Accounting Information Systems and Internal Controls
Core concepts
An accounting information system captures, records, processes and reports transactions. Candidates must understand source documents, subsidiary ledgers, control accounts, the general journal and trial balance, and the purpose of internal control: safeguarding assets, ensuring accurate records, promoting efficiency and encouraging compliance. Know the control environment, risk assessment, control activities, information and communication, and monitoring. Control activities include segregation of duties, authorisation, physical safeguards, reconciliations, documentation and independent checks. Understand bank reconciliations, petty cash imprest systems, and the control implications of computerised systems (access controls, audit trails, backup, disaster recovery).
Common traps
- Segregation of duties: the same person should not authorise, record and have custody of an asset. A question may describe one clerk doing all three-identify the weakness.
- Bank reconciliation direction: unpresented cheques reduce the bank statement balance; deposits not yet credited increase it. Bank errors require adjustment of the bank statement, not the cash ledger.
- Cash book vs bank statement: only items the business has not yet recorded (bank fees, direct credits, dishonoured cheques) adjust the cash ledger.
- Imprest system: the float is restored to a fixed amount; expenses are reimbursed, not the float increased.
- Audit trail: in computerised systems, deleting transactions without a log destroys the trail.
Worked example
Bank statement balance $5,200 (credit). Unpresented cheques $800; deposits not credited $300. Adjusted bank balance = 5,200 − 800 + 300 = $4,700. The cash ledger must be adjusted separately for items the business has not recorded.
Rule of thumb
Reconcile to the corrected cash ledger balance from both sides. If the two adjusted balances agree, the reconciliation is complete.