Transcript Accounting Information Systems 9th Edition

Overview of
Business Processes
©2003 Prentice Hall Business Publishing,
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Learning Objectives
1
2
3
4
Explain the three basic functions performed by an
accounting information system (AIS).
Describe the documents and procedures used in an
AIS to collect and process transaction data.
Discuss the types of information that can be
provided by an AIS.
Describe the basic internal control objectives of an
AIS and explain how they are accomplished.
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Introduction

This chapter provides an overview
of how an AIS can perform its
three basic functions :
1.
2
3
To collect and store data about the
organization’s business activities and
transactions efficiently and effectively
To provide information useful for decision
making
To provide adequate controls to ensure that
data are recorded and processed
accurately
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The Three Basic Functions
Performed by an AIS
1
To collect and store data about the
organization’s business activities and
transactions efficiently and effectively:



Capture transaction data on source
documents.
Record transaction data in journals, which
present a chronological record of what
occurred.
Post data from journals to ledgers, which
sort data by account type.
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The Three Basic Functions
Performed by an AIS
2
To provide management with
information useful for decision
making:

In manual systems, this information is
provided in the form of reports that fall
into two main categories:
– financial statements
– managerial reports
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The Three Basic Functions
Performed by an AIS
3
To provide adequate internal controls:
Ensure that the information produced
by the system is reliable.
 Ensure that business activities are
performed efficiently and in
accordance with management’s
objectives.
 Safeguard organizational assets.

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Basic Subsystems in the AIS
1.
2.
3.
The revenue cycle: involves activities of
selling goods or services and collecting
payment for those sales.
The expenditure cycle: involves
activities of buying and paying for
goods or services used by the
organization.
The human resources/payroll cycle:
involves activities of hiring and paying
employees.
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Basic Subsystems in the AIS
4.
5.
The production cycle: involves activities
converting raw materials and labor into
finished goods.
The financing cycle: involves activities
of obtaining necessary funds to run the
organization, repay creditors, and
distribute profits to investors.
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Basic Subsystems in the AIS
Financing
Cycle
Expenditure
Cycle
Human
Resources
General Ledger & Reporting System
Production
Cycle
Revenue
Cycle
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The Data Processing Cycle

The data processing cycle consists
of four steps:
1.
2.
3.
4.
Data input
Data storage
Data processing
Information Output
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The Data Processing Cycle

The trigger for data input is usually
business activity. Data must be
collected about:
1.
2.
3.
Each event of interest
The resources affected by each
event
The agents who participate in each
event
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Data Processing Cycle:
Data Input
Historically, most businesses used
paper source documents to collect
data and then transferred that data
into a computer.
 Today, most data are recorded directly
through data entry screens.

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Data Processing Cycle:
Data Input

Control over data collection is
improved by:
prenumbering each source document
and using turnaround documents
 having the system automatically
assign a sequential number to each
new transaction
 employing source data automation

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Common Source
Documents and Functions
REVENUE CYCLE
Source Document
Function
Sales order
Take customer order.
Delivery ticket
Deliver or ship order
Remittance advice
Receive cash.
Deposit slip
Deposit cash receipts.
Credit memo
Adjust customer accounts
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Common Source
Documents and Functions
EXPENDITURE CYCLE
Source Document
Function
Purchase requisition
Request items.
Purchase order
Order items.
Receiving report
Receive items.
Check
Pay for items.
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Common Source
Documents and Functions
HUMAN RESOURCES CYCLE
Source Document
Function
W4 forms
Collect employee
withholding data.
Time cards
Record time worked
by employees.
Job time tickets
Record time spent
on specific jobs.
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Common Source
Documents and Functions
GENERAL LEDGER AND
REPORTING SYSTEM
Source Document
Function
Journal voucher
Record entry posted to
general ledger.
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Data Processing Cycle:
Data Processing
Batch processing is the periodic
updating of the data stored about
resources and agents
 On-line, real-time processing is the
immediate updating as each
transaction occurs

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Data Processing Cycle:
Data Storage
An entity is something about which
information is stored.
 Each entity has attributes or
characteristics of interest, which need
to be stored.

