Chapter 4

Accounting Information Systems

and Business Processes: Part I

Introduction
Business Process Fundamentals
Collecting and Reporting Accounting
Information
Two Core Business Processes
Business Processes and Businesses-Without-
Boundaries
Chapter
4-1
 Introduction

AISs
 depend on the flow of data through
various organizational subsystems

Effective processing systems

 ensure capture of appropriate
data and accurate information

Transaction processing cycles

 organize transactions related to an
organization’s business processes.
Chapter
4-2
 Business Process Fundamentals

The accounting cycle

 Analysis of a transaction from a source
document.
A source document
 records a business activity such as the purchase
or sale of goods,
 can be a piece of paper, or
 can be in electronic form.
Chapter
4-3
 Journals

The journal
is a chronological record of business events by
account. Account structure of an organization is its
chart of accounts.
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.
Chapter
4-4
 Special Journals for AISs

Sales Journal
 Record of credit sales transactions

Purchases Journal
 Record of credit purchase transactions

Cash Receipts Journal

 Record of transactions involving receipts of cash

Cash Disbursements Journal

 Record of transactions involving disbursements of
cash
Chapter
4-5
 Ledgers

Ledger
general ledger
 contains detailed monetary information about an
organization’s
 assets,
 liabilities,
 revenues, and
 expenses.
subsidiary ledger
 contains detailed records pertaining to a particular
account in the general ledger.
Chapter
4-6
 Trial Balances

AIS
• records journal entries
• posts them to the general ledger,
• the system creates a trial balance.
Three end of period trial balances:
A preadjusting trial balance after all entries have been
posted;
An adjusted trial balance after adjustments have been
recorded and posted;
A postclosing trial balance after closing entries have
Chapter
4-7
been recorded and posted.
 Steps in the accounting cycle

Chapter
4-8
 Financial Statements

Financial statements
are the primary output of a financial accounting
system
include the following statements:
 Income Statement
 Statement of Owners’ Equity
 Balance Sheet
 Cash Flow Statement

Chapter
4-9
 BUSINESS PROCESS
FUNDAMENTALS

Which of the following provides the

organizational structure for the general
ledger?
a. Special journals.
b. A source document.
c. General Journals.
d. The chart of accounts.
Chapter
4-10
 Coding Systems

AISs depend on coding to

 record,
 store,
 classify and
 retrieve financial data.

Computer codes for processing

accounting transactions are
 numeric or
 alphanumeric codes
Chapter
4-11
 Coding Systems

Codes are necessary to

 Uniquely identify transactions and accounts
 Compress data
 Aid in classification of accounts or transactions
 Communicate special meaning

Chapter
4-12
 Types of Codes

Mnemonic Codes
 give visible clues concerning the objects they represent.
Sequence Codes
 assign numbers or letters in consecutive order.
Block Codes
 are sequential codes in which specific blocks
of numbers are reserved for particular uses.
Group Codes
 combining of two or more subcodes.

Chapter
4-13
 Design Considerations in Coding

Codes
should serve some useful purpose.
should be consistent.
should plan for future expansion.

Chapter
4-14
 Collecting and Reporting
Accounting Information

The design of an AIS should

 be effective
 consider 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
Chapter
4-15
 Considerations in
Report Design

Reports
 should be useful for managerial decision-
making,
 should not create information overload.
Format of the reports should
 contain fundamental identification,
 be convenient, and
 be consistent.
Reports that only list exceptional
conditions are exception reports.
Chapter
4-16
 Collecting the Data for
Output Reports

Source Documents
help manage the flow of accounting data by
• dictating the kinds of data to be collected and help
ensure legibility, consistency, and accuracy in
recording data
encourage the completeness of accounting data
serve as distributors of information for individuals
or departments.

Chapter
4-17
 Collecting the Data for
Output Reports

help to establish the authenticity of

accounting data in
 establishing an audit trail,
 testing for authorization of cash disbursement
checks
 testing for inventory disbursements, and
 establishing accountability for the collection or
distribution of money.

