Aui2601 Study Guide 002

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AIN2601/1/2013–2019
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CONTENTS
OVERVIEW vii
STUDY GUIDE 2
PART 3: TRANSACTION PROCESSING 1
Topic 3 – Accounting cycles 3
Study unit 7: Overview of transaction processing 5

1 Introduction 5
2 Transaction processing system (TPS) 5
3 Accounting transaction processing system (ATPS) 5
4 Accounting transactions: from data to information 6
5 An AIS in an organisation 8
6 Summary 15
Study unit 8: Revenue and receipts cycle 16
1 Introduction 16
2 Revenue 17
3 Customer returns 28
4 Receipts 34
5 Summary 38
Study unit 9: Acquisition and payments cycle 39
1 Introduction 39
2 Acquisition 40
3 Inventory returned 51
4 Payments 56
5 Summary 58
Study unit 10: Inventory and production cycle 60
1 Introduction 60
2 Inventory 61
3 Production 61
4 Summary 65
Study unit 11: Payroll and personnel cycle 66
1 Introduction 66
2 Personnel 66
3 Payroll 67
4 Summary 71
Study unit 12: Finance and investment cycle 72
1 Introduction 72
2 Investments 72
3 Finance 74
4 Summary 75
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iii A I N26 01/1
Topic 4 – Financial reporting infrastructure 77
Study unit 13: Financial reporting structure 78

1 Introduction 78
2 Staffing level requirements 78
3 Chart of accounts (CoA) 79
4 Summary 83
Topic 5 – Accounting information system applications 85
Study unit 14: Selecting an appropriate accounting information system 86

1 Introduction 86
2 Available AISs 86
3 Selecting an appropriate AIS 88
4 Risks and controls 89
5 Summary 90
Topic 6 – Pastel Partner accounting information system 91
Study unit 15: Getting started on Pastel Partner 93

1 Introduction 93
2 Lesson 1: installing Pastel Partner 94
3 Lesson 2: working in the Demo Company 106
4 Lesson 3: create a new company on Pastel Partner 107
5 Lesson 4: using the Auto Setup 109
6 Summary 129
Study unit 16: Customers, suppliers, inventory and general ledger accounts 131
1 Introduction 131
2 Lesson 5: the Edit menu – Customers 131
3 Lesson 6: the Edit menu – Suppliers 137
4 Lesson 7: the Edit menu – Inventory and General ledger 140
5 Lesson 8: creating/editing accounts and inventory items 149
6 Summary 150
Study unit 17: Process transactions 151

1 Introduction 151
2 Lesson 9A and 9B: Supplier and customer processing 152
3 Lesson 9C: Cash book processing 160
4 Lesson 9D: Journal processing 165
5 Lesson 10: Second month of trading 166
6 Summary 166
Study unit 18: Retrieve information and sundry processing 168
1 Introduction 168
2 Lesson 11: the View menu 169
3 Lesson 12: Sundry processing 169
4 Summary 176
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iv
PART 4: Management reporting systems 179
Topic 7 – Management reporting systems 181
Study unit 19: The value of information in the decision-making process 182
1 Introduction 182
2 Characteristics of valuable information 183
3 Introduction to management information systems 184
4 Purpose of an MIS 185
5 Applying an MIS in business scenarios 185
6 MIS inputs 187
7 MIS outputs 187
8 Business intelligence software 188
9 Summary 189
Study unit 20: Extensible business reporting language 191
1 Introduction 191
2 Introduction to XBRL 192
3 The working of XBRL explained 192
4 The role of XBRL in South Africa 193
5 Advantages of XBR XBRL 193
6 Disadvantages of XBRL 194
7 Summary 195
BIBLIOGRAPHY 196
KEY TERM LIST 198
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v A I N26 01/1
OVERVIEW
Content: AIN2601 (diagram 1)

Diagram 1 below is a schematic representation of the content of the AIN2601 module.
AIN2601
Practical accounting data processing
Study guide 1 Study guide 2
Part 1 Part 2 Part 3 Part 4

Data management Spreadsheets Transaction Management
and utilisation processing reporting systems
Topic Topic Topics Topic

1 Data 2 Spreadsheets 3 Accounting 7 Management
management cycles reporting
and utilisation 4 Financial systems
reporting
infrastructure
5 Accounting
information
system
applications
6 Pastel Partner
accounting
information
system
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vii O ve r v i e w
PA R T 3
Transaction processing
PU R POSE
The aim of topic 3 in part 3 is to explain accounting transaction processing cycles in an

information system environment. Topic 4 introduces the chart of accounts and staffing
level requirements needed for financial reporting. Topic 5 focuses on the evaluation and
selection of an appropriate accounting software program and on accounting software
security risks and controls. In topic 6, Pastel Partner accounting information system is
practically applied to process transactions and retrieve financial information.


reporting
infrastructure
5 Accounting
information
system
applications
6 Pastel Partner
accounting
information
system
...........
1 PAR T 3
TOPIC 3
Accounting cycles
LE A R NING OUTCO M ES
After studying this topic, you should be able to
– differentiate between the different accounting cycles

– describe the flow of transactions through the various accounting cycles
– identify the source documents, typical reports and database files accessed, updated
or modified for each of the different transaction processing cycles
– record transactions’ accounting entries in the different transaction processing cycles
– identify the movement in inventory quantities in the different transaction processing cycles

Topics
3 Accounting cycles
SU 7: Overview of transaction processing
SU 8: Revenue and receipts cycle
SU 9: Acquisition and payments cycle
SU 10: Inventory and production cycle
SU 11: Payroll and personnel cycle
SU 12: Finance and investment cycle
4 Financial reporting infrastructure
SU 13: Financial reporting structure
5 Accounting information system applications
SU 14: Selecting an appropriate accounting information
system
6 Pastel Partner accounting information system
SU 15: Getting started on Pastel Partner
SU 16: Customers, suppliers, inventory and general ledger
accounts
SU 17: Process transactions
SU 18: Retrieving information and sundry processing
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3 TO PI C 3
NOTE
Study units 7 to 12 only highlight some of the applicable basic accounting entries and
mention some of the applicable audit controls and processes. Detailed audit controls,
processes and accounting entries are not explained in this study guide. You will learn
more in your auditing modules about each cycle’s audit environment and controls. Your
financial accounting studies will equip you with the necessary International Financial
Reporting Standards (IFRSs) and accounting transactions knowledge relating to these
cycles. Please apply your auditing and accounting knowledge to these study units as
you work through them.
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TO PI C 3 4
STU DY U NIT
1 7
Overview of transaction processing

1
1 In this study unit
1 Introduction
An organisation’s daily business transactions are processed into information by means
of transaction processing systems. In this study unit, we will learn about transaction and
accounting transaction processing systems and how data is processed into information,
both manually and by means of computers.
2 Transaction processing system (TPS)

A transaction processing system is a specialised type of computerised information
system.
A TPS collects an organisation’s daily business transactions, processes them into

valuable information and stores and retrieves the data and information when required.
A TPS is wider than only an account transaction processing system (ATPS) and includes
other operational transaction processing systems – for example, a warehouse system that
processes the movement of inventory items between different storage locations.
3 Accounting transaction processing system (ATPS)

An ATPS is also most commonly known as an accounting information system (AIS).
An AIS collects an organisation’s day-to-day financial and nonfinancial transactions,

processes them into valuable financial information and stores and retrieves the
data and financial information.
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5 St u d y u n i t 7
A financial transaction is a business activity that generates or modifies financial data
and can usually be expressed in monetary terms (eg a sales tax invoice).
A nonfinancial transaction is a business activity that generates or modifies nonfinancial

data but which is of such a nature that it will directly influence the processing of financial
transactions. Although the nonfinancial data will not be directly used in a transaction, it
provides vital information that will be used during the transaction processing, such as
updating a supplier’s details or adding a new supplier.
The accounting transaction processing system can be divided into five accounting/auditing
cycles, each of which will be discussed in detail in the rest of topic 3. In categorising
the accounting cycles, we will use the same categories that are used in auditing. These
categories are as follows:
(a) revenue and receipts cycle (see study unit 8)

(b) acquisition and payments cycle (see study unit 9)
(c) inventory and production cycle (see study unit 10)
(d) payroll and personnel cycle (see study unit 11)
(e) finance and investment cycle (see study unit 12)
4 Accounting transactions: from data to information

All accounting transaction processing (daily, monthly and ad hoc) follows a standard path
from data to usable information, as depicted in study unit 1, figure 1.1.
4.1 Accounting transactions: from data to information (manual process)

Refer to figure 7.1 throughout the following discussion:
FIGURE 7.1: Transactions: from data to information (manual process)
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TO PI C 3 6
From our basic financial accounting knowledge we already know that in a manual
transaction processing system, the following apply
(a) Data is written on source documents, such as a sales invoice, to record the details
of a transaction.
(b) The summary data from each source document is written into the relevant journal,
such as a sales journal.
(c) At the end of the month, the summary information from each column in the journal is
transferred to the relevant general ledger accounts, such as sales, VAT and accounts
receivable (also sometimes referred to as a debtors/customers control account).
(d) In addition, summary information on each individual transaction is also booked to each
relevant subledger, which “shadows” the control account. If the individual balances of
all the subledger accounts (say, one for every customer) are added up, they will equal
the total balance in the control account (in this instance, the customer control account).
(e) The debits and credits of each general ledger account are totalled and the total/
balance for each general ledger account taken to the trial balance.
(f) The various income and expense trial balance accounts are grouped together and used
to prepare the income statement (statement of profit and loss and other comprehensive
income), while the various asset, liability and equity accounts are grouped together and
used to prepare the balance sheet (statement of financial position). These can be done
monthly for management decisions or annually for reporting to various stakeholders.
4.2 Accounting transactions: from data to information (computerised

process)
As we can see from the manual process, this entail a lot of work that people have to perform
manually. Fortunately, the computer has made our lives a whole lot easier!
FIGURE 7.2: Transactions: from data to information (computerised process)
...........
In a computerised transaction processing system, the process is slightly different from
a manual system, but the same data processed by a computer will produce the same
information:
(a) Selected data from the handwritten source documents, such as sales orders or
sales invoices, can be typed into the AIS on the computer to record the details of a
transaction. However, the data could just as well be scanned in with a barcode
scanner or typed directly in the AIS, as the transaction happens (thus without any
physical source documents).
(b) The computer does not require ALL the data to be typed/scanned every time a
transaction is entered, because a lot of data is already stored on the computer in the
master files, such as the customer name and address in the customer master file
and the inventory item description in the inventory master file.
(c) The sales transaction file will only record a reference/link to the particular data records
in the master file and the other details pertinent to the particular transaction, such as
the transaction number, date, quantity sold of each item and the price of each item.
The transaction file is the equivalent of the manual journals. Refer back to study
unit 2 in which transaction files are explained.
(d) What is different from a manual system, is that any time during the month a
report with summary information can be printed, emailed, viewed on the computer
screen or saved to a secondary storage device. The computer can reprint source
documents and print transaction lists, general ledgers and subledgers, trial balances,
income statements, balance sheets and much more – all in a fraction of the time
used in a manual system. One only has to specify the type of report, the date ranges
and other parameters and then the AIS quickly classifies, summarises, sorts and
calculates the data contained in the transaction files and the linked master file records.
Viewing different reports with different information from the same database is as easy
as putting on multiple glasses each with different coloured lenses and then seeing
different images, even though we are looking at the same picture.
NOTE:
Many AISs still use the terms “Income statement” for the “Statement of profit and loss
and other comprehensive income” and “Balance sheet” for the “Statement of financial
position”. Although in IFRSs the respective terms do not technically have exactly the same
meaning, you can assume for the purposes of this module that these terms do have the
same meaning.
IFRSs terms change regularly and it would be unfair to expect software companies to
change their software so often.
In this study guide, when referring to actions taking place in AIS, the terms “balance sheet”
and “income statement” will be used.
5 An AIS in an organisation
Accounting software (such as Pastel) is an AIS. Although AIS differs from one software
program to the next, the basic underlying principles of an accounting transaction processing
system will be the same for all AISs. Different types of AIS, including Pastel, will be
discussed in detail in topics 5 and 6 in this study guide.
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TO PI C 3 8
Before we look in detail at each of the accounting cycles in the accounting transaction
processing system, we first need to obtain a high-level overview of using AIS in an
organisation.
FIGURE 7.3: Accounting transaction processing in an organisation

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(a) When we decide to use AIS to process an organisation’s financial data into informa-
tion, we first have to create (set up) the organisation on the AIS by providing core
organisational information. This information will be used on the documentation and
reports as well as in transaction processing. This core setup information includes
the following:
• Organisational parameters. These involve the following:

– organisation details: name, address (postal and physical address), VAT number,
telephone number and the different document number formats
– formats: date entry format, default email format, amount format (currency
symbol, decimal digits, 1 000 separator) – that is, how this information must
be entered and displayed
– multicurrency: if the organisation has international suppliers and/or customers
• Periods. The financial year (start and/or end date), number of accounting periods
as well as the end date of each accounting period (last day of the month or same
day each month) must be set up. Periods will be discussed in detail in study unit 15.
• General ledger chart of accounts. As we will see in study unit 13 each organisation
must have a well-structured chart of accounts that suits the organisation’s specific
business model, IFRSs and regulatory requirements. A chart of accounts is similar
to the format of the trial balance with the various account numbers and account
names being specified.
• Financial categories. These categories are used in financial reporting and allow
the software to place a general ledger account in the correct place on a balance
sheet or income statement. All general ledger accounts must therefore be linked
to a financial category. For example, the office equipment, computer and motor
vehicle general ledger accounts will be linked to the “fixed asset category”. The
name given to financial categories may differ between the different AISs, but where
it is placed on the balance sheet and income statement will be the same – for
example, a financial category can be called “bank” or “cash and cash equivalents”.
Usually software allows the renaming of the description, but not for the changing
of the underlying nature of the category.
• Entry types. Entry types are similar to the subsidiary journals in manual
bookkeeping. The entry types created will be based on the organisation’s needs.
• Tax. Bear in mind that because different countries have different tax regimes, most
AISs already have built-in customisations for the different tax regimes applicable
to that country. For example, when selecting South Africa as the country the
organisation is trading in, VAT is already set up with the applicable VAT percentages.
• Users and passwords. Each individual user must be set up on the basis of his or
her access. Authorisation rights and passwords must be assigned to each user.
This is vital because it enforces segregation of duties.
(b) We will then need to set up common default data such as the following:
• types of document to be used by the organisation

• customised names, messages and numbers to be used for the various documents
(such as payment on delivery)
• user defined fields (extra fields)
• control accounts for customers, suppliers and inventory
• default terms for customers and suppliers (such as trade discounts)
• descriptions of price lists to be used
• integration of inventory to the general ledger
This data will be available in the next step and will therefore limit the data that we will
need to enter for each individual customer, supplier, inventory item and general ledger
account, although we can still customise it for each one individually. If we specify
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TO PI C 3 10
the information that remains the same upfront, we will not be required to retype that
same information each time.
(c) Initially, we will create the individual customers, suppliers, inventory items and
general ledger accounts needed, if not already available, or else edit and customise
the existing general ledger accounts. We will enter information such as the following:
• code and name of the customer/supplier/inventory item/general ledger account

• contact details
• credit limits
• data required by the user defined field (as specified in step b – common details)
• inventory item prices per price list
We will also be able to modify the default terms for each customer and supplier
(brought forward from step b), but this will only be necessary if there are special
circumstances for that particular customer or supplier. For example, the default
setting is that customers pay within 30 days, but the organisation’s largest customer
pays within 45 days.
Note the dashed lines on the diagram – we can always come back later and edit the
details if circumstances should change.
(d) We will only need to do a take on of balances if the organisation has done business
in the past and therefore already has assets, liabilities and customers that owe it
money and suppliers who need to be paid.
We will use the organisation’s existing trial balance, age analysis reports and bank
reconciliation to bring the existing financial information into the new AIS. If, however,
we have a newly established organisation, we will start with zero balances and the
take on of balances will not be necessary.
Now the initial setup of the organisation on the AIS is complete. The setup information
and the details of the customers, suppliers, inventory items and general ledger
accounts are stored in the database of the accounting transaction processing system
in several master files.
(e) The organisation will perform transactions between itself and its customers, suppliers
and employees on a daily basis. These transactions will then be captured (prefer-
ably daily) either online as they occur, or as a batch and then processed either in
real time or as a batch. Refer back to study unit 1.
Capturing of transactions takes place as follows:
• inventory purchases from suppliers through the purchases journal

• sales to customers through the sales journal
• payments to suppliers for inventory and general expenses and receipts from
customers through the cash book
The details of each transaction are stored in a separate data record in the transaction
file and each transaction is linked to the relevant data record(s) in the related master
file(s). For example, the details of a sales transaction are entered into the sales
transaction file and linked to the specific customer in the customer master file, as
well as the specific inventory item(s) sold in the inventory master file.
Should the daily transaction capturing or processing require changes to the details
of a customer, supplier, inventory item or general ledger account, this can be done.
...........
For example, the delivery address of the customer to whom an inventory item is
sold has changed and will be updated in the customer master file before the sales
transaction is finalised; or a payment is made for entertainment, but an appropriate
general ledger account for this expense does not currently exist and will be created
before the payment transaction can be finalised.
(f) Financial information is critical for organisations and the importance of daily backups
cannot be emphasised enough, especially when transactions are captured daily.
(g) Some transactions do not occur on a daily basis – for example, employee salaries
are paid at the end of every month or processing errors need to be corrected. At the
end of the month (or as and when the need arises on an ad hoc basis), the company
will have to capture and process these transactions.
For example, salaries and monthly expenses (such as water and electricity and
telephone) are captured and processed in the cash book at the end of the month.
Another example would be transactions such as depreciation, provisions and
corrections captured and processed through various journals at the end of the month
or when required.
Any of these transactions may need changes to the details of a general ledger account,
which will then first be edited before the transaction is finalised.
(h) To ensure that daily and monthly processing was accurate and complete and that all
the transactions processed are valid and did occur (you will learn more about this in
auditing) certain controls will be performed at month-end.
These will include the following:
• a bank reconciliation (comparison of your cash book information against the bank
statement received from the bank)
• several supplier reconciliations (against the customer statements sent by the
suppliers to the organisation – remember that the organisation is its supplier’s
customer)
• a comparison of the physical cash counted in the petty cash against the calculated
petty cash balance in the general ledger (petty cash reconciliation)
• reconciliations of all other material balance sheet accounts and, if required, certain
income statement accounts
• an analytical review of all material income statement accounts
Should errors be identified through this process, this will again result in ad hoc
processing through journals or the cash book.
                   
Bear in mind that materiality of a general ledger, customer, supplier or inventory

account is not only based on the rand value balance of the account, but also on
the nature of the account. For example, a general ledger suspense account may
have a small nonmaterial balance at month-end, but may be material owing to
the nature of a suspense account. Suspense accounts pose a high risk because
they contain individual entries that are material on their own, but because these
individual entries are netted off in one account, the balance may not be material.
The concept of materiality will be explained in detail in auditing.
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TO PI C 3 12
(i) At month-end, certain extra procedures, over and above the controls mentioned
in h, will be performed. These procedures include the following:
• All open batches must be updated to ensure that the financial information
is complete.
• The current accounting period must be “locked” (after management accounts have
been printed and distributed) and only transaction processing must be allowed
for the new accounting period. “Locking” a period does not mean we can never
process transactions to previous periods, but that we will only be able to do so
after adhering to the proper controls. These controls will include management
authorisation, an authorised person processing the transaction or an authorised
person “unlocking” the previous period. Why is it important for management to know
about changes to previous accounting periods’ financial information? Management
use financial information in decision making and must be aware of changes so that
they can assess the impact of these changes on the organisation’s business and
past and current decisions. “Locking” a period also helps prevent staff members
from mistakenly capturing transactions in the incorrect financial period.
• An extra month-end backup must be made (after all open batches have been
updated).
(j) At the end of the month as well as at year-end, we will also print various reports.
The information in these reports will be used to make business decisions, but may
also help to identify processing errors.
Processing errors will again result in ad hoc processing through journals or the
cash book, or even the processing of transactions not yet captured through daily
transaction processing.
Examples of reports usually printed at month- and/or year-end include the following:
• the trial balance used in, say, reconciliations

• customer age analysis used to identify overdue customers, processing errors, etc
• customer statements, which are sent to all customers either via post or email
• supplier age analysis used to identify processing errors, also used in supplier
reconciliations, etc
• a bank reconciliation
• the individual departmental, divisional and organisational financial management
accounts used by the different management levels for decision making and reporting
                    
Management accounts usually include a statement of financial position (balance

sheet) and a statement of profit and loss and other comprehensive income
(income statement) for the reporting cluster the manager is responsible for. In
other words, a divisional CFO or manager will only receive reports containing
his or her division’s results. Depending on management requirements, these
statements are usually not full IFRSs compliant statements, but will only contain
adjustments needed for management to run the organisation’s business.
Accountants must make sure they know what management’s requirements are
and what the management accounts will be used for to ensure that correct and
usable management reports are created.
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NOTE:
When printing reports, one should always consider the environment. Instead of using a
physical printer to print reports on paper, one should use a virtual printer such as Microsoft
Office Document Image Writer (creates .tif and .mdi files), Microsoft XPS Document Writer
(creates .xps files) or Cutepdf (creates .pdf files) to create a nonmodifiable virtual (electronic)
files. It is essential to only print to a virtual printer file format that creates electronic files that
cannot be changed or edited. Printing to a modifiable file format such as Microsoft Word
or Microsoft Excel creates a risk and/or opportunity for fraud and misrepresentation of
information. Section 2 in study unit 15 will explain how to install and print to a virtual printer.
(k) At year-end, in addition to performing the normal month-end controls (h), procedures
(i) and printing month-end reports (j) for the last accounting period in the financial year,
we will also perform special procedures. These procedures include the following:
• updating all open batches

• printing detailed ledger reports (transaction reports) for the full financial year
• printing all other reports which are deemed necessary (the organisation’s
management, auditors, and/or regulatory bodies might have specific reports they
require to be printed at year-end)
• revaluating foreign currencies (if used by the organisation)
• processing the required IFRSs adjustments
• making an extra year-end backup
• running the AIS’s official year-end procedure. This official year-end procedure
includes the following:
– General ledger income statement account totals. Current financial year

balances, per individual general ledger account, are moved to the “previous”
year balances. Pastel Partner AIS calls the “previous” year, “last” year, so
these can be used as comparative amounts for the new financial year. Current
income statement totals are set to zero during the calculation of the profit or
loss for the year and posted to the retained earnings general ledger account.
As we know, all debit and credit entries must balance – hence in order to post
the profit or loss to retained earnings (balance sheet account), all income
statement balances will be zeroed (see your financial accounting prescribed
book). Current year budgets are moved to the previous year’s budgets.
– General ledger balance sheet account balances. For each individual balance
sheet account, the previous year’s balances consolidate as one total. The
current financial year balances move to the previous year and become the
opening balance for the new financial year. Current year budgets are moved
to the previous year’s budgets.
– Customer and supplier balances. For each individual customer and supplier
account, the previous year’s balances consolidate as one total and the current
financial year balances move to the previous year. The current financial year’s
sales and purchase balances are moved to the previous year. The current
financial year‘s balances (Pastel Partner calls the current financial year, “this”
year) and sales and purchases values are zeroed.
– General ledger, customer and supplier transactions. The previous year’s
transactions are moved to a separate history file (for reference purposes) and
the current year’s transactions become the previous year’s transactions. The
software creates a new, empty transaction file for the new financial (current)
year.
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TO PI C 3 14
– Inventory. Costs, sales and quantity values for the current financial year are
accumulated into the previous year’s totals and the current year’s values are
zeroed.
– Periods. In the period table, the financial year is increased by one year and, if
applicable, the period-end dates are adjusted for a leap year.
– The transactions in the inventory history file and matched open item history
file are not deleted or consolidated.
– After running the organisation’s AIS official year-end procedure, the software
will now be ready to capture the transactions for the new financial year.
Bear in mind that we can still post adjustments and accruals to the previous financial
year after the official year-end procedure has been run. We do not need to wait
to complete all the financial entries before moving on to the new financial year. As
with month-end, it is vital to have proper controls in place for processing entries in
the previous financial year.
6 Summary
In this study unit we learnt about an accounting transaction processing system in an
organisation and how data is processed into information, both manually and by means
of computers. In the next study unit, we will learn in detail how transaction processing
works in the revenue and receipt cycle.
            
After working through this study unit, you should be able to answer the following
questions:
(a) Define a transaction processing system and an accounting transaction

processing system.
(b) Explain the difference between a financial and nonfinancial transaction.
(c) List the different accounting cycles.
(d) Describe how data is processed into information in a manual process.
(e) Describe how data is processed into information in a computerised process.
(f) If presented with figure 7.3, would you be able to fill in the missing information
in the figure?
(g) Explain accounting transaction processing in an organisation.
(h) Describe the controls, procedures and reports printed at month-end.
(i) Describe the extra measures taken at year-end and the official year-end
procedures.
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STU DY U NIT
2 8
Revenue and receipts cycle

3
1 Introduction
In the previous study unit, we learnt about general accounting transaction processing. In
this study unit, we will focus on how the organisation’s revenue and receipts are recorded
in an AIS. All organisations receive revenue of some sort. This revenue may be the result
of the sale of capital assets, such as a building, or from normal business activities such as
the sale of inventory or the rendering of services. The organisation must also receive money
for items sold or services rendered, because without money an organisation cannot exist.
In this study unit, we will learn which documents are used, which database files are accessed,
updated or modified, which reports can be printed and some of the basic underlying
accounting entries. We will not discuss the audit environment and controls relating to this
cycle as you will learn about these in auditing. For details of the IFRSs requirements, see
the financial accounting modules. This study unit will be based on the retail, wholesale
and manufacturing organisations and will not address the revenue and receipt cycle of
specialised industries such as financial services, health care, government and so forth.
...........
TO PI C 3 16
NOTE:
Because most organisations are registered for VAT on the invoice basis, all VAT implications
discussed in this study unit will be based on the invoice basis.
For all accounting transactions shown in this study unit, it was assumed that the organisation
is a registered VAT vendor and goods/services sold are subject to standard VAT.
Use your financial accounting and tax knowledge to make the necessary adjustments to
the accounting entries where the organisation is not a registered VAT vendor and/or goods/
services sold are not subject to standard VAT.
2 Revenue
Organisation’s business processes differ from each other and the accounting information
system (AIS) they use also differs. The AIS used in each organisation is tailored to the
specific organisation’s requirements. We will therefore only discuss the generic revenue
processes, but note that although the basic principles will be more or less the same, there
may be small differences between different AISs.
FIGURE 8.1: Generic revenue process

...........
NOTE:
The fact that there are no accounting entries for some of the processes, does not mean
there are no data entries (either on a manual document or on the computer). Accounting
entries are determined by IFRSs rules – for example, a sale takes place when risk is
transferred. However when a quotation is processed it will generate a data entry but not
an accounting entry.
Refer to figure 8.1 throughout the discussion below.
2.1 Quotation process
• Customer activities
Customers can request quotations from the organisation to determine how much their
order may cost them, when inventory can be delivered and/or if inventory is available.
It is not a requirement that a customer must always first request a quotation because
customers can directly place an order with the organisation.
• Organisational activities
On request from a customer, the organisation will create a quotation and send (fax,
email, post, online, etc) it to the customer. Sending a quotation to a customer does not
place the customer under a legal obligation to order the items.
• Source documents
Request for quotation received from the customer. This request can be received
electronically (email, online request, etc), manually (completed form, letter, fax, etc)
or verbally.
The organisation will create a quotation (source document) for the customer. When
creating a quotation, the organisation should preferably include an expiry date (ie until
what date the quotation will be valid).
• Accounting transactions
Because no accounting transaction has taken place, no general ledger accounting

entries have been processed.
• Inventory quantities
Because no transaction has taken place, there is no impact on inventory quantities.
• AIS database files
Some of the database files accessed, updated or modified to compile the quotation
will include the following:
– the customer master file: customer details (ie code, address, etc)
– the inventory master file: inventory item codes, inventory description, unit size, etc
– the VAT reference file: applicable VAT rate
– the inventory price reference file: price structures for the inventory items
...........
TO PI C 3 18
– the quotation transaction file: the quotation details are captured for reference purposes
even though no official transaction has taken place. All the above-mentioned
information is either captured or referenced in this quotation file, together with the
date and quotation number.
• AIS reports
An outstanding quotation report can be printed to show all quotations not yet converted
into a sales order (see section 2.2) and which have not yet reached their expiry dates.
This report can be used to check that all quotations that should have been converted
to sales orders were in fact converted. The sales team can also use this report to
follow up with customers in an attempt to persuade them to accept the quotation and
place an order.
2.2 Sales order process
The customer accepts the quotation (or part thereof) and places an order for the
inventory items to be delivered and/or services to be rendered.
• Organisation action
On receipt of the customer’s order (electronically, manually or verbally), the organisation

will do a credit check to ensure the sale to the client will not result in the client exceeding
his or her credit limit. The credit limit check is normally an automatic control (if it was set
up correctly) built into the AIS – that is, the AIS will automatically warn if a customer is
about to exceed his or her credit limit. A credit limit can be exceeded temporarily as a
result of, say, a receipt or credit note not yet processed. The AIS supervisor will normally
have the authority to process (overwrite) and accept transactions that temporarily
exceed a credit limit. The organisation’s procedures for establishing credit limits should
be followed if the customer’s credit limit needs to be increased.
On receipt of the customer’s order, the organisation also checks that it will be able to
deliver the required inventory items or/and service required. If all the inventory items are
not available, the organisation can, with the customer’s approval, process an adjusted
sales order for only the inventory items available or create a sales order for the full
order placed by the client and a back order will be created for the items that cannot
be delivered. A back order shows all the items ordered by the customer, but which the
organisation cannot currently provide to the client.
The organisation will now create a sales order or, if the customer accepted a quotation,
convert the quotation into a sales order and close the quotation.
An accepted quotation or a new order is received from the customer. The accepted
quotation or a new order will be received in a format agreed with the customer or required
by the organisation. For example, the organisation will only accept orders submitted
on the customer’s official order form. A sales order (AIS document) will be created for
the order placed and/or quotation accepted by the customer.
...........
                       
An open source document is not linked or matched to another source document

or transaction. A closed source document has been linked or matched to another
source document or transaction. For example, a quotation that was linked to a
sales order will be a closed quotation, while a quotation not yet linked will be open.
No transaction has taken place and therefore no accounting entries have been processed.
In some instances, the organisation may require a deposit before the order will be
executed. The accounting entries will be the same as those for a normal cash receipt
(see section 4).
No physical movement of inventory items has taken place, but inventory items have
been committed (ie reserved for a specific client). In the organisation’s warehouse
information system as well as in the AIS, the inventory quantity reserved will increase
and the inventory quantity available for sale will decrease. This artificial movement in
quantity is necessary because the organisation cannot sell inventory items already
promised to a client.
The following are some of the database files accessed, updated or modified to compile
the sales order:
– the customer master file: customer details (ie code, address, etc)
– the inventory master file: inventory item codes, inventory description, unit size,
quantity reserved, quantity available, etc
– the VAT reference file: applicable VAT rate
– the inventory price reference file: price structures for the inventory items
– the sales order transaction file: document number, date, client code, inventory code,
inventory description, quantity, etc
– the quotation transaction file: where a quotation existed, the quotation transaction
file will be accessed for all the above-mentioned information. Changes will be made
where necessary (if only a part of the quotation is accepted) and the date added.
The quotation file will be updated to reflect the new status.
• AIS reports
An outstanding/open sales order report can be printed to show all sales orders not yet
converted into delivery notes and/or sales invoices (see sections 2.3 and 2.4). This
report can be used to ensure that all orders are completed.
2.3 Delivery process

The organisation must now complete all sales orders (ie the goods must be delivered).
Sales orders received, but not yet filled, are known as open sales orders.
...........
TO PI C 3 20
As far as the inventory items ordered are concerned, they will be retrieved (picked)
from the warehouse using a picking slip, which was created using the sales order. The
inventory items are packed and a delivery note (also called a packing slip) attached to
the package. The package is then delivered or shipped to the customer with the delivery
note, which the customer must sign as proof that the inventory items were received.
You will learn more about this internal control in auditing.
For shipments, a carrier will transport the package to the customer for which a bill of
lading is used.
In most organisations, the warehouse information system will manage the picking,
packing, delivery and/or shipment process of inventory items. You will learn more about
these processes in auditing. In the AIS, a delivery note will be created and linked to the
sales order and the sales order will be closed.
With regard to the services requested, the organisation will now render the services.
The customer receives the inventory items delivered and sign the delivery note. For
services rendered, the customer will sign a service acceptance document, in most
instances, the sales order form. This will indicate that the customer did receive the
service and that he or she is satisfied with the service rendered.
The source documents printed and used in the delivery process are based on the
information in the sales order (and sales order transaction file). Each document, however,
is used for a different internal purpose.
The picking slip (warehouse information system document) lists the inventory codes,
descriptions, quantities and, in certain instances, also the location in the warehouse(s)
of the inventory items. The picking slip will also include the sales order number and,
in some instances, the customer name. This will enable staff to “pick” the items to be
delivered.
The delivery note/packing slip (warehouse information system and AIS document)
indicates the customer name, the delivery address, a description and the quantity of
inventory items included in the package. The delivery note also includes the sales
order number and any customer reference number reflected on the customer’s order.
Two documents are usually printed. One for the customer to retain and the other to be
signed and returned to the organisation.
A bill of lading (third-party document) is a legal agreement between the organisation and
the carrier and includes the customer name, delivery address, organisation’s details,
special shipping instructions (ie fragile), a description and weight of the package, etc.
Picking slips and delivery notes usually do not indicate the value of the inventory items
delivered.
A service acceptance document indicates when, by whom and the type of service
rendered, and if the quality is accepted. The sales order is generally used for this
purpose and functions in the same way as the delivery note.
...........
In most instances, ownership is only transferred when the inventory items are physically
under the customer’s control, that is, when risk has been transferred from the organisation
to the customer. There are no accounting entries at this stage.
As you will learn in financial accounting, there are exceptions to this because of the
method of shipment. If the transfer of ownership/risk occurs, when the inventory items
leave the warehouse, the transactions recorded under (invoice/billing) should occur
now because risk has transferred even though the customer has not yet received the
inventory items. Some AIS systems are not set up to process the accounting transactions
at delivery and therefore organisations will record the corresponding sales invoice at
the same time as the delivery note to ensure that the timing of the accounting entries
is correct. This is more of a timing issue relating to the recording of the transactions.
The inventory quantity on hand will decrease as the inventory items are now physically
removed from the warehouse. The sales order is now fulfilled and the inventory quantity
reserved will also decrease. Remember: quantity on hand = quantity available + quantity
reserved.
Some of the database accessed, updated or modified will include the following:
– the customer master file: customer details (ie code, name, delivery address, etc)
quantity reserved, quantity on hand, etc
– the delivery note transaction file: delivery note number, client code, inventory code,
inventory description, quantity, etc
– the inventory transaction file: delivery date, inventory code, quantity, etc
– the inventory history file: summarised inventory movements from previous inventory
transaction files
– the sales order transaction file: where a sales order existed, the sales order transaction
file will be accessed for all the above-mentioned information. Changes will be effected
where necessary and the date added. The sales order file will be updated to reflect
the new status.
• AIS reports
A variety of reports, including the following, can be printed:
– An open delivery note report can be printed to show all delivery notes created that
have has not yet been linked to sales invoices (see section 2.4). This report can be
used to ensure that all inventory items delivered are invoiced.
– Delivery tracking reports can be used to track the delivery of inventory items to
customers (ie when was orders received and items picked, packaged and shipped).
– Inventory quantity reports will show inventory quantities reserved, available and
on hand.
...........
TO PI C 3 22
2.4 Billing process
The team responsible for customer billing will receive the signed delivery note. They will
capture any updated delivery note information, and a sales invoice will be created by
converting the delivery note into a sales invoice. The complete delivery note will then be
closed. (For services, the sales order form will be converted into a sales invoice). The
sales invoice is sent to the customer for payment. The sales invoice will only be closed
in the AIS when payment has been received according to the invoice from the customer.
The customer receives the sales invoice and is obliged to pay the invoice based on
the agreed terms. The payment received is captured in the receipts part of this cycle.
A sales invoice includes the following: the organisation’s details; the customer’s name,
address and contact details, the payment date; per inventory item/service an item/
service description, unit size, quantity, amount per unit, item discount (if applicable),
total amount per item; invoice discount (if applicable); VAT, (if applicable); total invoice
amount; any messages to the client, etc. A sales invoice is also known as a tax invoice
where the organisation is registered for VAT. There are specific SARS requirements
for tax invoices to be valid such as the words “Tax invoice” and the organisation’s VAT
number; the customer’s VAT number must also be included if the value of the invoice is
more than R3 000, etc. You will learn in your taxation studies about all the requirements
for a valid tax invoice.
The sales journal will be used to capture the sales transactions. The organisation can
grant a trade discount to its customers. Any trade discount granted to a customer is
not recorded separately, the discount amount must be netted off (ie deducted from) the
revenue (sale) and the trade receivables or bank amount recorded.
                                  
