The Traditional Accounting Information System Chapter 3 Objectives Describe the nature of the traditional accounting cycle and its relationship to business events Describe the impact of IT on the traditional accounting system
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Describe the nature of the traditional accounting cycle and its relationship to business events
Describe the impact of IT on the traditional accounting system
Describe the limitations of the traditional accounting system architecture
Describe how the traditional accounting system architecture limits accounting’s ability to enhance value
The memorandum book should include notations of every transaction, large and small, in whatever currency was being used and in as much detail as time and circumstance allowed.
The journal was the source for the ledger, where the double entry bookkeeping was done.
It was in the ledger that the businessman could learn before anyone else whether he was a success or a failure
Accounts Receivable 130
Allowance for Doubtful Accounts 140
Prepaid Insurance 180
Notes Receivable 190
Property, Plant, and Equipment: 200
Accumulate Depreciation Building 230
Accumulated Deprec. Equipment 250
Accounts Payable 310
Bonds Payable 410
Common Stock 510
Capital in Excess 520
Retained Earnings 550
Revenue and Expense Summary 590
Interest Revenue 620
Rent Revenue 630
Freight on Purchases 720
Purchase Returns 730
Selling Expenses 740
General and Admin. Expenses 750
Interest Expense 760
Extraordinary Loss (pretax) 770Exhibit 2-1 Sample Chart of Accounts
During the accounting period
At the beginning of the next accounting period
Accounting Cycle Process
data to the
Ó The McGraw-HillCompanies, Inc., 2000
Source documents from earlier transactions are the primary information sources for adjusting entries.
Marketing people wants to know about the order to evaluate pricing, plan advertising campaigns, and target selling efforts.
Investors and creditors want to know about all orders to assess the profitability of their investments and the likelihood of a return on their investment
Executive management wants to know about the order to evaluate its impact on the organization
Personnel people want to know about the order to pay sales commissions.
Production people want to know about the order to plan production processes
Investors and creditors
Architecture of Traditional Accounting
(Limited view &
Views / Formats
Process: Classifies and summarizes transaction data
Narrow set of transactions
Produces narrow functional views
Narrow functional views drive the selection of transactions, classification, and summarization
We think objectives such as these provide justification for changing the architecture of any information system that limits the potential of information providers in adding value to an organization.
Based on business events (business activities) rather than information customer views.