Principles of Accounting COMPONENTS OF A COMPUTERIZED

SYSTEM
Module 2 – Reviewer
1) Hardware - the electronic equipment
Scorekeepers – accountants are called
that includes computers, disk drives,
scorekeepers because accounting
monitors, printers, and the network that
provides the business with this
connects them.
information.
2) Software - the set of programs that
drives the computer. Accounting software
Personal financial planning, education reads edits (alters), and stores transaction
expenses, car amortization, business data. It also generates the reports
loans, income taxes and investments are managers use to run the business.
based on the information system that we
3) Company personnel - Good personnel
call Accounting.
are critical to success. Employees must be
both competent and honest.

ACCOUNTING INFORMATION SYSTEM

Computerize - to do the accounting faster
and make it more reliable.
Specialization - combines similar
transactions to speed the process.

FEATURES OF AN EFFECTIVE
ACCOUNTING SYSTEM
A. Control - Managers must control MANUAL AND COMPUTER-BASED
operations, or the company will lose SYSTEMS: A COMPARISON
focus.
✔ The differences are largely a question
B. Compatibility - A compatible system is of whether specific procedures require
one that works smoothly with the human attention or whether they can be
company's personnel and organizational performed automatically by a machine.
structure.
✔ Computers can be programmed to
C. Flexibility - A well-designed system is perform mechanical tasks with great
flexible if it accommodates changes in the speed and accuracy.
organization.
✔ However, computers cannot think.
D. Good cost/benefit relationship - Therefore, they are not able to analyze
Managers want a system that gives the business transactions. Without human
most benefit at the least cost. guidance, computers cannot determine
which events should be recorded in
accounting records or which accounts
should be debited or credited to properly ✔ First, learning manual system helps
record an event. establish an important link between
accounting information courses and other
✔ In manual systems, data are entered in
accounting courses.
the form of handwritten journals.
✔ Second, the logic of the business
✔ In a computer-based system, data are
process is more easily understood when it
entered through a keyboard, an optical
is not shrouded by technology. Once
scanner, or any other input device.
students understand what tasks to be
✔ The data may be entered into a performed, they are better equipped to
database, instead of a journal. explore different and better ways of
performing these tasks through
✔ A database is a warehouse of
technology.
information stored within a computer
system. The purpose of the database is to ✔ Finally, manual procedures facilitate
allow the information that will be used understanding internal control activities,
for several different purposes to be including segregation functions,
entered into the computer system only supervision, independent verification,
once. audit trails, and access controls.

✔ Computers can eliminate the need of

copying and rearranging information
BUSINESS TRANSACTIONS
which already been entered into the
system. They can also perform Business transaction
mathematical computations. In short,
- an event that has some effect on the
computers eliminate most of the
resources of a firm or on the source of the
“paperwork” involved in the operation of
firm's assets.
the accounting system.
- It is also an activity that involves
✔ However, they do not eliminate the
exchange of values.
need for accounting personnel who can
analyze business transactions and explain
these events in conformity with the
External transaction – When the
generally accepted accounting principles.
transaction is between a business and an
✔ The manual process is the oldest and outsider. An example of it is a purchase of
most traditional form of the accounting office supplies from National Bookstore.
system. The manual process constitutes
Internal transaction - Transactions that
the physical events, resources, and
happen within the business that do not
personnel that characterize the business
involve outsiders. An example of it, is
process. Often, manual record-keeping is
office supplies being used daily in the
used to teach the principles of
operations of the business.
accounting to business students.
Source document - The evidence of
MERITS IN STUDYING THE MANUA
transaction that describes the essential
PROCESS MODEL
facts of the transaction.
 Examples of source documents Accounting equation - considered to be
the foundation of the double-entry
 Receipts of cash paid or received accounting system.
 Checks written or received
 Bills sent to customer for services Based on this double-entry system, the
performed or bills received from accounting equation ensures that the
supplier for items purchased balance sheet remains “balanced,” and
 Cash register tapes each entry made on the debit side should
 Sales tickets and notes given or have a corresponding entry (or coverage)
received. on the credit side.

ANALYSING BUSINESS TRANSACTIONS

►In order to generate financial reports
which will be used for making decisions,
business transactions have to be
analyzed, recorded, and summarized. In
analyzing transactions, the suggested
procedures are as follows:

ACCOUNTING EQUATION
► The left side of the equation shows the
assets while the right-side show who
provides the funds or resources needed
by the business.
► The amount and the composition of
the assets, liabilities, and owner's equity
change as the business engages in
economic activities.
► Equity means the rights to properties.
► There are two equities: the equity of
the creditors which refers to liabilities
and the equity of the owner or owners
referring to capital.
► In the accounting equation, liabilities
are placed ahead of owner's equity
because creditors have preferential rights
on the assets of the business.
EXERCISES 3: FORMULAS
1. Business Transaction – an event that Assets = Liabilities + Owner’s Equity
has effects on the resources of the firm
and on the sources of the firm’s assets.
Liabilities = Assets – Owner’s Equity
2. Internal Transaction – it is a company’s
transactions with its owners and long-
term creditors.
Owner’s Equity = Assets – Liabilities
3. Account Form – the form of the
balance sheet that shows the assets on
the left and the liabilities and owner’s Additional Investment = Ending Owner’s
equity on the right. Equity + Drawings + Total Expenses -
Total Revenue – Beginning Owner’s
4. Source Documents – it is the evidence
Equity
of transactions that describes the
essential facts of the transactions.
5. Equity – the rights to properties. Drawing = Beginning Owner’s Equity +
Additional Investment + Total Revenue –
6. Report Form – the form of the balance
Ending Owner’s Equity – Total Expenses
sheet that lists the liabilities and the
equities below the asset section.
7. Operating Activities – it is the Total Revenues = Ending Owner’s Equity
production or purchase of merchandise + Drawings + Total expenses – Beginning
and the sale of goods and services to Owner’s Equity – Additional Investment
customers.
8. Balance Sheet – shows the relationship
Total Expenses = Total Revenues +
between the company’s resources and the
Additional Investment - (Ending Owner’s
sources of these resources.
Equity – Beginning Owner’s equity) –
9. Database – a warehouse of information Drawings
stored within a computer.
10. External Transactions – transactions
INCREASE OR DECREASE?
between the business and an outsider.
Assets and expenses increase when you
debit the accounts and decrease when
you credit them. Liabilities, equity, and
revenue increase when you credit the
accounts and decrease when you debit
them.