Trade discount granted is where the organisation gives a discount on a specific

item or the complete invoice to its customer as a result of the quantity ordered,
a “sale”, etc. For example, the customer received 5% discount for quantities
more than 500 or the customer received 2% on all invoices. Trade discount is
not the same as a settlement discount.
Settlement discount granted, also referred to as early payment discount granted,

is applicable on credit sales only and is a discount granted to a customer if he
or she pays the invoice before an agreed date. For example, the customer can
receive 2.5% discount if the invoice is paid five days after the period ends in
which it is recorded or a customer can receive 4% discount if the invoice is paid
six days after the invoice was issued. You will learn about determining a discount
percentage during your later management accounting studies.
...........
The sales invoice will result in the following accounting entries where a perpetual inventory
system is used:
Balance
sheet (BS)/
Debit (Dt)/
Account Income Value
Credit (Ct)
statement
(IS)
Inventory sale on credit
Trade receivables BS – asset Dt Sale amount including VAT (net of any trade
discount granted)
VAT BS – liability Ct VAT amount (based on the sale amount net of
any trade discount granted)
Sales revenue IS – revenue Ct Sale amount excluding VAT (net of any trade
discount granted)
Inventory BS – asset Ct Amount based on inventory valuation method
excluding VAT
Cost of sales IS – expense Dt Amount based on inventory valuation method
excluding VAT
Inventory sale for cash
Bank BS – asset Dt Sale amount including VAT (net of any trade
discount granted)
discount granted)
Inventory BS – asset Ct Amount based on inventory valuation method
excluding VAT
Cost of sales IS – expense Dt Amount based on inventory valuation method
excluding VAT
Service sale on credit
Trade receivables BS – asset Dt Sale amount including VAT (net of any trade
discount granted)
discount granted)
Service sale for cash
Bank BS – asset Dt Sale amount including VAT (net of any trade
discount granted)
discount granted)
...........
TO PI C 3 24
The billing process will have no influence on inventory quantities.
Some of the database files accessed, updated or modified will include the following:
– the customer master file: customer details (ie code, name, delivery address, year
to date sales, outstanding balance, etc)
– the inventory master file: inventory item codes, inventory description, unit size, price
per unit, year to date sales, etc
– the sales transaction file: sales invoice number, invoice date, client code, inventory
code, inventory description, quantity, price per unit, VAT amount, discount %, discount
amount, line item amount, total amount, etc
– the VAT reference file: VAT % per tax type
– the VAT transaction file: VAT transactions
– several general ledger master files: storing new general ledger account balances
– general ledger transaction files: details of each transaction recorded in the general
ledger
– the delivery note transaction file: where a delivery note existed, the delivery note
transaction file will be accessed for all the above-mentioned information. Changes
will be effected where necessary and the date added. The delivery note transaction
file will be updated to reflect the new status.
• AIS reports
A variety of reports can be printed, such as the following:
– sales analysis reports which can be extracted on the basis of sales per customer,
item, journal, sales agent, etc
– customer statements and customer age analysis based on the customer’s processing
method (ie balance forward or open item) (we will learn about balance forward or
open item processing methods in topic 6)
– VAT reports showing the output VAT for all sales transactions
– general ledger account details showing the accounting entries for the selected
general ledger accounts
– the customer detail ledger showing the detail of transactions processed in each
customer’s trade receivables subledger account
      
Yummy Sweets (Pty) Ltd issued the following sales invoices during April 201X.
The money relating to cash sales is received immediately. Any applicable trade
discount has not yet been taken into account in the “Total sales including VAT”
amounts. Yummy uses a perpetual inventory system.
Yummy uses the following general ledger accounts for sales, cost of sales and
inventory.
• Sales revenue – Hard candy

• Sales revenue – Soft candy
• Cost of sales – Hard candy
• Cost of sales – Soft candy
• Inventory – Hard candy
• Inventory – Soft candy
...........
Total cost
Total sales Trade
Invoice of sales Cash or
Customer Item including discount
number excluding credit sale
VAT %
VAT
Cash sale INV8745 Hard candy R 256.50 R 90.00 Cash No
INV8745 Soft candy R 91.20 R 40.00 Cash No
Mr S Ucker INV8846 Hard candy R 1,995.00 R 700.00 Credit No
INV8846 Soft candy R 1,254.00 R 550.00 Credit 10%
Draw the table below and use it to record the accounting entries in the general
ledger master file for the transactions indicated above. You should show all the
applicable accounting entries. (The accounting entries can be recorded in a
summary or in detail.)
General ledger description Debit/Credit Amount
Hint: Draw the T-accounts, as rough work, to ensure that the debits and credits
are correct.
...........
TO PI C 3 26
      
The suggested solution below shows the T-accounts (rough work) in detail and
summarised information in the journal. Both methods are acceptable (ie detailed
or summarised information). Use the method you find the easiest.
General ledger Debit/

Amount Calculation
description Credit
Sales revenue – Hard candy Credit R1,975.00 Cash sale excluding VAT:
R256/1.14 = R225.00
Mr S Ucker (credit sale) excluding VAT:
R1,995.00/1.14 = R1,750.00
Total sale:
R225.00 + R1,750.00 = R1,975.00
Sales revenue – Soft candy Credit R1,070.00 Cash sale excluding VAT:
R91.20/1.14 = R80.00
Mr S Ucker (credit sale) excluding VAT before
discount:
R1,254.00/1.14 = R1,100.00
10% trade discount deducted:
R1,100.00 – (R1,100.00* 10%) = R990.00
Total sale:
R80.00 + R990.00 = R1,070.00
VAT Credit R426.30 Sales * VAT %:

Hard candy: R1,975.00 * 14% = R276.50
Soft candy: R1,070.00 * 14% = R149.80
Total VAT:
R276.50 + R149.80= R426.30
Trade receivables Debit R3,123.60 Credit sale – Mr S Ucker (incl VAT):

Total amount including VAT before discount =
R1,995 (hard candy) + R1,254 (soft candy) =
R3,249.00
10% trade discount on soft candy deducted:
R3,249 – (R1,254 *10%) = R3,123.60
Bank Debit R347.70 Cash sale (including VAT):

R256.50 (hard candy) + R91.20 (soft candy)
= R347.70
Inventory – Hard candy Credit R790.00 Inventory value excluding VAT:

R90.00 (cash sale) +R700.00 (credit sale)
Cost of sales – Hard candy Debit R790.00 = R790.00
Inventory – Soft candy Credit R590.00 Inventory value excluding VAT:

R40.00 (cash sale) +R550.00 (credit sale)
Cost of sales – Soft candy Debit R590.00 = R590.00
...........
3 Customer returns
There are many reasons why a customer would want to return inventory items. The items
may have a defect, the incorrect items may have been delivered, too many items may have
been delivered and so on. The rules of what items may be returned will be determined by
the organisation’s policies, and must be communicated to the customer as early as the
quotation and/or order stage. This process can also be used if a customer was incorrectly
invoiced for items that were not delivered, although this is highly unlikely if the proper
controls were in place.
...........
TO PI C 3 28
FIGURE 8.2: Generic customer returns process
Refer to figure 8.2. throughout the following discussion
The customer returns the defective or unwanted inventory items.
The returned inventory items are received and taken back into inventory. The warehouse
will issue a “customer goods returned” note. This note will be used to create the credit
note in the AIS. The credit note must be linked to the original sales invoice – that is, the
sales invoice where the items were originally billed to the customer. The credit note is
sent to the customer. The sales invoice and linked credit note will be open until payment
has been received from the customer.
• Source document
Over and above the information usually reflected on a sale invoice, the credit note
will also indicate the applicable sale invoice number. Although there is normally no
...........
“customer goods returned” note in the AIS, the warehouse information system should
issue such a document that will be similar to a “goods received note” (see study unit 9
section 2.2) which is used when items are received from suppliers, in order to control
inventory items received into the warehouse. Bear in mind that if a line item or invoice
discount (ie trade discount) was granted on the original sales invoice, the same discount,
if applicable to the returned items, should also be captured on the credit note.
Bear in mind that if any trade discount was applicable on the original sales invoice,
this discount will have been recorded by netting it off against the sales and accounts
receivable amounts. The credit note accounting entries must therefore follow the same
principle as the original transaction – that is, any trade discount must be netted off
(deducted) from the sales revenue and accounts receivable amounts.
The accounting entries are recorded when the risk of the inventory items was transferred
back to the organisation that is, the organisation receives the returned items.
The credit note will result in the following accounting entries where a perpetual inventory
system is used and the original sale was on credit:
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Customer return: Inventory sold on credit
Trade receivables BS – asset Ct Sale return amount including VAT (net of any
trade discount granted on the inventory returned)
VAT BS – liability Dt VAT amount (based on the sale amount net of any
trade discount granted on the inventory)
Sales revenue IS – revenue Dt Sale return amount excluding VAT (net of any
trade discount granted on the inventory)
Inventory BS – asset Dt Amount based on inventory valuation method
excluding VAT
Cost of sales IS – expense Ct Amount based on inventory valuation method
excluding VAT
Note: The transactions above are the exact reversal of the sales transaction.
Although the likelihood is slim, there is a possibility that payment was received from the
customer for credit sales, before the items were returned. If the settlement discount was
granted on the payment of the items that have now been returned, this the settlement
discount must now also be reversed. The reversal of this transaction should be recorded
in a separate journal because the VAT effect must be recorded separately. The journal
entry will be as follows:
...........
TO PI C 3 30
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Reversal of settlement discount granted (if applicable)
Trade receivables BS – asset Dt Settlement discount amount including VAT
VAT BS – liability Ct VAT amount
Settlement IS – expense Ct Settlement discount amount excluding VAT
discount granted
Because the items have been returned to the warehouse, the quantity on hand and the
quantity available will increase.
The organisation must decide what to do with inventory items returned because of
damage, unsatisfactory quality, defects, etc, and which are unsellable to another
customer. The organisation can, if it is still within their supplier’s terms, return the
damaged items to the supplier (see study unit 9 section 3) or if the items cannot be
returned, these items must be moved from inventory available to inventory damaged
from where it can be sold at a lower value, or if it is totally unusable, be written off.
If the items are only damaged and can be sold at a lower value, these items must be
moved from the inventory available to inventory damaged. Because many entry-level
AISs do not have a damaged goods function, it may be necessary to create a new
inventory item code (eg “Product X damaged goods”) and move the items from the
original inventory item code (eg “Product X”) to the new inventory item code, “Product
X damaged goods”, which is valued at net realisable value. This can be done through
the inventory journal. The quantity on hand and the quantity available will decrease
for the original product (eg “Product X”), and increase for the new damaged inventory
item (eg “Product X damaged goods”).
When unsellable items are written off, the inventory quantity on hand and the quantity
available will decrease.
– the customer master file: customer details (ie code, name, delivery address, year-
to-date sales, outstanding balance, etc)
per unit, year-to-date sales, year-to-date returns, etc
– the credit note transaction file: credit note number, credit note date, client code,
inventory code, inventory description, quantity, price per unit, VAT amount, discount
%, discount amount, line item amount, total amount, etc
– VAT reference file: VAT % per tax type
– VAT transaction file: VAT transactions
– several general ledger master files: storing general ledger account balances
ledger, etc
...........
– the sales transaction file: where a sales invoice existed, the sales transaction file will
be accessed for all the above-mentioned information; changes will be made where
necessary and the date added
• AIS reports
A variety of reports can be printed, including the following:
– credit note analysis reports which can be extracted based on credit note per customer,
item, journal, sales agent, etc
– customer statements; customer age analysis; and the customer detail ledger, which
will include the credit note
– general ledger accounts details showing the accounting entries for the applicable
       
Yummy Sweets (Pty) Ltd issued the following sales invoice to one of its
customers, Ms CH Olate, who always buys on credit. Yummy uses a perpetual
inventory system.
...........
TO PI C 3 32
Refer to the above sales invoice. You can assume that this sales invoice was
updated to the applicable master files. Ms CH Olate has returned 500 units of
hard candy, which was invoiced (invoice no. 89576), because she is not satis-
fied with the quality of the hard candy. Yummy Sweets is of the opinion that they
will be able to sell these 500 units of hard candy to another customer. The cost
price of the hard candy per unit is R2.28 excluding VAT.
(a) Draw the table below and use it to record the accounting entries into the
general ledger master file for the return of the hard candy.
are correct.
(a) Refer to the sales invoice. Identify the AIS document used to record the
return of the inventory items.
(b) Refer to the sales invoice above. Identify three (3) database files that can
either be accessed, updated or modified by the sales invoice transaction.
(c) Refer to the sales invoice above. Identify three (3) database files that can
either be accessed, updated or modified by the return of the inventory items.
(d) Record the effect the return of the items will have on the inventory quantities.
       
(a)
Amount Calculation
description Credit
Sales revenue Debit R 2,375.00 Price per unit excluding VAT =
R5.70/1.14 = R5.00
Total amount excluding VAT before discount =
R5.00 * 500 items = R2,500
5% trade discount deducted =
R2,500 – (R2,500 * 5%) = R2,375
VAT Debit R 332.50 Sales * VAT % =
R2,375 * 14% = R332.50
Trade Credit R 2,707.50 Total amount including VAT before discount
receivables = R5.70 * 500 items = R2,850
5% trade discount deducted =
R2,850 * (100% – 5%) = R2,707.50
Inventory Debit R 1,140.00 Inventory value excluding VAT =
R2.28 * 500 = R1,140
Cost of sales Credit R 1,140.00
...........
(b) Credit note
(c) Any three (3):
– customer master file

– inventory master file
– sales transaction file
– VAT transaction file
– general ledger master files
– delivery note transaction file
(d) Any three (3):
– customer master file

– inventory master file
– credit note transaction file
– VAT transaction file
– general ledger master files
– sales transaction file
(e) Inventory quantity on hand and quantity available will increase by 500 items.
4 Receipts
Collecting amounts due to the organisation is crucial because no organisation can survive
without cash. Proper controls to ensure timely collection of cash are therefore of vital
importance.
Customers can pay the organisation in various ways. Some of the methods include a direct
deposit in the organisation’s bank account, cheque, cash, EFT or credit card.
NOTE:
Inventory and service sales for cash have activities that fall within both the revenue and the
receipt processes. In other words, the recording of the sale and movement in the inventory
forms part of “revenue” and the physical cash received and banked forms part of “receipts”.
The influence of cash sales accounting transactions on inventory was included in the
“revenue” process so as not to duplicate the information.
...........
TO PI C 3 34
FIGURE 8.3: Generic receipt process
Refer to figure 8.3 throughout the following discussion
The customer will receive the debtors’ statement and will compare it to his or her records.
The customer will make a payment to the organisation. Cash and cheque payments
sent or directly received by the organisation are usually accompanied by a remittance
advice. The customer will send a proof of payment to the organisation if he or she made
an electronic fund transfer (EFT) or a direct deposit into the organisation’s bank account.
The organisation will send, at least monthly, a debtor statement and remittance advice
(which is the tear-off portion of the debtor statement) to their customers. The organisation
can receive payments from customers in electronic (EFT) format or in cash.
Amounts deposited and/or received directly in the bank account should be matched to
either a remittance advice or a proof of payment received from the customer. A receipt
will be issued to the customer for all payments received and verified. The receipts are
captured in the receipt cashbook and matched against the customer from whom the
...........
amount was received. If the customer’s transactions are processed using open item
processing (see topic 6), then the amount will not only be matched to the customer but
also to the specific sales invoices and credit notes that are being paid. When matched,
the sales invoices and credit notes are closed. The receipt will be open and reflect
as unreconciled on the bank reconciliation until the receipt is matched to the bank
statement and reconciled.
All cheques and cash received at the organisation are indicated on a bank deposit slip.
The cash and cheques will then be banked and the bank will stamp the deposit slip as
proof that money was received.
The organisation will, at least monthly, compare the bank statements received from the
bank with the transactions processed in the cashbook and perform a bank reconciliation.
Proper internal controls necessitate that any receipt transaction should not be captured
using the bank statement as the source document, except for bank-generated transactions
(ie interest received), but that the receipt issued or the cash register roll should rather
be used as source document.
• Source document
A bank deposit slip will be completed for cash and cheques received at the organisation.
The bank must stamp this deposit slip. In all instances, a receipt must be issued to
customers for amounts received. A receipt also includes a “cash register slip”.
No VAT transaction is recorded with the receipt, as the VAT entries were recorded during
the recording of the sales invoice. (Remember, however, there will be VAT entries for
cash sales. See section 2.4)
As agreed with the customer, and if a receipt qualifies for it, a settlement discount (also
called early payment discount), should be granted and the accounting entries recorded.
If the organisation is a VAT vendor, the settlement discount transaction must account
for VAT against the VAT rate applicable on the linked sales invoices and credit notes.
Most organisations use a “settlement discount granted” general ledger account to record
settlement discounts because this enables the organisation to easily see how much
discount was granted in a certain period. However, IFRSs disclosure requirements
stipulate that the settlement discount should be netted off against sales revenue. We
should therefore remember to include the settlement discount granted general ledger
account in the same AIS report writer category as sales revenue. As an alternative,
we could also journalise the settlement discount granted balance to the sales revenue
account at period-end.
...........
TO PI C 3 36
The receipt cashbook journal will be used to capture the following accounting entries:
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Cash receipts for credit sales
Trade receivables BS – asset Ct Amount including VAT
Bank BS – asset Dt Amount including VAT
Settlement discount granted (if applicable)
Trade receivables BS – asset Ct Discount amount including VAT
VAT BS – liability Dt VAT amount
Settlement IS – expense Dt Discount amount excluding VAT
discount granted
Since payment is only received, there is no influence on inventory quantities. (Remember

however, there will be an influence on inventory quantities for cash sales. See section 2.4)
– the customer master file: customer details (ie code, name, delivery address, year-
to-date payments received, outstanding balance, etc)
– the receipt cashbook transaction file: reference number, date, bank amount, customer
code, general ledger account number, etc
– the open sales transaction file: summarised sales from previous sale transaction
files that have not yet been matched to a payment
ledger
– the open credit note transaction file: summarised credit notes from previous customer
returns transaction files that have not yet been matched to a payment
• AIS reports
– receipt cashbook detail report (similar to a journal printout) showing the cashbook
receipt transactions for a selected period
– customer statements, customer age analysis, customer detail ledger, which will
include payments received
– unmatched/unpaid invoices and credit notes showing details of invoices and credit
notes not yet paid or matched to a payment received, etc
...........
5 Summary
In this study unit, we investigated how revenue and receipts are recorded in an accounting
information system. We learnt which documents are used, which database files are
accessed, updated or modified, the reports that can be printed and some of the basic
underlying accounting entries for quotations, sales orders, deliveries, billing, inventory
returned and receipts.
In the next study unit, we will gain a deeper understanding of the acquisition and payment
cycle and its interaction with the AIS.
            
questions:
(a) List the processes that form part of the revenue process.
(b) For each process in the revenue process, describe the activities performed
by both the organisation and customer.
(c) For each process in the revenue process, name and describe the source
documents used.
(d) Identify and record the accounting entries applicable to each of the revenue
processes.
(e) Identify the movement in inventory quantities for each of the revenue
processes.
(f) For each process in the revenue process, list the database files accessed,
updated or modified and name some of the information contained in these
database files.
(g) For each process in the revenue process, list the AIS reports that can be
generated.
(h) Describe the activities performed by both the organisation and customer
in the receipts cycle.
(i) Name and describe the source documents used in the receipts cycle.
(j) Identify and record the accounting entries applicable to each of the receipts
process.
(k) Identify the movement in inventory quantities in the receipts process.
(l) For the receipts process, list the database files accessed, updated or
modified and name some of the information contained in the database file.
(m) For the receipts process, list the AIS reports that can be used and mention
what information it will contain.
(n) Describe the activities performed by both the organisation and customer
in the customer returns process.
(o) Name and describe the source documents used in the customer returns
process.
(p) Identify and record the accounting entries applicable to the customer returns
process.
(q) Identify the movement in inventory quantities for each of the customer
returns processes.
(r) For each process in the customer returns process, list the database files
accessed, updated or modified and name some of the information contained
in these database files.
(s) For each process in the customer returns process, list the AIS reports that
can be generated.
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TO PI C 3 38
STU DY U NIT
3 9
Acquisition and payments cycle

5
1 Introduction
In the previous study unit, we learnt how the organisation’s revenue and receipts are
recorded in an AIS. In this study unit, we will focus on how the organisation’s acquisitions
and payments are recorded in an AIS.
To enable the organisation to sell inventory items or render a service to its clients, the
organisation first needs to acquire and pay for inventory and services from its suppliers. In
this study unit, we will learn which documents are used, which database files are accessed,
updated or modified, the reports that can be printed and some of the basic underlying
accounting entries. We will not discuss the audit environment and controls relating to this
cycle because you will learn about these in auditing. For details of the IFRSs requirements,
see the financial accounting modules. This study unit is based on the retail, wholesale and
manufacturing organisations and will not address the acquisitions and payments cycle of
specialised industries such as financial services, health care, government and so forth.
NOTE:
Since most organisations are registered for VAT on the invoice basis, all VAT implications
discussed in this study unit will be based on the invoice basis.
...........
For all accounting transactions shown in this study unit, it was assumed that both the
organisation and the supplier are registered VAT vendors and goods/services bought are
subject to standard VAT.
Use your financial accounting and tax knowledge to make the necessary adjustments to
the accounting entries where a suppliers and/or organisation is not a registered VAT vendor
and/or also goods/services bought are not subject to standard VAT.
2 Acquisition
The inventory items bought will also refer to raw material inventory used in the manufacturing
process. The process of converting raw material inventory into finished goods inventory
is discussed in study unit 10.
Organisations often use a manual and sometimes an electronic requisition to request

the purchasing department to place an order. The process followed will differ materially
between organisations. The requisition process is not discussed in this study unit because
it generally has no impact on the AIS.
FIGURE 9.1: Generic acquisition process
Refer to figure 9.1 throughout the following discussion.
...........
TO PI C 3 40
2.1 Purchase order process
Noninventory items and services. A department will request items to be purchased

or services to be rendered by following the organisation’s procedures and controls. (You
will learn about these procedures and controls in auditing.) Examples of controls for
nonrecurring items may include obtaining three quotations upon which a staff member
with the correct mandate must approve the request. Examples of controls for recurring
items may include the use of only preferred suppliers and the placement of orders by
authorised staff members. The suppliers that are used will either be predetermined
preferred suppliers or other suppliers selected according to the organisation’s internal
control procedures.
Inventory items. The organisation will determine from the AIS or warehouse inventory
information system which inventory items must be ordered and the quantity required.
The quantity required will be determined on the basis of the inventory quantity on hand
and the inventory quantities that should be available. In topic 6 we will see how an AIS,
Pastel Partner, calculates reorder quantities based on minimum, maximum reorder levels
and quantities on hand. Inventory items are regularly purchased from suppliers, and the
organisation will therefore have negotiated payment terms, prices, item quality and so
forth, with some of these suppliers. The organisation will then normally only buy inventory
items from these suppliers (called preferred suppliers) with whom arrangements exist.
For inventory, noninventory items and services. The selected supplier will be a
preferred supplier or a supplier selected according to internal control procedures. The
price that is used can be obtained from the previous paid prices, a quotation, supplier
price list and so on. Once we know which supplier and price to use and which items/
service to order, a purchase order will be created in the AIS and sent to the applicable
supplier.
• Supplier activities
The supplier will receive the purchase order and process the purchase order according
to his or her own internal processes. (Similar to those described in the revenue and
receipt cycle.)
A purchase order will be created in the AIS and sent to the supplier. Purchase orders sent
to suppliers for inventory items not yet received (ie it is not linked to a goods received
note [GRN]), are referred to as open purchase orders. The price per unit used on the
purchase order will depend on the organisation’s prescribed procedures. It can be the
current cost price per unit as reflected in the AIS, the prices indicated on the supplier’s
quotation, the price per supplier price list and so forth.
Because no transaction has taken place and risk has not yet been transferred, there
are no general ledger accounting entries.
No physical movement of inventory items has taken place, but inventory items have
been ordered. In the organisation’s AIS (as well as the warehouse information system if
used), the inventory quantity on order will increase. This artificial movement in quantity
...........
is necessary to ensure that the organisation does not double order (ie. order items
already on order from a supplier).
– the supplier master file: supplier details (ie code, address, etc)
quantity ordered, last prices, etc
– the purchase order transaction file: document number, date, supplier code, inventory
code, inventory description, quantity, etc
• AIS reports
An outstanding/open purchase order report can be printed to show all purchase orders
not yet converted into GRNs (see section 2.2). This report can be used to follow up on
outstanding orders to ensure that all purchase orders are completed.
2.2 Inventory received

The supplier will fulfil the order received from the organisation. Items will be delivered
with a delivery note that the organisation must sign to confirm receipt of the items.
The organisation will receive the physical items. On receipt, the organisation will compare
the items received with the items listed on the supplier’s delivery note and the
organisation’s own purchase order. Any differences in quantity, type of items, quality
and so forth, will be clearly indicated on the delivery note before it is signed by the
organisation as acknowledgement of receipt. For example, the purchase order included
200 red ink cartridges, but blue cartridges were delivered instead, and the delivery note
likewise updated. In this instance, the organisation would probably not accept the blue
cartridges and indicate on the delivery note that they did not take delivery. Take another
example: the delivery note indicated 200 black ink cartridges, but only 180 were actually
delivered. The organisation can decide not to accept the complete black ink cartridges
delivery or more likely adjust the delivery note to reflect the actual quantity received
(ie 180) and indicate on the delivery note that there is a short delivery. It is however
crucial for the delivery note, as adjusted, to agree with the actual items received from
the supplier, before the note is signed. The organisation will keep a copy of the delivery
note. If a proficient supplier is used, the possibility of the delivery note and the delivery
being different is highly unlikely.
As always, the organisation’s unique way of conducting business will determine how
incorrect items should be dealt with. It may not always be possible to send items back
immediately because the delivery may have been made by a third-party carrier. These
“incorrect” items may need to be taken into stock (to keep control of the items) and
returned to the supplier later (see section 3).
The supplier’s delivery note will be used to create the organisation’s own goods received
note (GRN) in the AIS. The term “goods” is used because a GRN is not only used for
the receipt of inventory items, but also for noninventory items, and goods therefore refer
to both types of items. The GRN will be linked to the purchase order and the purchase
...........
TO PI C 3 42
order closed if the complete order was received. If the complete purchase order was
not received, the organisation will have the option to close the complete purchase order
and inform the supplier that they no longer want the items or to only close the purchase
order line items actually received. In the latter instance, the undelivered purchase order
will then still be open, but will only show the items still on order.
The supplier delivery note is an external document that serves as proof of which
items were delivered. The delivery note (as adjusted) will be used to create the goods
received note (GRN). The GRN created in the AIS will indicate the supplier name, date,
a description and the quantity of inventory items delivered and the purchase order
number to which the GRN relates. The price per unit will be based on the price per unit
used in the purchase order because most delivery notes do not include prices, and the
organisation has yet to receive the supplier invoice. The GRN and the original purchase
order are linked and the purchase order is completely or partially closed. Most of the
information on the GRN can be obtained/copied from the associated purchase order.
Once the inventory items have been received, risk and ownership are transferred to
the organisation, which now has a liability to pay the supplier and can sell the received
inventory items. The organisation has not yet received and captured the supplier invoice
in the AIS, and as a result, no liability or inventory accounting entries were recorded,
but do nevertheless exist. To reflect the actual substance of the transaction, an accrual
account is used to record the liability until such time that the actual invoice is received
and recorded. This accrual is based on estimates only, because the supplier invoice with
the actual prices and so forth, has not yet been received at this stage. In this module,
the accrual account will be named “GRN accrual account”. The inventory account will be
used to record the inventory accounting entries. Bear in mind that no VAT transactions
are raised at this point, because SARS only allows VAT to be claimed on the receipt of
a valid supplier tax invoice. The GRN accrual amount will therefore exclude VAT and
the inventory amount will also exclude VAT.
      
Trade discount received entails the organisation receiving discount from a supplier
for a specific item or on the complete invoice (also called line item discount and
invoice discount respectively). This discount may be the result of the quantity
ordered, a “sale” and so forth. Trade discount, however, excludes a settlement
discount. For example, the organisation receives 5% discount for quantities over
500 ordered or it receives 2% on all items ordered from the specific supplier
(invoice discount).
Settlement discount received, also referred to as early payment discount received,

is only applicable on credit purchases and is a discount that is received if
the organisation pays the supplier before a specific date. For example, the
organisation receives a 2.5% discount if the purchase invoice is paid five days
after the period end in which it was recorded or the organisation can receive 4%
discount if the invoice is paid six days after the invoice was issued.
...........
NOTE:
GRN accrual account: Pastel Partner labels the accrual account used as the GRN accrual
account. We use the same name in this transaction processing explanation because
Pastel Partner is the AIS used in this module. Other AISs may use a different name for
the accrual account, but the underlying principle of using an accrual account will be the
same for those AISs that use it.
Any known trade discount (eg a standard agreement whereby the organisation receives
2% invoice discount) should be recorded at this stage. IFRSs requires that inventory should
be valued at the lowest of cost and net realisable value. Trade discount will therefore be
recorded by netting it off (deducting it from) against the inventory amount, that is, reducing
the inventory amount by the trade discount amount.
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
GRN accrual
Inventory BS – asset Dt Purchase order price per unit excluding VAT (net
of any known trade discounts) multiplied by the
GRN accrual BS – liability Ct GRN quantity received.
Because inventory was physically received and is now available for selling, the inventory
quantity on hand and the quantity available will increase and the quantity on order will
decrease.
– the supplier master file: supplier details (ie code, address, etc)
quantity on hand, quantity available, quantity on order, year-to-date purchases, last
cost prices, etc
– the GRN transaction file: document number, date, supplier code, inventory code,
inventory description, quantity, purchase order number, etc
– the inventory transaction file: delivery date, inventory code, quantity, etc
– the general ledger transaction files: details of each transaction recorded in the
general ledger
– for all open and partially open purchase orders, the open purchase order transaction
file. Where a purchase order existed, the open purchase order transaction file will
be accessed for all the above-mentioned information. Changes will be made where
necessary and the date added. The open purchase order transaction file will be
updated to reflect the new status.
...........
TO PI C 3 44
• AIS reports
– An open purchase report can be printed to show all purchase orders that have been
created but have not yet been completely linked to a GRN, and an open GRN report
will reflect all GRNs that have not yet been completely linked to a supplier invoice
(see section 2.3). These reports can be used to ensure all inventory items ordered
are delivered and for all delivered items that invoices are received and processed.
– An inventory activity report will show all movements of an inventory item including
the purchases received.
– Inventory quantity reports will show inventory quantities on order, available and on
hand.
2.3 Invoice received

The supplier issues the invoice and sends it to the organisation. At month-end, the
supplier will also send a statement showing all invoices not yet paid (ie outstanding).
The organisation is obliged to pay the invoice according to the agreed terms, unless
there are disputed item quantities, prices and so forth, on the invoice.
The trade payables team will receive the supplier invoice and match it to the original
purchase order and GRN. The invoice received from the supplier will be captured in
the AIS, creating a supplier invoice. The supplier invoice is linked to the GRN and the
GRN closed. The supplier invoice will remain open until the invoice has been paid.
The purchase order and GRN are matched to the supplier invoice to ensure that the
organisation is billed for items actually ordered and received. The supplier invoice will
include the supplier details; the organisation’s details and address; the payment date;
for each inventory/service item, a description, unit size, quantity, amount per unit, item
discount (if applicable), total amount per item; invoice discount (if applicable); VAT (if
applicable); total invoice amount; any messages from the supplier; and so forth. If
the organisation is a registered VAT vendor, it can claim VAT on all valid tax invoices
received from its suppliers who are registered VAT vendors. The tax invoice must
include information such as the words “Tax invoice” and the supplier’s VAT number, the
organisation’s VAT number, if the value of the invoice is more than R3 000, and so on.
You will learn in your taxation studies about all the requirements for a valid tax invoice.
The supplier invoice has now been received and the accounting transactions can be
recorded. The liability will now “move” from the GRN accrual account to the supplier’s
trade payables subledger account.
Price differences between the purchase order and/or GRN and the actual supplier
invoice, as well as any trade discount not previously acknowledged, must now also be
recorded. IFRSs requires that inventory should be valued at the lowest of cost and net
realisable value. Price differences and trade discounts will therefore be recorded by
adjusting the inventory value – that is, increasing or decreasing the inventory amount
by the price difference and/or trade discount amount.
...........
The purchase journal will be used to capture the purchase transactions. The purchase
journal will result in the following accounting entries:
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Inventory purchased on credit
(No price and/or trade discount differences between GRN and purchase invoice)
Trade payables BS – liability Ct Supplier invoice amount including VAT
VAT BS – liability Dt Supplier invoice VAT amount
GRN accrual BS – liability Dt Original GRN accrual amount excluding VAT
Inventory purchased on credit
(Price difference and/or trade discount not previously recorded on GRN)
Trade payables BS – liability Ct Supplier invoice amount including VAT (net of
trade discount and price differences)
GRN accrual BS – liability Dt Original GRN accrual amount excluding VAT
Inventory BS – asset Dt/Ct Trade discount and price difference amount
(excluding VAT)
Inventory purchased on cash
(No price and/or trade discount differences between GRN and purchase invoice)
Bank BS – asset Ct Supplier invoice amount including VAT
GRN accrual BS – asset Dt Original GRN accrual amount excluding VAT
Inventory purchased on cash
(Price difference and/or trade discount not previously recorded on GRN)
Bank BS – asset Ct Supplier invoice amount including VAT (net of
trade discount and price differences)
GRN accrual BS – asset Dt Original GRN accrual amount excluding VAT
Inventory BS – asset Dt/Ct Trade discount and price difference amount
(excluding VAT)
Noninventory items and services purchased on credit
Trade payables BS – liability Ct Supplier invoice amount including VAT (net of any
trade discount or price difference)
Expense IS – expense Dt Supplier invoice amount excluding VAT (net of
any trade discount or price difference)
...........
TO PI C 3 46
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Non – inventory and service purchased on cash
Bank BS – asset Ct Supplier invoice amount including VAT (net of
any trade discount)
Expense IS – expense Dt Supplier invoice amount excluding VAT (net of
any trade discount)
There is no influence on the inventory quantities because these items were taken into
stock on delivery.
– the supplier master file: supplier details (ie code, name, address, year to date
purchases, outstanding balance, etc)
per unit, year to date purchases, etc
– the purchase transaction file: supplier invoice number, invoice date, payment due
date, supplier code, inventory code, inventory description, quantity, price per unit,
VAT amount, discount amount, line item amount, total amount, etc
general ledger
– the GRN transaction file: where a GRN existed, the GRN transaction file will be
accessed for all the above-mentioned information. Changes will be made where
necessary, and the date added. The GRN transaction file will be updated to reflect
the new status and so on.
• AIS reports
– purchase analysis reports which can be extracted, based on purchases per supplier,
document type, journal, etc
– invoices due reports indicating unpaid invoices that are due, based on the supplier
payment terms
– supplier statements, supplier age analysis and supplier detailed ledger showing all
supplier invoices recorded
– VAT reports showing the input VAT for all purchase transactions
– general ledger accounts details showing the accounting entries for the selected
...........
      
