Learning Objectives:
To discover methods of providing Top-Down and Bottom-Up information Flows.
To learn about the information systems that produce reports for internal use.
To understand how account codes are used to produce accounting reports.
Information Flow
. . .The flow of information occurs in both in manual and computer based system, In manual system the flow of information occurs as following:- First transaction recorded in journal. The entries are then posted to ledger and it further
continue until the reports are prepared.
. . . While in computer based system the information flows occurs between the computer files, which are used in place of journal, and ledger. This information flow can be explained by the following figures…
TYPES OF INFORMATION FLOWS
The information flows are divided into the following two categories which are the following
Top Down Information Flow Bottom Up Information Flow
INFORMATION FLOWS
TOP DOWN INFORMATION FLOW
BOTOM UP INFORMATION FLOW
TOP DOWN INFORMATION FLOW
. . . An organization budgeting system is good example of top down information flow, because the management prepare and establishes the budget for all sectors of organization. Top management develop policies to meet its goals and communicated to different managers at different levels for perform their duties.
An effective budgeting system is designed to work within the organization’s structure with clear policy statements.
Organizational Structure
. . . For good information flow system the organization should have the following characteristics:- The structure must identify and distinguish
each of its segments. Clearly authority and responsibility must be
assigned. Each head of segment should report to one
higher authority. And clearly define subordinates for each
segment and relations of all employees of the organization.
Policy statement
. . . The policy statement provides guidelines for the employees how to carry out a specific duty in their job description. The policy statement should be comprehensive and enforceable. Clearly mentioned the duties and responsibility and code of conduct in organization.
Bottom Up Information Flow
. . . When events occurs at lower level and it reported to high level authorities is called bottom up information flows. This flow of information is also called responsibility reporting system
Responsibility Centers
. . . Responsibility Centers is the concept of controllability. Or
. . . The organizational subunits which measure and controls performance by accumulating data about different activities is called a responsibility center.
Or . . . An organizational unit where a manager
controls financial measures recorded and reported by a managerial accounting information system is called the responsibility system
Types of Responsibility Centers
ResponsibilityCenter
ResponsibilityCenter
CostCenterCost
CenterProfit
CenterProfit
CenterInvestment
CenterInvestment
Center
Cost, profit,and investmentcenters are allknown asresponsibilitycenters.
Cost / Expense Center
. . . Responsibility centers whose employees control costs, but do not control their revenues.
Examples: Production department in a manufacturing unit
. . . The manager at this level has to control the cost and measure the actual cost incurred with the budgeted cost to evaluate the performance.
PROFIT CENTRE
. . .The responsibility center, which determines the profit produce by the organization, is called profit center.
. . . The revenue performance is measures by comparing the actual profit with the budgeted profit during a budgetary period.
INVESTMENT CENTRE
. . . Its manager not only controls the center’s costs and revenues but also helps determine the amount of investment owners make in it. For example large corporations decide each year how much profit should be reinvested (Retain Earning).
DATA ACCUMULATION
. . . The collection of data is called data accumulation.
. . . When the data is collected from various organizational units it is required to categorized it for this purpose transaction encoding scheme are used.
. . .There three types of codes which are used to categorize the collected data these codes are the following.
Responsibility Codes
. . . The responsibility center is a numeric codes assigned by the organization to its organizational subunits (responsibility center).
For example Factory No 1 Code is 5100, reports to Vice President of Manufacturing Code 5000. furthermore, the manager of Production Dept. B with a code of 5120, reports to the Head of factory no 1 Code 5100…
Account Codes
A code, which represents an account uniquely, is called account codes. e ,g Accounts receivable may be represented by the code 011 Every organizations maintains their chart of account.
ACCOUNT TITLE ACCOUNT CODE
Cash 101
Accounts Receivable 103
Land 201
Building 2002
Equipment 203
Interest Payable 205
Income Tax Payable 207
Notes Payable 209
Salaries Expenses 305
Supplies Expenses 307
Budget Codes
The budget code is a code which represents the budget amount allocated for different activities in the organization. Each budget code represents the amount allocated to a specific activity in the organization. BUDGET HEAD BUDGET
CODE
Computer equipments A-6112
Advertising and
promotion
A-7112
Salaries A-2011
Stationary and Printing B-2002
Machinery and Plants C-3215
Coding Structure
We need to used different types of coding schemes to keep the record of accounts in best way. The method used to make the different codes is called a coding structure. Different types of codes are as following:-
1.Sequential Codes: Some times it is necessary to assign
sequential codes to the different data items e.g. codes assign to checks, sales orders, requisition, purchase orders, invoices and receiving reports etc.
Continue…
2.Block Codes:
such codes which used to identify separate responsibility centers and its accounts, each group e.g. 5110-0-571 represents an expenditure(0), for salaries(571) and in production department A(5110).
3.Mnemonic Codes:
Such codes which represents by the combination of letters and numbers, so the clerks can more easily remember the associated data item.
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