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Accounting Information Systems Question Paper
Accounting Information Systems
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR
COMMERCE
CMS 302: ACCOUNTING INFORMATION SYSTEMS-DAY& EVENING
DATE: DECEMBER 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer ANY THREE Questions
QUESTION ONE
a) CASE STUDY—SYSTEMS DEVELOPMENT PROCEDURES
Mickie Louderman is the new assistant controller of Pickens Publishers, a growing company
with sales of sh35 million. She was formerly the controller of a smaller company in a similar
industry, where she was in charge of accounting and data processing and had considerable
influence over the entire computer center operations. Prior to Louderman’s arrival at Pickens,
the company revamped its entire computer operations center, placing increased emphasis on
decentralized data access, microcomputers with mainframe access, and on-line systems.
Louderman began to develop the new system at Pickens by using the same design
characteristics and reporting formats that she had developed at her former company. She sent
details of the new accounting system to the departments that interfaced with accounting,
including inventory control, purchasing, personnel, production control, and marketing. If they
did not respond with suggestions by a prescribed date, she would continue the development
process. Louderman and Richards determined a new schedule for many of the reports, changing
the frequency from weekly to monthly. After a meeting with the director of computer
operations, she selected a programmer to help her with the details of the new reporting formats.
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Most of the control features of the old system were maintained to decrease the initial
installation time, while a few new ones were added for unusual situations. However, the
procedures for maintaining the controls were substantially changed. Louderman appointed
herself the decisive authority for all control changes and program testing that related to the
system, including screening the control features that related to payroll, inventory control,
accounts receivable, cash deposits, and accounts payable.
As each module was completed by the programmer, Louderman told the department to
implement the changes immediately in order to incorporate immediate labor savings.
Instructions accompanying these changes were incomplete, and specific implementation
responsibility was not assigned to departmental personnel. Louderman believes that each
operations person should “learn as they go,” reporting errors as they occur.
Accounts payable and inventory control were the initial areas of the system to be implemented,
and several problems arose in both areas. Lunderman was disturbed that the semimonthly runs
of payroll, which were weekly under the old system, had abundant errors and required
numerous manual paychecks. Frequently, the control totals of a payroll run would take hours to
reconcile with the computer printout. To expedite matters, Lunderman authorized the payroll
clerk to prepare journal entries for payroll processing.
The new inventory control system failed to improve the carrying stock level of many items,
causing several critical raw material stock-outs that resulted in expensive rush orders. The
primary control procedure under the new system was the availability of ordering and usage
information to both inventory control personnel and purchasing personnel by terminals. This
allowed both departments to issue purchase orders on a timely basis. The inventory levels were
updated daily, so the previous weekly report was discontinued by Lunderman.
Because of these problems, system documentation is behind schedule and proper backup
procedures have not been implemented in many areas. Lunderman has requested budget
approval to hire two systems analysts, an accountant, and an administrative assistant to help her
implement the new system. Richards is disturbed by her request since her predecessor had only
one part-time employee as his assistant.
Required:
i. List the steps Mickie Lunderman should have taken during the design of the accounting
system to ensure that end-user needs were satisfied.
ii. Referring to Lunderman’s approach to implementing the new accounting system,
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1. Identify and describe the weakness
2. Make recommendations that would help Lunderman improve the situation and
continue with the development of the remaining areas of the accounting system
at Pickens Publishers. (5 Marks)
b) You are to design and convert a manual accounting system of a small business into sage
computerized system. Develop a chart of accounts for this company. This chart of accounts should
contain each of the accounts shown below, plus other accounts that are appropriate for your
company. (hint: organize the accounts into a balance sheet and income statement first)
General Ledger Accounts to be included in the company’s system
Cash
Prepaid expenses
Office equipment
Accumulated depreciation—office equipment
Office buildings
Accumulated depreciation—office buildings
Accounts payable
Wages and salaries payable
Common stock (shares capital)
Retained earnings
Revenue
Wages and salaries expense
Office supplies expense
Utilities expense
Depreciation expense (4 Marks)
c) The small business has three suppliers (Wilson Supply, Parker Company and Smith & Jones) and
three customers (Pat Nelson, Carmen Diaz and Ted Foster). Explain why you have to set these
suppliers and customers in Sage computerized system, before use of the system. (3 Marks)
d) The following six transactions occurred to the small business:
a. Purchased sh300 of merchandise on credit from Wilson Supply
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b. Purchased sh540 of merchandise on credit from Parker Company
c. Purchased sh270 of merchandise on credit from Smith & Jones
d. Sold sh250 worth of merchandise on credit to Pat Nelson, for sh400
e. Sold sh520 worth of merchandise on credit to Carmen Diaz, for sh900
f. Sold sh170 worth of merchandise on credit to Ted Foster, for sh300
g. Received payment in full from Carmen Diaz
h. Received payment of sh200 from Pat Nelson
i. Paid Wilson Supply in full
j. Paid sh400 to Parker Company
i. Journalize each of the above transaction into a DR or CR
ii. Post the transactions—make use of T-accounts
iii. Prepare a trial balance
iv. Use the above transaction (i) Book/construct the company’s balance sheet and
income statement (8 Marks)
QUESTION TWO
a) State and explain the main steps that are taken for each of the systems development life cycle
(SDLC) and why they are taken. (10 Marks)
b) Explain system security and its objectives, and access control and how its achieved (5 Marks)
QUESTION THREE
a) Case: A Computer-Based System
General Mills, a multidivision food products company based in Kiambu County, has experienced the
benefits a large company can derive from using personal computers in its financial reporting process.