Yummy Sweets (Pty) Ltd received the following supplier invoice from Chocolate
Deluxe Ltd, from whom the company always buys on credit. Yummy uses a
perpetual inventory system.
Refer to the supplier invoice. All the information on the supplier invoice and GRN
agrees except for inventory item BED200, where the unit price has increased
from R18 to R20 and the 2.5% discount that was granted on the whole supplier
invoice, but did not reflect on the purchase order or GRN.
Yummy Sweets has separate inventory general ledger accounts for Swiss and
Belgium chocolates referred to as “Inventory – Swiss” and “Inventory – Belgium”
respectively.
(a) Draw the table below. Use this table to record the accounting entries into
the general ledger file for the supplier invoice. You should show all the
applicable accounting entries. (The accounting entries can be recorded in
summary form or in detail.)
...........
TO PI C 3 48
are correct.
(b) Identify the two (2) source documents to which the supplier invoice must
be matched, to ensure that the organisation is only billed for items ordered
and received?
(c) Refer to the supplier invoice above. Name three (3) AIS reports that can
be used to verify that this transaction was recorded correctly in the AIS.
(d) Identify the movement in inventory quantities in the processing of the
supplier invoice.
      
(a) Since the VAT numbers of both Yummy and the supplier, Chocolate Deluxe,
are reflected on the tax invoice, we can assume they are both VAT vendors.
The suggested solution below shows the T-accounts (rough work) in detail
and the summarised information in the journal. Both methods are acceptable
(ie. detailed or summarised information). Use the method you find the easiest.

Amount Calculation
description Credit
Trade payables Ct R11,781.90 Total invoice amount including VAT.
VAT Dt R1,446.90 VAT amount as per supplier invoice.
GRN accrual Dt R10,000.00 The original GRN accrual amount. Remember that the
2.5% invoice discount and price difference were not on
the GRN and were therefore not accrued.
Also, the GRN accrual amount always excludes VAT.
Start at the subtotal of R10,600 and adjust for the R2 price
increase (ie. 300 * R2 = R600
R10,600 – R600 = R 10,000.00)
We did not adjust the discount because it was not included
in the subtotal and was also not on the GRN.
Inventory – Swiss Ct R85.00 The Swiss inventory amount must be adjusted for the trade
discount (2.5%) which was not reflected on the original
GRN and purchase order.
R1,600 + R1,800 = R3,400
R3,400 * 2.5% = R85.00
The inventory account is credited because the cost price
decreases.
For VAT vendors, these amounts must always be
exclusive of VAT as inventory is valued exclusive of
VAT.
...........
Amount Calculation
description Credit
Inventory Dt R420.00 The Belgium inventory must be adjusted for the price
– Belgium increase and the trade discount (2.5%) which was not
reflected on the original GRN and purchase order.
Price increase:
R20 – R18 = R2 * 300 units = R600 increase (excluding
VAT)
Trade discount:
R6,000 + R1,200 = R7,200
R7,200 * 2.5% = R180.00 decrease
Net movement:
R600 increase – R180 decrease = R420 increase,
therefore the inventory account is debited.
For VAT vendors, these amounts must always be
exclusive of VAT as inventory is valued exclusive of
VAT.
(b) Purchase order and GRN
...........
TO PI C 3 50
(c) Any three (3):
– purchase analysis reports

– supplier age analysis
– supplier detail ledger
– VAT reports
– general ledger accounts details
(d) There is no influence on inventory quantities.
3 Inventory returned
There are numerous reasons why the organisation would want to return inventory items
that have already been invoiced by the supplier and the supplier invoice captured in the
AIS. The items may have be defective or may have been damaged during shipment, and
these defects and damage were only discovered after the items had been unpacked.
The incorrect items may have been delivered or possibly too many items were delivered.
The latter two reasons should have been picked up during the delivery process, and the
items returned and the delivery note adjusted. We are only going to discuss the process
in which the supplier invoice had already been processed in the AIS before the inventory
items were returned.
FIGURE 9.2: Generic return process

The defect/unwanted inventory items are returned to the supplier and a credit note
received from the supplier. The supplier credit note received is used to create a return
debit note in the AIS and the return debit note is linked to the corresponding AIS supplier
invoice. The supplier invoice and linked return debit note will remain open until payment
has been made.
The supplier receives the items and gives the organisation credit for the items received
by issuing a credit note.
• Source document
The debit note must be matched to the credit note received from the supplier. The debit
note will, over and above the information usually reflected on a supplier invoice, also
indicate the supplier invoice number it relates to. Bear in mind that if trade discount
was granted on the original supplier invoice, the same discount, if applicable on the
returned items, should also be captured on the return debit note.
...........
A debit note is generally used where items are returned to a supplier. However, a debit
note can also be used to correct incorrectly captured supplier invoices or supplier invoices
captured according to the source document received but which did not, say, include
the agreed invoice or line item discount. When performing supplier reconciliation, the
debit note must be matched to the credit note received from the supplier.
Remember that if any trade discount was applicable on the returned items, this discount
would have been recorded by netting it off against the inventory and trade payables
amounts. The debit note accounting entries must therefore follow the same principle as
the original transaction that is, any trade discount must be netted off (deducted from)
inventory and trade payables amounts.
The accounting entries are recorded when the risk of the inventory items is transferred
back to the supplier (ie the supplier receives the returned items).
The debit note will result in the following accounting entries where a perpetual inventory
system is used:
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Inventory purchases on credit
Trade payables BS – liability Dt Amount including VAT (net of any trade discount
received on the inventory returned)
VAT BS – liability Ct VAT amount (based on the inventory amount net
of any trade discount received on the inventory
returned)
Inventory BS – asset Ct Amount excluding VAT (net of any trade discount
received on the inventory returned)
Noninventory purchases on credit
Trade payables BS – liability Dt Amount including VAT (net of any trade discount
received)
VAT BS – liability Ct VAT amount (based on the excluding VAT amount)
Expense IS – expense Ct Amount excluding VAT (net of any trade discount
received)
NOTE:
The above transactions are the exact reversal of the purchase transaction. All the debits
become credits. Although not indicated above, you can apply the same principle to the
return of cash purchased items.
...........
TO PI C 3 52
Although the likelihood is slim, there is a possibility that payment was made to the supplier
for credit sales, before the items were returned. If settlement discount was received on the
payment of the items which have now been returned, the settlement discount must now
also be reversed. The reversal of the discount will have to be done through the general
journal because the VAT effect must be recorded separately. The journal will be as follows:
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Settlement discount reversed (if applicable)
Trade payables BS – liability Ct Settlement discount amount including VAT
VAT BS – liability Dt VAT amount
Settlement IS – revenue Dt Settlement discount amount excluding VAT
discount received
Because the items were returned to the supplier, the quantity on hand and the quantity
available will decrease.
– the supplier master file: supplier details (ie code, name, address, year-to-date
purchases, year-to-date debit notes, outstanding balance, etc)
per unit, year-to-date purchases, year-to-date returns etc
– the debit note transaction file: debit note number, supplier invoice number, debit note
date, supplier code, inventory code, inventory description, quantity, price per unit,
VAT amount, discount amount, line item amount, total amount, etc
general ledger
– the purchase transaction file: where a supplier invoice existed, the purchase
transaction file will be accessed for all the above-mentioned information. Changes
will be made where necessary and the date added. The purchase transaction file
will be updated to reflect the new status and so forth.
...........
• AIS reports
– debit note analysis reports that can be extracted, based on debit notes per supplier,
item and so on
– supplier statements, supplier age analysis and supplier detailed ledger, which will
include the debit note
– VAT reports showing the output VAT for all debit note transactions
– general ledger accounts details showing the accounting entries for the selected
       
Yummy Sweets (Pty) Ltd received the following supplier invoice from Chocolate
Deluxe Ltd from whom they always buy on credit. Yummy uses a perpetual
inventory system.
...........
TO PI C 3 54
Refer to the above supplier invoice. Yummy Sweets has returned 50 units of Swiss
white (150 g), which were invoiced but not yet paid by Yummy Sweets. Yummy
Sweets has separate inventory accounts for the Swiss and Belgium chocolates.
Draw the table below. Use this table to record the accounting entries into the
general ledger master file for the return of the Swiss white (150 g).
are correct.
       
General ledger
Debit/Credit Amount Calculation
description
Inventory – Swiss Ct R585.00 Total price excluding VAT:
50 units * R12 = R600 (excl VAT)
Deduct 2.5% trade discount:
R600 – (R600 * 2.5%) = R585
VAT Ct R81.90 Return * VAT %:
R585 * 14% = R81.90
Trade payables Dt R666.90 Total returned amount including VAT
R585 + (R585 * 14%) = R666.90
T- accounts (rough work)
...........
4 Payments
The organisation will normally pay the supplier via cheque or EFT. Nowadays, EFTs are
the preferred method of payment because the costs involved are lower and there is less
fraud risk.
FIGURE 9.3: Generic payment process
The supplier will send a statement with a payment remittance advice monthly or more
frequently to the organisation. The statements will indicate the ageing of the outstanding
balances and other information based on the supplier processing method (open item or
balance forward which will be explained in topic 6). After the payment and the remittance
advice have been received, the supplier will update his or her records.
Proper controls to ensure timely payments are vital to ensure that overdue account
interest is not charged and that the organisation’s credit record remains untainted.
The AIS will automatically identify invoices due based on each supplier’s payment terms
and/or the payment due date captured on the supplier invoice. Payment can be made in
cash (very high risk), cheque or EFT. Only persons with the applicable mandates may
authorise these payments and most organisations’ internal controls require payments
to be authorised by two persons. The payments are captured from the petty cash
voucher (cash payments), cheque stub or EFT payment list source documents in the
AIS payment cashbook, and the amount allocated against the supplier being paid. If
the supplier transactions are processed using open item processing (see topic 6), then
the amount will not only be matched to the supplier, but also to the specific supplier
invoices and return debit notes that are being paid. When matched, the supplier
invoices and return debit notes are closed. The payments will be open and will reflect
as unreconciled on the bank reconciliation until the payment has been matched to the
bank statement and reconciled.
...........
TO PI C 3 56
• Source document
Proper internal controls necessitate that any payment transaction should not be
captured using the bank statement as the source document, except for bank-generated
transactions such as interest paid, bank charges and so forth. The petty cash voucher
(cash payments), cheque stub or EFT payment list should be used as the source
document.
No VAT transaction is recorded with the payment because the VAT entries were
recorded during the recording of the supplier invoice. As agreed with the supplier and
if the payment qualifies for it, settlement discount (also called early payment discount),
should be received and the accounting entries recorded. If the organisation and the
supplier are VAT vendors, the discount transaction recorded must account for VAT
against the VAT rate applicable on the linked supplier invoices and return debit notes.
Most organisations use a settlement discount received general ledger account to

record settlement discount because it enables the organisation to easily see how much
discount was received in a certain period. VAT rules also require that the settlement
discount cannot be netted off against input tax and must be disclosed gross – hence
a separate settlement discount account would be more appropriate. However, IFRSs
disclosure requirements stipulate that the settlement discount received should be netted
off against the cost of sales. We should therefore remember to include the settlement
discount received general ledger account in the same AIS report writer category as cost
of sales. As an alternative, we could also journalise the settlement discount received
balance to the cost of sales account at period end.
The payments cashbook journal is used to capture the following accounting entries:
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Payment for credit purchases
Trade payables BS – liability Dt Amount including VAT
Bank BS – asset Ct Amount including VAT
Settlement discount received (if applicable)
Trade payables BS – liability Dt Discount amount including VAT
VAT BS – liability Ct VAT amount
Settlement discount IS – income Ct Discount amount excluding VAT
received
There is no influence on inventory quantities because payment is made.
...........
– the supplier master file: supplier details (ie code, name, address, year to date
payments, outstanding balance, etc)
– the payments cashbook transaction file: reference number, date, bank amount,
supplier code, general ledger account number, etc
– the open invoice file: summarised purchases from previous invoice transaction files
that have not yet been matched to a payment
– the open debit note file: summarised debit notes from previous debit note transaction
files that have not yet been matched to a payment
general ledger
• AIS reports
– a payment cashbook detail report showing the cashbook payment transactions for
a selected period
– supplier statements, supplier age analysis and supplier detail ledger, which will
include payments made
– unmatched/unpaid invoices and debit notes showing details of invoices and debit
notes not yet paid or matched to a payment made
5 Summary
In this study unit, we investigated the processing of acquisition and payment transactions
in an AIS. We learnt which documents are used, which database files are accessed,
updated or modified, which reports that can be printed and some of the basic underlying
accounting entries for purchase orders, inventory received, invoices received, inventory
returned and payments.
In the next study unit, we will investigate the inventory and production cycle.
            
questions:
(a) List the processes that form part of the acquisition cycle.
(b) For each process in the acquisition cycle, describe the activities performed
by both the organisation and supplier.
(c) For each process in the acquisition cycle, name and describe the source
documents used.
(d) Identify and record the accounting entries applicable to each of the acquisition
processes.
(e) Identify the movement in inventory quantities for each of the acquisition
processes.
...........
TO PI C 3 58
(f) For each process in the acquisition cycle, list the database files accessed,
updated or modified and name some of the information contained in the
database file.
(g) For each process in the acquisition cycle, list the AIS reports that can be
generated.
(h) Describe the activities performed by both the organisation and supplier in
the payment process.
(i) Name and describe the source documents used in the payment cycle.
(j) Identify and record the accounting entries applicable to the payment process.
(k) Identify the movement in inventory quantities for the payment process.
(l) For the payments process, list the database files accessed, updated or
modified and name some of the information contained in the database file.
(m) For the payments process, list the AIS reports that can be generated.
(n) Describe the activities performed by both the organisation and supplier in
the inventory returned process.
(o) Name and describe the source documents used in the inventory returned
process.
(p) Identify and record the accounting entries applicable to the inventory returned
process.
(q) Identify the movement in inventory quantities in the inventory returned
processes.
(r) For the inventory returned process, list the database files accessed, updated
or modified and name some of the information contained in these database
files.
(s) For the inventory returned process, list the AIS reports that can be generated.
...........
4 STU DY U NIT 10
Inventory and production cycle

7
1 Introduction
In the previous study unit, we learnt how the organisation’s acquisitions and payments are
recorded in an AIS. In this study unit, we will focus on some of the information systems
used in the production and management of inventory. We will also look at the influence of
the inventory and production cycle on the AIS. We will not discuss the audit environment
and controls relating to this cycle because you will learn about these in auditing. We will
also not deal with the IFRSs requirements in detail because they will be covered in financial
accounting.
The inventory bought and sold by retail organisations is mostly managed and controlled
with the aid of information systems. Manufacturing organisations buy raw materials and
convert these materials into finished goods. Raw materials inventory and finished goods
inventory are also managed and controlled using information systems. Owing to the
advancement in technology, many large organisations’ production processes are operated
by information systems.
...........
TO PI C 3 60
2 Inventory
Inventory is affected by the revenue and receipt cycle (see study unit 8) where inventory items
are sold, the acquisition and payments cycle (see study unit 9) where inventory items are
bought, and the production cycle (see section 3) where inventory items are manufactured.
Inventory can be stored in different warehouses and sold from different locations (ie stores/
branches). Most AISs allow for the capture of different location data by capturing the store
location and linking it to the inventory items and/or capturing the warehouse locations.
Organisations with extensive warehouse and store locations (also called branches) will use
specialised warehouse information systems that can track each inventory item’s movement
between different warehouses and/or stores. Other organisations’ warehouse information
systems may only record inventory movement in the individual branches and they are
not integrated with other branches and/or warehouse information systems. Warehouse
information systems are usually a module in an Enterprise resource planning (ERP) system,
which you learnt about in AIN1501, but can also be a stand-alone software program.
      
Reflect on your own experience of a warehouse information system in action.
• Have you ever asked a shop assistant to enquire whether the item you are
looking for is possibly available at another branch of the store?
– Did the shop assistant call the other branch to find out or did he or she
check the inventory quantities on the computer system?
– If the shop assistant needed to call, could the branch you were at, at
least check its own stores inventory quantities online?
• Reflect on how topic 1 (databases) links to warehouse information systems.

Consider the following:
– Would you recommend using a centralised or distributed database?

– What would the field name be for the primary key?
The procedures and controls surrounding inventory items will be discussed in auditing, the
different valuation methods for inventory in management accounting and the recording of
these transactions will be dealt with in financial accounting. The movement of inventory
items is recorded in the warehouse system and the data can be linked directly to the AIS
(integrated system) or reports from the warehouse information systems can printed and
then, if necessary, recorded in the AIS.
The influence of the other transaction cycles on AIS inventory was discussed in the
applicable cycles (see study units 8 and 9)
3 Production
Production is unique to manufacturing type organisations, in contrast to service organisations,
where there is no inventory to sell, and in retail organisations, where the finished inventory
item is bought from a supplier during the acquisition and payments cycle (see study unit 9).
In the production cycle, also referred to as the conversion cycle, raw material inventory
purchased during the acquisition and payments cycle (see study unit 9), is converted into
...........
finished goods inventory. The procedures and internal controls applicable to this cycle
will be examined in your auditing studies, while in your management accounting studies
you will learn different methods of valuing inventory and costing of finished goods. In this
module, we will discuss how the production cycle is interlinked to the AIS and some of the
information systems used in the manufacturing process.
3.1 Product design

The first step in the conversion cycle is the design of the products to be manufactured. This
process may involve a number of specialists and software to support the design process
such as computer-aided design (CAD) and computer-aided engineering (CAE).
3.2 Production planning and control

Each finished product is manufactured using different raw materials.
The bill of materials (BOM) specifies, for each finished goods inventory item, the
type and quantities of raw materials needed in the manufacturing
More advanced AISs allow for a manufacturing module where the BOM information is
captured.
Before the organisation can start the physical product manufacturing, they need to plan
for and schedule the manufacturing, including determining which products (referred to as
the product mix) to manufacture, the quantity required, the timing of production and raw
materials acquisition and so on. Production planning will take a number of factors into
account such as customer demand, labour and machine capacity and distribution and
storage constraints.
Different methods can be used to determine the product mix and quantities required such
as previous sales and forecast customer demand, and AIS can help with this by providing
historical information on the quantities sold. You will learn more about calculating required
product mix and quantities in your management accounting studies.
Based on the planned production, a master production schedule (ie a detailed plan
of which product must be manufactured, when and the quantity involved) is created.
The BOM, the master production schedule, raw material and work-in-process (WIP)
quantities on hand and on order are used to determine the raw material quantities needed
and the timing of the purchases. Material resource planning (MRP) software is specialised
planning and control software that can help with this process. The AIS acquisition process
of raw materials was explained in study unit 9.
Manufacturing resource planning (MRP II) software is an extension of MRP

software and is used for short- and long-term planning and control of the manufacturing
process. It integrates all the aspects (people, materials, machines, money, etc) of the
manufacturing process.
MRP II includes determining production needs, the master production schedule, BOM,
MRP, capacity planning for machines and labour, managing raw materials and finished
goods inventory levels, job/product costing and so forth. MRP II systems are similar to ERP
systems, but with the difference that MRP IIs are specifically focused on manufacturing
organisations, while ERPs are used by all types of organisations. The MRP II system will
provide the necessary information to record the change in inventory quantities and the
related costs in the AIS.
...........
TO PI C 3 62
3.3 Manufacturing
After the planning has been done and the organisation has acquired the necessary raw
materials, manufacturing can commence according to the master production schedule.
Nowadays, computer-aided manufacturing (CAM) and computer-integrated
manufacturing (CIM) software is used in the manufacturing process.
CAM controls and coordinates all the machines used in the manufacturing process
such as conveyor systems, cutting or welding machines and so forth.
CIM encompasses more than CAM.
CIM is the automation and integration of the complete manufacturing process by

using computers to control and/or execute the process from product design right
through manufacturing, to quality control, storage of raw materials, WIP and finished
goods, and ultimately, the shipment of the finished products.
Some of the steps can be performed by humans, but controlled by the CIM computers.
Some of the subsystems found in CIM include CAD,CAE, MRP, MRPII and CAM.
The question that can now be asked is how does the AIS fit into the manufacturing process?
Business activities, including the manufacturing process, will be recorded in the AIS. These
activities can be recorded in detail or in summary form.
As products are manufactured, the raw materials inventory on hand quantities will decrease
and WIP quantities on hand will increase. As the products are completed, the WIP quantities
on hand will decrease and the finished goods on hand and inventory quantities available
for sale will increase. These changes in inventory quantities will be captured in the AIS at
an amount determined during costing.
The effect on inventory quantities is summarised below:
Process Inventory type Effect on quantities

Purchase raw material Raw material Increase
Manufacture Raw material Decrease
WIP Increase
Finished goods WIP Decrease
Finished goods Increase
Sale of finished goods Finished goods Decrease
3.4 Costing
There are different methods of calculating the cost of WIP and finished goods. Some of
the costing methods that can be used include standard costing and activity-based costing.
You will learn more about the different costing techniques in your management accounting
studies.
Some organisations use a simplistic method to calculate the finished products’ costs by
utilising the information in the BOM – that is, the value of a finished goods item will be
the total of the different raw material components’ cost as indicated in the BOM. The raw
materials cost is based on basic costing methods such as average cost or last-in-first-out.
...........
However, the costing method used must not be determined by the AIS capabilities – it
should be the most appropriate method for the organisation’s business and adhere to IFRSs
requirements. Whatever the method of determining costs, the costs must be recorded in the
AIS. We will need to use our accounting knowledge to adjust, if necessary, the accounting
entries for our organisation’s specific costing methods and the amount of detail required
by the organisation. Simplistically, the accounting entries can reflect as follows:
Account Balance Debit (Dt)/ Value

sheet (BS)/ Credit (Ct)
Income
statement
(IS)
Raw materials issued for production – WIP
Inventory – WIP BS – asset Dt
Amount based on selected costing method
Inventory – raw BS – asset Ct (excl VAT)
materials
Finished goods received from production
Inventory – BS – asset Dt
finished goods Amount based on selected costing method
(excl VAT)
Inventory – WIP BS – asset Ct
Some of the AIS database files accessed, updated or modified by the production
process are as follows:
– the bill of material master file: per finished good item, the component code, description
quantity needed, cost, etc
quantity on hand, quantity available, year-to-date purchases, year-to-date production,
cost prices, etc
– the inventory transaction file: inventory code, date, quantity issued for production, etc
general ledger
• AIS reports
– Inventory activity reports will show all activities on an inventory item, including the
movement of items from raw materials to WIP to ultimately finished goods.
– Inventory quantity reports will show inventory quantities on order, available and on
hand.
– General ledger accounts details reports will show the accounting entries for the
applicable general ledger accounts.
...........
TO PI C 3 64
4 Summary
In this study unit, we learnt about some of the information systems used in the production and
management of inventory. We also looked at the influence of the inventory and production
cycle on the AIS. We focused primarily on the interaction with the AIS. In the next study
unit, we deal with the human side of the organisation and investigate the activities relating
to payroll and personnel.
            
After working through this study unit, you should be able to answer the follow-
ing questions:
(a) List the processes in the production cycle.

(b) Name two types of software that can be used in the production design
process.
(c) Explain the following concepts: bill of materials, master production schedule,
material resource planning (MRP) software and manufacturing resource
planning (MRP II) software.
(d) Explain the difference between computer-aided manufacturing (CAM)
and computer-integrated manufacturing (CIM).
(e) Explain how the AIS fits into the manufacturing process.
(f) Describe how some AISs determine the cost of finished products.
(g) Indicate the simplistic accounting entries applicable in costing of the
inventory.
(h) For the costing process, list the database files accessed, updated or modi-
fied and name some of the information contained in the database file.
(i) For the costing process, list the AIS reports that can be used and indicate
what information they will contain.
   
If you are interested in further reading, the following authors discuss information
systems used in the production and management of inventory, extensively:
• Boczko, T. 2007
• Dull, RB, Gelinas, UJ & Wheeler, PR. 2010
• Hall, JA. 2011
• Rommey, MB & Steinbart, PJ. 2009
• Stair, R, Reynolds, G & Chesney, T. 2008
• Wessels, P, Grobbelaar, E, Mc Gee, A & Prinsloo, G. 2007
• Wessels, P, Mc Gee, A, Prinsloo, G, Mc Gee, E & Van der Poll, H. 2010
...........
5 STU DY U NIT 11
Payroll and personnel cycle

9
10
1 Introduction
In the previous study unit, we focused on some of the information systems used in the
production and management of inventory. In this study unit, we will learn about information
systems used in the payroll and personnel cycle. In the payroll cycle, we will investigate
the source documents used, database files accessed, updated or modified the reports
printed as well as some of the basic accounting entries.
The payroll and personnel cycle entails all activities revolving around an organisation’s
employees and their management. These activities will include the recruitment and hiring of
personnel, personnel training, the movement of personnel in the organisation, attendance
management, performance management, voluntary (resignations) and involuntary (eg
redundancy) discharge of personnel, salary management and the payment of personnel.
2 Personnel
The management of personnel and the recording of their activities are not part of an AIS.
Personnel information systems, referred to as human resource management (HRM)

systems, is a specialised information system used for this purpose.
These HRM systems are used by the HR department in organisations to help ease the
burden of managing the numerous regulations applicable to personnel management such
as the Employment Equity Act, Income Tax Act, Basic Conditions of Employment Act and
Labour Relations Act.
...........
TO PI C 3 66
HRM systems can be stand-alone application software or a module in an ERP system.
Both HRM stand-alone software and ERP modules are usually capable of easily integrating
with most payroll systems.
The following are some of the functions included in many HRM programs/modules:
• personal information: each employee’s full name, surname, identity number, address,
next of kin, race, gender, income tax number, etc
• recruitment: job descriptions, vacancies, offers made, etc
• employee compensation: salary scales, structures, market salaries, etc
• performance management: key performance indicators, performance contract and
reviews, promotions, disciplinary actions, etc
• talent management: employee education, training received and required, awards, work
experience, etc
• absence management: vacation leave, sick leave, unpaid leave, etc
• reports and analytics – budget reports, timing before vacancies are filled, staff turnover,
top performers, bottom performers, employment equity reports, etc
Examples of HRM systems/modules include Pastel Partner Human Resources, Sage

Accpac HRMS, SAP ERP HCM, Oracle HRMS and Microsoft Axapta Human Resource
Management.
In the absence of an HRM system, many organisations use spreadsheets and word
processors to perform the above functions, but keeping track of everything is clearly far
more demanding compared with the use of an HRM system.
Because you will learn more about personnel procedures and controls in auditing, these
procedures and controls will not be discussed in this module.
      
Ask a family member or a friend employed at a medium to large organisation
about the following:
• How he or she apply for leave and capture performance evaluations.
– Does he or she complete manual forms, or is the request/information

captured on a computer system?
– If it is captured electronically, does he or she know which computer
program is used?
3 Payroll
Payroll is one of the most important processes from an employee’s perspective, because it
ensures that he or she is paid every month. The timely and accurate processing of payroll
is therefore crucial. Payroll is a specialised activity and should be managed by personnel
with knowledge of the applicable regulations. Payroll should also make use software that
caters for the applicable regulations such as income tax, unemployment insurance fund
(UIF), skills development levies (SDL) and so forth.
...........
Most payroll software include functionalities such as:
• the creation and distribution (print or electronic format) of payslips

• the calculation of annual leave pay
• the calculation of income tax, based on different tax methods (ie monthly, tax directives,
directors’ tax, etc)
• the creation of statutory returns for tax, SDL, UIF and so on
• the creation and distribution (print or electronic format) of IRP5 certificates
• managing different types of contributions such as medical aid and provident and
pension funds
• the management of different deduction types such as loan repayments and garnishee
orders.
Examples of payroll software include Pastel Partner Payroll, PraxiPay, Superpay,

QuickBook’s Quick payroll, Simplepay and Softline VIP payroll. Access to the payroll
system is extremely well controlled because it contains huge amounts of sensitive personal
information that must be protected. You will learn all about the procedures and controls
relating to payroll in auditing. In this module, however, we will explain how the payroll
system is linked to the AIS.
AIS and the payroll and personnel cycle intersect at payroll because the payroll-related
payments must be recorded in the AIS. There are different methods for this interaction
between the payroll and AIS system. Some payroll systems are fully integrated with
the AIS and will automatically process the payroll transactions in the AIS. Other payroll
systems create electronic files in a format required by the AIS. These electronic files are
then imported into the AIS and processed. Other payroll and AIS systems are not at all
integrated, and the transactions from the payroll system are manually captured in the AIS
from reports generated by the payroll system. Whatever the method of interaction, the
principles are the same, as explained below.
• Payroll system
All employees’ payroll-related information is captured and processed on the payroll

software. The payroll will calculate the net pay due to each employee and the liabilities
due to various parties such as pension funds, UIF, SDL and tax. Payroll costing reports
will include the payroll cost that needs to be allocated to each department and/or cost
centre, liabilities that must be recorded (ie amounts payable to UIF, SDL, SARS etc),
amounts due to employees and so on. In a nonintegrated system, these costing reports
are used to record the payroll transactions in the AIS, while in an integrated system,
these transactions will be automatically pushed from the payroll system to the AIS.
The payment of liabilities, especially the payment of employees, will be done by EFT,
cheque or (rarely) cash, but nowadays EFT is generally used. Many organisations use
a separate payroll bank account, as a control, to pay salaries and payroll liabilities.
This bank account is only funded with the amount as indicated by each month’s payroll
reports. Any bank charges on this payroll account are deducted from the main bank
account and not from the payroll account. This ensures that all money due is paid, and
that no more can be paid than what is due as per the payroll run.
Where the HRM and payroll system are linked, the source documents will flow from
the HRM system. Some of the source documents used include employment contracts
stipulating salary, garnishee orders, tax directives received and so on. Source documents
relating to the physical payment of the payroll will include EFT reports or cheque stubs.
...........
TO PI C 3 68
We can divide the accounting transactions into two parts, namely the recording of the
costs and related liabilities due and the physical payment of the salaries and related
liabilities.
As mentioned previously, an individual employee’s salary information is personal and

sensitive and we will therefore normally only see totals reflected in the AIS and not
individual amounts per employee. The breakdown of individual amounts, however, will
be available in the payroll system.
In many organisations, both the employee and the organisation contribute towards
certain benefits. For example, they both contribute to the employee’s pension fund.
Payroll reports will differentiate between employee contributions and organisation
contributions, because the taxation and accounting for these differ. The organisation’s
contribution is a cost to the organisation and should reflect as an expense in the
organisation’s financial statements, while the employee contribution is a payment on
behalf of the employee, and must have a R0 net effect on the organisation’s financial
statements. The organisation will pay their contribution for the noncash benefit (ie the
benefit is not paid in cash to the employee) to the provider of the benefit, say, a pension
fund, medical aid and UIF.
Organisations may also use less or more detail – for example, an organisation may
decide to only have a salary general ledger expense account or to split the salary
general ledger account into separate benefits. A salary control account is sometimes
also used to record all liabilities due to third parties (including employees), while other
organisations may prefer to use separate liability accounts for this purpose.
We will need to use our accounting knowledge to adjust the accounting entries for our
organisation’s specific salary and benefit structures and the amount of detail required
by the organisation.
Below is a simplistic example, which reflects some of the generic accounting entries
for an organisation. In this example, we will use the salary control account to record
all liabilities due.
Salaries R100,000
Employees tax (PAYE & SITE) - R40,000
Expense paid on behalf of employees (employee contributions) - R3,000
Net payment to employees R57,000
Salaries R 100,000
Noncash benefits for organisation’s cost (employer contribution) R 2,500
Total organisational cost (ie salary expense) R 102,500
...........
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Payroll costing
Salary control BS – liability Ct R102,500
account
Salaries IS – expense Dt R100,000
Noncash IS – expense Dt R2,500
benefit for the
organisation’s cost
Payment to employees
Salary control BS – liability Dt R57,000
account
Bank BS – asset Ct R57,000
Payment to SARS for employees’ tax due
account
Payment to third parties for expenses paid on behalf of the employees
account
Payment to third parties for noncash benefit for organisation’s cost
account
After all the payments have been accounted, the salary control account will now have a
zero balance (ie R102,500 – R57,000 – R40,000 – R3,000 – R2,500 = R0).
Bear in mind the payment for training or recruitment fees to a recruitment agency is not
paid through payroll but through the acquisition and payments cycle.
The database files accessed, updated or modified will be as follows:
general ledger
general ledger account number, etc
...........
TO PI C 3 70
• AIS reports
Some of the reports that can be used are as follows:
– the payment cashbook detail report showing the cashbook payment transactions
for a selected period
– the general ledger account details showing the accounting entries for the selected
general ledger account
       
• Ask a family member or friend employed at a medium to large organisation
if he or she knows which payroll software is used in his or her organisation
(the name of the software program used is often printed on the employee’s
payslip).
• Ask the above family member or friend to explain how his or her salary
is broken down. Note: Tell the person to use fictitious amounts (salary
information is sensitive).
• If you are the accountant for the organisation, would you be able to record
the accounting entries based on the salary information provided?
4 Summary
In this study unit, we investigated information systems used in the payroll and personnel
cycle and identified examples of the software used. We also learnt about the source
documents used, database files accessed, updated or modified, reports printed and some
of the basic accounting entries in the payroll cycle. In the next study unit, we will examine
the final transaction processing cycle, namely finance and investment.
            
questions:
(a) Explain the purpose of a Human resource management (HRM) system.