Chapter
4-18
 Core Business Processes

An AIS
 collects and
 reports data related to business processes which are
collections of activities that create value.
An economic event
 is an economic activity
 impacts financial statements (accounting transactions).
A business event
 is important to the business,

Chapter does not impact financial statements.
4-19
 Core Business Processes

What is (are) a collection of activities or

flow of work in an organization that
creates value?
a. An economic event.
b. An accounting transaction.
c. A business process.
d. A chart of accounts.
Chapter
4-20
 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.
Chapter
4-21
 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

Chapter
4-22
 The Sales Process - Inputs

Sales Order
Prenumbered, usually prepared in multiple copies,
and used to prepare sales invoice
Sales Invoice
prepared after shipment of goods or providing
of a service
Remittance Advice
served as source document for credits to accounts
receivable
Chapter
4-23
 The Sales Process - Inputs

Shipping Notice
prepared after goods are released for shipment, and
may serve as a packing slip
Debit/Credit memo
issued for sales returns and allowances; debit
memos increase amount customer owes

Chapter
4-24
 The Sales Process - Outputs

Financial Statement Information

Customer Billing Statement includes
 sales,
 returns, and
 cash receipts

Accounts Receivable Aging Report

 contains data concerning the status of open
balances of all active credit customers
 arranges the overdue amounts by time periods
Chapter
4-25
 The Sales Process - Outputs

Bad Debt Report

 contains info about collection follow-up procedures
for overdue customer accounts
Cash Receipts Forecast
 data from source documents in revenue
transactions are inputs

Chapter
4-26
 The Sales Process - Outputs

Approved Customer Listing

 list of customer codes, contacts, shipping and
billing addresses, credit limits, and billing terms
Sales Analysis Reports
 detailed data about each sale in order to monitor
sales activities and plan production and marketing
efforts

Chapter
4-27
 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
Purchase can be
by cash or

 on credit
Chapter
4-28
 Purchasing Process - Objectives

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

Chapter
4-29
 Purchasing Process - Inputs

Purchase Requisition
shows items requested by stores, indicates names of
vendors
Purchase Order
is based on purchase requisition including vendor
information
Vendor Invoice
includes prices, shipping terms and discounts
Receiving Report
reflects the count and condition of goods received
Chapter
4-30
 Purchasing Process - Inputs

Bill of lading
accompanies the goods sent and given by the freight
carrier to the supplier as a receipt.
Packing slip
indicates the specific quantities and items in the
shipment and those items that are on back order. It
is sometimes included in the merchandise package.
Debit/Credit Memoranda
debits or credits accounts payable.
Chapter
4-31
 Purchasing Process - Outputs

Financial Statement Information

Vendor Checks
 supported by a voucher and
 signed by a person designated by management
Check Register
 list of all checks issued for a particular period

Chapter
4-32
 Purchasing Process - Outputs

Discrepancy Reports
 used to identify any differences between
quantities or amounts on the purchase order,
the receiving report, and the purchase invoice.
Cash Requirements Forecast
 predicts future payments and payment dates
Purchases analysis reports

Chapter
4-33
 IT in the Sales and Purchase
Process

Which of the following reports is common

to both the sales and the purchasing
processes?
a. Cash receipts forecast and cash
requirements forecast.
b. Financial statement information.
c. Discrepancy and bad debts reports.
Chapter
4-34d. None of the above.
 IT in Sales and Purchase

Successful organizations need

to use accounting and enterprise software
solutions at all levels
to have inputs and outputs in sales and purchase in
electronic form
to save money with automated data-entry
technology
IT has also made it possible for them
to work anywhere in the world
at any time of the day
Chapter
4-35
 Businesses-Without-Boundaries

In Businesses-Without-Boundaries
employees may be located anywhere
 India, China, Canada, Mexico, or Malaysia.
employees may work on various business
processes
 HR, accounting, production, and so on

Chapter
4-36
 Businesses-Without-Boundaries

The important point for accountants

is costs and benefits of keeping a business
process
 in-house
 what software solution the company should use to
automate
 how to integrate data and applications into business
systems.
 or outsourcing the function
 what will be the many costs and
 what will be the benefits/concerns associated with the
Chapter
4-37 decision.
 Business Process Outsourcing

Business processes outsourcing

for strategic advantages
 Competitiveness,
 Revenue generation, and
 cost savings.
Business processes outsourced are
human resources,
finance and accounting,
customer services,
learning services and training, and
information technology
Chapter
4-38