Accounting & Information Systems
FULL NOTES
Semester 1, 2022
University of Otago
BSNS115
,Lectures 1, 2 & 3: An Introduction.
An information system is not all about numbers - the numbers should convey information for
users. There are internal processing and external processes.
What is Accounting Input?
Transaction
● External - buy, sell
● Internal - allocating cost (rent on each unit), depreciation
Non accounting transaction
● Hiring (not included in financial reports) (external)
● Quotes (an event, but not affecting financial position) (external)
● Budgeting (management sets goals) (internal)
How is the input captured?
● By issuing a paper document - an invoice is what tells a sale has occurred
● By a hardware digital scan at a particular place - you need to check the documents to
check matrix is real
● Receipt - documents no longer exist as a piece of paper but as input in a computer
system
What is Accounting Output?
The accounting output may be a report or the calculation of a number.
Cost object - a term used primarily in cost accounting to describe something to which costs are
assigned. e.g. product lines, geographical territories, customer
Cost is not just what you spend to make an object. A customer can become a cost object if you
can follow how much money you need to spend to service the customer.
Cost is a concept that goes in many directions, including geographic location etc.
How is Output Delivered?
● By issuing a paper document
● By digital transmission to users devices
Access to information has changed. Nowadays, we have an information system that resides on
the cloud, and there are restrictions to who can access these databases.
Q: Payslip vs financial report? - financial report is audited, but payslip is not.
Q: What is Web3 or NFT? - Nonofungi token exist on a blockchain and cannot be replicated.
What is Accounting Data? Accounting data refers to a collection of different kinds of
information bits.
● Accounting datum could be the date, client, supplier, etc.
● Accounting value is datum
Accounting is about identifying, measuring and communicating economic information to a
variety of users for control and decision making purposes.
,Income and Value:
Income is the profit and loss for a business. Negative income is usually a bad thing, but for
startups it could be inevitable.
Valuation:
Changing the emphasis from a measurement to information content yield different valuation
approaches form: Historical costing - costing bases - fair value - subjective values?.
Long term, historical cost is not effective. In this case, a reassessment iss required, According to
the world, they want a value to be calculated by the fair value - an approximation of the current
market value. It can then go beyond fair value, which requires a lot of discretionby accountants,
to create a problem as the information is subjective.
The way we calculate profit or loss is not just cash - we might lose cash, but increase value.
Lecture 5: Accounting for Credit:
Credit is the capitalistic form of cooperation.
It is easier to cooperate to live. Society gets together and helps each other. You can do this two
ways: communistic way or capitalistic way (one we discuss). In a pre-capitalistic world, there are
inter-community debts. Cooperation is done in such a way that the debt is hidden - there are
debt relationship among members which is unquantifiable, but is still accounted for.
Instead, today, we quantify debt with monetary value. The problem with capitalists, the system is
sometimes unbalanced. For credit to function, you need a price system and means of
exchange. Credit is key to life because it allows us to operate. In order to be efficient, we need
to monetise.
Credit fosters growth. Whenever you borrow, you help the economy to grow. Cash is an asset
for one, but a liability for someone else.
Introducing Credit:
Credit information network system is prone to errors.
Money is a device to resource allocation across time and space. That device is based on
information. So, money is information. Resource allocation is the economic terminology for
cooperation.
Credit is the capitalistic form of cooperation, it allows to be quantified in money terms. the
cooperation translates into resource allocation.
Credit increases market share because clients/consumers do not have to pay immediately. This
means that a liability for one person is helping another person achieve their goals. Credit
creates growth - in a company, and in economics. in accounting, credit introduces more assets
and more liabilities. It increases the value of the business to buy on credit because the business
is leveraging on their supplier and increasing sales by increasing market share.
Accounting numbers are inherently statistic.
Summary: cash, money, credit are all flows requiring management.
● Cash flows management -
● Accounts receivable and payables management (treasury)
● Under the Yin/Yang worldview, what is flowing
, Lecture 6: Accruals and Deferrals
Accrual accounting is any accounting that is not cash accounting. It first requires a discussion
about finite time periods and the concept of income under the Yin/Yang worldview.