(b) List and briefly explain the different functions of in a HRM system.
(c) List three examples of HRM software.
(d) List five functionalities of payroll software.
(e) Name three examples of payroll software.
(f) List three source documents used in the payroll system.
(g) Identify the differences in the accounting transactions for an employee
contribution and an organisation contribution.
(h) Explain why only salary totals are reflected in the AIS.
(i) Using a simplistic example, indicate the applicable accounting entries.
(j) Name the AIS database files that will be accessed, updated or modified by
payroll transactions.
(k) Name two (2) AIS reports used in the payroll cycle.
...........
6 STU DY U NIT 12
11 Finance and investment cycle
12
1 Introduction
In the previous study unit, we learnt about information systems used in the payroll and
personnel cycle. In this study unit, we will focus on AIS transaction processing for investments
made and finance received by the organisation.
At some stage or other, all organisations will require money to finance normal business
operations or expansion of operations. Successful organisations will generate enough
money to enable them to invest and thereby generate further profits.
2 Investments
The organisation can invest in a multitude of investment vehicles including new projects,
working capital, plant, equipment, money markets, derivates and equity markets, to name
but a few. The investment decision will be based on the organisation’s financial strategy.
Financial strategy, investment appraisal techniques and the financing of these investments
will be explained in your later management accounting studies, while the controls and
procedures involved in the investment cycle will be dealt with in your auditing studies.
However, whatever types of investments are made, all investment transactions must be
recorded in the AIS. Investment transactions will include the initial investment, regular
revaluations as per IFRSs requirements and the recording of returns on investments.
Revaluation can, for example, include depreciation charges on fixed assets, change in
market value of equity investments and so on. Investment-related transactions are recorded
in the AIS using different journals. For example, an initial investment using an EFT payment
will be recorded in the payments cashbook journal and the revaluation of an investment
will be recorded using a general journal.
...........
TO PI C 3 72
The source documents that are used will be based on the type of investment vehicle.
One should always remember to use the applicable source document to record the
transaction in the AIS and not only the bank statement. The actual source document
contains information required for the accurate accounting of the transaction and the
purpose of the bank statement is only to reconcile the bank account.
The accounting transaction will depend on the investment vehicle used. These accounting
entries are extremely specific to the different investment vehicles, and you will learn
about these in your further financial accounting studies.
However, we will now look at a simplistic example, in which the investment is a fixed
deposit, and interest is paid at the end of the period. The payments cashbook journal
will be used to capture the initial investment and a general journal for the accruing of
interest.
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Initial investment
Fixed deposit BS – asset Dt
Investment amount
Bank BS – asset Ct
Accrue monthly return on investment
Fixed deposit BS – asset Dt
Return amount
Interest received IS – income Ct
       
• Record the accounting transactions for the purchase of a computer to the
value of R10,000 excluding VAT.
• The computer is depreciated at 33% per annum according to the straight-line
method. Record the accounting transactions for one month’s depreciation
charge.
Database files accessed, updated or modified to record investments in the AIS include
the following:
general ledger account number, etc
general ledger
...........
• AIS reports
The general ledger accounts details report shows the accounting entries for the applicable
general ledger accounts. This GL listing will be used to reconcile the general ledger with
the investment and fixed asset registers.
3 Finance
There are different sources of long- and short-term finance for an organisation. Examples
of long-term finance include the issuing of shares, bonds, term loans and leases. A bank
overdraft is an example of short-term finance. In your later management accounting studies
you will learn more about these finance options, the valuation of thereof and the costs
relating to the use of these financial methods.
A finance option must be selected carefully because it can lock an organisation into a
long-term agreement that can be to the detriment of the organisation – hence the need to
ensure that proper controls and procedures for the finance cycle are implemented. These
controls and procedures will be explained in your auditing studies.
However, whatever the type of finance used, all finance transactions must be recorded
in the AIS. Finance transactions do not only include the initial finance obtained but also
the regular valuation of the finance per IFRSs requirements and the recording of ongoing
finance costs such as interest.
• Source document
The source documents used will be based on the type of finance obtained. As with
investments, it is also necessary for finance transactions to use the applicable source
document to record the transaction in the AIS and not only the bank statement, because
the source document may contain information required for the accurate accounting of the
transaction. Examples of source documents are loan agreements, minutes of meetings
and so on.
The accounting transaction will depend on the finance obtained. These accounting entries
are specific to the different finance options and you will learn about these in your financial
accounting studies.
However, we will now look at a simplistic example, in which finance is obtained through a
long-term loan and interest is paid at the end of the period. The receipts cashbook journal
will be used to capture the initial finance obtained and a general journal for the accruing
of interest.
Balance
sheet (BS)/
Debit (Dt)/
Credit (Ct)
statement
(IS)
Initial finance obtained
Bank BS – asset Dt Finance amount from loan agreement
Long-term loan BS – liability Ct
Accrue monthly finance cost
Interest paid IS – expense Dt Finance cost – recalculated per loan agreement
Long-term loan BS – liability Ct
...........
TO PI C 3 74
Database files accessed, updated or modified in the AIS include the following:
general ledger
• AIS reports
The general ledger accounts details report shows the accounting entries for the applicable
general ledger accounts. These listings should be used to perform reconciliations with
third-party statements (eg a loan statement).
4 Summary
In this study unit, we examined the source documents, accounting transactions, database
files and AIS reports involved in processing investments and finance transactions in the
AIS. In the next topic you will be introduced to the chart of accounts and staffing level
requirements for financial reporting.
            
questions:
(a) List three types of investment transaction that must be recorded in the AIS.
(b) Explain the importance of not using only a bank statement as a source
document for both investment and finance transactions.
(c) Using a simplistic example of a fixed deposit, record the applicable accounting
entries.
(d) Name the AIS database files that will be accessed, updated or modified by
the investment transactions.
(e) Name the journal used to record the initial investment transaction.
(f) List three types of finance transactions that must be recorded in the AIS.
(g) Using an example of a simplistic long-term loan, record the applicable
accounting entries.
(h) Name the AIS database files that will be accessed, updated or modified by
the finance transactions.
(i) Name the journal used to record the initial finance transaction.
(j) Name an AIS report that is used when reconciling finance transactions.
...........
To p i c 4
Financial reporting infrastructure
– identify the factors influencing the basic staffing level requirements for a specific
organisation
– discuss the finance team structure in relation to the AIS
– identify the basic chart of account components to meet the requirements of a specific
organisation
– evaluate a given chart of accounts in terms of the organisation’s business environment

Topics
3 Accounting cycles
system
accounts
...........
77 TO PI C 4
7 STU DY U NIT 13
13 Financial reporting structure
14
1 Introduction
The ultimate purpose of the organisation’s finance team is to accurately and timeously
report on the organisation’s financial position and cash flow and provide useful information
to facilitate decision making. To accomplish this goal, the finance team cannot only rely
on computers, but need some human interaction and technical knowledge as well.
In the previous topic, we focused on accounting transaction processing cycles in an

information system environment. In this study unit, we will first examine the staffing level
requirements of a finance team. Secondly, we will take a closer look at the chart of accounts
(CoA) and the guidelines to create an effective CoA, because without a proper CoA,
financial reporting may be a cumbersome and, in some instances, an impossible task.
2 Staffing level requirements

The structure and the number of staff members in a finance team will differ from organisation
to organisation. It can vary from one person in an owner-run business (possibly the owner
himself or herself), to large teams in large organisations. Even in organisations of the same
size, the structure of the finance teams may differ – some may be centralised, while others
may be situated in various business units. The treasury function that deals with investments
and financing may be separate or form part of the finance team. Bear in mind that there is
no “one size fits all” solution for staffing levels and structures in a finance team because
the variables influencing these will differ from one organisation to the next.
Some of the factors influencing the staffing level requirements of the organisation’s finance
team will include the following:
• the size and structure of the organisation

• the complexity and volume of transactions processed
...........
TO PI C 4 78
• the complexity and volume of reporting required
• the integration of the AIS with the operational information systems
• the number of manual interventions needed
• the AIS software used.
We will need to analyse the organisation’s specific environment and requirements before
suggesting changes to staffing levels and structures in the finance team.
However, the following items are always important to remember when relating the finance
team structure to the AIS.
• Segregation of duties (SoD). The responsibility to perform related tasks is allocated

to different people or departments, and is a vital internal control to help reduce the
risk of fraud and mistakes. You will learn more about SoD in auditing. SoD must also
apply to the AIS by assigning certain roles and responsibilities to the different users in
the AIS. The AIS will be set up so that each specific user will only have access to the
tasks in the AIS directly linked to his or her role and responsibilities. For example, the
cashbook clerk will only have access to the cashbook and will not be able to process
customer transactions. We will practically learn how to allocate specific functions to
AIS users in topic 6, Pastel Partner.
• Supervisor. Each AIS will have a role that has access to all functions in the AIS.
This person is usually referred to as the supervisor or administrator. A senior member
of the finance team, usually the financial manager, will fulfil the role of supervisor. A
trustworthy, honest and ethical person must fulfil this role because he or she will have
the authorisation to overwrite most computerised controls and will be able to perform
all the functions in the AIS, thereby SoD controls will be overridden.
• Reconciliations. Reconciliations should be performed monthly, no matter what the
size of the team, and these must be reviewed and signed off by a person other than
the person performing the reconciliation. Examples of typical reconciliations are bank
and creditors’ reconciliations.
• Audit trail. Each user’s access (including that of the supervisor) to the AIS and actions
performed on the AIS must be logged on the AIS audit trail. An AIS audit trail tracks
user activity on the AIS by recording the user name and access date and time as well
as the actions performed by that user. The level of detail recorded on the AIS audit trail
will depend on the AIS used.
3 Chart of accounts (CoA)

As you know from your accounting studies, a CoA is a list of accounts used in the
organisation’s general ledger.
The CoA in an AIS includes for each general ledger (GL) account a description of the
account and a unique account number (primary key) by which it can be identified.
The CoA reflects the complexity of the organisation’s structure and requirements. Large
organisations’ CoAs contain thousands of GL accounts and smaller organisations’ CoAs
hundreds of GL accounts.
AIS programs already include a generic and a number of industry-specific CoAs. For
example, Pastel Partner contains one generic and 21 industry-specific CoAs. These
predefined industry specific CoAs contains GL accounts normally used by an organisation
operating in that specific industry. For example, a club’s industry-specific CoA will include
GL accounts for entry fees and bar sales, while a church’s CoA will include GL accounts
for offerings and tithes. Although these predefined CoAs will already include a number of
...........
industry-specific GL accounts, the CoA is still flexible and can be tailored to the organisation’s
specific needs by adding, deleting and modifying the GL accounts in the CoA.
3.1 Structure
The CoA is grouped into the five major financial statement categories namely assets,
liabilities, equity, income and expenses, with subcategories for each major category. The
subcategories used will be based on the industry- and business-specific requirements of
the organisation. Figure 13.1 shows the categories of a generic CoAs.
FIGURE 13.1: Generic CoA categories
A block of account numbers is assigned to each of the five major categories, leaving
gaps between the subcategories in each major category. These gaps are used to expand
the subcategories in future, so that they can be stored numerically. For example, all the
account numbers from 8000 to 8999 are allocated to assets. In the asset category, the
block of account numbers 8000 to 8399 is allocated to non-current assets and the block
of account numbers 8600 to 8899 is allocated to current assets.
The AIS software program used will prescribe the CoA account number convention, that
is, the number of numbers used, only numbers, or only alpha numeric, and so on.
In the same way as each major category can have subcategories, each GL account, called
the main account, can also have subaccounts. For example, a computer shop’s “Sales”
main account may have subaccounts named “Sales – hardware” and “Sales – software”. In
Pastel Partner the first numbers in a subaccount’s account number will be the same as the
main account, and the last numbers in the subaccount’s account number will indicate the
specific subaccount. Looking at our example of the computer shop again, the sales main
account number may be “1000/000” and the subaccount number for “Sales – hardware”
will then be “1000/100” and “Sales – software” account number will be “1000/200”. The
“100” will indicate the “hardware” subaccount and the “200” the “software” subaccount.
We will learn more about main and subaccounts in practice when we tackle Pastel Partner
in topic 6.
3.2 Development guidelines

An effective designed and setup CoA produces better financial reporting and saves time
and costs. The CoA structure should assist in the accurate and consistent posting of
transactions. Remember the old saying: “If you fail to plan, you plan to fail”. It is therefore
essential to spend enough time properly planning a new or adjusted CoA.
...........
TO PI C 4 80
When planning, the following should be taken into account:
• The organisation’s business operations and industry. The CoA should reflect the
organisation’s specific business operations and the industry in which it is operating. It is
therefore necessary to understand the business before creating the CoA. For example,
if the organisation provides services only, then one would not expect to see “inventory
work in progress (WIP)” GL accounts in the CoA. By contrast, if the organisation operates
in a manufacturing environment, one would expect to see multiple inventory accounts
including “inventory WIP” GL accounts.
• The organisation’s structure. The GL accounts that are used must fit the organisation’s
structure. For example, the GL accounts must give details per department, business
unit and so on, and how these relate to one another (department A and B are part of
business unit AA). Use an organogram to visualise and plan for this structure.
• Reporting detail required. The GL accounts must be able to populate the organisation’s
required IFRS financial statements, financial management accounts and the organisation’s
various tax returns, without the need to analyse the transactions in an individual GL
account. For example, if management reporting for a computer organisation requires
sales to be split between hardware and software sales, the “sales” GL account must
then also be split along these lines. Meet with the users and creators of the IFRS
financial statements, financial management accounts and tax returns to understand
and plan for the detail required in these statements and returns. However, remember
there should always be a balance between detail requirement “wish lists” and what is
practical, feasible and logical.
• Plan for the future. The CoA is not only used for the current financial year, but also for
future years – hence the need to plan for the future. Take into account possible growth
in the organisational structure, change in business processes and detail requirements.
For example, leave enough gaps between the GL account numbers and subcategories’
account blocks so that it is possible to add new GL accounts and categories when
needed in future.
• Logical. The CoA must have a logical flow in the major categories, subcategories and
the related account number blocks and individual account numbers. For example, the
balance sheet accounts will be first, followed by the income statement accounts. The
categories, subcategories and the related GL accounts will not be mixed, but follow
each other logically.
• Consistent. The account number structure and format must be consistent between
the accounts used.
• Account description. The account description should clearly but briefly explain the
nature of the GL account.
• Draft. Create a draft structure on paper first before implementing it in the AIS. It is
easier to change the draft than the implemented CoA.
• Feedback. Obtain feedback from the different role players on the draft CoA. They may
have insights you have not yet considered and which could influence the CoA materially.
• Sign-off. Obtain sign-off from applicable management on the final CoA before
implementing it.
      
Fruity Fruit (Pty) Ltd is a retail organisation that buys fresh fruit and vegetables
wholesale and then sells it to individuals and small shops. Information in monthly
management reports is divided between shop and individual sales. The first
four numbers in the account number indicate the main account, and the follow-
ing three numbers the subaccount. Below is an extract from the organisation’s
current CoA.
...........
Account number Account description
1000/000 Sales – Shops and individual

1000/345 Service – Consultation
1000/346 Service – Medicine
1001/000 Interest paid
1002/000 Interest received
2000/234 Fixed asset – Trucks
2000/235 Fixed asset – Property
2001/500 Cost of sales – Individuals
2001/600 Cost of sales – Shops
2002/111 Delivery fees paid – Individuals
2002/211 Delivery fees paid – Shops
5000/100 L – loan
5000/200 L – ST FNB
REQUIRED
Using examples, evaluate whether Fruity Fruit’s CoA adheres to the CoA devel-
opment guidelines. For the purpose of this activity, you do not need to consider
the draft, feedback and sign-off guidelines.
      
Fruity Fruit’s CoA does not adhere to the development guidelines. This is evident
in the following:
(a) Organisation’s business operation
Fruity Fruit sells fruit and vegetables, but the CoA includes GL accounts
for “1000/345 Service – Consultation” and “1000/346 Service – Medicine”.
These accounts do not relate to Fruity Fruit’s business operations and
should therefore not be included in the CoA.
(b) Reporting detail required
Management requires management accounts split between shop and

individual transactions. The sales transactions is all recorded in one GL
account namely “1000/000 Sales – Shops” and individual and not in two
separate accounts as required for reporting purposes. This also does not
match the cost of sales accounts which have separate accounts for “Cost
of sales – Individuals” and “Cost of sales – Shops”.
(c) Plan for the future
There should be gaps between account numbers so that it is possible to

insert new GL accounts and categories in future. In Fruity Fruit’s CoA there
are no such gaps as can be seen where the delivery fees main account
number (“2002”) immediately follows the cost of sales main account number
(“2001”). Also, the interest paid main account number (“1001”) immediately
follows the sales main account number (“1000”).
...........
TO PI C 3 82
(d) Logical
There is no logical flow between the categories. Assets accounts numbers,

that is, “2000/234 Fixed asset – trucks” and “2000/234 Fixed asset – property”
are between income and expense accounts. A logical flow should not have
balance sheet and income statement major categories mixed together.
“Property” general ledger accounts usually also appear before any other
fixed asset accounts such as “Trucks”.
In addition, the expense account “1001/000 Interest paid” is between the

income accounts. A logical flow should not have an income statement’s
income and expense accounts jumbled together.
(e) Consistent
The inconsistency between account numbering is most obvious in the sub-

account numbers. For “2001/500 Cost of sales – Individuals” and “2001/600
Cost of sales – Shops”, the subaccount numbering used for individuals and
shops is 500 and 600 respectively. However , for “2002/111 Delivery fees
paid – Individuals” and “2002/211 Delivery fees paid – Shops”, the subac-
count numbering used for individuals is 111 and for shops 211. In a consistent
CoA, the subaccount numbers used to respectively indicate “individuals”
and “shops” would be the same.
(f) Account description
The account description used for “5000/100 L – loan” and “5000/200

L – ST FNB” is not descriptive enough. The CoA guidelines require that the
account descriptions must be sufficiently descriptive and clearly explain the
nature of the GL account.
4 Summary
In this study unit, we learnt about the factors influencing the staffing level requirements of
the finance team, the structure of a CoA and the guidelines for creating an effective CoA.
In the next topic, we will examine the available AIS applications, discuss how to select AIS
and consider AIS risks and controls.
            
questions:
(a) Name the factors that will influence a finance team’s staffing levels.
(b) List and briefly describe important items relating to a finance team structure
and the AIS.
(c) List the five major financial statement categories in which the CoA is grouped.
(d) Explain why gaps should be left between the blocks of account numbers
assigned to subcategories.
(e) Indicate the factor that will prescribe the CoA account number convention
used?
(f) List and briefly explain each of the CoA development guidelines.
...........
To p i c 5
Accounting information system applications
– list various accounting information systems available

– discuss factors to consider when selecting an AIS
– explain AIS security risks and controls

Topics
3 Accounting cycles
system
accounts
...........
85 TO PI C 5
8 STU DY U NIT 14
Selecting an appropriate accounting

15
information system
16
1 Introduction
In most organisations, accounting records are no longer kept in manual paper books.
Almost all organisations currently use an AIS to record financial transactions. There are
several different AISs available to choose from, making the selection process more difficult
for an organisation.
In the previous topic, we learnt about the factors influencing the staffing level requirements
of the finance team, the structure of a CoA and the guidelines for creating an effective
CoA. In this study unit, we will examine some of the available AIS applications. We will
also discuss how to select an AIS, including the items that should be considered in the
process. Lastly, we will discuss the risks and controls surrounding AISs.
2 Available AISs
AISs, also known as accounting software, vary greatly in cost and functionality. An AIS
can be developed in-house, bought from software vendors and used as is or bought from
software vendors and customised to suit the organisation’s specific needs. The use of an
in-house-developed AIS, however, is rare nowadays.
AIS vendors have segmented their accounting software to focus on entry-level, small to
medium, medium to large and enterprise-level organisations. The software price increases
as the complexity and the features provided by the software increase.
An entry-level AIS includes basic features, usually has one-user access and generally
does not provide for segregation of duties. These software are purchased off the shelf and
only allow for basic set-up information. Entry-level software will have the least number of
reports available and will not include advanced security controls. Examples include the
following:
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TO PI C 5 86
• Pastel My Business (www.pastel.co.za)
• QuickBooks SimpleStart (www.quickbooks.co.za)
• Palladium Accounting Individual (www.palladiumsoftware.co.za)
One step up from entry-level software is the small to medium organisation’s AIS. This
software allows for more users (usually between 3 and 5), and will also include more
features such as more standard reports, setting of user permissions and passwords.
Examples include the following:
• Pastel Xpress (www.pastel.co.za)

• QuickBooks Pro (www.quickbooks.co.za)
• Palladium Accounting Business (www.palladiumsoftware.co.za)
A wide range of AISs are available for medium to large organisations. These programs
usually allow between 20 and 50 users, and again have more features than the AIS for
small to medium organisations, but fewer features than the enterprise-level software.
Examples include the following:
• Pastel Partner (www.pastel.co.za)

• QuickBooks Premier (www.quickbooks.co.za)
• Palladium Accounting Enterprise (www.palladiumsoftware.co.za)
An AIS focusing on enterprise level organisations is usually a module in an ERP system.

This software seamlessly integrates with the organisation’s other information systems
and reduces the interactions needed from users to transfer data and information between
the different information systems. It provides a large number of features such as multiple
currencies and multiple users. These accounting systems are highly customisable and
can be tailored to suit the organisation’s specific needs. The implementation period can
be extensive because this AIS must be customised and integrated before it can be used.
The purchase and especially implementation costs can be extremely expensive for these
products. Examples of the AISs focusing on enterprise-level organisations include the
following:
• Sage ERP Accpac (www.sageerp.co.za/Softline-Accpac-Products-Services/Accpac.asp)

• Pastel Evolution (www.pastel.co.za)
• SAP ERP (www.sap.com/africa/index.epx)
• Microsoft Dynamics GP (www.microsoft.com/dynamics/en/za/default.aspx)
The AIS used by the organisation will not only be based on the organisation’s size, but also
on the complexity of the organisation’s business and the features the organisation requires.
This means that a complex small to medium organisation that only requires access for two
users will use software for medium to large organisations owing to the features provided
in the more advance software.
                    
A huge number of AISs are available on the market.
Visit http://en.wikipedia.org/wiki/Comparison_of_accounting_software for a com-

parison of some of these AISs.
The basic principles underlying all AISs are the same – that is, the accounting principles,
tax calculations, trial balance, ageing principles, and so on, are all the same. However, the
...........
semantics (document names, menu items, etc), look and feel of the accounting programs
and the features offered will differ from program to program. Because the basic principles
are all the same, it is easier to learn a new accounting program if you already know how
one such program works. In topic 6 we will only learn how Pastel Partner works, but with
this knowledge at your finger tips, you will be able to apply these principles to all other
AISs you may encounter in the future.
3 Selecting an appropriate AIS

The acquisition and implementation of an AIS can require a substantial investment in time
and money. It is therefore essential that the AIS one purchases matches the organisation’s
requirements as closely as possible.
3.1 Determine general accounting information system requirements

When selecting a new accounting program, we need to first determine the general AIS
requirements before looking at individual AIS providers and the software they offer. We
need to determine the following:
• Requirement analysis. The organisation must first determine its requirements for
the AIS. These should also include planned future growth in the organisation. It is vital
to obtain input from all the role players who will interact with the system, at all levels
(ie users, support providers, reporting, etc) in this analysis process. Role players will
probably include the finance team, relevant IT staff, management and others, and in
smaller organisations, possibly even the auditors. Many large organisations use third-
party consultants to facilitate this process.
Once the requirements have been analysed, they must be prioritised. It is necessary
to determine the requirements that are non-negotiable and must be included in the
new system. Features that are simply “nice to haves”, can be placed on a “wish list”.
Requirements will include items such as the following: the number of users; the number
of suppliers and customers; input, processing and output methods (real-time, batch,
etc.); processing speed; features; standard and customisable reports; and security.
The requirements will increase as the complexity and size of the organisation increase.
• Budget. Money will always be a constraint for any organisation because organisations
can only afford to spend so much on a system before it becomes uneconomical. We
therefore need to understand how much money (budget) is available for the initial
investment in software, training and implementation as well as for the succeeding years’
maintenance, support and licence fee costs. Implementation costs, which are easily
forgotten, can sometimes amount to more than the initial investment costs. Understanding
how much money is available will help save time when investigating all the possible
new AISs, because we can immediately eliminate the AISs we cannot afford. Bear in
mind that the budget should also take into account the cost of possible investment in
new hardware, if the AIS requires it, as well as any process re-engineering costs.
• Implementation period. In the same way as the organisation needs to budget for the
costs, it also has to budget and plan for the time it will take to implement the AIS. If the
organisation can only afford a three-month implementation period, it would obviously
not be a good idea to look at software requiring a six-month implementation period.
3.2 Investigate individual accounting information systems

Now that we know what the organisation’s requirements and constraints are, we can
investigate individual AISs. When investigating new AISs, we should consider the following:
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TO PI C 5 88
• Requirement matching. Obtain a list of product features and compare it with the
organisation’s requirements. See how it matches and exceeds the requirements and
where the software’s shortcomings are. Additional software features cost money, and
buying software features the organisation will never use is a total waste of money.
• Ease of use. Because this software is used daily, it should be easy to understand and
use. The AIS must help, not hinder the organisation.
• Integration. How easily can this software be integrated with the organisation’s other
information systems and applicable third-party systems? For example, does the AIS
support the organisation’s electronic bank statement format or would it be possible to
integrate the organisation’s AIS with eXtensible Business Reporting Language (XBRL)?
(XBRL will be discussed in study unit 20)
• Flexibility. Can this software be tailored to the organisation’s specific needs?
• Country suitability. Is the AIS suitable or adaptable to the organisation’s specific
country processing and reporting requirements? For example, can the AIS be configured
according to the country’s unique tax, levies, currency and regulations.
• Scalability. Can this product grow with the organisation?
• Support and training. What support and training does the software vendor offer and
what are the costs involved? Are there any local support offices?
• Costs. How much will the software cost? There are different ways of pricing software
(eg per user, features available, fixed fees, etc). We need to understand the pricing
structure and therefore the total costs applicable to the organisation for the initial
investment, training and implementation as well as successive years’ costs. These
costs must be compared to the predetermined budget.
• Hardware requirements. Can this software run on the organisation’s current hardware
configuration or should new hardware be acquired, and what will the costs be?
• Implementation. Is the software easy to implement and what is the estimated
implementation period?
• Documentation quality. What is the quality of the software manuals and is it electronic
or paper? These manuals will be used by the organisation for support and training.
• Upgrades. How often are upgrades made available and what are the applicable upgrade
costs? Are upgrades easy to implement or will this require a huge investment in time
and money. Because hardware, operating systems, database and other technology
improve, the software should be able to keep up with these advances or else it will
become obsolete.
• Software vendor. What is the vendor’s track record? Is it an unreliable organisation
that will be unable to provide support when needed, or is it a stable organisation with
a good track record of quality software, training and support?
When investigating software we should request product demonstrations from the vendors
to see exactly how the program works. We should also obtain references from other
organisations where this software has been up and-running for at least a year (to ensure
that these organisations have been through a year-end). The reference organisation
should be one whose business is at least in the same industry or a related industry than
your organisation is in, and should preferably be a similar size. Most software vendors
are only too happy to provide the contact details of reference organisations in which their
software has been implemented.
4 Risks and controls

In AIN1501, you learnt about the risks, threats and vulnerabilities faced by organisation’s
information systems. As part of the organisation’s information systems, its AIS also faces
these risks, threats and vulnerabilities. In AIN1501, you also studied the controls that
can be implemented to mitigate these risks, which again will be applicable to the AIS the
organisation uses. Since you are familiar with these risks, threats, vulnerabilities and the
...........
controls to mitigate them, we will not discuss them here. You must not forget what you
learnt in AIN1501, so that you can apply it to the AIS. In auditing, you will learn more about
the internal control environment, which again is also applicable to the AIS environment.
In study unit 13, we discussed the finance team and the fact that the segregation of duties
in the finance team must be transferred to the AIS by setting up appropriate users and
passwords. The setting up of a user means the supervisor selects which functions can be
performed by each of the individual users and also allocates a specific password to each
user. Most entry-level AISs do not have this feature because only one person works with
the software, but as soon as the number of AIS users increases, the availability and use
of this security feature become crucial. Bear in mind that the user and password features
in some AISs are only a basic feature because they do not allow users to change their
own passwords and do not prescribe regular updating of passwords.
In study unit 6, we discussed the controls relating to spreadsheets, including the importance
and good practices for passwords. What you learnt about spreadsheet passwords also
applies to AIS passwords.
In topic 6, Pastel Partner, you will learn how to allocate roles and set up passwords in AIS.
Another threat faced by AISs is the possible loss or partial loss of data. This loss is not
always caused by a computer being physically destroyed or stolen – data corruption is also
a huge threat. A power surge can often cause data corruption. To protect a financial system
against data loss, it is crucial to make back-ups regularly. These backups will allow the
organisation to restore the data to the point the last backup was made. The importance of
making regular backups cannot be emphasised enough. We referred to backups in study
unit 7 and will mention them again in topic 6.
5 Summary
In this study unit, we identified some of the AIS applications available in the market. We
also discussed how to go about selecting an AIS for an organisation and the items that
should be considered when comparing individual programs. In conclusion, we discussed
the risks and controls surrounding AIS. In the next topic, we will use Pastel Partner to gain
hands-on experience of an AIS.
            
questions:
(a) Name and briefly describe the market segments an AIS caters for.
(b) For each segment named in a. give two examples of RIS programs.
(c) Name and briefly describe the three general items which must be determined
before looking at specific AISs and vendors.
(d) List and briefly describe factors to consider when comparing AISs.
(e) Name two requirements for a suitable reference organisation.
(f) Briefly explain how segregation of duties is transferred to the AIS?
(g) Briefly explain how an organisation can protect its AIS against data loss?
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TO PI C 5 90
To p i c 6
Pastel Partner accounting information system
– create and set up a new company

– create and edit customers, suppliers, general ledger accounts and inventory
– process daily and cashbook transactions
– perform month-end and sundry processing
– retrieve information by generating reports
– process take-on transactions

Topics
3 Accounting cycles
system
accounts
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91 TO PI C 6

In this study guide “Pastel manual” will refer to the prescribed Pastel Partner
training manual and “Pastel” or “Pastel Partner” to the prescribed Pastel
Partner educational software.
NOTE:
Note the following when working through the Pastel manual:
• Where an activity requires you to work through a lesson or part of a lesson in the Pastel
manual, you must work through the complete section.
• Read everything carefully and do not skip steps.
• Do not worry if you make a mistake while working through the exercises in the Pastel
manual. These exercises do not count for marks. Learn from your mistakes and continue.
Do not waste too much time correcting mistakes. However, mistakes will affect the
results of some of your reports, but do not worry if your reports do not exactly match
those printed in the manual.
• Besides being able to perform a task/action in Pastel, you must also understand and
study the written information in the Pastel manual and be able to apply it in Pastel.
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TO PI C 6 92
9 STU DY U NIT 15
Getting started on pastel partner

17
18
1 Introduction
Most organisations use AISs for recording financial transactions and producing financial
reports. Although different AISs will differ in look and feel, the basic underlying principles
are the same. Pastel Partner AIS is one of the most used AISs in South Africa and we
are going to use this software package to familiarise ourselves with AIS. This study unit
relates to lessons 1 to 4 in the Pastel manual. In the first lesson, we will learn how to install
Pastel and a virtual printer and in the second lesson, how to navigate in Pastel. In lesson
...........
3, we will create a new company in Pastel, and lastly, in lesson 4, we will use the auto
setup assistant to set up defaults for the newly created company.
2 Lesson 1: installing Pastel Partner

In lesson 1 we will learn how to install the Pastel Partner software program as well as a
virtual printer. We will also show you how to print using a virtual and a physical printer.
Lastly, we will register the Pastel educational software.
Before we can install Pastel, we need to make sure that the computer we are working on
has the correct hardware, system software settings and printer (virtual and/or physical)
installed.
2.1 Hardware and system software requirements

To successfully install Pastel Partner, your computer must meet certain minimum hardware
and software requirements, as specified in the Pastel manual.
                    
• Verify that your computer meets the minimum hardware and system software
requirements to install Pastel Partner by
– following the step-by-step instructions in the Pastel manual, lesson 1, to

obtain your computer’s specifications.
– comparing your computer’s specifications with the specifications listed
in lesson 1 of the Pastel manual and ensure your computer meet these
requirements.
2.2 Install a physical or virtual printer

Pastel cannot be installed unless either a physical or a virtual printer is installed on
the computer.
A physical printer is a printer that prints to paper, while a virtual printer prints to an electronic
file which can be saved on the computer’s local hard drive or on a flash drive. Hence you
do not need to buy a physical printer if you do not have one because you can install a
free virtual printer.
However, we strongly recommend that even if you have a physical printer linked to
your computer, you should also install a virtual printer. Virtual printouts will enable you to
submit your assignments electronically to myUnisa and will save you paper and ink.
                     
Follow the step-by-step instructions (steps 1 and 2) in the Pastel manual, lesson
1, activity 1–2, to verify which printers are currently installed on your computer.
If you have Microsoft Office Document Image Writer or Microsoft XPS Document
Writer listed, you already have a virtual printer installed (it creates .TIF files and
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TO PI C 6 94
.XPS files respectively, similar to a photo of the documents you “print”), and it
is therefore not necessary to install another virtual printer.
(a) Installing a virtual printer
A number of free virtual printers are available on the internet. In the following activity,
we will download and install one such free virtual PDF printer, namely CutePDF.
                     
• Open Internet Explorer and make sure you are connected to the internet.
• Type the following URL into Internet Explorer’s address bar:
http://www.cutepdf.com/
• Browse the website page for the download area and click to download.
Download area
...........
• Do not run, but “Save” the file to your local hard drive (or flash drive if you
are downloading at work or at an Internet Café). Note the location the file is
saved to (eg c:\downloads\CuteWriter).
• Use My Computer or Windows Explorer and locate the file (cutewriter.exe)

where it was saved. (eg c:\downloads\CuteWriter).
• Double click on the file (cutewriter.exe) to install the virtual printer.
• Click on “Run” when prompted “Do you want to run this file?”
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TO PI C 6 96
• The Setup dialogue box will open. Click on “Next”.
• Read the licence agreement, select the option to accept the agreement and
then click on “Next”.
...........
• Read the End user licence agreement.
• It is not necessary to install the Ask toolbar. Select all options you want to
install or deselect the options you do not want to install.
• Then click on “Next”.
• Click on Install to continue with the installation of the virtual printer.
• Some computers may also require a PS2PDF converter to be installed.

You may be automatically prompted and taken to the download area. If not,
follow the steps below.
• Go back to the CutePDF home page: http://www.cutepdf.com/.
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TO PI C 6 98
• Browse the website for “Learn More” next to the CutePDF download area
and click on it. This will take you to the website page (http://cutepdf.com/
Products/CutePDF/writer.asp).
• Browse the website page for the “Free Converter” download area and click
to download.
• Do not run, but “Save” the file to your local hard drive (or flash drive if you
are downloading at work or at an Internet Café). Note the location the file is
saved to (eg c:\downloads\converter).
...........
• Use My Computer or Explorer and locate the file (converter.exe) where it
was saved (eg c:\downloads\converter.exe).
• Double click on the file (converter.exe) to install the converter.
• Click on “Run” when prompted “Are you sure you want to run this software?”
• Click on “Setup” to install the program.
You might need to restart your computer for the changes to take effect.
Source: http://www.cutepdf.com/
You can find other free virtual printers at the following websites:
http://www.freepdfcreator.org
http://www.primopdf.com
(b) Installing a physical printer
There are a number of different virtual printers and of physical printers available. In
the following activity we will install a physical printer. Note: If you have a virtual printer
installed, you do not have to install a physical printer.
                     
Follow the step-by-step instructions (steps 3 to 13) in the Pastel manual, lesson
1, activity 1–2, to install a physical printer. Bear in mind that you must have a
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TO PI C 6 100
physical printer (a printer that prints to paper) physically connected to your com-
puter when you complete these steps.
(c) Physical and virtual printer’s paper size
It is very important for both virtual and physical printers that the printer’s paper size
be set to A4. This will ensure that Pastel reports and documents print correctly. If
you find that the bottom part of documents, which usually reflect the totals, does not
print for certain Pastel documents (ie tax invoices, etc), it is probably because the
printer’s paper size has not been set to A4.
                     
Follow the step-by-step instructions in the Pastel manual, lesson 1, activity 1–3,
to set the printer’s paper size to A4.
Please follow these steps for both virtual and physical printers.
2.3 Print to a physical or virtual printer

Although we are only going to print our first report in lesson 5, the steps to follow to print
from Pastel using a physical or virtual printer are explained here. This will keep all the
information about printers in one place and make it easier for you to refer back to it when
necessary.
(a) Print using a physical printer
Follow the step-by-step instructions below to print to a physical (paper) printer from
Pastel. The screens will differ according to the printer you have and the document or
report you have selected to print, but the principles will remain the same.
• To print to a physical printer in Pastel, the screen will appear similar to the screen
print on the right:
– In this example, the “Demo” company was opened and View/ General ledger/
Financial reports/Trial Balance” were selected.
• Click OK to Print to “Printer” if that is already listed, or use the drop-down list to
select “Printer” if it was set to something else, such as print to “Screen“.
• If this is indeed the physical printer you want to print to, click “OK“.
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101 St u d y u n i t 15
• If this is not the physical printer you want to print to, click on the “Set Printer” button.
Select the correct printer and click “OK”. Click “OK” again to print.
(b) Print using a virtual printer
Follow the step-by-step instructions below to print to a virtual printer (ie print to a
file from Pastel). The screens will differ on the basis of the virtual printer you have
installed and the document or report you have selected to print, but the principles
will remain the same.
• Create a separate folder for all your Pastel documents.
– In this example, the “AIN2601 Pastel documents” folder was created.
• To print to a physical printer in Pastel, the screen will appear similar to the screen
print on the below:
– In this example, the “Demo” company was opened and View/ General ledger/
Financial reports/Trial Balance were selected.
• Click OK to print to “Printer” if that is already listed, or use the drop-down list to
select “Printer” if it was set to something else, such as print to “Screen”.
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TO PI C 6 102
• Click on the “Set Printer” button to change to the virtual printer.
• Click on the virtual printer you want to use (such as CutePDF, Microsoft XPS
Document Writer or Microsoft Office Document Image Writer, etc). DO NOT
select: Send to OneNote!
– In this example, CutePDF is selected.
• Click OK.
• Click OK to print.
– In this example, the printer is now set to the virtual printer selected (ie CutePDF).
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103 St u d y u n i t 15
• Depending on the type of virtual printer selected, the screen will appear similar
to the screen print below
• Browse until you get to the special folder (subdirectory) you have created for all
your virtual files (printouts) and double click that folder to select it.
– In this example, it is the “AIN2601 Pastel documents”.
• Give the printout a name by typing the name of your printout in the File name field.
– In this example “Lesson 5 activity 5.5.pdf”.
• Click on the “Save” button to save the file.
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TO PI C 6 104
2.4 Other computer settings (date, display and decimal separator)
Before installing the Pastel Partner software, ensure that your computer’s system date,
screen resolution and decimal separator are correct.
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Follow the step-by-step instructions in the Pastel manual, lesson 1, activity 1–4,
activity 1–5 and section C.
2.5 Install Pastel Partner

After completing sections 2.1, 2.2 and 2.4, we are now ready to install the Pastel Partner
software.
If you are unable to install Pastel, despite following the instructions in this study guide
and the Pastel manual, please contact the Pastel Training Department at Pastel (email:
training@pastel.co.za, telephone: +27 11 304 3750). If an error code appears on your
screen while installing, make a screen print of the error code, paste it into Microsoft Word,
save it and send it by email to Pastel, together with a description of the circumstances of
the problem. Also mention that you are a Unisa student and provide your student number
in the email. Always refer to Tutorial Letter 101 for the latest Pastel contact details.
     
