Question

3. Illustrate the data processing cycle and explain each phase in relation to an Accounting Information System with appropriate example at each stage. (25Marks)

Answer 1

The accounting cycle is the processesing of the accounting events of an organisation.Generally the data processing of accounting in any organisation is done with the help of computerised systems for interpretation and obtaining information.The information of these sorts are available in the form of diagrams,reports and graphics.

The different phases in relation to an accounting cycle is described as below:

1.Business Transaction -Every cycle where there is a monetary or non monetary benefit is involved is the first point to start the cycle of accounting but it wont be classified as a transaction.

2.Recording of Journal Entries -When a journal entry is done in an accounting cycle it have to be done in a chronological order.Computerised system helps in making those entries in a chronological order and also helps to maintain those records.

3.Ledgers-After the journal is prepared the corrresponding postings are done in the general ledger accounts from where the Trial Balance is prepared.So these entries when entered through compterised system have a definite time period of audit after which they cannot be altered.Only the admin guys involved in the system are authorised to make changes which occur after a particular accounting period.

4.Trial Balance-After the systemmatic recording of the journal entries are done through the compuerised system it is recorded in the general ledger in order to enable the organisation to prepare the Trial Balance.So the Trial Balance is the total of all the accounts balances posted from the general ledgers.Compuerised system helps the organisation which automatically tallies the debit and credit entries posted from the general ledger.

5.Creation of Financial Statements-After the preparation of the Trial Balance the financial statements are prepared like the Balance Sheet,Income Statement and the cash flow .Computerised system helps assist in maintaining the accuracy of the numbers and ensure that no changes takes place without the proper authorisation from the admin team.

6.Closing Entries-Once the period is ended the closing entries are posted.So the temporary balances are reduced to zero and balances at the end will form the opening balances of the next period.