1. There in yin within yang: there is yang within yin (stock view). Yin becomes yang, and
yang becomes yin (flow view).
E.g. In accounting, Inventory/COGS is das Mächen
2. The way out of confusion is to understand that activities unfold over time and income is
disconnected from activities’ ending.
1. When you spend money to buy inventory, you have a cash outflow, but you are
still as good off as before because you have inventory.
Accounting is not just about cash: income measurement is a construct by
accountants in view of their understanding of activities.
2. Typically, activities start in one period and end in another
3. Revenue must be earned, expenses must be incurred
4. Accrual: income but no cash. Deferral: cash, but no income.
Cost is a capital expenditure that is ‘charged’ to income only when goods and
services are sold.
5. Expenditure can be classified either as expenses or costs
6. Short term capitalised expenditure (e.g. to manufacture products) are
accumulated under the information account “inventory”, until sold.
7. When sold, inventory becomes an expired asset that translates as COGS (’das
Mädchen’ becomes die Frau’). Activity is finished
8. Firm incurring expenses and firm earning income will both affect the profit, but
might not affect the cash.
9. On one hand, flows of value can either be earned or incurred and on the other
hand, they can happen in either cash or not cash; there are four possibilities.
10. Accrued expenses: incurred, but no cash flow
11. Accrued income: earned, but no cash flow
12. Prepaid expenses (deferral): not yet incurred, but cash paid
13. Income in advance (deferral): not yet earned, but cash received
Accrued income is an asset, and cash at the bank is an asset. The total revenue
is income and is reported in the income statement.
A prepaid expense is an asset until is has been used, then it is an expense.
However, the total money that will leave the bank is recorded under credit (but
the bank is an asset).
Not all of the events are recorded
Key Takeaways:
1. Accruals and deferrals are based on revenue being earned and expenses being
incurred.
2. Accrued expenses, accrued income, prepaid expenses; and, income in advance.
FULL NOTES
Semester 1, 2022
University of Otago
BSNS115
,Lectures 1, 2 & 3: An Introduction.
An information system is not all about numbers - the numbers should convey information for
users. There are internal processing and external processes.
What is Accounting Input?
Transaction
● External - buy, sell
● Internal - allocating cost (rent on each unit), depreciation
Non accounting transaction
● Hiring (not included in financial reports) (external)
● Quotes (an event, but not affecting financial position) (external)
● Budgeting (management sets goals) (internal)
How is the input captured?
● By issuing a paper document - an invoice is what tells a sale has occurred
● By a hardware digital scan at a particular place - you need to check the documents to
check matrix is real
● Receipt - documents no longer exist as a piece of paper but as input in a computer
system
What is Accounting Output?
The accounting output may be a report or the calculation of a number.
Cost object - a term used primarily in cost accounting to describe something to which costs are
assigned. e.g. product lines, geographical territories, customer
Cost is not just what you spend to make an object. A customer can become a cost object if you
can follow how much money you need to spend to service the customer.
Cost is a concept that goes in many directions, including geographic location etc.
How is Output Delivered?
● By issuing a paper document
● By digital transmission to users devices
Access to information has changed. Nowadays, we have an information system that resides on
the cloud, and there are restrictions to who can access these databases.
Q: Payslip vs financial report? - financial report is audited, but payslip is not.
Q: What is Web3 or NFT? - Nonofungi token exist on a blockchain and cannot be replicated.
What is Accounting Data? Accounting data refers to a collection of different kinds of
information bits.
● Accounting datum could be the date, client, supplier, etc.
● Accounting value is datum
Accounting is about identifying, measuring and communicating economic information to a
variety of users for control and decision making purposes.
,Income and Value:
Income is the profit and loss for a business. Negative income is usually a bad thing, but for
startups it could be inevitable.
Valuation:
Changing the emphasis from a measurement to information content yield different valuation
approaches form: Historical costing - costing bases - fair value - subjective values?.
