ACC 110 Chapter Notes - Chapter 3: The Ledger, Trial Balance, General Ledger

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3 Feb 2017

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Document Summary

The system of collecting and processing transaction data and communicating. Chapter 3 the accounting information system financial information (cid:498)bookkeeping(cid:499) Accounting preparing financial statements (cid:498)business transactions(cid:499) are economic events that need to be recorded if they: evidence comes from a (cid:498)source document(cid:499) i. e. sales slip, cheque or affect the accounting equation bill, invoice. Transaction analysis determines impact on the accounting equation. Accounting equation must always balance (each transaction has a dual effect on the equation) An account is an individual accounting record of increase and decreases in a specific asset, liability, or shareholders" equity item. Account consists of 3 parts: the title of the account, a left or debit side, a right or credit side. Increases in assets are debited and therefore recorded on the left side of the chart (should have normal debit balance) Accounting record where transactions are recorded in chronological order (shows debit/credit effect on specific accounts)

Related Questions

(ACCOUNTING INFORMATION SYSTEM)

Business scenario:

The model enterprise in this study is Euphoria Event Management Company (EEMC). As one of the major players in the event management industry, it provides a one-stop wedding service, organizes birthday parties, manages various kinds of celebrations and thus offers catering services based on the requirements of the customers. Due to this, the company handles multiple food inventory sales and purchases transactions and often slipped off the appropriate tracking and consumption of costs. Moreover, since it is classified as SME (small to medium-sized enterprise), it often fails to appreciate the importance of internal control in its daily operations.

The revenue cycle system at EEMC

The steps and procedures implemented within the revenue cycle of the company can generally be explained as follows:

1) Sales executive receives customer order by phone, fax or from a meeting.

2) She forwards the customer order to the kitchen department with details on quantities of food inventory needed and the date of delivery to customer.

3) The kitchen supervisor issues a Sales Order or sometimes a Packing Slip for the food order. Using this document, EEMC delivers the goods to customer.

4) Upon receiving the food, customer stamps and signs the Sales Order/Packing Slip.

5) One month after the delivery date, the accounts clerk at EEMC bills the food with Sales Invoice (stamp-duty receipt with authorized signature). The customer takes the original invoice while the company gets the copy of invoice and stamped receipt generated by the customer.

6) Two month after the delivery date, the accounts clerk makes a courtesy call to customer on the payment due.

7) Customer makes payment either using a cheque/clearing deposit slip or via a bank transfer.

8) As evidence of payment, the accounts clerk requests the original payment document (receipts or cheque stub) from

the customer or just check the transaction from the bank statements.

9) The accounts clerk records the sales transaction and the amount of sales in the general ledger. She also keeps the revenue cycle related documents as proof of the transaction.

The expenditure cycle system at EEMC

The steps and procedures implemented within the revenue cycle of the company can generally be explained as follows:

1) EEMC sets the budget for inventory purchase.

2) The Bill of Materials/Purchase Requisition document is created.

3) The procurement officer invites interested suppliers to quote their inventory price.

4) The procurement officer compares the quotation (price) of inventory among the various suppliers and appoints the

supplier who offers lowest price that commensurate with the desired quality of food. Appointment is usually conveyed by phone or fax.

5) When the food inventory arrives at the warehouse, the accounts clerk checks the quantity and the quality of inventory to confirm the order with the Bill of Materials.

6) Next, the supplierâs invoice (no Packing Slip from supplier, so the inventory is delivered with the invoice) is signed and the copy is taken and kept at the accounts department.

7) Between one to two weeks after the receipt of inventory, the accounts clerk confirms and pays for the purchases via a bank transfer. EEMC keeps the original receipt.

8) The accounts clerk records the purchase transaction and the amounts of obligation paid in the general ledger. She also keeps the expenditure cycle related documents as proof of the transaction.

Instructions:

1. Evaluate and comment on the internal control system related to the revenue cycle and expenditure cycle of the company. For each of the cycle, your answers must relate to the organizational control, documentation control and management practice control.

2. Using your own knowledge and creativity, suggest at least 3 ways to strengthen the documentation process and procedures using only the limited information given above.

3. Provide specific recommendations on how to overcome the discovered potential weaknesses on the organizational structure and authority of the company.

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