The company appointed a team from its financial reporting and information services department to
design an automated year-end accounting package. Its objectives were to speed up the consolidation
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process, increase accuracy, reduce the need for overtime, and make the year-end effort less
burdensome.
The Manual System
Historically, collecting and consolidating annual financial results for year-end reports had been a timeconsuming
manual process. The financial reporting department had to collect the results of
approximately 110 separate reporting entities. Then they spent a significant amount of time manually
verifying the results. They reviewed and refooted each consolidation schedule to confirm that the
amounts were recorded correctly. These reviews had to be accomplished during a one-week time frame
and took nine people to complete, including outside help and substantial overtime. The consolidation
process itself had to be completed during the same week. With help from an outside department, it
required 12 people.
The Computer-Based System
The design team decided to implement the new system on personal computers (PCs) using a
spreadsheet package that was common in the company. They developed a menu-driven system in
which accountants entered the annual information from divisions and subsidiaries into financial
schedules. After verifying the data for consistency, a consolidation software package combined it into
a single database. This contained the information used to develop most of the financial schedules and
footnotes included in the annual reports.
The main system disk includes a worksheet file containing menus and macro instructions that drive the
system. The main menu consists of the following options:
Header Entry (to enter the organization’s identification), Table of Contents (to show schedule names),
Data Entry, Validation (to correct obvious errors), Print, and Quit.
Each main menu selection also contains several submenu selections.
The system accommodates 83 schedules including a balance sheet and a profit and loss statement.
Most of the schedules compare totals to the financial statements as a way of verifying the results.
With the new system, the department starts the financial statement section of the annual report several
months before year-end. Shortly after the annual meeting of shareholders, they alter the previous year’s
annual report in preparation for the new year. Employees shift or drop columns of data as necessary,
and update wording to confirm to the new year-end.
The Results
The new system allows easy changes to financial documents, provides for changes in the number of
accounting entities and schedules, and provides input to the corporate tax department’s automated tax
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return system. Consolidation occurs automatically and takes one minute to complete. The most timeconsuming
task is the one hour required to print the schedules. This consolidation system is just one
example of how personal computers have changed General Mills’ accounting processes and have
saved the company both time and money.
Required:
i. What problems were the new computer-based accounting system intended to correct?
ii. What are the similarities between the old and new systems? What are the differences?
(10 Marks)
b) The trial balance of the Trans-World Storage and Moving Company as of March 31, 1998, is as
follows:
TRANS-WORLD STORAGE AND MOVING COMPANY
Trial Balance
March 31, 1998
sh sh
Truck 60,000
Accumulated depreciation--trucks 2,500
Prepaid rent 10,000
Cash 11,700
Storage fees collected in advance 3,000
Accounts
payable 1,200
Capital stock 70,000
Retained
earnings 3,000
Revenue from moving services 11,000
Revenue from storage services 1,000
Salaries expense 7,000
Gasoline expense 1,000
Maintenance expense 500
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Utilities and office expense 1,500
91,700 91,700
Data and information related to adjusting entries for the month ended March 31, 1998, are as follows:
i. The monthly rent was sh1,000
ii. The estimated useful life of trucks was four years
iii. Many clients chose to pay several months’ storage fees in advance. Based on individual service
records, storage fees earned for the month amounted to sh600.
iv. Storage fees for some other clients were due on days other than the first of each month. Based on
individual service records, storage fees earned from these clients for the month amounted to
sh1,500.
Required:
i. Prepare adjusting entries for the month ended March 31, 1998
ii. Deduce the date on which trucks were purchased. (10 Marks)
QUESTION FOUR
From the simplified balance sheet and income statements of the business below, compute the following
ratios.
Lundgren Systems Lundgren Systems
Balance Sheet income Statement
December 31, 2009 For the Ended December 31, 2009
Assets sh sh sh
Noncurrent assets: Sales 24,000
Property 3,000 Cost of Sales 8,000
Plant 2,000 Gross Margin 16,000
Equipment 3,000 Operating Expenses 8,000
Investment 1,000 Net Income 8,000
Intangible Assets 5,000
Total 14,000
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Current Assets:
Stock 3,000
Debtors (Receivables) 2,000
Cash in bank 1,000
6,000
Current Liabilities:
Creditors (Payables) (4,000)
Net Current Assets 2,000
Total Assets less Current Liabilities 16,000
Long term Liabilities (1,000)
Net Assets 15,000
Financed by:
Capital 10,000
Reserve 5,000
15,000
a) Working capital (1 mark)
b) Current ratio (2 marks)
c) Profit margin (2 marks)
d) Return on assets (2 marks)
e) Return on equity (2 marks)
f) Debt to equity (1 mark)
g) Asset turnover (2 marks)
h) Debt to assets (1 mark)
i) Discuss the liquidity and profitability of Lundgren Systems. (2 Marks)
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