A screen print makes a copy of the computer screen exactly as you see it at that
moment in time. To make a screen print, press the “CTRL” and “PrtScr” keys on
your keyboard simultaneously. Open the document and click where you want to
paste the screen print. Now select “Paste”, by either clicking on the paste icon
or right click on the mouse and select paste. Screen prints, like other pictures,
can be cropped, moved, aligned and so forth.
                    
• Insert the Pastel installation compact disc (CD) in your computer’s CD drive.
• Follow the step-by-step instructions in the Pastel manual, lesson 1, section B.
• Make sure you select to install Pastel Partner and not Pastel Xpress!
• Depending on the speed of your computer, the installation process may take
some time. Please be patient.
2.6 Registering Pastel Partner educational software

Pastel Partner educational software must be registered within 30 days of installation.
After 30 days or 200 transactions, whichever comes first, the demo version will expire.
We recommend that you register the Pastel software the first time you open the software.
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105 St u d y u n i t 15
                     
• Follow the step-by-step instructions in the Pastel manual, lesson 1, section D.
• You can follow the steps below if you do not see the Registration Assistant
dialog box:
– Open Pastel by double clicking on the Pastel icon.

– Click on the Help menu.
– Click on Register your package.
– Follow the remaining step-by-step instructions in Pastel manual, lesson
1, section D.
NOTE:
In contrast to the full AIS, Pastel Partner educational software is only valid for a limited
period. The expiry date of the software is indicated on the registration details summary (in
Pastel click on Help … About). Note the expiry date because you will not be able to use
the educational software after this date.
Contact Masterskill if your Pastel Partner educational software has expired. You will find
the latest contact details in Tutorial Letter 101.
3 Lesson 2: Working in the Demo Company

The demo company is for learning, trying new options and generally playing around with.
During later lessons, and even the assignment, go back to the demo company, try out
steps you are unsure about and see what happens. You cannot break the demo company,
so please use it! Using the demo company, in lesson 2 we will learn how to navigate in
Pastel and how to use Pastel’s function and shortcut keys.
                     
Follow the step-by-step instructions in the Pastel manual, lesson 2, to open the
“Demo” company.
3.1 The Menu, Toolbar, System Navigator and Pastel Explorer

Different methods are available to move around in Pastel, each of which is explained in
detail in the Pastel manual. To be able to work in Pastel, we need to be familiar with these
methods. It is recommended that over and above working in detail through the manual,
you should also play around in the “Demo” company by clicking on the different items to
see what happens. Feel free to let your curiosity take over because this is the only way
to get to know new software.
The Pastel Help function is one of the main functions in Pastel and it is therefore essential
to be able to use the Help function well. A manual, textbook or even a person with Pastel
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TO PI C 6 106
experience may not always be readily available or be able to explain everything you want
to know to you, but the Help function is always available to help you.
The zoom facility allows us to search for specific records. We are going to use this while
working through the rest of the Pastel manual, so also make sure you know how to use
the zoom facility.
                    
• Follow the step-by-step instructions in the Pastel manual, lesson 2. Explore
– the various Menu items

– the various Toolbar items
– the System Navigator
– the Pastel Explorer
– the Function and Shortcut keys
– Pastel utilities
4 Lesson 3: Create a new company on Pastel Partner

As accountants, we may have several organisations as clients or we may be the accountant
for a group of companies for which we capture their accounting transactions on an AIS
such as Pastel. For each of these organisations, a separate, new company will be created
on the AIS. In lesson 3 we will learn which information is required prior to creating a
new company, the methods that can be used in Pastel to create a new company, and
lastly, how to create a new company.
In Pastel we can either use the Setup Assistant, copy from another existing company
on Pastel or manually create a new company from scratch. The Setup Assistant is used
most of the time by accountants and is the method we will use to create a new company.
4.1 Gather company information

Regardless of the method used to create a new company on Pastel, we will need to know
some basic information such as the following:
• Country. The various tax general ledger accounts, tax rates and display requirements
are automatically set up by Pastel, depending on the country selected during setup.
• Company name, contact details and VAT registration number. This information
will be included on all the printed company documents (eg purchase orders and sales
invoices).
• Date format. The date format specified will be used to record and display transaction
and report dates.
• Start of financial year and period end day. This is used for financial reporting purposes.
An organisation may decide not to use the last day of the month for a period end but
another day. For example, an organisation may select the 25th of each month to enable
it to finalise capturing its accounting transactions in time for the monthly management
reports/budget analysis which may be due the 1st of each month.
• Number of periods to use in a financial year. This will be used for reporting periods
(12 periods would enable monthly reporting, 4 periods quarterly reporting, etc). Most
organisations use monthly reporting (ie 12 periods in a financial year, one for each month).
• Chart of accounts. The standard chart of accounts has the most common general
ledger accounts already set up for the specific industry selected. This saves time in
setting up a company.
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107 St u d y u n i t 15
• Cash books/bank accounts. These are used to create the general ledger accounts
for bank accounts and to link these general ledger accounts to the cash book journal
entry types.
• Price lists. These are linked to the inventory items and allow us to specify separate
prices for each new inventory item later during the setup process.
• Default customer terms. These defaults will be used initially for each new customer
created during the setup process. However, the defaults can be modified later for each
individual customer during the setting up of the individual customer.
• Paper setup. The selections made here will depend on the type of printer and paper
used for printing Pastel documents and reports. However, this can be modified later
for each type of document used.
4.2 Create the new company
                    
Follow the step-by-step instructions in the Pastel manual, lesson 3, to gather the
information and use the Setup Assistant to create the company required on Pastel.
NOTE:
Since the Pastel manual is regularly updated and the name of the company created in lesson
3 may differ from year to year, in the rest of the study guide, we will refer to the company
created in lesson 3 (see the previous activity) as the Pastel manual company, abbreviated
as the “PM” company.
4.3 Create another new company (“TEST”)
                    
• In addition to the “PM” company created in section 4.2 of this study unit,
create another new company on Pastel using the Setup Assistant and name
this company “TEST”.
• Play around during the setup of the “TEST company”:
– Explore different industry-specific chart of accounts.

– Look at the different general ledger accounts available under each chart of
accounts – for example, service, retail, manufacturing, farming, property
rental, restaurant, medical practitioner, church and school. Consider
several actual organisations and decide which Pastel chart of accounts
would be most suitable for that particular organisation. See study unit 13
in which the financial reporting structure is discussed.
– Explore the different customer terms. Know the differences between
period- and day-based customer terms, as well as the open item and
balance forward processing method.
– Use the Pastel help function to obtain additional information on period-
and day-based customer terms, as well as the open item and balance
forward processing method.
...........
TO PI C 6 108
5 Lesson 4: Using the Auto Setup
In lesson 4, the Auto Setup guides us, in sequence, through all the menu items in the
Pastel setup menu to set up all the common default data that we need to enter the
minimum additional data thereafter for each individual customer, supplier, inventory item
and general ledger account. Setting up common customer and supplier default data saves
time, because the information is already automatically included when a new customer or
supplier is created and therefore does not need to be retyped repeatedly. It also helps to
ensure that the company’s standard terms and conditions are used for all the customers,
suppliers and inventory items because this information is there by default, even though it
can be modified during individual setting up.
                    
• Read through study unit 7, figure 7.3, and the accompanying explanation
again.
NOTE:
If you should lose your way or miss something during Auto Setup, just click Cancel until
you reach the end and then either click on Auto Setup again, or click the individual menu
item under the Setup menu and make the applicable change. It is preferable to click on
each menu item individually as this will show you where to make changes, when needed.
                    
Note: Remember to open the “PM” company created in section 4.2 of this study
unit.
• Click on File.
• Select the company created in section 4.2.
• Click on Open.
5.1 Setup Company Parameters

Notice how the information entered in lesson 3 is brought forward and can be changed (if
we want to) with the setup menu.
The educational version of Pastel automatically changes the company name, address
details and other information we entered in lesson 3 to prevent unethical accountants from
purchasing the less expensive educational Pastel software instead of the full version to do
accounting work. Carefully note the instructions to change the company name to reflect
your details with Control + Shift + T, because you will need to do this in Assignment 02 to
prove it is your own original work!
Also note where the cash book transfer account number will be entered – we will use it later.
...........
109 St u d y u n i t 15
                    
Follow the step-by-step instructions in the Pastel manual, lesson 4, to set up
the common default data for the “PM” company.
5.2 Setup Users/Passwords

Although we are told which access rights to give the different Pastel users for the
“PM” company we are creating, we should be able to decide that for ourselves after
learning about proper segregation of duties as a control mechanism in auditing.
As a rule, it is preferable for the software to enforce minimum password requirements

(such as password length and composition), and both the password and a username are
required for a user to logon. You touched on these requirements in your AIN1501 studies
and will learn about designing proper access controls in auditing. In study unit 6 you learnt
about controls surrounding spreadsheets including the importance of good practices for
passwords. Bear in mind that what you have learnt about spreadsheet passwords also
applies to the passwords used in AISs.
                    
the users and their passwords.
Important: Do not click OK after you have specified the user details and
access options for the first user, as it will take you to the
next section. Instead, click on the drop-down list next to the
User until all the details and options for all users have been
specified. Only then click OK.
5.3 Setup Financial Categories

The financial and report writer categories are used as headings in reports such as the
income statement and the balance sheet. The official accounting terminology sometimes
changes, or we (or our manager) may simply want to given an item a different name (eg
we could change “Retained income” to “Future nest egg”, and the balance sheet would
display it as such).
                    
Follow the step-by-step instructions in the Pastel manual, lesson 4, to view the
financial categories and the report writer categories.
5.4 Setup Entry Types

Entry types are similar to the various journals we know from accounting.
...........
TO PI C 6 110
                    
Examine the Entry Types screen.
Every bank account in Pastel has two separate cash books – one for payments and one
for receipts. It is sound policy to use descriptive names, and we will therefore change the
default entry type descriptions during the exercise. Imagine how confusing it would be if
we had ten or even more bank accounts and had to identify them with numbers.
As accountants in organisations, we can change any of the entry-type descriptions to suit

our needs – for example, we could use “Salaries and wages journal” instead of “Payroll
journal”.
The debit/credit column sets the default for the particular journal so that we just have to enter
the minimum information and Pastel will automatically allocate the transactions correctly
to the specified general ledger accounts. This will limit debit/credit mistakes and one day
enable us to delegate the capturing of the transactions to someone with less experience.
NOTE:
We assume you already know your debits and credits, know which side assets, liabilities
and equity are increased and decreased and are able to write down applicable journals
and T-accounts. Remember an AIS is merely a tool to make life easier – we still need
human knowledge and skills to work properly.
When an organisation has a high volume of transactions, printouts can become extremely
cumbersome. When the Contra in Detail column has not been selected, Pastel will
summarise the transactions and will only show the totals in the general ledger printouts,
but not the detail. However, the details will be available in separate Entry Type reports.
This detail is crucial to keep the audit trail intact. (You will learn about following the audit
trail in auditing.)
For each entry type/journal we can set how the date of the transactions should influence
the period in which the transaction should be recorded. Reflect back on your accounting
knowledge and the importance of recording transactions in the correct financial period.
Clearly choosing between “Date sets period” and “Period defaults date” could have a huge
influence on the fair presentation of the organisation’s financial results.
What happens if we open a new bank account later during the year? First, we will create
the general ledger account for the new bank account and then we will set up the payment
and receipt cash book for the new bank account at the bottom of the entry type list similar
to the other cash books.
                    
• Follow the step-by-step instructions in the Pastel manual, lesson 4, to edit
the entry types.
• Before you click on OK, browse through the various entry types by scrolling
down with the vertical scroll bar. Note the different types available. For each
...........
111 St u d y u n i t 15
entry type, use your accounting knowledge and consider whether you agree
that
– the majority of the transactions for that specific entry type/journal are a
debit or a credit
– the account access for that specific entry type/journal is correct
5.5 Setup Periods

A financial year is similar to a calendar year. Both a financial year and a calendar year
cover a 12-month period, but where a calendar year starts on the 1 January, includes 12
months and ends on the 31 December, a financial year can start at the beginning of any
month. (Bear in mind that there are statutory requirements that an organisation has to
satisfy if it wishes to change its financial year – you will learn more about this in auditing.)
A financial year can, for example, start on 1 July and end on 30 June of the next year.
When talking about a financial year, the year is usually expressed in terms of its last period
– for example, a June 2013 financial year will relate to the period 1 July 2012 to 30 June
2013 and an April 2014 financial year will relate to the period 1 May 2013 to 30 April 2014.
In any accounting system (manual or AIS) it is always essential to ensure that transactions
are entered in the correct accounting period and financial year. (An accounting period
is also sometimes called a financial period.) If a transaction is processed in the wrong
accounting period, the financial and business information will be incorrect and this can
lead to incorrect decisions being made.
We will see in Pastel and other AISs that we usually do not refer to a month we are working
in, but to an accounting period. Period 1 in our example of a financial year starting 1 July
201X will be the month from 1 July to 31 July 201X.
Let us first look at a financial year starting 1 January 201X (December 201X – financial year)
Financial year:
1 January 201X – 31 December 201X
Accounting period Corresponding calendar month
Period 1 January 201X
Period 2 February 201X
Period 3 March 201X
Period 4 April 201X
Period 5 May 201X
Period 6 June 201X
Period 7 July 201X
Period 8 August 201X
Period 9 September 201X
Period 10 October 201X
Period 11 November 201X
Period 12 December 201X
Period 6 in the example above will relate to June – that is, if we capture a transaction
in accounting period 6 we know that the date for the transaction must be between and
including the dates 1 June 201X to 30 June 201X.
...........
TO PI C 6 112
       
• For the financial year 1 January 201X–31 December 201X, in which accounting
period would a transaction dated 18 May 201X be captured?
Answer: In period 5
Let us now look at the financial year starting 1 July 201X (June 201Y financial year)
Financial year:
1 July 201X – 30 June 201Y
Accounting period Corresponding calendar month
Period 1 July 201X
Period 2 August 201X
Period 3 September 201X
Period 4 October 201X
Period 5 November 201X
Period 6 December 201X
Period 7 January 201Y
Period 8 February 201Y
Period 9 March 201Y
Period 10 April 201Y
Period 11 May 201Y
Period 12 June 201Y
Period 6 in the example above will relate to December – that is, if we capture a transaction
in accounting period 6, we know that the date for the transaction must be between and
including the dates 1 December 201X to 31 December 201X.
       
• For the financial year 1 July 201X–30 June 201Y, in which accounting period
would a transaction dated 18 May 201Y be captured?
Answer: In period 11
• For the financial year 1 July 201X–30 June 201Y, in which accounting period
would a transaction dated 12 September 201X be captured?
Answer: In period 3
Remember that the purpose of an AIS is to collect data and produce information to enable
informed financial decisions to be made. Hence if financial decisions are made monthly
(eg most businesses), then the AIS will be set up with 12 monthly periods. If, however,
financial decisions are only made quarterly, then the AIS will be set up with four quarterly
periods (4 quarters x 3 months each = 12 months).
Now what happens if we have not finished our transaction processing for the previous
financial year, but have to start processing for the new financial year? Pastel allows us to
...........
113 St u d y u n i t 15
add an extra (grace) period that will become the first period of the next year once we have
run the official year-end procedure. This grace period can be added at any time during
the year using the setup function.
Remember we can only change the number of periods for the financial year if we have not
yet processed transactions in the current financial year in our company.
                      
Follow the step-by-step instructions in the Pastel manual, lesson 4, to view the
periods.
5.6 Setup Tax – value-added tax (VAT)

There is a familiar saying: “The only certainty in life is death and taxes”. That is certainly
true when working on an AIS (not death of course – VAT). Fundamental VAT knowledge
and the application thereof in Pastel is needed, say, when making setup decisions and
capturing transactions.
Before we move one to the tax setup in Pastel, we need to familiarise ourselves with VAT.
  
Pastel AIS is used internationally and Pastel therefore uses the general term
“tax” to make provision for the different tax systems used in different countries,
for example, GST, VAT and so forth. In South Africa, we pay VAT and the term
“tax” in Pastel AIS, set up for South Africa will therefore refer to VAT.
       
• Read the background information on VAT in the Pastel manual, as well as
additional information on the “Data files accompanying the Pastel courseware”
CD accompanying the manual under Additional/VAT guide. Make sure you
know and can explain the following:
– What is VAT?
– How does it work?
– What is the difference between output VAT and input VAT?
– Who must and who may register? (Note: compulsory registration starts
at a turnover of R1 million in any 12-month consecutive period.)
– What is the difference between normal VAT (invoice-based VAT) and
payment/cash-based VAT? When should which option be used, and how
are the two options treated differently for accounting purposes?
– In South Africa, should bad debts and/or discounts given affect the
business’s VAT liability?
– What is the difference between the various tax types?
...........
TO PI C 6 114
– Which type of output VAT and what percentage would be charged if an
organisation sells the following to its customers (in general):
◊ basic foodstuff (such as brown bread, maize, rice, cooking oil, milk,
eggs, fresh fruit and vegetables)
◊ general items (such as washing powder, pet food, tinned food, toiletries
and sweets)
◊ restaurant food
◊ delivery vehicles and/or passenger vehicles
◊ petrol and/or diesel
◊ computer equipment and/or office equipment
◊ accounting services
– Which type of output VAT and what percentage would an organisation
exporting any of the above to customers in other countries (in general)
charge?
– Which type of input VAT and what percentage would an organisation
purchasing the following from suppliers (in general) claim?
◊ basic foodstuff (such as brown bread, maize, rice, cooking oil, milk,
eggs, fresh fruit and vegetables)
◊ general items (such as dishwashing liquid, refreshments [tee, coffee
and milk], toilet paper and sweets)
◊ entertainment (such as taking your staff to the state theatre or having
a year-end function)
◊ delivery vehicles and/or passenger vehicles
◊ petrol and/or diesel
◊ computer equipment and/or office equipment
◊ accounting services
◊ water and electricity
◊ rates and taxes to the city council
◊ telephone
◊ office rent
◊ short-term insurance (theft, car, etc)
◊ medical aid contributions
◊ pension fund contributions
– Would your answer relating to input VAT change if the particular supplier
had not been registered for VAT or had not provided you with a valid
VAT invoice?
◊ A useful exercise would be to draw some T-accounts on a piece
of paper and work out the debits and credits (including the VAT)
relating to several purchase, sale and expense transactions. (Good
old accounting and taxation combined!)
            
To complete the above activity you must draw from your pre-existing account-
ing and taxation knowledge as well as the knowledge obtained from the Pastel
manual and accompanying “Data files accompanying the Pastel courseware” CD.
For further information on VAT, visit www.sars.gov.za.
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115 St u d y u n i t 15
Pastel, like many other AISs, already has the majority of the tax settings (eg the parameters,
percentages and box names) automatically set up. When South Africa was chosen as the
country when we first created the new “PM” company in Pastel, the tax was automatically set
up and we will only need to make limited changes to the tax settings in order to customise
it for the “PM” company. When South Africa is selected, Pastel allows for three different
“tax systems”. We will select “Do Not Use Tax” if the organisation is not a registered VAT
vendor. Registered VAT vendors can choose between “Normal VAT/GST/Sales tax” or
“Payment/Cash Based VAT”, depending on their registration status at SARS.
                      
the tax.
5.7 Setup Customers’ Control

Remember that we set up the common defaults as part of Auto Setup so that we have to
enter minimum additional data thereafter for each individual customer, supplier, inventory
item and general ledger account. Keep this in mind when we do the setup for customers,
suppliers and inventory.
NOTE:
It is essential to fully understand the difference between
• a customer and a supplier

• open item and balance forward processing
When doing the setup for the customers’ control, we are specifying the terms and rules we
want the majority of our customers to follow – for example, 15% interest on late payment
or to print the VAT % instead of the VAT amount on the sales invoice. Of course we can
modify this later when we create/edit an individual customer, such as only 10% interest for
a large customer or printing the VAT amount on their sales invoices as requested.
                     
Open the Customers Control screen as part of the Auto Setup and first click on
all the tabs to see the contents thereof.
Only certain items in the setup of the customers’ control will be highlighted, as the rest is
sufficiently explained in the Pastel manual.
(a) Configuration tab
See how well items relating to one another are grouped together.
...........
TO PI C 6 116
In study unit 16, Pastel manual, lesson 8, we will learn about creating and editing
general ledger accounts. The three accounts used here are the default accounts
because of the industry-specific chart of accounts that we selected when we created
the new “PM” company.
• Interest
The Annual % Rate specified will be the default for all the customers, but it can
be modified for individual customers when these customers are created later by
editing the individual customer’s account. Although the interest rate and general
ledger account are specified here, the interest transactions will not be processed
automatically. We will therefore have to calculate and process the accounting
entries for the interest. We will specify the journal through which we will enter the
interest with the entry type (see section 5.4 in this study unit).
• Warn Overdue When Invoicing
A warning when a customer’s account is overdue is an effective way to help

control an organisation’s (potential) bad debts. Designing controls will be dealt
with in detail as part of auditing – remember to open Pastel again when studying
auditing to see where the controls are implemented.
• Tax on Document Lines
VAT legislation requires that all customers be identified on the VAT invoices
they receive when purchasing for more than R3,000 per invoice. Although the
customer name and VAT number will already have been stored in Pastel for the
regular customers, ad hoc or cash customers’ names and VAT numbers have to
be recorded separately when the individual transaction exceeds this limit. The
amount entered as the “Tax Ref Prompt Amount” will help the person capturing
the invoice to remember to ask for the required details.
• User Defined Fields
The user-defined fields are extra information that may be required. The items we
type here basically become the additional field names in the customer master file.
(b) Statements tab
“Begin with the end in mind” is what Steven Covey (1989:97) said in his book, The
seven habits of highly effective people. It would be rather difficult for us to understand
why we are doing what we are doing with the setup if we do not know what we are
working towards (the end we have in mind).
Customer statements are documents printed (usually monthly) and sent to customers.
These can list the details of transactions not yet paid together, with the most recent
payment transactions (open item) or merely print the balance owed from previous
months together with the details of the most recent transactions (balance forward).
Despite having an open item customer, we can still print the monthly statement for
the customer in balance forward view, should we (or the customer) prefer it. Owing
to the potentially huge number of different items sold to a customer on each separate
invoice, one does not usually repeat all the details on the customer statement, but
instead only print the total for the invoice.
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117 St u d y u n i t 15
Customer statements also categorise the various transactions according to the age
categories we have chosen as the default terms when we created the company. For
example, if we sold R1,000 worth of goods to a customer two months ago and he has
not paid us yet, the R1,000 would be shown as 60 days outstanding. We can customise
the messages that we want to print automatically to our customers, depending on how
long they have owed us the money. However, one has to be careful when wording
such messages – that is, if we wish to keep such customers in the future.
(c) Defaults tab
• Normal Payment Terms
The normal payment terms, processing method and most common price list were
chosen when we created the new “PM” company, but here we have the opportunity
to change it.
• Tax Entry Method
The tax entry method chosen will depend on the organisation. Remember that
most organisations’ sales prices are shown inclusive of VAT. This will make the
capturing of the prices inclusive of VAT much easier.
• Other Terms
Credit limits should always be individually set for customers. We will set these limits
in study unit 16, Pastel manual, lesson 5. All the factors to take into consideration in
determining the credit risk and the process for granting credit form part of auditing.
The early payment terms are clearly the discounts granted to customers for paying
early. The difficult part is to determine exactly how much discount should be offered
to customers as an incentive, without diminishing profits too much. You will learn
how to calculate this as part of your studies in management accounting.
(d) Description tab
The items we type here become the field names in the customer master file, but
different from the field names typed on the configuration tab. Pastel knows that these
are associated with the address of the customer and will use them where required
on invoices, statements and suchlike.
                      
the customers’ control.
5.8 Setup Customers Documents
       
• Review study unit 7, figure 7.1 (manual process) and figure 7.2 (computerised
process) on the conversion of transaction data into information.
...........
TO PI C 6 118
The Setup Customer Documents in Pastel contain the various source documents relating
to customers.
Note that not all documents result in a journal entry – hence not all of them result in an
accounting entry in the general ledger and the customer subledgers. The details (data) of
these source documents will still be stored in transaction files for reference purposes (we
do not want to retype all the data later, if we can simply refer to the data already stored
and make small amendments if necessary).
Quotations and Sales Orders are optional, depending on the design of the sales process in
the particular business (you will learn more about the process and the associated controls
in your auditing studies).
See figure 15.1 below for a better understanding of the sales process.
FIGURE 15.1: Sales process
       
• For each source document, make sure you know the
– order in which the documents are used in the sales process

– purpose of the document
– differences between the various source documents
– entry type (journal) normally used by each source document
– accounting debits and credits (remember to take VAT into consideration
too)
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119 St u d y u n i t 15
       
To complete the activity above you must draw from your pre-existing accounting
and taxation knowledge as well as the information contained in topic 3.
                      
Open the customer documents screen as part of the auto setup and first click
on all the tabs to see the contents thereof.
Here we will only highlight certain items in the setup of the customer documents because
the rest is sufficiently explained in the Pastel manual.
The various names of the document and the number of copies are determined by the
design of the organisation’s sales process. Refer to your auditing studies again.
Remember that Pastel uses the term “Entry Type” for a journal. Note how it is shaded in
grey for certain documents. That is because those types of documents are not posted to
the general ledger. Also note that for the same reason, the update options are shaded in
grey when the entry type is shaded in grey.
When the update options are available, we can choose between “Update on Completion
of Document” and “Update in Batch Mode”. Refer back to, study unit 1. Which of the two
options will result in real-time processing and which in batch processing?
Project codes are used to track income and expenditure. A project code can be a branch,
department, job, employee or anything we want to allocate income and expenses to in
order to see the individual profitability or contribution thereof in relation to the business as
a whole. For instance, we can use project codes to prepare a separate income statement
for each branch of the organisation.
Sales codes (sales analysis codes) are similar to project codes, but relate specifically to
sales. Sales codes make it possible to analyse sales by sales representative, geographic
areas, market segments and so on. Sales codes can be used to calculate commission.
Commission need not necessarily be paid to a sales representative – it depends on the sales
code descriptions. For example, if we enter a geographic area as a sales code, commission
can be calculated for the geographic area and the commission can be split equally between
all the sales representative in the geographic area.
NOTE:
The different versions of Pastel Partner use either the term “Project code” or “Cost
code”, but the meaning of the terms is the same.
Do you remember where the “Next Numbers” of the documents were set up? Yes, on
the company parameters setup screen.
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TO PI C 6 120
Many different types of stock and/or service items can be sold on one invoice (and of
course the quantity for each type can be one or more). Each different type of item will
be listed on a new line, but on the same invoice (refer to a supermarket till slip). To save
time with data capturing, we can set the default for the type of item that will most often be
entered on an invoice line.
                      
Click the drop-down list for the invoice lines default to explore the various de-
faults. Use the help function (F1) to learn more about each default. We will also
learn more about the item code, general ledger (GL) code and remarks when
entering transactions in study unit 17 and the Pastel manual, lesson 9.
When we enter a transaction on a source document and click on “Next Document” or

“Close“, Pastel will automatically try to print the document (and variations thereof). Why?
Because it was set up here in customer documents.
When and what to print will depend on how the organisation is run. For example, if the
majority of the customers walk into the shop to do business, we will want to print the invoice
immediately and give it to them, but if the organisation mainly receives telephone or email
orders, we will probably want to capture all the transactions in a batch and then print all
the invoices and delivery notes at the end of the batch only.
NOTE:
Set up Pastel according to your organisation. Unless your business processes were
ineffective or inefficient, do not try to mould your organisation to fit in with your AIS.
                     
the customers’ documents.
5.9 Setup Suppliers Control

The setup of the suppliers’ control is similar to the setup of the customers’ control.
When doing the setup for the suppliers’ control, we specify the terms and rules the majority
of the suppliers will follow, such as to enter the supplier prices including or excluding VAT
and the standard payment terms. Again, we can modify this later when we create/edit an
individual supplier.
...........
121 St u d y u n i t 15
                     
• Open up the supplier control screen as part of the Auto Setup and first click
on all the tabs to see the contents thereof.
– Compare the contents of the various tabs of the Setup Suppliers Control
with the contents of the Setup Customers Control and note the similarities
and differences.
– Read section 5.7, guidance for customers’ control setup, again and apply
the same principles to the suppliers’ control setup.
Only certain items in the setup of the suppliers’ control will be highlighted here, because
the rest is sufficiently explained in the Pastel manual and in section 5.7, the explanation
of the customers’ control setup.
Using goods received notes (GRN) is excellent from a control perspective and will
depend on how the organisation’s business process was designed (you will learn
more about this control in auditing).
When an organisation is likely to sell goods before receiving and processing the
supplier invoice for the goods, it will be necessary to use goods received notes, or
else the accounting system will indicate that the organisation is out of stock, while
there is in fact stock available for selling in the storeroom.
                      
• Compare the supplier configuration tab to the customer configuration tab
(and the guidance given for it in section 5.7)
• Toggle (click first the one and the other one and back again) between
“Mandatory” and “Never” for goods received notes. Notice how the Accrual
Account is shaded in grey when “Never” is selected.
• Refer again to study unit 9 on transaction processing and read the section
on accounting for goods received notes. Draw up the T-accounts (general
ledger accounts) and practise posting debits and credits to the correct
accounts (taking VAT into consideration)
(b) Remittances tab
Remember that the organisation is the supplier’s customer. The supplier will therefore
send a monthly customer statement in the same way as the organisation will send a
monthly customer statement to its customers.
Customers use the customer statements to pay their suppliers, and often the bottom
of the customer statement can be cut off and attached as a remittance to the payment
made to the supplier.
That is why, in practice, separate remittances are rarely printed and sent to suppliers
to accompany the payment, although remittances are still useful to help settle account
disputes between customers and suppliers.
...........
TO PI C 6 122
                      
Compare the supplier remittances tab with the customer statements tab (and
the guidance given for it in section 5.7)
(c) Defaults tab
                      
Compare the supplier defaults tab with the customer defaults tab (and the guid-
ance given for it in section 5.7)
(d) Description tab
                      
Compare the supplier description tab with the customer description tab (and the
guidance given for it in section 5.7)
NOTE:
It is essential to fully understand
• the difference between a customer and a supplier

• ageing
• the difference between balance forward and open item processing
                     
the suppliers’ control.
5.10 Setup Suppliers Documents

The setup of the suppliers’ documents is similar to that of the customers’ documents and
contains the various source documents relating to suppliers.
            
• Review study unit 7, figure 7.1 (manual process) and figure 7.2 (computerised
process) on converting transaction data into information.
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123 St u d y u n i t 15
                      
• Compare the contents of the various tabs of Setup Supplier Documents
with the contents of Setup Customers documents and note the similarities
and differences.
• Read section 5.8, guidance for the setup of the customers’ documents again
and apply the same principles to the suppliers’ documents.
Only certain items in the setup of the suppliers’ documents will be highlighted here because
the rest is comprehensively explained in the Pastel manual and in section 5.8, which deals
with the setup of the customers’ documents.
       
• Refer to figure 15.1 for the sales process, and draw your own figure with
the relevant documents, journals, general ledger accounts and reports for
the purchase process. Use the outlines below to assist you.
FIGURE 15.2: Purchase process
• Make sure you know for each source document
– the order in which the documents are used in the purchase process
– the purpose of the document
– the differences between the various source documents
– the entry type (journal) usually used by each source document
– the accounting debits and credits (remember to also take VAT into
consideration)
...........
TO PI C 6 124
Notice the message details typed in for the purchase order and the return/debit note. Why
would a business want to print this in addition to its documents?
                     
the suppliers’ documents.
5.11 Setup Inventory

When doing the setup for the inventory, we will specify the terms and rules the majority of
inventory items would follow, such as the various price lists used for inventory items, the
maximum selling prices, discount percentages and so on. We can modify this later when
we create/edit an individual inventory item.
                      
Open up the inventory setup as part of the Auto Setup and click on all the tabs
to see the contents thereof.
Only certain items in the setup of the inventory will be highlighted here because the rest
is comprehensively explained in the Pastel manual.
• Price List Descriptions
Many organisations have different price lists. For instance, a hotel may have
individual client and corporate client price lists, or tourist attractions may have
local or tourist price lists (the latter often quoted in US dollars).
• Limits
Employees are often given authorisation to make decisions relating to sales and
purchases, but only within certain limits. Some of these limits are specified in
Pastel on this tab, so that the employees do not overstep their authorisation, be it
accidentally or on purpose for extra sales commission or kickbacks on purchases.
Again, you will learn more about controls (both manual and computerised) in
auditing.
• Processing
The items listed in the processing block refer to computerised controls to help the
business owner achieve his or her profit goal.
An organisation cannot sell something it does not have in its stores. Hence there
is no reason for inventory quantities to ever fall below zero, especially if goods
received notes are selected to be mandatory and inventory is properly controlled.
We can only opt to be warned if inventory falls below zero (“Warn if Inventory
Falls Below Zero”), if we have elected to allow inventory to go below zero in the
first place (“Allow Inventory Quantities to Fall Below Zero”).
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125 St u d y u n i t 15
The reorder levels and the preferred suppliers will be set later when we create/
edit individual inventory items in study unit 16, Pastel manual, lesson 8.
       
Think where each of the limits shown and the items in the processing block will
have an impact further on in the AIS.
(b) Integration/Groups tab
Currently, the default inventory groups are Services and Inventory Goods. Pastel
allows setting up multiple groups and using different descriptions. E.g. a supermarket
can use groups such as basic food, luxury food, fresh produce, pet food, cleaning
and other as inventory groups.
Why would we want to create multiple inventory groups? For decision making, of
course! If an organisation can separate the sales and cost of sales of the various
groups, it can make better decisions on the profitability of each inventory group.
To create various groups, we type the group names under the description column.
Pastel will not automatically know how to link (integrate) the groups with the general
ledger to enable extracting the information at a later stage. That is why we set up the
integration here on the inventory integration/groups tab.
When we selected an industry-specific chart of accounts during the creation of

the new “PM” company on Pastel, several standard general ledger accounts were
automatically created. These include the customer and supplier control accounts we
have seen so far during Auto Setup, as well as the accounts visible on the integration/
groups tab of the inventory setup.
                      
• Use the horizontal sliding ruler to view all the different general ledger accounts
affected by an integrated inventory system (the default).
• Now unselect the “Integrate Inventory to General Ledger” tick box and see
how the general ledger accounts are affected. Select the same tick box
again (and click OK as requested) to see the integrated general ledger
accounts again.
       
