset System - Acquisition is a digital tool that records new assets, including details like useful life and depreciation methods. It automatically updates ledgers, ensuring accurate, up-to-date records for better asset management. Computer-Based Fixed Asset System - Maintenance It automatically calculates depreciation for the current period, updates accumulated depreciation and book value, and posts total depreciation to the general ledger. It also records depreciation transactions by adding entries to the journal voucher file, helping manage asset records and accounting efficiently. Computer-Based Fixed Asset System - Disposal It posts adjusting entries to the fixed asset control account in the general ledger, 12