Chapter 4 Accounting Information Systems and Business Processes: Part I

1. Chapter 4Accounting Information Systems and Business Processes: Part I • Introduction • Business Process Fundamentals • Collecting and Reporting Accounting Information • Core Business Processes

2. Introduction • AISs depend on the flow of data through various organizational subsystems. • Effective processing systems ensure capture of appropriate data and accurate information reporting. • Transaction processing cycles organize transactions related to an organization’s business processes.

3. Business Process Fundamentals • The accounting cycle begins when accounting personnel analyze a transaction from a source document. • Asource documentis a piece of paper or electronic form that records a business activity such as the purchase or sale of goods.

4. Journals • Accounting personnel record transactions in a journal. • The journal is a chronological record of business events by account. • A journal may be a general journal or a special journal. • A general journal allows any type of accounting transaction to be recorded. • A special journal captures specific types of transactions.

5. Ledgers • A ledger may be a general ledger or a subsidiary ledger. • A general ledgeris a collection of detailed monetary information about an organization’s assets, liabilities, revenues, and expenses. • A subsidiary ledgercontains detailed records pertaining to a particular account in the general ledger.

6. Trial Balances • Once an AIS records journal entries and posts them to the general ledger, the system can create a trial balance. • Three end of period trial balances are needed: • A preadjusting trial balanceafter all entries have been posted; • Anadjusted trial balanceafter adjustments have been recorded and posted; • A postclosing trial balanceafter temporary accounts have closing entries have been recorded and posted.

7. Financial Statements • Financial statements are the primary output of a financial accounting system. • These statements include: • Income Statement • Statement of Owners Equity • Balance Sheet • Statement of Cash Flows

8. Coding Systems • AISs depend on coding to record, store, classify and retrieve financial data. • Computer systems most often use numeric or alphanumeric codes for processing accounting transactions. • Purposes of coding: • Uniquely identify transactions and accounts • Compress data • Aid in classification process • Convey special meanings

9. Types of Codes • Mnemonic Codesgive visible clues concerning the objects they represent. • Sequence Codes assign numbers or letters in consecutive order. • Block Codesare sequential codes in which specific blocks of numbers are reserved for particular uses. • Group Codesreveal two or more dimensions or facets pertaining to an object.

10. Design Considerations in Coding • Codes should serve some useful purpose. • Codes should be consistent. • Codes should be standardized throughout the organization. • Codes should plan for future expansion.

11. Collecting and Reporting Accounting Information • Design of an effective AIS begins by considering outputs from the system. • Outputs of an AIS include: • reports to management • reports to investors and creditors • files that retain transaction data • files that retain current data about accounts

12. Considerations in Report Design • Reports that only list exceptional conditions are exception reports. • Reports should be useful to managerial decision-making without creating information overload. • Format should be convenient, contain fundamental identification, and be consistent.

13. Core Business Processes • An AIS collects and reports data related to an organization’s business processes. • An economic event is an economic activity that involves an increase and/or decrease in dollar amounts in the financial statements. • Since economic events impact financial statements, they are often called accounting transactions. • A business event is one that does not impact financial statements, but is nevertheless important to the business.

14. The Sales Process • The sales process begins with a customer order for goods or services and ends with the collection of cash from the customer. • The primary objective is to achieve timely and efficient revenue collection. • An organization that generates revenues, but fails to collect these revenues on a timely basis, may find itself in a position where it cannot pay its bills.

15. Objectives of the Sales Process • Tracking sales of goods and/or services to customers. • Filling customer orders. • Billing customers for goods and services • Collecting payment for goods and services. • Forecasting sales and cash receipts.

16. Inputs to the Sales Process • Sales Order- prenumbered and usually prepared in multiple copies; used to prepare sales invoice • Sales Invoice- prepared after shipment of goods or providing of a service • Remittance Advice- serve as source document for credits to accounts receivable • Shipping Notice- warehouse prepares after goods are released for shipment • Debit/Credit memo- issued for sales returns and allowances; debit memos increase amount customer owes

17. Outputs of the Sales Process • Financial Statement Information • Customer Billing Statement - includes customer account activity such as sales, returns, and cash receipts • Accounts Receivable Aging Report - contains data concerning the status of open balances of all active credit customers arranging the overdue amounts by time periods

18. Outputs of the Sales Process • Bad Debt Report - customer accounts written off. • Cash Receipts Forecast - all data gathered from source documents in revenue transactions are inputs to this forecast. • Customer Listing- shows customer codes, contacts, shipping and billing addresses, credit limits, and billing terms. • Sales Analysis Reports - captures detailed data about each sale in order to monitor sales activities and plan production and marketing efforts.

19. Most Important Control of the Credit Sales Process • Credit check must be performed by someone other than the salesperson. • Credit check may even be automated. • Check for credit approval, documentation, credit limit and current state of balances.

20. Most important Control in the Cash Sales Process • Most important control in a Cash Sale is to ensure that the transaction (event) is originally recorded. • May use scanners or other mechanical devices. • Most important is customer audit. • What are some examples of Customer Audit?

21. The Purchasing Process • The purchasing process begins with a request for goods or services and ends with the payment of cash to the vendor. • Purchase may be for either goods or services and for cash or on credit.

22. Objectives of the Purchasing Process • Tracking purchases of goods and/or services from vendors • Tracking amounts owed • Maintaining vendor records • Controlling inventory • Making timely and accurate vendor payments • Forecasting purchases and cash outflows

23. Inputs to thePurchasing Process • Purchase Requisition - shows items requested by stores and may indicate the name of the vendor • Purchase Order - based on purchase requisition but also includes vendor information and payment terms • Vendor Invoice - includes items shipped by vendors, prices, shipping terms and discounts provided • Receiving Report - reflects the count and condition of received goods • Bill of lading– accompanies the goods sent • Packing slip– included in the merchandise package • Debit/Credit Memoranda- debits or credits accounts payable

24. Outputs of the Purchasing Process • Financial Statement Information • Vendor Checks - should be supported by a voucher and signed by a person designated by management • Check Register - lists all checks issued for a particular period • Discrepancy Reports - used to identify any differences among quantities on the purchase order, receiving report, and vendor invoice • Cash Requirements Forecast - predicts future payments and payment dates by reference to outstanding purchase order, unbilled receiving reports and vendor invoices

25. Most Important Control in the Purchasing Process • The most important control of the Purchasing process is to control the relationship between the purchasing agent and the vendor. • This is done by using a Master Vendor List. • Request for Bid (RFB) or Request for Proposal (RFP).