• Review the difference between a perpetual inventory system and a periodic
inventory system as you learnt about in accounting.
• Draw T-accounts and prepare fictitious transactions for both the perpetual and
the periodic inventory systems to make sure you remember and understand
the related accounting. (Hint: The general ledger accounts visible in Pastel
when you select to integrate or not to integrate may help you here.)
...........
TO PI C 6 126
(c) User Fields tab
These user-defined fields are similar to those defined for customers and suppliers,
that is, they become the field names in the inventory master file. For example, we will
be able to specify the name of each type of inventory item for any organisation, but,
if the organisation sells food, we may want to create a special field for ingredients in
food that may cause allergic reactions.
(d) Other tab
The defaults for new items on the inventory setup other tab are similar to the default
tabs for customer control and supplier control in that it will use this information as the
default for every new inventory item created in study unit 16, Pastel manual, lesson 8.
If we decide to change the description or add more inventory groups on the configuration
tab, we would be able to select it here in the Inventory Group dropdown list.
The Encrypted Cost Price is an excellent feature if we are going to print our own
price labels and if we allow our sales staff some flexibility in negotiating sales prices.
                      
Press F1 (Help) when you are on the “Setup Inventory Other” tab. Read the
additional guidance given on
• when and when not to use fixed descriptions

• the difference between physical and service items and when to select which
option
• encrypted cost price
NOTE:
It is extremely important to familiarise yourself with the Help function (F1). Long after you
have passed AIN2601, the Help function will still be there to give additional guidance and
help you to brush up on those skills that have become rusty because of infrequent use.
                     
the inventory.
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127 St u d y u n i t 15
NOTE:
The setup of a new company after creation is crucial. We therefore strongly recommend
that you open your extra “TEST” company (see section 4.3) and do the setup again. Go
through section 5 again, but this time play around, click and try out different options.
You cannot break the test company or Pastel. If something does go horribly wrong, simply
delete the “Test” company and create another one.
5.12 Backup and Restore

There is a difference between saving a company and backing up a company. When we
close Pastel after working on it, the company and all the changes made are automatically
saved to the local hard drive or the network drive (depending on the installation), even if
we do not backup. It is therefore not necessary to restore a backup before starting to work
in Pastel again the next day. Remember – it is automatically saved!
A backup is a special save (preferably to another location such as a removable disk, internet,
etc). We make this special save in case something happens to Pastel on the local hard
drive, or if we are going to effect a major change on Pastel that could result in major errors.
It is necessary to make daily backups and to do this in a different location to the local/network
hard drive because the people responsible for capturing the data work extremely hard
and do not want to redo their work if it is somehow lost – not to mention the cost of lost
information in an organisations’ decision-making processes.
ONLY when a disaster has struck the AIS (such as a system crash or if there were major
errors in the processing), will the backup be restored.
                      
Follow the step-by-step instructions in the Pastel manual, lesson 4, to make
and restore a backup.
Know everything there is to know about backups! This will save you a lot
of time and tears when you work through the rest of the Pastel manual
and your assignment.
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TO PI C 6 128
NOTE:
Hints for Pastel backups
• Always tick the “Ensure Files Readable” tick box. (Would you take a chance that your
backup files are not readable when you desperately need to restore?!)
• Create a separate “Backup” folder, preferably on a flash drive, but not under the company
name in the Pastel folder (this will result in the file size growing exponentially, because
the increasing number of backups will be backed up again every time).
• Create subfolders under the “Backup” folder for each lesson in the Pastel manual (eg
lesson 4, lesson 5, etc).
• Create extra subfolders for lesson 9 (eg lessons 9A to 9D), because lesson 9 is fairly
long with numerous transactions.
• Starting right now, make a backup of the “PM” company after every completed lesson
in the relevant subfolder. (You may make a mistake and want to restore and start over
from the previous lesson again to ensure your printouts agree with those shown in the
manual.)
6 Summary
In this study unit, we installed Pastel and a virtual printer (lesson 1) and learnt how to
navigate in Pastel (lesson 2). We collected basic information on the organisation and then
used it information to create a new company on Pastel (lesson 3). We set up the common
default data so that we need to enter the minimum additional data thereafter for each
individual customer, supplier, inventory item and general ledger account (lesson 4). In the
next study unit, we will set up the individual customer and supplier accounts, inventory
items and general ledger accounts.
            
questions:
(a) Complete the Pastel manual formative assessment questions at the end
of lessons 1 to 4.
(b) Explain the difference between a physical and a virtual printer.
(c) Explain why it is necessary to make sure the user clicks to indicate he or
she accepts the licence agreement.
(d) Explain why it is necessary, from the software vendor’s perspective,
to compel users to register their software.
(e) List the differences between the Pastel educational software and the full
Pastel AIS.
(f) Briefly explain what each of the Pastel main menu items does.
(g) Identify the correct main menu item on the menu bar to use for a specified
function.
(h) Label/identify the various toolbar icons.
(i) Name all the function keys and their operations.
(j) Name all the shortcut keys and their operations.
(k) Fully discuss the how, why and when of the help function and the zoom
facility.
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129 St u d y u n i t 15
(l) List and describe each type of information required to create a new company.
(m) Determine an appropriate industry-specific chart of account to use for a
service organisation.
(n) Fully explain the difference between period- and day-based customer terms.
(o) Explain in detail the difference between the open item and balance forward
processing methods.
(p) Explain the chosen settings on each of the Auto Setup section screens.
(q) Explain the various VAT concepts, requirements and types, choose the
correct VAT type and percentage for a given transaction and explain their
effect in the general ledger.
(r) Discuss how, why and when backups are made.
                    
You will find the answers in the Pastel manual, the Pastel Help file, this study unit
or the myUnisa discussion forum. The answers to the questions in the Pastel
manual formative assessment are provided on the “Data files accompanying
the Pastel courseware” CD.
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TO PI C 6 130
STU DY U NIT
10 16
Customers, suppliers, inventory and

19
20
1 Introduction
Each organisation has different customers, suppliers and inventory items. Each of these
accounts and items has its own unique data which must be set up. In the previous study
unit, we set up the common default data for our new company. In this study unit, we will
set up the individual customer (lesson 5) and supplier accounts (lesson 6), inventory items
(lesson 7) and general ledger accounts (lesson 7) and customise each of these accounts
to our company’s specific needs (lesson 8).
2 Lesson 5: the Edit menu – Customers

In lesson 5 we will create customer categories, sales analysis codes and customer
accounts. We will also learn how to change from open item processing to balance forward
processing. Lastly, we will print the customer master file listing.
...........
131 St u d y u n i t 16
2.1 Create customer categories and sales analysis codes
                    
• Open the “PM” company.
• Follow the step-by-step instructions in the Pastel manual, lesson 5, to create
the customer categories.
• Open the “Demo” company:

– Click on Edit – Customers – Categories.
– See how different customer categories can be used for reporting purposes.
– Stop and think about which categories could be used for various types
of businesses.

the sales analysis codes.
• Open the “Demo” company again:

– Click on Edit – Customers – Sales Analysis Codes.
– See how the demo company was set up for commission. Also click
on the tabs for “This Year Totals” and “Last Year Totals” to see the
resulting commission.
– Remember that sales analysis codes need not only be used to
calculate commission.
2.2 Create customer accounts

When creating the customer accounts, we will use the setup information we created as
part of the “Setup Customer Control” in study unit 15 and the Pastel manual, lesson 4, as
well as the “Customer Categories” and “Sales Analysis Codes”.
We can control how each customer’s transactions will be processed and how their
transactions will be displayed in the customer statements.
       
Review the balance forward and open item processing methods in the Pastel
manual, lesson 4. You need to understand this well.
The customer account codes will be used as the primary key in the customer master file
to uniquely identify each customer. Although it can be changed later, it is much better to
do this correctly right from the start.
...........
TO PI C 6 132
           
Review how to design customer codes and enter customer names in the Pastel
manual, lesson 5.
When we create a customer account for each customer on Pastel, we are actually creating
a subledger account for that individual customer and specifying the how, where and when
of the processing and output for the customer.
                     
– Click on Edit – Customers – Accounts.
– Click on the various tabs to familiarise yourself with the contents.
– Point your mouse (do not click yet) over each of the icons at the top of
the “Edit Customer Accounts” screen to see the name of each icon. Make
sure you know what each one is used for.
• When working through the customer account setup, you should continually
ask yourselfthe following questions:
– Where did this default information/setup come from?
– Where will it be used further on in the AIS?
– Why is it necessary (what is its purpose)?
• If you are not sure about the use of something, click on F1 (Help). It is vital
that you learn to help yourself when using any software.
Only certain items in the Edit – Customer – Accounts will be highlighted here because the
rest is comprehensively explained in the Pastel manual.
(a) Top section
The “Account Code” will have to be created with the guidelines previously provided.
      
• Can you remember where the “Customer Category” was set up, the possible
variations and what it will be used for?
• Why would you set up a “Cash Sale Account” if you can simply create a
separate subledger for every customer, and what is purpose of the blocked
tick box?
(b) Contacts tab
When typing the addresses of a customer, note how the name for the particular
address line is displayed in the yellow textbox to help with the data entry.
...........
133 St u d y u n i t 16
                     
• Can you remember where we did the setup for these textbox names?
• What can the email address of a customer be used for, and where do we
have the option to email something to our customers?
• What is a “Sales Code” again, where did we set it up and what can it be
used for?
(c) Processing tab
                     
• Can you remember where we did the setup for all the default information
contained on this tab? See how we can change (customise) it here for every
individual customer – our initial setup was merely the setup we wanted for
the majority of our customers.
• Where and for what purpose do you think this information will be used further
on in the AIS?
• Why do we need to capture the “Tax Reference” number for each customer?
(d) Terms tab
                      
• Can you remember where we did the setup for all the default information
contained on this tab?
• Where and for what do you think this information will be used further on in
the AIS
The organisation’s credit manager determines the credit limit for each customer individually.
The credit limit granted is basically the maximum amount a customer can buy for without
paying up front (think of your Edgars’/Ackermans’ accounts). Allowing sales on credit
increases the risk of bad debts.
In any organisation, a situation may arise that warrants the exceeding of a customer’s credit
limit for a short period. This may include situations such as cash receipt not yet processed
in the financial system, a business decision by management and so forth. This temporary
exceeding of a credit limit must always be authorised by a designated person(s) with the
applicable authority. Such persons may include the owner of the business, the financial
manager or the director, but will always depend on their approved authorisation rights. In
Pastel, the person who will be able to action this temporary exceeding of the credit limit
will be the supervisor. The supervisor will not increase the credit limit on the applicable
customer’s account, but will log in and process the applicable transaction.
The process for granting and monitoring customer credit is discussed in greater detail in
auditing.
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TO PI C 6 134
(e) User defined tab
See how the fields we defined in the customers’ control are listed here.
(f) Balances tab and Notes tab
                      
• You are still in the “Demo” company.
• Click on the Balances tab and then click repeatedly on the “Next Record”
icon to view the sales and balances information for the various customers
of the “Demo” company.
• Click on the Notes tab and then click repeatedly on the “Next Record” icon
to view the different notes for the various customers of the “Demo” company.
Double click to open and read these notes, then close it again after reading.
– What can this information be used for and by whom?
                     
the customer account and a note for the customer.
• Follow the step-by-step instructions in the Pastel manual, lesson 5, and
create the cash customer account. The differences in the setup of a cash
customer account and that of a normal customer account are as follows:
– For a cash account, the “Cash Sale Account” box is selected.
– The cash account processing method is balance forward.

– The cash account monthly terms are current.
2.3 Change customer processing

We can change the processing method (open item or balance forward) of customers and/
or suppliers in the “Change” menu, either for all of them, a range of customers/suppliers
or an individual customer/supplier.
It is always a good idea to make a backup before converting from one processing method
to another because some of the changes cannot always be reversed.
(a) Balance forward to open item
When converting from balance forward to open item processing the ageing for
transactions processed under the balance forward method will not be able to reflect
as if open item processing was used from the start of the account, as invoices and
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135 St u d y u n i t 16
payments were never matched from the start. (Refer again to the Pastel manual,
lesson 4, if you are unsure about the difference in the ageing of open item and balance
forward processing.) Pastel will create an artificial open item ageing by creating open
item transactions (original invoices). These invoices must be matched against any
payments received. For Pastel to be able to create these transactions we need to chose
• the individual customer or range of customers we want to convert

• which entry type will be used.
• whether
– Pastel should create one open item transaction (invoice) for the full outstanding
amount, or
– Pastel should calculate a balance forward ageing and then create a transaction
(invoice) for the balance in each ageing period (the period chosen in the next
step is seen as the current period)
• the period in which to process the conversion
                     
– Click on Change – Open item/Balance forward conversion.
– Select “From Balance Forward to Open Item”.
– Choose any customer and convert him or her customer by making your
own decisions on how to convert. (Since this is only the demo company,
you can play around with the conversion.)
(b) Open item to balance forward
Converting from open item to balance forward is straightforward and we only need to
choose which individual customer or range of customers we want to convert.
                     
• Follow the step-by-step instructions in the Pastel manual, lesson 5, to change
from open item to balance forward processing.
2.4 Print the customer master file

Documents and reports can be printed from the “View” menu. When viewing a document or
a report, we are looking at a small subset of the data (like reading with a magnifying glass).
Viewing will not change the underlying data, but it also sorts, calculates, summarises and
classifies the data into useful information.
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TO PI C 6 136
                     
• Follow the step-by-step instructions in the Pastel manual, lesson 5, to print
the customer master file listing.
• Click on the “Rerun” button and play around with the various report options.
Experiment – this is the way to familiarise yourself with software.
• Now is also a good time to experiment with printing to the virtual printer you
have installed. Refer to study unit 15, section 2.3, for step-by step instructions
on how to print using a virtual printer.
Remember to back up lesson 5 into a separate subfolder/directory named

“Lesson 5”.
3 Lesson 6: the Edit menu – Suppliers

In lesson 6, we will create supplier codes and supplier accounts. We will print the supplier
master file listing.
3.1 Create supplier categories

The setup of the supplier categories is similar to that of the customer categories.
                     
– Click on Edit – Suppliers – Categories.
– Create categories for these suppliers using your knowledge of the setup
of customer categories.
3.2 Create supplier accounts

The setup of the supplier accounts is similar to the setup of the customer accounts. We will
use the setup information we created as part of the “Setup supplier control” in the Pastel
manual, lesson 4, to create the individual supplier accounts.
                     
• Open the “PM” company
• Compare the contents of the various tabs of the Edit – Supplier – Accounts
with the contents of the Edit – Customer – Accounts.
– Note the similarities and differences.
– Read the guidelines on “create customer accounts” again (see section
2.2) and apply the same principles to creating supplier accounts.
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137 St u d y u n i t 16
Only certain items in the Edit – Supplier – Accounts will be highlighted here because the
rest is adequately explained in the Pastel manual and above in section 2
                    
– Click on Edit – Suppliers – Accounts.
– Click on all the various tabs to familiarise yourself with the contents.
• When working through the supplier account set up you should ask yourself
continually:
– Why is it necessary (what is the purpose)?
• If you do not know what something will be used for, click on F1 (Help).
(a) Processing tab
• Tax
Why do we need to capture the “Tax Reference” number for each supplier? Input
VAT can only be claimed on invoices from registered VAT vendors. VAT rules
require organisations to ensure that the VAT numbers reflected on the supplier’s
VAT invoices received are the valid VAT number for that supplier. Only capturing
the VAT number after the verification of the VAT number is a way to ensure that
all VAT numbers are verified. Passwords can be used to restrict edit access to the
system, thereby ensuring that only verified supplier VAT numbers are recorded.
Including the VAT number in the supplier master file will help save time and reduce
the costs of having to verify online every invoice received, especially where the
volume of invoices is high.
If a supplier is not a VAT vendor, which “Tax Code” should be selected? “00-Tax 0”,
because the organisation cannot claim any input VAT for that specific VAT vendor.
(There are some exceptions to this rule, such as second-hand goods, which will
not be discussed in this module. You will learn about these exceptions in taxation.)
If our organisation (company on Pastel) is not a registered VAT vendor, then we

cannot claim input VAT even if the suppliers we buy from are registered VAT
vendors. During the “Setup Tax” we would have selected “Do Not Use Tax”. The
effect will be that on the “Edit Supplier Accounts” screen, tax processing will be
greyed out, and “No tax type default” automatically selected.
• Default Contra Account
When we purchase inventory items, we generally enter the stock item code on
the supplier invoice, together with the quantity and price per item. However, an
organisation needs to purchase several other noninventory items and services
to enable them to run their business. We will still capture the details on these
supplier invoices in Pastel, but will then enter the general ledger account instead
of a stock item code on the invoice. Examples of such purchases are stationery
and electricity. However, a word of caution – if the organisation’s business is to sell
stationery, we will have plenty of stationery inventory items, but those stationery
...........
TO PI C 6 138
items we purchase for use in the business (ie not for resale) will be allocated to
the stationery expense account in the general ledger.
It may happen that some of the suppliers of noninventory expenses only supply a
single type of service or noninventory type item to the organisation. Thus to save
time with data capturing, we will enter the general ledger code of the associated
expense in the “Default Contra Account” text box. Pastel will then automatically
use that general ledger code for that supplier’s invoice and we need not look up
the code every time. For example, if Hollard Insurance is the organisation’s short-
term insurer, we will enter 3850/000 as the “Default Contra Account”, which is the
general ledger code for insurance in the chart of accounts.
• Terms
Remember that an organisation is its supplier’s customer. In the same way as an

organisation grants a credit limit to its customers, the suppliers will in turn each grant
a credit limit to the organisation (depending on the organisation’s creditworthiness).
If organisations know the credit limit they have at each supplier, it will enable
them to plan and spread their inventory purchases to optimise their cash flow.
An organisation wants its customers to pay as quickly as possible, but it wants to
delay paying its suppliers. (Budgeting and cash-flow projections are dealt with in
detail in management accounting.)
                    
the supplier account.
3.3 Print the supplier master file
                    
the supplier master file listing.
• Click on the “Rerun” button and play around with the various report options
and the virtual printer.
Remember to back up lesson 6 in a separate subfolder/directory named

“Lesson 6”.
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139 St u d y u n i t 16
4 Lesson 7: the Edit menu – Inventory and General ledger
Lesson 7 starts with creating inventory categories and service and physical inventory items.
We will also renumber inventory codes and print some of the available inventory reports.
This lesson concludes with creating and editing general ledger accounts and subaccounts.
      
• Refer back to study unit 7, figure 7.3, and the accompanying explanation to
understand where we are in the overall AIS.
4.1 Creating and editing general ledger accounts
                      
• Open the “Demo” company.
• Open the Explorer and click on “General Ledger” under “Tasks”. Sort
according to code. (We learnt how to do this in lesson 2 – working in the
demo company.)
• Browse through all the existing general ledger accounts. Take a closer look
at the account numbers in the “Fixed Assets” financial category.
– The four numbers before the “/” are the main account number and the
following four numbers the subaccount number of the general ledger
account.
– Review the section on “Main and subaccounts” in the Pastel manual,
lesson 7.
• Click on Edit – General Ledger – Accounts, and then click on all the various
tabs to familiarise yourself with the contents.
As we will learn later, we can also create general ledger, customer, supplier and inventory
accounts as and when we need them (without going to the separate menu). We will create
these accounts “on the fly” by using the F6 shortcut key.
Only certain items in the Edit – General Ledger – Accounts will be highlighted here because
the rest is adequately explained in the Pastel manual, lesson 7.
(a) Top section
By selecting the most relevant industry chart of accounts during the creation of
our company, Pastel has automatically created numerous balance sheet and income
statement general ledger accounts for our organisation. However, since every
organisation is unique, we may need to add some general ledger accounts or delete
some that we will not use. It is recommended that you block an account instead of
deleting it. In that way, it cannot be used for transaction processing, but if we need
the account later, we can simply unblock it.
...........
TO PI C 6 140
                     
• Click on Edit – General Ledger – Accounts.
• Click repeatedly on the “Next Record” icon until you reach a general ledger
account with a description in the control account block.
– Continue and note the various control accounts.
– Do these control accounts look familiar?
– Can you remember where an account is set up as a control account? For
example, the customer control account? The customer control account
is set up under Setup – Customer – Control.
(b) Details tab
• Main Account
                      
• Click on Edit – General Ledger – Accounts.
• Select Income statement and click to see which financial categories and
report writer categories are available in the drop-down list.
• Select Balance sheet and click to see which financial categories and report
writer categories are available in the drop-down list.
NOTE:
You have to know your accounting framework in order to classify the new/existing accounts
correctly as assets/liabilities/equity/income/expenditure and so on.
• External Reference
The external reference is a handy field if we wish to export and compare the
financial results of various companies using different account numbers. We enter
the same external reference and can then manipulate the information in Excel
for comparison purposes.
• Tax processing
We can set the tax processing for the general ledger here. This can save time later
during transaction processing and, more importantly, it allows us (the knowledgeable
accountants) to set it up correctly so that the data capturers are less likely to make
mistakes during transaction processing.
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141 St u d y u n i t 16
                     
a general ledger main account and general ledger subaccounts.
4.2 Integrating the general ledger inventory accounts to the inventory

groups
            
Read the section under the Integration/Groups tab in study unit 15, section
5.11, again.
Only after we have created the appropriate general ledger accounts and subaccounts,
can we link the various inventory groups to those general ledger accounts. Remember
that a computer cannot think for itself – everything has to be specified in detail.
It is crucial that the integration is set up correctly because the accounts specified here will
be used in allocating the inventory transactions to the specified general ledger accounts. If
the integration is set up incorrectly, the wrong transactions will be processed to the different
general ledger accounts, and our financial statements and management information will
be incorrect.
                     
Follow the step-by-step instructions in the Pastel manual, lesson 7, to integrate
the general ledger accounts with the inventory groups.
4.3 Create inventory categories

Inventory categories, like customer categories, are used to classify the inventory items
and inventory item transactions, then summarise, calculate and sort the information in
those categories, thereby increasing and improving the information in the reports for
management. The purpose of this is improved decision making.
                       
Follow the step-by-step instructions in the Pastel manual, lesson 7 to create
the inventory categories.
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TO PI C 6 142
4.4 Create inventory items: familiarisation
When creating the inventory items, we will use the setup information created as part of
the “Setup – Inventory” in lesson 4, as well as the “Inventory Categories”.
When we create each individual inventory item on Pastel, we are actually also creating a
subledger account for that inventory item and specifying the how, where and when of the
processing and output for that inventory item – in the same way as customer and supplier
accounts.
       

– Click on Edit – Inventory – Item File.
– Click on all the various tabs to familiarise yourself with the contents.
• When working through the inventory item setup, you should continually ask
yourself the following questions:
– Why is it necessary (what is its purpose)?
• If you do not know what something will be used for, click on F1 (Help)
or refer to the Pastel manual.
Only certain items in the Edit – Inventory – Item File will be highlighted here because the
rest is adequately explained in the Pastel manual.
(a) Top section
The inventory code will have to be created using the same guidelines as for customer
and supplier account codes.
See the inventory categories we have created in the drop-down box. This is for
reporting purposes.
(b) Details tab
• Inventory Group
Where do we set up the inventory groups? Quickly page back to lesson 4 in the
Pastel manual to refresh your memory.
NOTE:
In any AIS application, it is essential that you always know where the data you are currently
entering is going to be used in future processes and where the data you see originated.
Remember that as the accountant, you will be asked for expert advice. You therefore need
to prepare yourself for the real world.
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143 St u d y u n i t 16
• Allow Tax
The tax selected for a registered VAT vendor for both purchases and sales, will
usually be the same, that is, “01-Vat-Standard rated (14%)”. Pastel, however,
allows us to select different tax types for purchases and sales because different
VAT rules may apply for these.
        
Review your VAT notes and decide how you would set up the VAT on the
“Details” tab for those items listed in study unit 15, section 5.6
• Processing Options
There is a fraud risk in allowing employees to change the descriptions of the

inventory items while invoicing. Fraud, fraud risk and controls are dealt with as
part of auditing.
How is the sales commission item linked to the customers and sales analysis codes?
In section 2.1 of this study unit we set up sales analysis codes. Organisations can
decide that staff cannot earn sales commission on certain products. For these
products “Sales Commission item” will not be selected.
• Type
Pastel allows us to create two types of inventory items, namely service items,
such as garden services, and physical items, such as books. Depending on our
organisation’s business, we can create only service items, only physical items or
both. An easy way to remember the difference between a service and physical
item is that we can touch a physical item but we cannot touch a service item.
Service items and physical items have different characteristics in Pastel and it is
vital to understand the difference between the two.
             
• Review the differences between physical and service inventory items in
lesson 7 in the Pastel manual. Alternatively use F1 (Help) and research
the differences in Pastel. (A comprehensive understanding of this is vital).
• Think about the following:

– the differences between a service and a physical inventory item
– the difference between the set-up of a service and a physical inventory
item
– how the accounting entries differ
(c) Prices tab
Where were the various price lists that are displayed here originally set up? To refresh
your memory, page back to the Pastel manual, lesson 3.
...........
TO PI C 6 144
But what happens if we want to create another price list over and above the price lists
created at the start? We can always go back to the “Setup-Inventory-Configuration
tab” and add new price lists. Bear in mind that we can only create a maximum of ten
price lists.
NOTE:
You have to be able to convert VAT inclusive prices to VAT exclusive prices, and vice versa,
using your calculator and Excel formulas. Working with VAT is explained in study guide 1
part 2, study unit 5. Pastel, however, will do the calculations for us.
How will we determine what sales price to ask for each item? Pricing decisions will
be covered in management accounting.
(d) Reorder tab
On the “Reorder” tab we set all the details relating to the suppliers from which we
can purchase our inventory items and what the minimum and maximum inventory
levels should be. This is useful if we want to use the “Reorder Assistant” to help us
order inventory when the stock levels drop below a certain level.
             
While on the “Reorder” tab in the “Demo” company, use F1 to research the vari-
ous fields on the tab, as well as the “Reorder Assistant”.
• Recommended Supplier Details
All the suppliers from whom we buy this specific inventory item from are listed
here. We can also indicate who our preferred supplier is and the inventory code
this supplier uses.
A preferred supplier is one from whom we will always first try to buy before we
contact any other supplier for the same inventory item. There are a few reasons
why a supplier will be an organisation’s preferred supplier – for example, this
supplier has the lowest prices, the best quality, on-time delivery and preferential
payment terms. Pastel has a built-in control, if selected, to warn us if we are not
using our preferred supplier when ordering. We can select the “Warn if Preferred
Supplier Not Used” control on the “Setup – Inventory” screen.
Why would we want to record the supplier’s inventory code on our inventory
records? This will help save time when reordering because we need not search for
the supplier code to use on our order form. It is also an effective control because
it will ensure we order the correct item from our supplier, especially if there are a
few items with similar item descriptions.
• Reorder level
The minimum and maximum quantities determine when Pastel will warn us to
order more stock and these are used by the “Reorder Assistant” to determine
...........
145 St u d y u n i t 16
how many items should be ordered on the purchase order. It is essential for you
to understand how Pastel uses minimum and maximum reorder levels.
The calculation of reorder points (ie minimum and maximum quantities) will be
covered in management accounting.
(e) User Field tab
Where could we set up the names of the user fields so that they are correctly displayed
here? See the Pastel manual, lesson 4.
(f) Activity tab
                      
• Click on the “Activity” tab and then click repeatedly on the “Next Record”
icon to view the quantity information for the various inventory items of the
“Demo” company.
– Think about possible uses of this information and who can use it.
(g) Notes tab
                      
• Click on the “Notes” tab and then click repeatedly on the “Next Record” icon to
view the different notes for the various inventory items of the “Demo” company.
– Double click to open and read these notes, then close them again after
reading.
– Think about the possible uses of this information and who can use it.
(h) Picture tab
We can include pictures of the inventory item on this tab. If we decide to include
pictures of the inventory items it would also be wise to also back them up when
backing up our other accounting data.
4.5 Create service inventory items
                       
• Click on Edit – Inventory – Item File.
– Select “Service Item” on the “Details” tab and see what happens to the
“Reorder” tab.
– Select “Physical Item” on the “Details” tab and see what happens to the
“Reorder” tab. Why do you think this happens?
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TO PI C 6 146
The “Reorder” tab is greyed out when “Service Item” is selected and is only available when
“Physical Item” is selected. This happens because service items are intangible, do not have
quantities, do not have minimum and maximum levels and cannot be ordered or reordered.
                       
a service inventory item.
4.6 Create physical inventory items

Because we wanted separate inventory categories for physical inventory items, and wanted
to track their profitability separately in the general ledger, we first had to create the required
subaccounts, then set the integration, and now only can we create those physical items.
   
Some organisations also use the word “stock” for “physical inventory items”.
                       
a physical inventory item.
4.7 Renumbering inventory codes

Do you remember the guidelines for creating “account codes” for customers and suppliers
and “codes” for inventory items?
These codes are the primary keys in the relevant master files and are used to uniquely
identify each customer, supplier and inventory item.
As always – doing things right the first time is the best. However, if we do need to change
the inventory codes, we can do so in the “Change” menu.
                       
• Follow the step-by-step instructions in the Pastel manual, lesson 7, to
renumber inventory codes and to create the additional inventory items.
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147 St u d y u n i t 16
We will now play around with the “Renumber Codes Assistant” in the “Demo” company to
change the customer and supplier codes.
                      
• Click on Change – Renumber Codes.
– Select Customers and follow the instructions on the screen. Now view
the result of your change. (Think about where you would do that – similar
to Inventory)
• Click on Change – Renumber codes.

– Select Suppliers and follow the instructions on the screen. Now view the
result of your change. (You probably know where to check this – similar
to Customers)
4.8 View inventory reports

Viewing any report is an excellent opportunity to check that we have captured everything
correctly and completely to date. Before we run these reports (any reports for that matter),
form a mental picture during the setup of how the information will be presented, and what
detail entries should be listed. Then compare your mental picture with the report results.
(a) Inventory master file listing
                       
the inventory master file listing.
– The instructions are included in the “creating physical item” activity.
as well as the virtual printer.
(b) Reorder report
                       
the reorder report.
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TO PI C 6 148
(c) Price list
                       
the price lists.
What will happen if we have set up our price lists incorrectly? We will sell our inventory
items at the wrong price. A too high price can result in the organisation losing customers
because they will buy from a cheaper supplier, while a too low price can result in the
organisation suffering losses.
Always remember that you learn how to use software by playing around with it and
by making mistakes.
(That is why you have to make a backup after every lesson.)
Back up lesson 7 in a separate subfolder/directory named “Lesson 7”.
5 Lesson 8: Creating/Editing accounts and inventory items

In this lesson, we will practise the skills acquired in lessons 5 to 7. We will also learn how
to rename a pre-existing unused general account.
While doing the exercises, think about where the information that was used came from
and where it will be used.
                      
• Follow the step-by-step instructions in the Pastel manual, lesson 8.
Make sure you have created all the inventory items as required by the Pastel manual.
If not, you must go back and capture them now, because you will need them for your
transaction processing.

“Lesson 8”.
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149 St u d y u n i t 16
6 Summary
This study unit dealt with lessons 5 to 8 in the Pastel manual. We learnt how to set up
individual customer accounts (lesson 5), supplier accounts (lesson 6), service and physical
inventory items (lesson 7) and general ledger accounts (lesson 7). We also learnt how to
customise each of these accounts to our company’s specific needs (lesson 8).
In the next study unit, we use these set-up accounts and inventory items in the processing
of the organisation’s day-to-day transactions.
             
questions:
(a) Complete the Pastel manual formative assessment questions at the back
of lessons 5 to 8.
(b) If presented with a screen print of any “Edit Customer Account” screen,
explain and evaluate (if necessary) the chosen settings.
(c) Identify the report and report settings used to obtain the required information
in b.
(d) If presented with a screen print of any “Edit Supplier Account” screen,
explain and evaluate (if necessary) the chosen settings.
(e) Identify the report and report settings used to obtain the required information
in d.
(f) Explain why we set up credit limits for customers and suppliers.
(g) Explain open item and balance forward processing.
(h) If presented with a screen print of any “Edit Inventory Item” screen, explain
and evaluate (if necessary) the chosen settings.
(i) Identify the report and report settings used to obtain the required information
in h.
(j) Explain minimum and maximum reorder quantities and explain how Pastel
uses them.
(k) If presented with a screen print of any “Setup Inventory Integration/Groups”
screen, explain and evaluate (if necessary) the chosen settings.
(l) Record the accounting entries for the sale of inventory items (including
discount) referring to the setup inventory integration/group screen (remember
VAT).
(m) Record the accounting entries for the purchase of inventory items (including
discounts) referring to the setup inventory integration/group screen (remember
VAT).
(n) Identify correct financial and report writer categories for income statement
and balance sheet general ledger accounts.
(o) Explain the difference between service and physical inventory items.
(p) List the characteristics of service and physical inventory items in Pastel.
                     
The answers can be obtained from your Pastel manual, the Pastel Help file, this
study unit or the myUnisa discussion forum. The answers to the Pastel manual
formative assessment questions are provided on the “Data files accompanying
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TO PI C 6 150
11 STU DY U NIT 17
21 Process transactions
22
1 Introduction
Organisations buy inventory and other expense items/services from their suppliers and
sell physical and/or service inventory items to their customers on cash or credit. The
organisation will receive and pay out money by means of EFTs, cash, cheques and so on.
All these normal day-to-day business transactions need to be captured in Pastel.
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151 St u d y u n i t 17
In the previous study unit, we learnt how to set up and customise individual customer and
supplier accounts, service and physical inventory items and general ledger accounts.
In this study unit on processing (Pastel manual, lessons 9 and 10), Pastel will use the
setup documentation data (Pastel manual, lesson 4). We will specify which customers and
inventory items or which suppliers and inventory items from the relevant master files to use
(we created the master file records in the Pastel manual, lessons 5 to 8) when processing
the various transactions, which will all be recorded in various transaction files. This study
unit comprises two Pastel manual lessons, namely lessons 9 and 10. In lesson 9, we will
learn how to process various customer, supplier, cashbook and journal transactions, and in
lesson 10, we will build on what we learnt in lesson 9 and process a few more transactions.
       
• Refer back to study unit 7, figure 7.3, and the accompanying explanation
to understand where we are in the overall transaction processing process.
• Review study unit 7, figure 7.2, on the conversion of transaction data into
information (computerised process).
• Review study unit 15, figure 15.1, on the sales process and figure 15.2 on
the purchase process (which you have completed).
NOTE:
Before we continue, make sure you understand the following:
• the difference between master files, transaction files and reference files
• the difference between batch input, online input, between batch processing and real-
time processing and between batch output and interactive output
• the difference between suppliers and customers
• the various source documents and how they fit into the sales and purchases processes
• the accounting entries created by the various source documents
2 Lesson 9A and 9B: Supplier and customer processing

In lesson 9A, we will learn how to process a purchase order, GRN and a supplier invoice.
We will also update batches and print some reports. In lesson 9B, we will process customer
transactions. However, we will first familiarise ourselves with the source document data
entry fields because the layout for the various Pastel source documents is similar.
Transactions can be entered by capturing the data on screens that look similar to the
source documents, or it can be entered directly into a journal. The benefit of capturing
the transaction into a source document is that it is more understandable for most data
capturers, less error prone and the AIS will take care of the debits and credits for you.
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TO PI C 6 152
2.1 Source document data entry fields: familiarisation
                    
• Click on Process – Suppliers and familiarise yourself with the screen layout.
• Click on the drop-down list for “Document Type” in the top left corner and
select the various supplier source documents one after another.
Note how similar the layout for the various source documents is in Pastel. This increases
the speed of data capturing and limits data capturing errors as far as possible. However,
make doubly sure when capturing a transaction that the correct source document is
used. Pastel uses different colours for the different source documents to make it easier to
differentiate between the various source documents.
Also note that in the processing of the various customer and supplier transactions, the
document/screen has been designed to limit typing. There are fields that use drop-down
boxes, fields that are automatically completed by Pastel from the setup information or
based on our drop-down selection and “zoom” boxes for looking up details. This again
increases speed and limits errors.
                     