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Record Transaction Data
in Journals
After transaction data have been
captured on source documents, the
next step is to record the data in a
journal.
 A journal entry is made for each
transaction showing the accounts and
amounts to be debited and credited.

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Record Transaction Data
in Journals
The general journal records infrequent
or nonroutine transactions.
 Specialized journals simplify the
process of recording large numbers of
repetitive transactions.
 What are the four most common types
of transactions?

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Record Transaction Data
in Journals
1
2
3
4
Credit sales
Cash receipts
Purchases on account
Cash disbursements
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Record Transaction Data
in Journals
Sales Journal
Page 5
Invoice
Number
Account
Debited
Account
Number
Dec. 1
201
Lee Co.
120-122
3
800.00
Dec. 1
202
May Co.
120-033
3
700.00
Dec. 1
203
DLK Co.
120-111
3
900.00
Date
Post
Ref.
TOTAL:
Amount
2,400.00
120/502
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Post Transactions to
Ledgers
Ledgers are used to summarize the
financial status, including the current
balance, of individual accounts.
 The general ledger contains
summary-level data for every asset,
liability, equity, revenue, and expense
account of an organization.

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Post Transactions to
Ledgers
A subsidiary ledger records all the
detailed data for any general ledger
account that has many individual
subaccounts.
 What are some commonly used
subsidiary ledgers?

–
–
–
accounts receivable
inventory
accounts payable
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Post Transactions to
Ledgers

What is the general ledger account
corresponding to a subsidiary ledger
called?
–

control account
A control account contains the total
amount for all individual accounts in
the subsidiary ledger.
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Post Transactions to Ledgers
Page 5
Sales Journal
Date
Invoice
Number
Account
Debited
Account
Number
Post
Ref.
Amount
Dec 1
203
DLK Co.
120-111
3
900.00
Total
2,400.00
120/502
General Ledger
Account: Accounts Receivable Account Number: 120
Date
Description
Dec 1
Sales
Post Ref.
SJ5
Debit
2,400
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Credit
Balance
2,400
2-27
What is the
Chart of Accounts?
The chart of accounts is a list of all
general ledger accounts used by an
organization.
 It is important that the chart of
accounts contains sufficient detail to
meet the information needs of the
organization.

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Providing Information for
Decision Making
The second function of the AIS is to
provide management with information
useful for decision making.
 The information an AIS provides falls
into two main categories:

Financial Statements
 Managerial Reports

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Financial Statements
Prepare a trial balance.
 Make adjusting entries.
 Prepare the adjusted trial balance.
 Produce the income statement.
 Make closing entries.
 Produce the balance sheet.
 Prepare the statement of cash flows.

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Managerial Reports
The AIS must also be able to provide
managers with detailed operational
information about the organization’s
performance.
 Two important types of managerial
reports are

–
–
budget
performance reports
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Managerial Reports
What is a budget?
A budget is the formal expression of
goals in financial terms.
 One of the most common types of
budget is a cash budget.

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Managerial Reports
What is a performance report?

A performance report lists the
budgeted and actual amounts of
revenues and expenses and also
shows the variances, or differences,
between these two amounts.
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Managerial Reports
Magic Co. Monthly Performance Report
Budget
Actual
Variance
Sales
$32,400 $31,500
($900)
Cost of Goods
12,000
14,000 (2,000)
Gross Margin
$20,400 $17,500 ($2,900)
Other Expenses
9,000
7,000
2,000
Operating Income $11,400 $10,500
($900)
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Internal Control
Considerations

1
2
3
The third function of an AIS is to
provide adequate internal controls to
accomplish three basic objectives:
Ensure that the information is reliable.
Ensure that business activities are
performed efficiently.
Safeguard organizational assets.
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Internal Control
Considerations

1
2
What are two important methods for
accomplishing these objectives?
Provide for adequate documentation
of all business activities.
Design the AIS for effective
segregation of duties.
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Adequate Documentation
Documentation allows management to
verify that assigned responsibilities
were completed correctly.
 What did Ashton encounter while
working as an auditor that gave him a
firsthand glimpse of the types of
problems that can arise from
inadequate documentation?

