Module 2

LESSON 1 : ACCOUNTING
What is accounting?
 Accounting is the process of recording financial transactions pertaining to a business. 
 The accounting process includes summarizing, analyzing, and reporting these transactions to
oversight agencies, regulators, and tax collection entities. 
 Regardless of the size of a business, accounting is a necessary function for decision making,
cost planning, and measurement of economic performance.
 A bookkeeper can handle basic accounting needs, but a Certified Public Accountant (CPA)
should be utilized for larger or more advanced accounting tasks.
Accounting Cycle
 Financial accountants typically operate in a cyclical environment with the same steps
happening in order and repeating every reporting period. These steps are often referred to as
the accounting cycle.
 the process of taking raw transaction information, entering it into an accounting system, and
running relevant and accurate financial reports. 
The accounting cycle comprises 10 steps
(Spiceland, Sepe, and Tomassini, n.d.).
1. Obtain information about external transactions from source documents.
2. Analyze transactions.
3. Record the transactions in a journal.
4. Post from the journal to the general ledger accounts.
5. Prepare an unadjusted trial balance.
6. Record adjusting entries and post to the general ledger accounts.
7. Prepare an adjusted trial balance.
8. Prepare financial statements.
9. Close the temporary accounts to retained earnings (at year-end only)
10. Prepare a post-closing trial balance (at year-end only)
Two types of Transactions
 External transactions - also known as a business transaction, is a trade of goods and services
for money. One party is buying a product or service while the other party is selling it. This
transaction can be between two people, two organizations, or a person and an organization.

 Internal transactions - is any financial activity that occurs within an organization rather than
with a third party. It is typically an exchange of finances between departments or the company
and its employees.
Source Documents
 Is the original document that contains the details of a business transaction.
 Maintained for use as evidence when auditors review a company's financial statements and
need to verify that transactions have happened.
 A description of a business transaction
 The date of the transaction
 A specific amount of money
 An authorizing signature
Example of Source Documents
 Bank statement - Is a list of all transactions for a bank account over a set period, usually
monthly. The statement includes deposits, charges, withdrawals, as well as the beginning and
ending balance for the period.
 Cash register tape - These tapes carry identifying information. Some of the information
provides details of the transaction, while other information displays contact information for
the merchant. Cash register tape receipts provide verification that you made a purchase in
case you have to return faulty or defective merchandise.
 Credit card receipt - receipt is an acknowledgment given by a vendor, merchant or bank to
credit card holders in exchange for a payment or a purchase made with a credit card.
 Lockbox check images - The service provides your company with electronic images of all the
checks, envelopes, and other remittance documents processed for you in our lockbox operations.
 Packing slip - is a document that includes the complete list of items included in a package.
 Sales order - is a document generated by the seller upon receiving a purchase order from a
buyer specifying the details about the product or service along with price, quantity, buyer details
like the shipping address, billing address, mode of payment and terms and conditions.
 Supplier Invoice - are the bills issued by a seller to a buyer. The seller, also known as a supplier
or vendor, can invoice their buyer.
 Time card - is a method for recording and tracking the amount of an employee's time spent on
each job.
Internal Controls associated with
Source Documents
 Sequential Numbering - refers to the process of printing numbers in sequential order. Each
sheet within the document is given a start number and the numbering continues throughout
the document in ascending numerical order.
 Physical Security -For example, a company should not keep its blank checks in an easily
accessible location; rather, they should be secured such as in a locked filing cabinet to prevent
unauthorized use.
 Transaction Limits – means such transaction limits (such as minimum and maximum
transaction amounts) in connection with the Wallet Services as may be imposed by the Bank
from time to time;
5 Steps in Transaction Analysis
1. Identify the accounts affected by the transaction.
2. Identify the effect of the transaction on each account (i.e., increase or decrease)
3. Determine the element of financial statements represented by each account. (Assets =
Liabilities + Equity + Revenue – Expenses )
4. Based on the principles of debit and credit, determine which kind of entry is required for
each account.
5. Verify that, for each transaction, the total debits equal the total credits. The equality of
debits and credits is at the heart of a double-entry accounting system.
Trial Balance and Adjusting Entries
 Trial balance is a bookkeeping worksheet in which the balance of all ledgers are compiled into
debit and credit account column totals that are equal. A company prepares a trial balance
periodically, usually at the end of every reporting period. The general purpose of producing a
trial balance is to ensure the entries in a company's bookkeeping system are mathematically
correct.
Four General Purpose Financial
Statements:
 Income statement - reports revenues, expenses, gains and losses from the accounting
information system.
 Statement of changes in shareholders’ equity - is a reconciliation of the beginning and ending
balances in a company’s equity during a reporting period.
 Balance sheet - A balance sheet is a financial statement that reports a company's assets,
liabilities, and shareholder equity.
 Statement of cash flows - is a financial statement that summarizes the movement of cash and
cash equivalent (CCE) that come in and go out of a company.
Module 2
LESSON 2 : CODING
SYSTEMS
In addition, Williamson identified several common coding systems often used in organizations; while they are
not exhaustive, they do provide a comprehensive overview.

 Sequential coding - it naturally numbers items in sequential order. An example of a sequential

 Designing source documents - Source documents must be clear and easy to read, delete
unnecessary information, and provide plenty of space for filling in required data.
 Recognizing recordable transactions - document in an AIS must indicate a recordable
transaction and every recordable transaction must be represented by a source document.
 Estimating amounts and interpreting accounting rules - many journal entries, especially
adjusting entries, require the use of estimate measures.
Thank you
QUESTIONS?