• Click on Process – Customers and compare these customer documents
with the supplier documents you have just scrutinised.
• Click on the drop-down list for “Document Type” in the top left corner and
select the various customer source documents one after another.
There are many data entry fields for all (supplier and customer) source documents, but all
of them can be classified according to the following three main types of data:
• details relating to the party with whom the company is doing business (customer or
supplier)
• details relating to the particular transaction
• details relating to the inventory purchased/sold
There are also options and buttons displayed on each source document, which will not be
printed on the document, but there is to help with the display on the screen (for capturing
purposes) and special functions.
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153 St u d y u n i t 17
                     
• Choose any source document and classify all the data entry fields into one
of the three main types of data listed above.
• Play around in the “Demo” company. Process a purchase order and a sales
quotation without looking at the detailed guidance in the Pastel manual.
– Use your computer instinct.

– Click and follow the onscreen guidelines where provided.
– Click on the magnifying glass to access master file records.
– Click F1 for help when stuck.
– Think about where each data field comes from and where the data will
be used further on in the process.
2.2 Source document data entry fields: detail

Only certain document data entry fields will be highlighted here because the rest is
adequately explained in the Pastel manual.
(a) Data fields with details relating to the party with whom the organisation is do-
ing business (customer or supplier)
• Supplier/customer code
This is the primary field, which is unique and used by Pastel to look up the rest of
the details from the relevant master file. These master file details of the supplier
or customer are then displayed on screen (and printed later). This saves a lot of
time in capturing the transactions.
• Supplier/customer name
This is inserted by Pastel on the basis of the supplier/customer selected.
• Supplier/customer address
This is inserted by Pastel on the basis of the supplier/customer selected. (Note

how the displayed delivery address can still be modified. This is a fraud risk for
the organisation.)
• Supplier/customer shipping
This is inserted by Pastel on the basis of the supplier/customer selected.
(b) Data fields with details relating to the particular transaction
• Document number
This field is automatically inserted by Pastel in number sequence. The number

sequence of document numbers is vital for auditing purposes to ensure completeness
and validity.
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TO PI C 6 154
• Period
This the accounting period in which the transaction should be recorded. The periods
available in the drop-down list depend on the number of periods created during
setup. The period is linked to the date (or vice versa), depending on the setup (can
you remember where?). Accounting requires transactions to be recorded in the
correct accounting period. Be careful when selecting the accounting period
because incorrect accounting periods will give rise to incorrect monthly
financial information and may result in incorrect business decisions.
• Transaction date of the document
It is critical to process transactions on the correct date – not the date when the
transaction is captured, but the date risk was transferred! (See your accounting
notes for the theory on this.) Be careful when capturing transaction dates
because wrong dates for goods received notes may result in inventory
records being incorrect, and we will then not be able to sell the items as
required by the tasks in the Pastel manual. The words “Period” and “Date” are
related – that is, the transaction date entered must fall within the period selected. If
the “Period” and “Date” do not correspond, an error message – “WARNING! The
date you have entered is out of period” – will be displayed. Do not ignore this error
message because it will result in incorrect financial information. Correct either the
period or the transaction date, depending on which one is incorrect.
• Reference
When a document from outside the organisation is received, the document number
of that document will be entered as a reference so that the relevant document can
be found again where it was filed for auditing purposes. Examples of documents
received from outside the organisation are a purchase order from customers, a
quotation, a delivery note or sales invoice from suppliers. (It is imperative that you
know the difference between customers and suppliers and the documents they use.)
• Transaction discounts and terms
If specific discount or terms were specified during setup, these will now automatically
reflect here. We can always modify these for each individual document, provided
we allow for that in the setup. Refer back to where we set it up for the particular
documents, individual customers or suppliers and so forth. We can now see where
those setup details are going to be used and for what purpose.
• Latest action date
This date is for information purposes, to indicate to the customer or supplier when
the document expires or when the last date is for delivery or payment.
• Message box
Remember we could have included a default message for each source document
type during setup. We can still modify it here, or type a new message from scratch.
Take a moment to think about what would be appropriate messages for each
source document.
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155 St u d y u n i t 17
• Summary of total amounts
The total discount, tax and grand total for the whole document are situated in the
right bottom corner.
NOTE:
If the summary of total amounts does not print on the documents, return to study unit 15
and ensure your printer’s (virtual and physical) paper size is set to A4.
(c) Data fields with details relating to the inventory being purchased/sold
• Type and Code
The “Type” selected will result in the type of code available for selection under
“Code”. When we click on the zoom icon (magnifying glass) next to “4 Item Code”
a list of “types” we can select from becomes available. Depending on our selection
under “Type”, the zoom list available under “Code” will differ. We can set up the
“Type” (per individual user) that should by default be selected when opening a
specific customer/supplier document. This is specified on the specific document’s
“Setup Supplier/Customer Documents” screen under “Invoice Lines Default”. We
will use the “Item Code”, “GL Code” and “Remarks” types the most.
• Inventory/general ledger description
This is inserted by Pastel on the basis of the “Code” selected.
• Quantity
What will happen on a tax invoice if we type a quantity exceeding the quantity
on hand for the inventory item? Pastel will automatically warn us that there is
insufficient quantity on hand, but this warning will only appear if this control was
selected during the inventory setup. Pastel can also automatically warn us if
the “Quantity in stock has fallen below the reorder level”, but again, only if the
applicable control, in this instance, “Check Reorder Level When Processing”, was
selected during the Inventory setup. Refer back to study unit 15 if you are unsure
about the inventory setup.
• Price
Customers and suppliers are set up globally for prices to be captured, either
including or excluding VAT. On creation of the individual customer or supplier
accounts, however, this can be modified, and the price column displayed on a
document will be according to these settings. However, should we need to enter
the prices differently from the setup, we simply need to tick or untick the “Inclusive”
tick box in the top left corner before we start capturing the invoice lines.
Customer prices will automatically reflect the customer price list specified when
the customer was created. If we zoom on the customer price, it will display all the
prices available while still highlighting the price list linked to the particular customer.
The purchase prices displayed for suppliers will be the latest cost price at which the
organisation purchased the inventory item. (Note: It is strongly recommended
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TO PI C 6 156
that the purchase prices should already be captured in the purchase orders
because during the linking of goods received notes and invoices to the
previous source documents, the prices do not need be captured again and
the general ledger entries will thus be at the correct values.)
Overriding of the prices is possible, depending on the controls selected during

“Setup”.
NOTE:
Pastel takes any amount difference between the GRN and the supplier invoice to a
“purchase variance” general ledger account. The difference in amount may be caused by
price differences or trade discounts not reflected on the GRN.
This “purchase variance” general ledger account is included in the income statement under
the “Cost of Sales” report writer category – that is, the account forms part of cost of sales.
As you can remember from study unit 9, inventory must be valued against the lowest of cost
and net realisable value and that differences caused by price and/or trade discount should
be adjusted against the inventory value and not against the cost of sales. The recording
of price and trade discount differences in the “purchase variance” general ledger account
is therefore incorrect. However, we cannot simply change the “purchase variance” to a
balance sheet account because the difference is related to specific inventory items and
must be released when the specific inventory is sold. It is therefore necessary to ensure
that the prices and trade discounts captured on the GRN are as accurate as possible for
this will ensure that inventory is valued correctly.
• Tax
The display as inclusive or exclusive, the nondisplay of VAT and the VAT type on
the documents depend on the setup. Refer back to study unit 16 for information
on the setup of the VAT type per supplier/customer and inventory item.
• Nett (total) for transaction line
The nett total is simply quantity multiplied by price less any line (not invoice)
discount.
2.3 Source document options and buttons
• Link/Create button
Refer to the sales and purchases processes in study units 8 and 9. Note that certain
documents follow logically on documents used earlier in the process. In a manual AIS,
we would have had to rewrite everything, but in a computerised AIS we need to merely
“link” the current document to the earlier documents and all the line item details will be
brought forward to limit typing.
Pastel will automatically prompt us to link to the previous document. If, however, the
prompt dialogue box does not automatically appear, we can click on the link button to
link the documents.
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157 St u d y u n i t 17
It may happen that we have ordered a quantity of, say, 20 for a particular inventory item,
but the supplier delivers only 15. When we link, click on the inventory item received and
do not worry about the quantity brought forward from the linked document because we
will correct the quantity on the current document by simply typing over it.
• Inclusive tick box
Depending on the setup, the source documents for suppliers and customers will allow
us to enter prices either inclusive or exclusive of VAT. If the box is ticked, prices should
be entered VAT inclusive and if the tick box is unticked prices should be entered VAT
exclusive. If we suddenly need to change it while entering the document details, simply
tick or untick this tick box BEFORE entering the document lines (or else delete the lines
with the “Delete/Insert” button). Tick and untick this tick box and see how the price
column changes.
• Batch button
If batch processing is used, documents will be captured, but this will not reflect in
the reports or general ledger before it is updated. The batch button is used to update
batches. The batches for each type of document must be updated separately. (We
will learn later how to view all the outstanding/open batches and then jump to them to
update them.). During the setup of customer and supplier documents, we can select for
certain documents to either “Update on Completion of Document” (real-time processing)
or “Update in Batch Mode” (batch processing).
We can also print a list of all the transactions in the particular batch from the “Batch”
button, print documents that have not yet been printed in the past (outstanding) or print
documents again.
• Delete/Insert button
We can insert document lines and delete document lines, whole documents or even
the whole batch. Please use the delete function with great caution.
• Edit document button
Changes can be made to saved documents, but only if the batch has not yet been
updated. Once a batch has been updated, we will have to effect changes with debit
notes, credit notes and journals.
The edit document button affords the accountant/manager an opportunity to review

the data capturing of those reporting to him or her and making corrections where
necessary. Bear in mind that some documents are not subject to batch processing,
but are processed in real time. Hence editing of these documents will not be possible.
• Next document button and Close button (X)
These buttons will automatically save the document. However, they do not cancel the
document in case of a mistake.
NOTE:
Accuracy is critical in accounting. Hence when processing transactions, be careful and

accurate.
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TO PI C 6 158
2.4 Lesson 9A: Supplier processing
We will process the supplier transactions first, because the “PM” company is a new company
and we cannot start selling if we have not purchased any inventory yet.
NOTE:
If you should make mistakes somewhere during the practical exercises – simply continue
so that you can acquire the learning experience. If you want to do it over, then use the
“Restore” function in the “File” menu and restore the backup of the latest lesson that does
not contain an error.
                     
• Follow the step-by-step instructions in the Pastel manual, lesson 9A, taking
the guidelines provided in this study guide into consideration.
Remember to back up lesson 9A in a separate subfolder/directory named

“Lesson 9A”.
2.5 Lesson 9B: Customer processing
                    
• Follow the step-by-step instructions in the Pastel manual, lesson 9B, taking
the guidelines provided in this study guide into consideration.
Remember to back up lesson 9B in a separate subfolder/directory named

“Lesson 9B”.
2.6 Entering transactions directly into a journal

In the Pastel manual, lessons 9A and 9B, we entered the transaction into Pastel with a
screen that looked similar to the source document, such as a goods received note or a tax
invoice. From there, Pastel automatically entered the transaction details into a transaction
file (see study unit 7, fig 7.3). However, Pastel also allows transaction details to be entered
into Pastel with a screen that looks similar to a journal.
Sales transactions can be entered directly into Pastel through a customer sales journal
and purchases through a supplier purchases journal.
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159 St u d y u n i t 17
                    
• Click on Process – Journals and view the variety of journals available (click
on the + sign to expand the list of options).
• Select a few familiar journals and see how similar they look to the manual-
type journals you learnt about in accounting.
All these journals make the entry of transaction details easier by already setting up the
contra accounts and relevant column details, as well as whether the transaction should
debit or credit the specified accounts.
NOTE:
Just because the transaction was directly captured in the journal does not, even for a
second, mean that there is no source document. It is critical that there should be source
documents to preserve the audit trail.
The Pastel manual creates the impression that a cheque counterfoil and a bank statement
are part of your source documents. This is not the case!
All payments made should have supplier invoices or contracts to support the expenses
and prenumbered receipts should be issued for all payments received from customers.
If not, your auditor and/or SARS will be decidedly unhappy! In addition, this will create
numerous opportunities for fraud in the organisation.
3 Lesson 9C: Cash book processing

In this lesson, we will first familiarise ourselves with the cashbook data entry fields and
then process cash payment and cash receipts transactions.
3.1 Cash book data entry fields: familiarisation

The journals most often used for cash book transactions are the cash payment journal
and the cash receipt journal.
                     
– Click on Process – Cash Book and familiarise yourself with the screen
layout
– Alternate between the cash payment journal and the cash receipt journal
by clicking on the “Payments” and “Receipts” tabs alternatively.
• Play around in the “Demo” company. Process several cash payments and
cash receipts without looking at the detailed guidelines in the Pastel manual.
– Click and follow the on-screen guidelines where provided.
– Click on the magnifying glass to access master file records.
– Click F1 for help when you are stuck.
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TO PI C 6 160
• Think about where each data field comes from and where the data will be
used further on in the process.
When entering a transaction directly into a journal it is necessary to ensure that the
• correct journal is used

• correct bank account is used
• correct tab (payments/receipts) is used
• settings are correct
3.2 Cash book data entry fields: detail

Only certain data entry fields will be highlighted here because the rest is adequately
explained in the Pastel manual.
• Period and transaction date
Remember that “Period” and “Date” are related – that is, the transaction date entered
must fall within the period selected.
• GCS
The selection in this column will determine the selection available in the account field.
“G” is for general ledger account, “C” for customer and “S” for supplier. Why is the “C”
not available under the “Payments” tab and the “S” not available under the “Receipts”
tab? Because, generally, we do not pay customers and we do not receive money from
suppliers. Refer back to where we set up the entry types for the cash books (lesson 4)
and especially the “Account Access”. Note that for the cash book payment entry type,
“GL and Suppliers”, is selected, and for the cash book receipt entry type, “GL and
Customers“, is selected.
• Account
The drop-down lists of accounts available to select from for a transaction depends on
the GCS selection.
• Reference
We will type the unique number of the source document in here (for the audit trail).
Note that Pastel will combine all line items with the same reference number for bank
reconciliation purposes. This will enable us to split a transaction and book it to different
general ledger accounts to ensure that the classification audit objective is met, and this
will lead to better management control when analysing the information. For example,
the municipality account will be paid for with one cheque, but we may decide to split the
cheque and book the relevant parts to separate general ledger accounts for electricity,
water and rates. However, on the bank reconciliation screen, only one cheque number
with the total amount will appear.
• Description
This description will show in the detail cash book and general ledger printouts and
help us to remember what the expense/income was for. The more descriptive the
description is of the actual transaction, the better. If we later find that we rely a lot on
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161 St u d y u n i t 17
the descriptions to analyse expenses or income, it may be time to create additional
subaccounts or separate general ledger accounts.
• Bank amount/Bank inclusive and Bank exclusive
The settings will determine the columns available. If “Tax Processing” (under the settings
button) is not selected, then only “Bank Amount” will be displayed.
If “Tax Processing” is selected, then “Bank Exclusive” and “Bank Inclusive” will be
displayed. The settings will determine whether the amount will be entered including or
excluding VAT.
The amount actually paid (including VAT, if its was applicable) will be displayed on the
bank reconciliation.
• Tax
Refer back to study unit 15 (section 5.6). Your knowledge of VAT will be tested, especially
in the cash book.
• Discount
The amount of discount we allow our customers or we receive from our suppliers should
be calculated and entered here. This will make possible the successful open item
matching of payments/receipts with the respective purchases/sales. Although we enter
early payment terms for both customers and suppliers, Pastel does not automatically
calculate the amounts and enter them here. We need to manually calculate the discount
and enter the amount here.
3.3 Cash book options and buttons

• Cash book drop-down list box
Some companies have ten or more different bank accounts, but almost all have at
least one bank account and a petty cash account. Step 1 should always be to confirm
that the transactions are entered in the correct cash book, or else the transactions will
have to be retyped, or worse cancellation entries processed if the incorrect cash book
batch has already been updated.
• Batch-Type drop-down list box
We can create cash book batches and save them. At a later date, we can update them
(postdated batches) or copy and reuse the cash book transactions every month or as
needed (recurring batches), or simply type them in as needed for the current period
(normal batch).
Postdated batches are extremely useful if there is little time at month-end to finalise
accounting entries, and recurring batches save a lot of time for journals that repeat
every month (eg salaries, rent, etc). Recurring batches are never updated because we
will copy from them again and again into our normal batches.
• Delete button
This will delete the selected transaction line.
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TO PI C 6 162
• Match button
If the settings were not set up correctly to invoke open item processing, it can be
manually matched by clicking this button. The screen to match payments/receipts with
the respective purchases/sales will then open.
• Reconcile button
From an auditing perspective, it is recommended that this button is NEVER used!

Reconciliation should take place properly through the separate reconciliation function by
a different person from the one entering the cash book transactions (ie the segregation
of duties).
• Inc /Exc button
Although we can set the tax entry method as part of the cash book settings as either
including or excluding VAT, individual transactions may differ from this settings and if
we click this button it will allow the amounts to be entered differently from the general
settings chosen.
• Preview button
Every cash book and journal was created with the debit and credit accounts, as usually
required for this type of transaction, already set up. The double entry is taken to the
account specified as the contra account.
Click on the preview button to view the actual debits and credits because it will be
saved in the transaction file.
• Transfer button
Pastel has a complicated method of transferring money from one cash book to another.
The transfer button MUST be used when transferring money between different bank
accounts or if cash is drawn to use as petty cash, or else the transfer will not be visible
as part of the bank/petty cash reconciliation.
If the transfer button is not used, but the transaction recorded as a “payment” from
the one cashbook and a receipt into the other cash book, the transaction will have
been processed. Remember that the cash book transfer account is set during “Setup
– Company Parameters”.
• Update button
Remember, if we use batch processing, we will capture transactions, but these will
not reflect in the reports or general ledger before the batch is updated. Click the cash
book update button to update cash book batches. (We will learn later to view all the
outstanding/open batches and then jump to them in order to update them.)
• Batch button
Use this button to sort the cash book transactions, copy from recurring/postdated
batches into normal cash book batch, delete the whole batch or use the remittance
assistant.
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163 St u d y u n i t 17
• Settings button
Step 2 should always be to set the settings before entering cash book transactions.
Here we will set the processing options, the reference options and the tax processing.
These settings are the ones that will mostly be used when entering a transaction.
However, all the settings chosen can be changed during the entering of the transactions,
should the need arise, by simply overtyping or clicking the appropriate button.
3.4 Bank reconciliations

A bank reconciliation is one of the most important controls in a business. Bank reconciliations
can identify cash book transaction processing errors, fraud and theft, and even mistakes
by the bank.
Because banks make mistakes and fraudsters can obtain funds from a bank account, the
bank statement should not be used as a source document, except for bank interest and
bank charges. With a bank reconciliation, we will be simultaneously checking up on our
bank and our accounting personnel.
It is critical that the bank reconciliation should be done by a staff member who does not
capture the payment and/or receipt transactions in the accounting system. This explains
why we do not support using the “Reconcile” button on the cash book – the correct process
should be followed without using shortcuts.
The Pastel manual recommends that the cash book transactions should not be updated until
the bank reconciliation has been done. While this may work for a small organisation with
an accountant coming in at the end of every month to quickly capture the few transactions,
this is not recommended for any other organisation for the following reasons:
• Only updated transactions are reflected in the general ledger. We will therefore have
to wait for the bank reconciliation to be completed before drawing information from the
system and making decisions.
• We may have received payments from our customers during the month, but their accounts
will not be updated until the cash book has been updated. Their outstanding balance
could thus incorrectly reflect as exceeding their credit limit, and the organisation could
be losing out on some sales (and customer goodwill).
• The “Remittance Assistant” (as we will see in lesson 10) is a wonderful time saver to
make payments to suppliers. However, if we have not updated the cash book payments
made to them during the month, it will not work accurately and we may overpay the
suppliers.
• This encourages careless transaction capturing because any mistakes are simply
corrected with the bank reconciliation (then again assuming the bank statement is
100% correct, which is not always the case).
• This encourages the roles of capturer and reconciler to be performed by the same
person. Bank reconciliation is a control procedure and these roles should therefore
never be performed by the same person.
Even petty cash should be reconciled monthly – do a count of the cash in the petty cash
box and use that as the bank balance, then tick off all the recorded petty cash transactions
to make sure no cash is missing.
NOTE:
In the same way as the creditor of one organisation is always the debtor of another
organisation, the supplier of one organisation is always the customer of another organisation.
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TO PI C 6 164
If you do not understand this, as well as debits and credits, you will find bank statements
and bank reconciliations extremely confusing.
When the organisation owes money to the bank, the bank account will have a credit
balance in the organisation’s accounting records (a liability), but a debit balance on the
bank statement received from the bank (the organisation will be an asset for the bank).
By the same token, when the organisation has excess money in the bank, the bank account
will have a debit balance in the organisation’s accounting records (it is an asset), but a
credit balance on the bank statement received from the bank (the organisation will be a
liability for the bank).
Before you do a bank reconciliation, you must fully understand the principles above.
                     
• Click on Process – Bank Reconciliation and follow the instructions of the
Bank Reconciliation Assistant.
– Click and follow the onscreen guidelines where provided.
– Click F1 for help when you are stuck.
• Think about where each data field comes from and where the data will be
used further on in the process.
3.5 Lesson 9C: Cash book transactions
                    
• Follow the step-by-step instructions in the Pastel manual, lesson 9C, taking
the guidelines provided into consideration.
– Make sure you know and understand the various source documents
relating to cash books.
Remember to back up lesson 9C in a separate subfolder/directory named

“Lesson 9C”.
4 Lesson 9D: Journal processing

Lesson 9D is the last subsection of lesson 9. In this section, we will focus on the processing
of journals.
Note how similar the layout of the other journals and the cash book journals are. Each has
been slightly adjusted for the specific functions it is designed for.
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165 St u d y u n i t 17
Before processing any journal, draw the relevant T-accounts on a piece of paper, then
only process the journal in Pastel. Preview the journals before updating and make sure
the debit and credit entries agree with those of Pastel. If the entries disagree, the settings
(such as the contra account) may be incorrect, or the wrong type of journal has been used
or the debits and credits incorrectly specified. Your T-accounts could be incorrect.
                    
• Follow the step-by-step instructions in the Pastel manual, lesson 9D.
Remember to back up lesson 9D in a separate subfolder/directory named

“Lesson 9D”.
5 Lesson 10: Second month of trading

In this lesson, we are going to practise our transaction processing skills, learn to capture
some additional source documents and learn to use the Remittance Assistant.
      
• Refer back to figure 15.1 in study unit 15 on the sales process, and figure
15.2, on the purchase process, and see where the various documents fit
into the sales and purchasing processes.
Refer back to the guidelines provided in sections 2 and 3 of this study unit because they
will also apply when processing transactions in this lesson.
                    

“Lesson 10”.
6 Summary
In this study unit, we learnt to process the organisation’s day-to-day transactions. Lesson 9
covered some of the day-to-day customer and supplier transactions, cash book payments
and receipts transactions and journals. In lesson 10, we reviewed what we had learnt in
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TO PI C 6 166
lesson 9, as well as how to process more transactions in Pastel. In the next study unit, we
will learn how to retrieve information through the printing of various reports from Pastel. We
will also capture take-on balances for a newly created company on Pastel and learn how to
process a RD cheque and correct a misallocation of a payment received from a customer.
             
After working through this study unit, you should be able to:
of lessons 9 and 10.
(b) If presented with a screen print of any source document, journal or cash
book screen, explain and evaluate (if necessary) the chosen settings.
(c) Explain the various VAT concepts, requirements and types, choose the
correct VAT type and percentage for a given transaction, as well the effect
of these in the general ledger.
(d) Explain the various purchases, sales, cash book and journal processes,
including the associated debit and credit accounting entries.
(e) Explain and substantiate the types of input, processing and output used
by Pastel.
(f) Identify the appropriate source documents, cash books or journal to use
for transactions, as well as the settings.
(g) Identify the report and report settings used to obtain the required information.
(h) Explain what the Remittance Assistant can be used for and the benefits
and requirements for using it.
                     
You will find the answers in your Pastel manual, the Pastel Help file, this study
unit or on the myUnisa discussion forum. The answers to the Pastel manual
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167 St u d y u n i t 17
12 STU DY U NIT 18
23 Retrieve information and sundry processing
24
1 Introduction
In the previous study unit, we learnt to process the organisation’s day-to-day transactions.
These processed day-to-day transactions become information. Information retrieved from
the AIS is used for decision making and providing information to third parties such as
financial institutions. Pastel has a number of standard reports that can be viewed, and we
will examine some of these reports in the Pastel manual, lesson 11.
An existing organisation may require its previous financial year’s trial balance to be captured
on a new AIS, if the organisation, say, decides to upgrade to a higher-level AIS. The previous
year’s information will be captured in order to provide opening balances and comparative
figures. In the Pastel manual, lesson 12, we will learn how to take on these balances in
a newly created company. In lesson 12, we will also learn how to correct a customer’s
payment misallocation, and an RD cheque received.
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TO PI C 6 168
2 Lesson 11: the View menu
In this lesson, we are going to view various reports. While viewing the reports, think about
where the information displayed came from and what it can be used for.
                     
– Compare the details of your reports with those in the manual because
this will give you an indication of the accuracy of your setup actions and
your transaction capturing. If there are differences between your reports
and those in the manual – simply note the difference, consider where you
may have made mistakes (so as to not repeat them in future) and continue
with the exercises in the manual. The “PM” company does not count for
marks and will not be marked by your lecturers – you are required to do
a separate project (Assignment 02) that will be marked.
• Click on the “rerun” button and play around with the various report options.
• Experiment with printing to the virtual printer you have installed. Refer to
study unit 15 for step-by-step instructions how to print using a virtual printer.
3 Lesson 12: Sundry processing

In this lesson, we are going to correct misallocations (lesson 12A) and do a “take-on of
balances” (lesson 12B).
3.1 Lesson 12A: Correction of errors

Accuracy is always the best when it comes to accounting. The motto of every person
working in the accounting department should be “Do it right the first time!”
Errors increase the workload, create opportunities for fraud (and even more mistakes) and
may also create a confusing audit trail.
                      
• Refer to study unit 15, figures 15.1 (sales process) and 15.2 (purchase
process).
– Identify types of capturing errors and other mistakes that are likely to
occur in each of these processes.
– Name the source documents or journals you would use to correct the
various types of errors.
– Identify where you would enter these correction transactions in Pastel and
determine how this would affect the general ledger and the subsidiary
ledgers.
– Identify the reports that can be used to view the correction transactions.
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169 St u d y u n i t 18
                      
• Follow the step-by-step instructions in the Pastel manual, lesson 12A.
Remember to back up Lesson 12A in a separate subfolder/directory named

“Lesson 12A”!
3.2 Lesson 12A: Restoring/opening a company from a data disc

In order to complete section 3.3 in this study unit, we must restore the “TAKEON” company
from the “Data files accompanying the Pastel courseware”.
                      
• Follow the step-by-step instructions in the Pastel manual, lesson 12, “Restoring/
Opening a company from a data disc” to open the “TAKEON” company.
If the backup does not restore using the steps in the Pastel manual, you can also follow
the “Add-company” method. We can also use this method when restoring a backup file
on a different computer from the computer the company was originally created on (given
that Pastel is installed on this computer.)
NOTE:
To be able to follow the “Add-company” method you must have Winzip or 7-zip already
installed on your computer. If you do not have either of the programs installed, download
the free 7-zip software from the internet by visiting http://www.7-zip.org.
                      
“Add-company” method
• Note that “backup.zip” refers to your backup file’s name. Your backup file’s file
extension will be .zip, but the name of the file will be whatever your company
was named, for example, TAKEON11.zip.
Step 1: Open Windows Explorer.

Step 2: Click on the + next to MY COMPUTER.
Step 3: Select the drive the backup file is saved to (eg your flash disk or
the CD drive) and the folder on the drive with your backup file in
it.
Step 4: Click once on your backup FILE – this is the file with the .zip
extension.
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TO PI C 6 170
Step 5: Right click and select copy.
Step 6: Click on the + next to the Local drive.
Step 7: Select the Pastel folder. Depending on the Pastel version you are
using, the folder name will be similar to Pastel11.
Step 8: Right click and select Paste.
Step 9: Check and make sure you see your “backup.zip” file under the
Pastel folder.
Step 10: Click on the “backup.zip” file.
Step 11: Right click on the mouse.
Step 12: Click on the arrow next to WinZip or 7-Zip.
Step 13: Point to “Extract to folder C: ……….” .
Step 14: Write down the complete path from C:…….
Step 15: Select “Extract to folder C: ……….” – this will extract the files into
the path/folder above.
Step 16: Open the Pastel program.
Step 17: Click on “File – Open”.
Step 18: Click on “Add company”.
Step 19: Click on “Add company”.
Step 20: Select the path as written down in step 14.
Step 21: If selected correctly, the OK button will now be available to click
on.
Step 22: Click on “OK”.
Step 23: Click on “Close”.
Step 24: Select your company and open as usual.
3.3 Lesson 12B: Take-on balances

The majority of organisations are not new organisations starting from scratch, like the
“PM” company, but they will already have been operating for a number of years and want
to either computerise their records for the first time or convert from their previous AIS to
a new AIS (such as Pastel).
A take-on of balances is simply the process whereby the existing balances of the organisation
(as per the trial balance) are entered into the newly created, but still empty, company on
Pastel (or whatever new AIS will be used).
What type of balances will an existing organisation have to capture in the new AIS?
• equity accounts
• liability accounts
• asset accounts
• income and expense accounts (only if the take-on is during and not at the beginning a
financial year, or if we want comparative figures)
The newly created general ledger accounts as per the trial balance should reflect the
existing general ledger accounts, although this would be a perfect opportunity to make
some changes should we wish to.
According to the double-entry method, there has to be a debit for every credit. That is
why it is imperative that the organisation’s old/existing trial balance, which will be used to
create the new trial balance on Pastel, does in fact balance.
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171 St u d y u n i t 18
(a) General ledger accounts
       
• Reflect a moment on the type of journals and the accounts we could use to
bring the general ledger take-on balances into the company.
To bring the take-on balances into the company, we will use a general journal and a
suspense account as the contra account. As long as the total debits equal the total credits,
then the balance in the suspense account will still be zero and we will have a trial balance
that balances. Refer to figure 18.1 below:
FIGURE 18.1: Suspense account
(b) Subsidiary ledgers
Over and above the general ledger accounts, we must also take on the subsidiary
ledgers for customers, suppliers and inventory. The details per individual customer,
individual supplier and individual inventory item must therefore also be inserted into
the accounting records.
       
• Reflect a moment on the types of journals and the accounts we could use
to bring the individual customer, individual supplier and individual inventory
item take-on balances into the company.
We will use customer journals, supplier journals and inventory journals. The problem is
that we will be duplicating the balances for customers, suppliers and inventory if we bring
them in here, because we have already brought in the balances for the control accounts
with the general journal. To resolve this problem, we are going to use small (sub-) suspense
accounts – one for each category.
Firstly, we will use the general journal to create an initial balance (control account balance)
in the individual subsuspense accounts (we will still use the main suspense account as
the contra account to ensure the trial balance balances). Refer to accounting entries a, b
and c in figure 18.2.
We will then take the balance out again with the relevant customer, supplier or inventory
journal to the individual customer, supplier and inventory accounts leaving each subsuspense
account with a zero balance. If open item processing is used for suppliers and/or customers,
then it is necessary to capture each invoice separately and in the financial period it originated
in, because this will ensure that the open item ageing is correct and that the matching of
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TO PI C 6 172
future payments is possible. Refer to accounting entries d, e and f in figure 18.2. The figure
only shows the accounting entries for one customer, supplier and inventory item because
the principles will be the same for each of the remaining accounts and items.
FIGURE 18.2: Main and sub-suspense accounts
(c) Cash book
When viewing transactions in the cash book, Pastel only allows us to see transactions
entered via the cash book (this also results in the roundabout way in which transfers
between cash books have to be made). Hence, if we were to use the above methods,
everything would balance, but we will not be able to do a bank reconciliation for any of
our cash books because the opening balance of the bank was entered via a general
journal (refer above) and not via the cash book interface.
To solve this problem, we will use another subsuspense account and the cash book
to enter the opening bank balance. Refer to accounting entries g and h in figure 18.3.
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173 St u d y u n i t 18
This is similar to the process whereby we use a customer journal, supplier journal and
inventory journal to bring the individual customer, individual supplier and individual
inventory item balances into the accounting records.
NOTE:
As you will see later during the exercises in the Pastel manual, Pastel recommends using
only four suspense subaccounts. However, we recommend using five, with the additional
suspense subaccount to be used for all the company’s cash books, because it is much
clearer on what we are doing and it is much more consistent with the way in which we deal
with the take-on of customers, suppliers and inventory. The more cash books a company
has (this includes petty cash), the more important it will be to use an additional separate
suspense subaccount for cash books during the take-on of balances.
Thus everything seems set for the bank reconciliation(s), but bank reconciliations may
have outstanding cheques and receipts from the previous period. These payment
and receipt transactions will obviously not reflect in the current period on the new AIS
because they were taken into account with the opening balance of the bank account.
So we have another problem – how to capture these cheques and receipts through
the cash book (so that each outstanding transaction is visible when doing the bank
reconciliation), but without affecting the opening bank/cash book balance.
Think again about the double-entry method in accounting – if we debit everything

that we credit, there will be no impact on the balance. We will have to do this debit
and credit through the cash book so that it is visible in Pastel. Refer to accounting
entries i, j and k in figure 18.3. The figure only shows the accounting entries for one
bank account because the principles will be the same for the remaining bank account
and petty cash.
FIGURE 18.3: Cash book subsuspense account and outstanding cheques and deposits
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TO PI C 6 174
(d) Take-on balances: step by step
The steps to follow during the take-on of balances are set out below:
Step1: Ensure that the old trial balance balances and the subsidiary ledgers
agree with this trial balance.
Step 2: Create the new company on Pastel (using one of the three methods
available).
Step 3: Ensure that the trial balance accounts in Pastel exist and that the
descriptions are correct (if not, edit the general ledger accounts).
Step 4: Create the customer accounts, supplier accounts and inventory accounts
for the organisation’s existing customers, suppliers and inventory items.
Step 5: Create the four (or five) subaccounts of the Opening Balances suspense
account.
Step 6: Make a “before take-on” backup.
Step 7: Trial balance balances

• Capture and update the take-on for the trial balance balances into the new company’s
general journal (using all the relevant subaccounts of the Opening Balances
suspense account for bank, customers, suppliers and inventory).
• View the trial balance report to ensure the trial balance balances were correctly
captured.
• Make an “after trial balance take-on” backup.
Step 8: Customer balances

• Capture and update the take-on for the customer balances into the new company’s
customer journal (using the customer subaccount of the Opening Balances
suspense account as the contra account).
• View the customer age analysis report and the customer detailed ledger report
to ensure that the customer balances were correctly captured.
• Make an “after customer take-on” backup.
Step 9: Supplier balances

• Capture and update the take-on for the supplier balances into the new company’s
supplier journal (using the supplier subaccount of the Opening Balances suspense
account as the contra account).
• View the supplier age analysis report and the supplier detailed ledger report to
ensure that the supplier balances were correctly captured.
• Make an “after supplier take-on” backup.
Step 10: Inventory balances

• Capture and update the take-on for the inventory balances into the new company’s
inventory journal (using the inventory subaccount of the Opening Balances suspense
account as the contra account).
• View the inventory valuation report to ensure the inventory balances were correctly
captured.
• Make an “after inventory take-on” backup.
Step 11: Cash book balances

• Capture and update the take-on for the cash book balances into the new company’s
relevant payment OR receipt cash books (using the general ledger subaccount of
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175 St u d y u n i t 18
the Opening Balances suspense account as the contra account, but preferably
the cash book subaccount of the Opening Balances suspense account).
• View the cash book details report to ensure the cash book balances were correctly
captured.
• Make an “after cash book take-on” backup.
Step 12: Bank reconciliation

• Capture and update the outstanding cheques and receipts into the new company’s
relevant payment OR receipt cash books (using the bank account itself as the
contra account).
• View the cash book details report to ensure the outstanding cheques and receipts
were correctly captured and that the closing bank balance is still the same as per
the take-on trial balance.
• Reconcile the bank opening balance and update the bank reconciliation.
• View the bank reconciliation report to ensure that the outstanding cheques and
receipts were correctly captured.
• Make an “after bank reconciliation take-on” backup.
NOTE:
The principles for the take-on of balances are critical – you must therefore have an in-
depth knowledge of them.
                      