–
failure to bill for repair work
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What is
Segregation of Duties?
Segregation of duties refers to
dividing responsibility for different
portions of a transaction among
several people.
 What functions should be performed
by different people?

–
–
–
authorizing transactions
recording transactions
maintaining custody of assets
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Introduction to
e-Business
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Learning Objectives
1.
2.
3.
Explain what e-business is and how
it affects organizations.
Discuss methods for increasing the
likelihood of success and for
minimizing the potential risks
associated with e-business.
Describe the networking and
communications technologies that
enable e-business.
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Introduction: E-Business
E-business refers to all uses of
advances in information technology
(IT), particularly networking and
communications technology, to
improve the ways in which an
organization performs all of its
business processes.
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Introduction: E-Business
E-business encompasses an
organization’s external
interactions with its:
Suppliers
 Customers
 Investors
 Creditors
 The government
 Media

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Introduction: E-Business




E-business includes the use of IT to
redesign its internal processes.
For organizations in many industries,
engaging in e-business is a necessity.
Engaging in e-business in and of itself
does not provide a competitive advantage.
However, e-business can be used to more
effectively implement its basic strategy and
enhance the effectiveness and efficiency of
its value-chain activities.
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E-Business Models
Business to Consumers (B2C):
Interactions between individuals and
organizations.
 Business to Business (B2B):
Interorganizational e-business.

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Categories of E-Business
Type of E-Business
Characteristics
B2C
Organization-individual
Smaller
dollar value
One-time or infrequent transactions
Relatively simple
B2B
B2G
B2E
Interorganizational
Larger
dollar value
Established, on-going relationships
Extension of credit by seller to customer
More complex
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E-Business Effects on
Business Processes
Electronic Data Interchange (EDI):
Standard protocol, available since the
1970s, for electronically transferring
information between organizations
and across business processes.
 EDI:

Improves accuracy
 Cuts costs

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Recent EDI Facilitators
Traditional EDI was expensive. New
developments that have removed this
cost barrier are:
 The Internet: Eliminates the need for
special proprietary third-party
networks.
 XML: Extensible Markup Language –
Set of standards for defining the
content of data on Web pages.

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Integrated Electronic Data
Interchange (EDI)

Reaping the full benefits of EDI
requires that it be fully integrated with
the company’s AIS.
EDI
Suppliers
Purchase orders
EDI
Customers Customer orders
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Company
AIS
2-48
E-Business Effects on Value
Chain Activities
Value Chain –
Primary Activities
E-Business Opportunity

Inbound logistics

Acquisition of digitizable products
 Reduced inventory “buffers”

Operations


Outbound logistics


Sales and Marketing


Post-sale Support and Service

Faster, more accurate production
Distribution of digitizable products
 Continuous status tracking
Improved customer support
 Reduced advertising costs
 More effective advertising
Reduced costs
 24/7 Service availability
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E-Business Effects on Value
Chain Activities
Value Chain –
Support Activities
E-Business Opportunity
Purchasing
 Human Resources
 Infrastructure


Source identification and reverse
auctions
 Employee self-service
 EFT, FEDI, other electronic payments
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Purchasing and Inbound
Logistics

The Internet improves the purchasing
activity by making it easier for a business to
identify potential suppliers and to compare
prices.

