Accounting Systems and Controls
Core concepts
An accounting system is the people, processes, records and software that capture, process and report transactions. Candidates must understand source documents, subsidiary ledgers and control accounts, the general journal and ledger, trial balance, bank reconciliations and the GST clearing account. Internal control rests on segregation of duties, authorisation, physical safeguards, documentation, reconciliation and independent checks; the control environment and risk assessment underpin it. Know the features of computerised systems, including master files, transaction files, edit checks, backups, access controls and audit trails, and how these reduce or relocate risk. Understand the objective and limitations of an audit and the concept of materiality.
Traps
Segregation of duties means separating custody of assets, authorisation and record-keeping; one person doing all three is the classic weakness. Bank reconciliation items are frequently confused: unpresented cheques and deposits not yet credited are timing differences requiring no journal entry, whereas bank charges, direct credits and dishonoured cheques do require entries. A debit balance in the bank account of the cash ledger does not mean the bank statement will show a debit balance. Control accounts must reconcile to their subsidiary ledgers. Physical controls protect assets; they do not by themselves ensure accurate recording. No system of internal control is perfect because of collusion, human error and management override.
Worked example
Cash ledger shows $4,200 debit. The bank statement shows $5,000 credit. Outstanding deposits are $600 and unpresented cheques $1,400. Adjusted bank statement balance = 5,000 + 600 - 1,400 = $4,200, matching the ledger. Rule of thumb: reconcile from the bank statement to the ledger by adding deposits not yet credited and subtracting unpresented cheques, then post journals only for items the bank knew about but the entity did not record.