Long term, historical cost is not effective. In this case, a reassessment iss required, According to
the world, they want a value to be calculated by the fair value - an approximation of the current
market value. It can then go beyond fair value, which requires a lot of discretionby accountants,
to create a problem as the information is subjective.
The way we calculate profit or loss is not just cash - we might lose cash, but increase value.
Lecture 5: Accounting for Credit:
Credit is the capitalistic form of cooperation.
It is easier to cooperate to live. Society gets together and helps each other. You can do this two
ways: communistic way or capitalistic way (one we discuss). In a pre-capitalistic world, there are
inter-community debts. Cooperation is done in such a way that the debt is hidden - there are
debt relationship among members which is unquantifiable, but is still accounted for.
Instead, today, we quantify debt with monetary value. The problem with capitalists, the system is
sometimes unbalanced. For credit to function, you need a price system and means of
exchange. Credit is key to life because it allows us to operate. In order to be efficient, we need
to monetise.
Credit fosters growth. Whenever you borrow, you help the economy to grow. Cash is an asset
for one, but a liability for someone else.
Introducing Credit:
Credit information network system is prone to errors.
Money is a device to resource allocation across time and space. That device is based on
information. So, money is information. Resource allocation is the economic terminology for
cooperation.
Credit is the capitalistic form of cooperation, it allows to be quantified in money terms. the
cooperation translates into resource allocation.
Credit increases market share because clients/consumers do not have to pay immediately. This
means that a liability for one person is helping another person achieve their goals. Credit
creates growth - in a company, and in economics. in accounting, credit introduces more assets
and more liabilities. It increases the value of the business to buy on credit because the business
is leveraging on their supplier and increasing sales by increasing market share.
Accounting numbers are inherently statistic.
Summary: cash, money, credit are all flows requiring management.
● Cash flows management -
● Accounts receivable and payables management (treasury)
● Under the Yin/Yang worldview, what is flowing
, Lecture 6: Accruals and Deferrals
Accrual accounting is any accounting that is not cash accounting. It first requires a discussion
about finite time periods and the concept of income under the Yin/Yang worldview.
1. There in yin within yang: there is yang within yin (stock view). Yin becomes yang, and
yang becomes yin (flow view).
E.g. In accounting, Inventory/COGS is das Mächen
2. The way out of confusion is to understand that activities unfold over time and income is
disconnected from activities’ ending.
1. When you spend money to buy inventory, you have a cash outflow, but you are
still as good off as before because you have inventory.
Accounting is not just about cash: income measurement is a construct by
accountants in view of their understanding of activities.
2. Typically, activities start in one period and end in another
3. Revenue must be earned, expenses must be incurred
4. Accrual: income but no cash. Deferral: cash, but no income.
Cost is a capital expenditure that is ‘charged’ to income only when goods and
services are sold.
5. Expenditure can be classified either as expenses or costs
6. Short term capitalised expenditure (e.g. to manufacture products) are
accumulated under the information account “inventory”, until sold.
7. When sold, inventory becomes an expired asset that translates as COGS (’das
Mädchen’ becomes die Frau’). Activity is finished
8. Firm incurring expenses and firm earning income will both affect the profit, but
might not affect the cash.
9. On one hand, flows of value can either be earned or incurred and on the other
hand, they can happen in either cash or not cash; there are four possibilities.
10. Accrued expenses: incurred, but no cash flow
11. Accrued income: earned, but no cash flow
12. Prepaid expenses (deferral): not yet incurred, but cash paid
13. Income in advance (deferral): not yet earned, but cash received
Accrued income is an asset, and cash at the bank is an asset. The total revenue
is income and is reported in the income statement.
A prepaid expense is an asset until is has been used, then it is an expense.
However, the total money that will leave the bank is recorded under credit (but
the bank is an asset).
Not all of the events are recorded
Key Takeaways:
1. Accruals and deferrals are based on revenue being earned and expenses being
incurred.
2. Accrued expenses, accrued income, prepaid expenses; and, income in advance.