Purchase data from different organizational
subunits can be centralized.
• This information can be used to negotiate better
prices.
• Number of suppliers can be reduced.
• Reverse auctions can be held

For products that can be entirely digitized,
the entire inbound logistics function can be
performed electronically.
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Internal Operations, Human
Resources, and Infrastructure

Advanced communications
technology can significantly improve:
The efficiency of internal operations.
 Planning.
 The efficiency and effectiveness of the
human resource support activity.
 The efficiency and effectiveness of
customer payments.

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Information Flows in
Electronic Commerce
1. Inquiries
Seller
Buyer
2. Responses
3. Orders
4. Acknowledgment
5. Billing
6. Remittance data
Explanations:
EDI = Steps 1-6
7. Payments
EFT = Step 7
FEDI = Steps 1-7
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Financial Electronic Data
Interchange (FEDI)
The use of EDI to exchange
information is only part of the buyerseller relationship in business-tobusiness electronic commerce.
 Electronic funds transfer (EFT) refers
to making cash payments
electronically, rather than by check.
 EFT is usually accomplished through
the banking system’s Automated
Clearing House (ACH) network.

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Financial Electronic Data
Interchange (FEDI)
An ACH credit is an instruction to your
bank to transfer funds from your
account to another account.
 An ACH debit is an instruction to your
bank to transfer funds from another
account into yours.

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Financial Electronic Data
Interchange (FEDI)
Company A
Company B
Remittance data
and payment
instruction
Company A’s
Company B’s
bank
bank
Remittance data and funds
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Outbound Logistics

E-Business can improve the efficiency and
effectiveness of sellers’ outbound logistical
activities.



Timely and accurate access to detailed
shipment information.
Inventory optimization.
For goods and services that can be digitized,
the outbound logistics function can be
performed entirely electronically.
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Sales and Marketing
Companies can create electronic
catalogs to automate sales order
entry.
 Significantly reduce staffing needs.
 Customization of advertisements

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Post-Sale Support
and Service
Consistent information to customers.
 Provide answers to frequently asked
questions (FAQs).

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E-Business Success Factors


The degree to which e-business activities fit
and support the organization’s overall
business strategy.
The ability to guarantee that e-business
processes satisfy the three key
characteristics of any business transaction



Validity
Integrity
Privacy
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Encryption

There are two principal types of encryption
systems:

Single-key systems: Same key is used to
encrypt and decrypt the message
• Simple, fast, and efficient
• Example: the Data Encryption Standard (DES)
algorithm

Public Key Infrastructure (PKI): Uses two
keys:
• Public key is publicly available and usually used to
encode message
• Private key is kept secret and known only by the
owner of that pair of keys. Usually used to decode
message
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Advantages &
Disadvantages of PKI


Advantages
No sharing of key
necessary
More secure than
single-key systems

Disadvantages
Much slower than
single-key systems
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Digital Signatures and Digests


Digital signature: An electronic message
that uniquely identifies the sender of that
message.
Digest: The message that is used to create
a digital signature or digital summary.

If any individual character in the original
document changes, the value of the digest
also changes. This ensures that the
contents of a business document have not
been altered or garbled during transmission
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Digital Certificates & Certificate
Authorities

Digital Certificate: Used to verify the identity of the
public key’s owner.


Digital certificates are issued by a reliable third
party, called a Certificate Authority, such as:




A digital certificate identifies the owner of a particular
private key and the corresponding public key, and the
time period during which the certificate is valid.
Verisign
Entrust
Digital Signature Trust
The certificate authority’s digital signature is also
included on the digital certificate so that the validity
of the certificate can also be verified.
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Types of Networks

1
2
The global networks used by many
companies to conduct electronic
commerce and to manage internal
operations consist of two components:
Private portion owned or leased by
the company
The Internet
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Types of Networks

1
2
The private portion can be further
divided into two subsets:
Local area network (LAN) — a system
of computers and other devices, such
as printers, that are located in close
proximity to each other.
Wide area network (WAN) — covers a
wide geographic area.
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Types of Networks



Companies typically own all the equipment
that makes up their local area network
(LAN).
They usually do not own the long-distance
data communications connections of their
wide area network (WAN).
They either contract to use a value-added
network (VAN) or use the Internet.
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Types of Networks


The Internet is an international network of
computers (and smaller networks) all linked
together.
What is the Internet’s backbone?
–

the connections that link those computers
together
Portions of the backbone are owned by the
major Internet service providers (ISPs).
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Types of Networks
What is an Intranet?
 The term Intranet refers to internal
networks that connect to the main
Internet.
 They can be navigated with the same
browser software, but are closed off
from the general public.
 What are Extranets?