• Open the “TAKEON” company.
• Follow the step-by-step instructions in the Pastel manual, lesson 12B,
while comparing them with the steps listed on the previous page.
• Make sure you understand how the take-on of balances works (both
theoretically and practically).
• In fact, it is strongly recommended that you unzip “TAKEON” company again
and name it something else like TAKE2. Then do the take-on section in
the Pastel manual a second time (while reflecting on the why and how and
accounting behind the take-on of balances).
4 Summary
In this study unit, we used the Pastel “View” menu to retrieve standard Pastel reports (lesson
11). We also learnt to take on a new Pastel company’s existing trial balance (lesson 12).
This was the last study unit in topic 6. Congratulations on finishing working through the
Pastel manual! We hope you have enjoyed learning about Pastel and that you will be able
to apply everything you have learnt in the workplace.
In the next topic, we highlight the importance of access to valuable information. We will
also look at management information systems, business intelligence software and new
sources of technology such as XBRL.
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TO PI C 3 176
             
questions:
of lessons 11 and 12.
(b) If presented with a screen print of any report setup screen, explain and
evaluate (if necessary) the chosen settings.
(c) Identify the report and report settings you would use to obtain the required
information?
(d) Determine the appropriate correction for various errors in the accounting
records.
(e) Explain the methodology and reasons behind the take-on of balances
procedures.
(f) List and explain the steps for the take-on of balances.
                    
The answers can be obtained in your Pastel manual, the Pastel Help file, this
study unit or on the myUnisa discussion forum. The answers to the Pastel manual
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177 St u d y u n i t 18
PA R T 4
Management reporting systems


reporting
infrastructure
5 Accounting
information
system
applications
6 Pastel Partner
accounting
information
system
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179 PAR T 4
TOPIC 7
Management reporting systems
– describe the characteristics of valuable information

– demonstrate the characteristics of valuable information in a given case study
– describe a management information system (MIS)
– list the main characteristics of an MIS
– identify how an MIS can be applied in a business scenario
– describe MIS inputs and outputs
– describe business intelligence software (BIS)
– describe the working of Extensible business Reporting Language (XBRL) and the role
it plays in South Africa
– list the advantages and disadvantages of XBRL

Topic
7 Management reporting systems
SU 19: The value of information in the decision-making
process
SU 20: Extensible Business Reporting Language
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181 TO PI C 7
13 STU DY U NIT 19
The value of information in the

25
decision-making process
26
1 Introduction
In topic 2, you learnt about business applications in the form of spreadsheets, and in topic
6, about transaction processing using Pastel Partner. You spent time converting your
theoretical knowledge into practical skills by sitting in front of a computer and practising
your newly acquired knowledge. You have probably noticed that the purpose of these skills
is ultimately to record and retrieve information, specifically financial information through the
transaction processing system (TPS) which includes the accounting information system
(AIS).
Information no longer only assists the decision-making process, but also enables it.
Decisions are made after carefully considering all the information available at a certain
point in time. If the information is inaccurate or unavailable, the decisions made may
have a negative impact on strategic planning, business operations and financial results.
In some instances, management require information beyond that provided by the TPS in
order to make an informed decision. This information can be provided by the management
information system (MIS) and business intelligence software (BIS).
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TO PI C 7 182
The first part of this study unit will explain why information will only add value to the
decision-making process if it meets certain criteria, and will refresh your memory on the
characteristics of valuable information. The second part of this study unit will introduce
you to an MIS by briefly defining the concept, while the third part will describe its purpose.
The fourth part will discuss how MIS can be applied as a business tool in typical functional
subsystems of an organisation. The fifth part of the study unit will examine the inputs and
outputs associated with an MIS, and the study unit will conclude with a brief explanation
of BIS.
2 Characteristics of valuable information

Even the most effective decision makers in an organisation do not add value if the requested
information is supplied after the decision has been made or if the reports generated are
full of errors. Reports therefore need to be timely and accurate.
The International Financial Reporting Standards (IFRS) require financial statements to be

understandable, reliable, relevant and comparable. This is impossible without valuable
information.
You will remember the characteristics of valuable information, which were dealt with in
the first-year AIN1501 module.
This section will not only refresh your memory, but also make you aware of the fact that
the time and money invested in an MIS and an AIS will be of no value if the information
produced does not possess the characteristics below. If the data entered into the accounting
information system does not meet the criteria below, the information that is generated will
also be worth almost nothing. This is known as the “garbage-in-garbage-out principle“.
Information is considered valuable in making sound decisions when it meets the following
criteria:
Characteristic Explanation
Accurate Information should be without any errors. Inaccurate data used in
the decision-making process will provide inaccurate information.
The use of controls (eg the review of information), will ensure
accurate information.
Complete Complete information contains all the important facts. If vital
information is excluded, management could end up making the
wrong decision.
Simple Information should include all the important facts, but not too much
detail. Users should not waste time on unnecessary detail. The
information should be presented in the format required by the user.
Economical The benefit of obtaining information should always outweigh the
cost of producing the information.
Flexible Information must be flexible enough to be adapted to meet the
unique needs of different users.
Relevant Facts should be relevant and meaningful to users in making
decisions. If this is not the case, users may become confused or
their time could be wasted.
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183 St u d y u n i t 19
Reliable Decision makers must be able to depend on the source. The
method used to collect the information should be reliable. Users
cannot rely on information generated from an unreliable data
source.
Secure Information should be protected from unauthorised access.
Timely Information must be available when users need it. Information that is
delivered too late is meaningless. Current events and transactions
should be taken into account when presenting information because
outdated information may no longer be relevant to the decision
being made.
Verifiable Information is verifiable if it can be traced and agreed to various
sources.
       
(a) Think of the consequences if the Unisa study material and tutorial matter
delivered (communicated) to you does not possess the characteristics of
valuable information. Consider, for example, the communication regarding
your examination timetable.
(b) Describe the possible consequences for a shareholder who buys shares
in a listed company after studying the financial statements. He or she was
unaware that the financial statements had been based on incomplete,
unverifiable information.
(c) Consider the consequences if a spreadsheet-generated report on which a
major capital budgeting decision will be based contains all sorts of errors.
3 Introduction to management information systems
The transaction processing system (TPS) is a subsystem of the overall information system
and uses computer technology to provide information for decision-making purposes.
However, in some instances, management may require additional information to make
well-informed decisions and to achieve their goals, especially in a growing business where
some areas may become more specialised.
The management information system (MIS) serves to fulfil this purpose. The MIS
can provide both financial and nonfinancial information to users, according to
their needs, by extracting information from the appropriate TPS, including the
accounting information system (AIS).
Bear in mind that some AISs are so advanced that the required reports are already
available from the AIS.
The main aim of an MIS is to provide the valuable information in a usable format, to the
relevant person at the right time. However, the TPS provides lower-level management
and clerical personnel with information to make structured decisions at operational level,
whereas the focus of an MIS is to provide support at a tactical level to help make structured
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TO PI C 7 184
and slightly unstructured decisions. The BIS is an instrument used by management at a
strategic level to make unstructured strategic decisions.
Refer to the diagram below to help you put this study unit into perspective:
FIGURE 19.1: MIS and BIS in context
4 Purpose of an MIS
The purpose of an MIS is to generate both financial and nonfinancial reports about
operational activities.
An MIS has the ability to provide user-friendly reports by
• generating reports in hard copy (a physical printout) or soft copy (a virtual printout)
• generating standard and/or tailored reports
• integrating financial and nonfinancial information from various internal and external
sources into a single report
5 Applying an MIS in business scenarios

An MIS can be applied in various business scenarios to add value in the decision-making
process. An MIS can be divided into subsystems, based on certain functions performed
to produce reports to meet the specific needs of these functional areas (eg financial,
marketing, human resources [HR] or manufacturing). The purpose of these MIS subsystems
is primarily to generate reports to assist with the unique information needs of every function
(eg the reports generated by the financial MIS subsystem will be utilised by the financial
manager, whereas the HR MIS reports will be used by the HR manager). The various
functional managers will typically not have access to reports other than those relating to
their specific functional area. However, these subsystems may overlap.
The functional MIS subsystems include the following:
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185 St u d y u n i t 19
(a) Financial MIS
A financial MIS integrates financial and operational information from various sources
into one system. The financial MIS ensures easy and quick access to all relevant
users. As we have already mentioned, the required information may sometimes
already be available from the AIS.
Examples of uses for financial MIS reports include
– payment summaries
– budget and capital budget setting and control
– comparison and analysis of historical and current financial information
– summaries of cash-flow information
– reporting on exceptions and deviations
(b) Manufacturing MIS
The manufacturing MIS provides information to meet the needs of the manufacturing
function, by monitoring and controlling the flow of materials, products and services
through the organisation.
Examples of uses of manufacturing MIS reports include
– inventory information (eg cost allocation)

– warehouse management (eg delivery and production scheduling)
– throughput rates
– order backlogs
– bottlenecks
(c) Marketing MIS
A marketing MIS supports management in the development of new products and

marketing campaigns, price setting and sales forecasting. You will recall learning
about customer relationship management (CRM) in your AIN1501 studies. A CRM is
an apt example of a marketing MIS.
Examples of applications include
– market analysis and research

– promotional strategies
– pricing decisions
– development of new products
– sales information (eg analysis per product or branch or commission summaries)
(d) HR MIS
HR MIS involves all activities relating to the employees and potential employees of the
organisation. The HR MIS does not only focus on reducing cost, but also endeavours
to develop employees to their full potential and to empower them to contribute to the
achievement of organisational goals.
Examples of uses for HR MIS reports include
– absence management
– HR allocation
– payroll administration
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TO PI C 7 186
– selection and recruitment processes
– employee benefit administration
– training and skills tracking
6 MIS inputs
In order for an MIS to be able to function and provide valuable information for decisions, it
needs data input. Data is mainly obtained from internal sources, but can also be obtained
from external sources. Refer back to study unit 1 about the computerised information
system process.
(a) Internal sources include the organisation’s TPS, enterprise resource planning sys-
tem, strategic planning, databases and data warehouse. In certain instances where
the organisation requires specialised data, the data will be sourced from specific
functional areas in the organisation.
(b) External sources refer to all data not already recorded in the organisation. Examples
of external sources include supplier and customer feedback, information on competi-
tors, publicly available information and census data.
After all the required data has been gathered from the relevant sources, the MIS will
convert it into useful information, known as outputs, based on management’s parameters
and report requirements.
7 MIS outputs
In section 5, we indicated the uses of MIS reports in various business scenarios. These
applications are possible because the MIS converts data collected from internal and
external sources into various reports disseminated to management.
The following types of output are generated by the MIS:
(a) Scheduled reports
Scheduled reports are generated at scheduled points in time, say, daily, weekly or
monthly. An example of a scheduled report is the key indicator report which is produced
daily. This report provides feedback on the previous day’s most important activities
such as inventory levels, sales volumes and production activity.
(b) Demand reports
A demand report is produced at the specific request of a user. An example would

be a report of a specific employee’s sick leave being generated when management
suspect that the employee is absent from work too often.
(c) Exception reports
Exception reports highlight unusual situations that require investigation. Bear in

mind that an exception report is generated automatically by the MIS when specified
parameters are exceeded. An example of the generation of an exception report would
be an unauthorised staff member attempting to process a journal.
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187 St u d y u n i t 19
(d) Drill-down reports
The purpose of a drill-down report is to provide increasingly detailed data on a matter.

Information can first be analysed at a strategic level (such as inventory levels for
the company as a whole), then at a more detailed level (such as the inventory levels
per region) and then at a highly detailed level (such as the inventory levels per branch).
If even more detail is required, it is possible to drill down into information about every
individual inventory item as well.
8 Business intelligence software

Refer back to AIN1501 to refresh your memory on decision support systems.
The terms “business intelligence software” (BIS) and “management information system”
(MIS) are sometimes used interchangeably. There is, however, a slight difference between
the two concepts, as explained below.
The MIS supports the unique information needs of every functional area. The manager of
every functional area only has access to the information pertaining to his or her area of
responsibility. For top management this is not sufficient. Top management require a look
at the bigger picture to make strategic decisions, which will have impact on the route the
organisation will follow in the long run.
BIS serves this purpose. Special software combines information obtained from a
data warehouse (cube structure), from all functional areas in the organisation and
external sources to a lesser extent to generate reports required by top management.
This software can provide a “dashboard”, which gives access to all the required
reports. The dashboard can be located on computer’s desktop to give management
access to the information with the click of a button. A dashboard used by top
management is based on the BIS and provides management with an overall picture
of the organisation’s activities at a glance. The manager of a functional area
can also utilise the dashboard function, but he or she will only have access to the
information unique to the functional area, based on the relevant MIS.
Refer back to study unit 2 to refresh your memory on data warehouses.
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TO PI C 7 188
Pastel also provides this application in the form of the business intelligence centre (BIC). The
BIC automatically converts Pastel information to Excel reports in predefined or customised
templates. Figure 19.2 is an example of a Pastel dashboard:
FIGURE 19.2: Example of a dashboard
                     
Visit the following links for more examples of dashboards:
(a) http://www-01.ibm.com/software/analytics/cognos/business-intelligence/
dashboarding.html
(b) http://www.sisense.com/sample-dashboards.aspx
9 Summary
In this study unit, we examined the characteristics of valuable information. We also
indicated that information provided by traditional information systems alone is sometimes
not sufficient to meet the needs of management in terms of decision making. We explained
that this need can be met in the form of an MIS. The study unit included a description of
the characteristics of an MIS, applications of MIS in business scenarios and the inputs and
outputs of an MIS. The study unit concluded with a brief explanation of a BIS.
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189 St u d y u n i t 20
In the next study unit, we will examine how Extensible Business Reporting language (XBRL)
can enhance management reporting even further.
             
questions:
(a) Briefly explain the importance of valuable information.

(b) List the characteristics of valuable information.
(c) Briefly define an MIS.
(d) List the characteristics of an MIS.
(e) Identify and explain the inputs to an MIS.
(f) Differentiate between various MIS output reports
(g) Explain the difference between MIS and BIS.
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TO PI C 7 190
14 STU DY U NIT 20
27 Extensible business reporting language
1 Introduction
In study unit 19 we have looked at the characteristics of valuable information and how
management information systems (MISs) can be utilised to ensure valuable information
is obtained for decision making and reporting.
One of the main concerns about reporting is comparability. An apt example would be to
consider various pension funds and the differences in the method of reporting – for example,
one fund may use the term “gain”, whereas another fund may use the term “benefit”, both
of which refer to the same concept. You can clearly see how problematic this can be when
attempting to compare financial statements or reports in order to make important decisions.
Extensible Business Reporting Language (XBRL) has been developed to solve this problem.
In this study unit, we will explore XBRL as a way to further enhance management reporting
and decision-making.
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191 St u d y u n i t 20
The first part of the study unit will briefly introduce you to XBRL, which will be the focus of
the remainder of the study unit. We will explain how XBRL works, the role it plays in South
Africa and the advantages and disadvantages associated with XBRL.
2 Introduction to XBRL
Technology is developing at a rapid pace, including the technology relating to financial
reporting. Businesses have two alternatives in dealing with all the new developments, that
is, be intimidated or overwhelmed by all the new ways to do financial reporting, or jump
at the opportunity to use these new sources of technology to enhance financial reporting.
Both alternatives have associated risks.
Both XML and XBRL are examples of new technologies. It is important to understand what
is meant when referring to XML. XML stands for Extensible Markup Language and as in
the case of Hyper Text Markup Language (HTML), it is also a markup language. However,
XML was designed to carry information in a simple, general and usable format over the
internet, instead of displaying data. XML is self-descriptive and the user has to define tags.
              
A markup language is associated with the formatting of text files using specific
codes called tags to process, define and present text. HTML is a frequently
used markup language.
XBRL stands for Extensible Business Reporting Language and is used when
financial information is exchanged in XML format. Instead of defining the tags,
XBRL refers to standard XML tags to describe financial information. XBRL can
broadly be defined as the electronic communication of financial and business
information to all stakeholders.
3 The working of XBRL explained

The following extract is from an article that appeared in AccountancySA in June 2011:
With the ever-increasing need for transparency when it comes to financial reporting
due to various laws and regulations, as well as the demand from stakeholders for more
information in a timely fashion, the last mile of reporting, in other words generating the
annual report, has become fraught with challenges. As a result of these needs, XBRL
was created to drive an open, global standard for business reporting and exchanging
business information (Annandale 2011:28 & 29).
Financial information, like financial statements, is usually presented in the form of a block
of text in a standard HTML internet page, spreadsheet or portable document format (PDF).
One organisation may refer to sales as “revenue”, whereas another may use the term
“turnover”. Sales may be on different pages in the organisation’s financial statements,
making it difficult to extract information for comparative purposes. If a standard code/tag
is attached to the information by all organisations, a software program can automatically
extract, consolidate and compare information. XBRL allocates an identifying tag (also known
as an element) to each individual item of data, making it understandable to computers.
These tags contain all the information about the item which is required for comparative
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TO PI C 7 192
purposes, including the description (eg retained earnings, its monetary value and currency
and whether the amount is a debit or credit).
                  
<Asset>1000</Asset> – the word “Asset” together with the brackets < and > is
called a tag; there are opening tags: <…> and closing tags: </…>.
Although XBRL refers to a standard set of tags, organisations are not limited to these tags.
XBRL is extensible and organisations can create their own elements known as extensions,
which can be used in exceptional reporting cases. A collection of these tags or elements
is known as a taxonomy.
Organisations can download the standard tags (called taxonomies) from websites such as
that of XBRL International and those of standard-setting bodies. In South Africa, you can
read more about taxonomies on the websites of XBRL South Africa as well as the South
African Institute of Chartered Accountants (SAICA).
Bear in mind that XBRL is not an accounting standard. IFRS and the applicable GAAP
should still be adhered to, it is only the tagging of the information that is now different.
4 The role of XBRL in South Africa

Globally, XBRL International oversees the use of XBRL in different countries through
country “jurisdictions”.
XBRL in South Africa is regulated by a not-for-profit company, called XBRL South Africa.
XBRL South Africa promotes the use of XBRL in South Africa in conjunction with the
South African Institute for Chartered Accountants (SAICA), which is responsible for the
administrative matters.
XBRL South Africa identifies specific reporting needs in South Africa and creates taxonomies
accordingly, such as JSE listing requirements, company secretary statement and directors’
reports. The training and education of users and potential users also form part of XBRL
South Africa’s objectives and functions.
5 Advantages of XBRL
The business world has been revolutionised by XBRL in terms of financial reporting and
advantages include the following:
Advantage Explanation
Increase in accuracy of Computers can identify XBRL identification tags, and
reporting employees therefore no longer need to manually recapture
data in software applications like Excel or Pastel, say, for
consolidation or comparison purposes. Using XBRL saves
a lot of labour time and costs and ensures more accurate
information.
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193 St u d y u n i t 20
Meeting IFRS XBRL has been designed in such a way that specifications
requirements meet the requirements of US GAAP and IFRS. Users of
the financial statements can therefore rest assured that the
published financial statements comply with IFRS.
Cost and time efficient XBRL is more accurate and quicker to audit than reporting
in HyperText Markup Language (HTML), spreadsheets or
Portable Document Format (PDF), resulting in savings in
auditing costs. XBRL further allows for automated machine-
to-machine communication, which enables accountants,
auditors, data capturers and stock exchanges to access
the data and work with it more quickly, leaving more time
for data analysis.. All these cost and time savings add up,
leading to an increase in shareholder wealth.
Crossing the language Different reporting languages are no longer a challenge
barrier because tags are allocated to numbers, making
the comparison of financial results much easier.
Data analysis Data received via XBRL can be validated and analysed
by using specific software. This analysis will highlight risk
and problem areas that accountants and auditors can
focus on. Financial institutions will also be able to use this
analysis in the case of loan applications. Financial records
will be accessed more quickly and accurately, resulting in
a decrease in the granting of loans to high-risk borrowers.
Source: www.slideshare.net and www.ehow.com
6 Disadvantages of XBRL
Even though XBRL sounds like the solution to all financial reporting problems, we need
to take the following disadvantages into account:
Disadvantage Explanation
Inexperienced users Since XBRL is still a fairly new concept, not all users or
accountants are familiar with it yet, resulting in many errors.
These errors may result in a decrease in investor confidence,
which may lead to management deciding to outsource the
XBRL function. This, in turn, leads to unnecessary costs.
Security XBRL data is available all the time, creating great potential
for security breaches. Security measures need to be
implemented to ensure integrity of information at all times.
Cost The initial cost of tagging XBRL data is high because it
requires high labour input, and organisations may find it
difficult to justify the initial capital outlay.
Unauthorised access/ Information is transferred to and from different financial
alterations information systems electronically on a regular basis,
resulting in the risk that data may be lost, altered or stolen.
Compatibility A concern at this stage is that not all TPSs can export to
XBRL.
Source: www.slideshare.net and www.ehow.com
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TO PI C 7 194
                     
Visit the links below for valuable information on XBRL:
(a) XBRL South Africa: http://www2.xbrl.org/za/

(b) South African Institute of Chartered Accountants: https://www.saica.
co.za/TechnicalInformation/CorporateReporting/XBRL/tabid/645/language/
en-ZA/Default.aspx
(c) http://w w w.ehow.com/list _ 5843829_disadvantages-using-xbrl.
html#ixzz1YP9bMwDk
(d) h t t p : / / w w w. e h o w. c o m / a b o u t _ 5 0 6 6 2 8 5 _ a d v a n t a g e s - x b r l .
html#ixzz1YP8I9oRW
(e) Example of XBRL documents: http://media.corporate-ir.net/media_files/
irol/76/76540/xbrl/2011/trito-20110930.xml
7 Summary
This study unit explored XBRL, which has the potential to add value in the reporting process.
We focused on XBRL because it is currently the most revolutionary concept in reporting
to assist with the comparability of financial statements and reports. We briefly defined
XBRL, explained how it works and the role it is playing in South Africa. We concluded by
examining the advantages and disadvantages of XBRL.
            
questions:
(a) Differentiate between XML and XBRL.

(b) Explain the role of XBRL in South Africa.
(c) List and explain the advantages of XBRL.
(d) List and explain the disadvantages of XBRL.
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195 St u d y u n i t 20
B I B L I O G R APH Y
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197 A I N26 01/1
K E Y T ER M LI S T
KEY TERM LIST
KEY TERM / CONCEPT DEFINITION / EXPLANATION

ACCOUNTING INFORMATION An AIS collects an organisation’s day-to-day financial and
SYSTEM (AIS) nonfinancial transactions, processes them into valuable
financial information and stores and retrieves the data and
financial information
AIS AUDIT TRAIL An AIS audit trail tracks user activity on the AIS by recording
the user name and access date and time as well as the actions
performed by that user
APPLICATION Application programmers are responsible for creating,
PROGRAMMERS maintaining, updating and managing the application and DBMS
software which the end-users use to interact with the physical
database
ATTRIBUTE An attribute, commonly known as a column, represents one
unique characteristic of a single database table.
BATCH INPUT Batch input involves similar source documents being grouped
together (batch) and then entered in the CIS periodically, say,
daily, weekly or monthly.
BATCH OUTPUT Batch output occurs when all requests for information (ie reports,
queries, etc) are batched together and periodically extracted
from the CIS.
BATCH PROCESSING Batch processing occurs when transaction files (containing the
captured data) are updated to the master files periodically, that
is, daily, weekly or monthly.
BILL OF MATERIALS (BOM) The bill of materials (BOM) specifies, for each finished goods
inventory item, the type and quantities of raw materials needed
in the manufacturing.
BUSINESS INTELLIGENCE Business intelligence software (BIS) is special software that
SOFTWARE (BIS) combines information obtained from a data warehouse (cube
structure), from all functional areas in the organisation and
external sources to a lesser extent to generate reports required
by top management.
BIS DASHBOARD BIS can provide a “dashboard”, which gives access to all the
required reports. The dashboard can be located on the computer’s
desktop to give management access to the information with the
click of a button.
CENTRALISED DATABASE When using a centralised database, the database is physically
stored in one central location (ie it is on one server).
CHART OF ACCOUNTS (COA) A CoA is a list of accounts used in the organisation’s general
ledger.
CLASSIFYING DATA Data is arranged into different groups (categories) using some
of the data’s specific characteristics
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198
Ke y te r m lis t
COMPUTER-AIDED CAM controls and coordinates all the machines used in the
MANUFACTURING (CAM) manufacturing process such as conveyor systems, cutting or
welding machines and so forth
COMPUTER-INTEGRATED CIM is the automation and integration of the complete
MANUFACTURING (CIM) manufacturing process by using computers to control and/
or execute the process from product design right through
manufacturing, to quality control, storage of raw materials, WIP
and finished goods, and ultimately, the shipment of the finished
products.
CONCEPTUAL LEVEL The conceptual level is a complete view of the entire database,
that is, a view of all the data from which the user views can be
derived.
DATA ADMINISTRATOR The data administrator, also called a database analyst, is
responsible for managing and controlling the data in the
organisation’s databases.
DATA CONTROL LANGUAGE DCL controls the security and user access to the database objects
(DCL) and data in the database.
DATA DEFINITION LANGUAGE DDL is used to define a database and includes commands to (1)
(DDL) create, modify and delete the database and database objects, (2)
define and describe the data structure of the database according
to the database model used, and (3) create the data dictionary.
DATA DICTIONARY The data dictionary contains a record for each data field in the
database and this record gives a detailed description of that
data field.
DATA FIELD A data field contains a single data value and is the smallest unit
of data that can be accessed in a database.
DATA MANIPULATION DML is used in the routine operation of the database to insert,
LANGUAGE (DML) delete, modify and maintain the data stored in the database.
DATA MART A data mart is a smaller data warehouse extracted from the main
data warehouse and contains specific related data extracted
for a specific organisational user group such as the finance
department or the marketing department.
DATA MINING Data mining software is used to analyse data sets in order to
uncover previously unknown trends, patterns and relationships
between data.
DATA MODEL Databases can be classified according to the theoretical data
structure, referred to as a data model, on which it is based.
DATA QUERY LANGUAGE Data query language is used to retrieve data from the database.
DATA RECORD A data record is a set of logically related data fields about a single
member or item.
DATA VALUE A data value is a character (a single number, letter or special

character) or a group of related characters used to populate the
data field.
DATA WAREHOUSE A data warehouse is a database populated with current and
historical data extracted from the organisation’s various databases.
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199 A I N26 01/1
K E Y T ER M LI S T
DATABASE A database can be defined as an organised collection of related

data that is managed and stored electronically and can provide
data to different application software in the organisation.
DATABASE ADMINISTRATOR The database administrator is responsible for managing and
controlling the organisation’s databases.
DATABASE ENVIRONMENT The database environment consists of three components,

namely the users of the database, database management
systems (DBMS) and the physical database, which includes both
the hardware it runs on and the data in the physical database.
DATABASE FILE A database file, also known as a database table, is an organised
collection of related data records.
DATABASE LANGUAGES The database users (end-users, application programmers and
database administrator) use different database languages to
interact with the database.
DATABASE MANAGEMENT A DBMS is an integrated set of software programs that provides
SYSTEMS (DBMS) a user-friendly interface to the users for all data interactions
between the user and the physical database – in other words,
it enables the users to operate and interact with the database.
DISTRIBUTED DATABASE When using a distributed database, there are several interlinked
databases stored in several computers in the same (eg
headquarters) or different locations (eg branches).
DUPLICATION OF A In duplication, the master (original) database is copied to the
DATABASE other locations, normally at a specific frequency and time, and
will overwrite the data at the distributed locations.
END-USERS End-users capture data in the database and extract information
from the database using database management system software.
EXTENSIBLE BUSINESS XBRL is used when financial information is exchanged in

REPORTING LANGUAGE XML format and can be broadly be defined as the electronic
(XBRL) communication of financial and business information to all
stakeholders.
EXTERNAL LEVEL The external level, also called the user view, is the individual
end-user’s view of the data and the database.
FIELD NAME All attributes have a unique name known as a field name, which
labels the data stored in the attribute.
FINANCIAL TRANSACTION A financial transaction is a business activity that generates or

modifies financial data and can usually be expressed in monetary
terms.
FLAT FILE ENVIRONMENT In a flat file environment files are not related to one another and
the users of data and information each keep their own data and
information.
FOREIGN KEY When a primary data field of a database file is entered into
another database file to create a relation between the two
database files, the primary data field in the other database file
is known as a foreign key.
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200
Ke y te r m lis t
HIERARCHICAL MODEL This model was used in early databases and, as the name
indicates, the data is structured in a hierarchical (upside down
tree-like) structure.
HISTORY FILE A history file contains data records about transactions completed
in the past.
HUMAN RESOURCE Personnel information systems, referred to as Human resource
MANAGEMENT (HRM) management (HRM) systems, is a specialised information
SYSTEMS system used for the management of personnel and the recording
of their activities.
INFORMATION Is obtained by processing raw data ie processed data.
INTERACTIVE OUTPUT Interactive output occurs when users are directly connected to the
CIS and can request certain information and receive it immediately
INTERNAL LEVEL The internal level, also called the physical view, is the low-level
view of how the data is physically stored on a storage device
such as a magnetic hard drive disk.
MANAGEMENT INFORMATION MIS can provide both financial and nonfinancial information
SYSTEMS (MIS) to users, according to their needs, by extracting information
from the appropriate TPS, including the accounting information
system (AIS).
MANUFACTURING RESOURCE Manufacturing resource planning (MRP II) software is an
PLANNING (MRP II) extension of MRP software and is used for short- and long-term
planning and control of the manufacturing process. It integrates
all the aspects (people, materials, machines, money, etc) of the
manufacturing process.
MASTER FILE A master file contains data records of a relative permanent
nature (ie they do not change regularly) about the organisation’s
resources and subjects (ie customers, suppliers, inventory,
employees, etc).
MASTER PRODUCTION A master production schedule is a detailed plan of which product
SCHEDULE must be manufactured, when and the quantity involved.
MATERIAL RESOURCE MRP is specialised planning and control software that can help
PLANNING (MRP) to determine the raw material quantities needed and the timing
of the purchases.
MULTIDIMENSIONAL MODEL A multidimensional model is similar to a relational model, but
whereas a relational model stores data in a two-dimensional
table, a multidimensional model stores data in a three- or more
dimensional table, creating a cube-like data structure.
NETWORK MODEL The network model supports many-to-many relationships, that
is, data may be accessed by following several paths
NONFINANCIAL A nonfinancial transaction is a business activity that generates
TRANSACTION or modifies nonfinancial data but which is of such a nature that
it will directly influence the processing of financial transactions
OBJECT-ORIENTED MODEL In an object-oriented model, the data and the operations to be
performed on the data are both stored in the database. This
database model can furthermore store and process a wider range
of data types than only text and numerical data – it also stores
and processes images, audio and video data
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K E Y T ER M LI S T
ONLINE ANALYTICAL Online analytical processing (OLAP) software enables users to

PROCESSING (OLAP) interactively and rapidly analyse large data sets from various
viewpoints (ie OLAP can handle multidimensional queries).
ONLINE INPUT Online input involves data being immediately captured into the
CIS at the point where the activity occurs.
PARTITIONED DATABASE A partitioned database is split into smaller portions (partitions)
and the part applicable to the user is made available on the
location closest to the user.
PERFORMING CALCULATIONS Arithmetical or logical calculations can be performed on data.
PRIMARY DATA FIELD Each file has a unique data field (known as the primary data
field) that can be used to uniquely identify each data record in
a data file.
RAW DATA Data captured on manual documents (hard copy) as well as data
entered in the CIS and not yet processed is called raw data.
REAL-TIME PROCESSING Real-time processing is the immediate update of the transaction
files to the master files as the transaction occurs.
REFERENCE FILE A reference file is a semipermanent file containing data
records referenced to by the transaction file in order to complete
a transaction.
RELATIONAL MODEL In a relational model, data is stored in two-dimensional rows and
columns (ie tables).
REPLICATED DATABASE In a replicated database, the whole original database is copied
to the different locations, that is, the database is replicated at
each location.
SORTING DATA Data is organised (sorted) in an orderly sequence based on
specific criteria.
SUMMARISING DATA This process condenses the data by extracting only specific data
based on criteria provided by the user.
SYNCHRONISATION OF Synchronisation (also referred to as replication) is more complex
A DATABASE and time consuming and involves a two-way updating of the
master database and the distributed databases (ie the master
database can update the distributed database and the distributed
database can update the master database).
TRANSACTION FILE A transaction file contains data records relating to the daily
individual activities of the organisation (eg the organisation’s
sales). A transaction file changes regularly as additional
transactions are processed.
TRANSACTION PROCESSING A TPS collects an organisation’s daily business transactions,
SYSTEM (TPS) processes them into valuable information and stores and retrieves
the data and information when required.
TRANSFORMING DATA Data is processed by transforming the format or medium of the
original data into another format or medium.
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202

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PART 3: TRANSACTION PROCESSING 1

Topic 3 – Accounting cycles 3

Study unit 7: Overview of transaction processing 5

Study unit 13: Financial reporting structure 78

Topic 5 – Accounting information system applications 85

Study unit 14: Selecting an appropriate accounting information system 86

Topic 6 – Pastel Partner accounting information system 91

Study unit 15: Getting started on Pastel Partner 93

Study unit 17: Process transactions 151

Topic 7 – Management reporting systems 181

KEY TERM LIST 198

Content: AIN2601 (diagram 1)

Study guide 1 Study guide 2

Part 1 Part 2 Part 3 Part 4

Topic Topic Topics Topic

The aim of topic 3 in part 3 is to explain accounting transaction processing cycles in an

Study guide 1 Study guide 2

Part 1 Part 2 Part 3 Part 4

Topic Topic Topics Topic

After studying this topic, you should be able to

– differentiate between the different accounting cycles

Study guide 1 Study guide 2

Part 1 Part 2 Part 3 Part 4

Overview of transaction processing

1 In this study unit

2 Transaction processing system (TPS)

A TPS collects an organisation’s daily business transactions, processes them into

3 Accounting transaction processing system (ATPS)

An AIS collects an organisation’s day-to-day financial and nonfinancial transactions,

A nonfinancial transaction is a business activity that generates or modifies nonfinancial

(a) revenue and receipts cycle (see study unit 8)

4 Accounting transactions: from data to information

4.1 Accounting transactions: from data to information (manual process)

FIGURE 7.1: Transactions: from data to information (manual process)

4.2 Accounting transactions: from data to information (computerised

Refer to figure 7.2 throughout the following discussion:

FIGURE 7.2: Transactions: from data to information (computerised process)

Refer to figure 7.3 throughout the following discussion:

FIGURE 7.3: Accounting transaction processing in an organisation

• Organisational parameters. These involve the following:

• types of document to be used by the organisation

• code and name of the customer/supplier/inventory item/general ledger account

Capturing of transactions takes place as follows:

• inventory purchases from suppliers through the purchases journal

These will include the following:

Bear in mind that materiality of a general ledger, customer, supplier or inventory

• the trial balance used in, say, reconciliations

Management accounts usually include a statement of financial position (balance

• updating all open batches

– General ledger income statement account totals. Current financial year

(a) Define a transaction processing system and an accounting transaction

Revenue and receipts cycle

5 In this study unit

FIGURE 8.1: Generic revenue process

Refer to figure 8.1 throughout the discussion below.