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Types of Networks
Extranets link the intranets of two or
more companies.
 Either the Internet or a VAN can be
used to connect the companies
forming the extranet.
 Value-added networks (VAN) are
more reliable and secure than the
Internet, but they are also expensive.

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Types of Networks

Companies build a virtual private
network (VPN) to improve reliability
and security, while still taking
advantage of the Internet.
Company A
VPN
AIS
equipment
ISP
Internet
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Data Communications
System Components
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There are five basic components in any
data communication network (whether it is
the Internet, a LAN, a WAN, or a VAN):
The sending device
The communications interface device
The communications channel
The receiving device
Communication software
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Data Communications
System Components
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–
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The following are components of the
data communications model:
interface devices
communications software
communications channel
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Interface Devices
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There are six basic communication interface
devices that are used in most networks:
Network interface cards
Modems
Remote access devices
Hubs
Switches
Routers
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Interface Devices
PC-1
Company A
PC-2
PC-3
NIC
NIC
NIC
Hub 1
Switch
Hub 1
Other
LANs
Internet service
provider
Remote access
device
Frame relay
switch
Router
Router
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Interface Devices
Internet service
provider
Home PC
Modem
Remote access
device
Frame relay
switch
Home PC
Modem
Router
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Communications Software
Communications software manages
the flow of data across a network.
 It performs the following functions:
– access control
– network management
– data and file transmission
– error detection and control
– data security

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Communications Channels
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A communications channel is the medium
that connects the sender and the receiver.
standard telephone lines
coaxial cables
fiber optics
microwave systems
communications satellites
cellular radios and telephones
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Communications Channels
Satellite
Microwave stations
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Network Configuration
Options
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Local area networks (LANs) can be
configured in one of three basic ways:
Star configuration
Ring configuration
Bus configuration
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Network Configuration
Options
A star configuration is a LAN
configured as a star; each device is
directly connected to the central
server.
 All communications between devices
are controlled by and routed through
the central server.
 Typically, the server polls each device
to see if it wants to send a message.

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Network Configuration
Options
The star configuration is the most expensive
way to set up a LAN, because it requires the
greatest amount of wiring.
A
B
C
H
Host computer
or server
G
F
D
E
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Network Configuration
Options
In a LAN configured as a ring, each node
is directly linked to two other nodes
A
B
C
H
D
G
E
F
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Network Configuration
Options
In a LAN configured as a bus, each device is
connected to the main channel, or bus.
 Communication control is decentralized on
bus networks.

A
B
C
Bus channel
D
Host computer
or server
E
F
G
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Network Configuration
Options
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Wide area networks (WANs) can be
configured in one of three basic ways:
Centralized system
Decentralized system
Distributed data processing
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Network Configuration
Options

In a centralized WAN, all terminals
and other devices are connected to a
central corporate computer.
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Network Configuration
Options
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In a decentralized WAN, each departmental unit
has its own computer and LAN.
Decentralized systems usually are better able
to meet individual department and user needs
than are centralized systems.
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Network Configuration
Options
A distributed data processing system WAN is
essentially a hybrid of the centralized and
decentralized approaches
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Network Configuration
Options
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Many WANs, and most LANs, are set up as
client/server systems.
Each desktop computer is referred to as a
client.
The client sends requests for data to the
servers.
The servers perform preprocessing on the
database and send only the relevant subset
of data to the client for local processing.
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