Accounting Information Systems and Business Processes - Part I Chapter 10

Chapter 10: Accounting Information Systems and Business Processes - Part I Introduction Business Process Fundamentals Collecting and Reporting Accounting Information The Sales Process The Purchasing Process Current Trends in Business Processes 2

Business Process Fundamentals Overview of the Financial Accounting Cycle Journals Ledgers Trial Balances Financial Statements

Journals Chronological record of business events by account General Journal Records any type of accounting transaction Special Journals Captures specific types of transactions

Types of Special Journals 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

Ledgers General Ledger Contains detailed monetary information Includes the assets, liabilities, owners’ equity, revenues, and expenses of the company Chart of Accounts Listing of all accounts used by the company Provides organizational structure for the general ledger Utilizes block coding structure

Trial Balances Listing of all accounts with the debit and credit balances Timing of Preparation After all journal entries are posted Following the posting of adjusting entries Following the posting of closing entries

Financial Statements Primary output of financial accounting system Main Financial Statements Income Statement Balance Sheet Statement of Owners’ Equity Statement of Cash Flows

Steps in the Accounting Cycle

Coding Systems Importance of Coding for AISs Design Considerations Record, classify, store, and retrieve information Utilize numeric and alphanumeric codes Design Considerations Must serve a useful purpose Must be consistent Plan for future expansion

Types of Codes Mnemonic Codes Sequence Codes Block Codes Group Codes Helps user remember what they represent Sequence Codes Sequential set of numbers Block Codes Sequential codes Blocks of numbers reserved for specific Group Codes Combine two or more subcodes

Block Code Example

Study Break #1 Which of the following provides the organizational structure for the general ledger? Special Journals A source document General journals D. The chart of accounts

Study Break #2 AISs depend on codes to record, classify, store, and retrieve financial data. Which of the following codes is a group of numbers reserved for particular uses? Block codes Mnemonic codes Alphanumeric codes D. Numeric codes

Collecting and Reporting Accounting Information Design Considerations Should be effective Expectations of outputs Outputs of an AIS Reports to management Reports to investors and creditors Files retaining transaction data Files retaining current data about accounts

Designing Reports Characteristics of Good Reports Useful and convenient format Easy to identify and consistent Identification and Consistency Include headings, page numbers, and dates Emphasize consistency Over time Across departmental or divisional levels With general accounting practice

Example of a Report

Source Documents Manage flow of accounting data Usage today Dictate type of data collected Encourage completeness of data Distributors of information Establish authenticity of data Usage today Extensively used in AISs Movement from paper to electronic format

Sample Purchase Order

Sample Sales Invoice

Business Process Definition Economic event Business event Collection of activities Creates value for organization AIS collects and reports data related to processes Economic event Impacts financial statements Business event Does not impact financial statements

The Sales Process Process Primary Objectives of Sales Process Begins with customer order Ends with collection of cash Primary Objectives of Sales Process Process sales in a timely and efficient manner Collect cash in a timely and efficient manner

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

Data Flow Diagram of Sales Process

Inputs to the Sales Process Sales Order Created at time of sale Used to prepare the sales invoice Sales Invoice Reflects information of the sale Products purchased, price, terms of payment Remittance Advice May accompany payment

Inputs to the Sales Process Shipping Notices Prepared when warehouse releases goods Copy possibly included with goods Additional copy sent to accounts receivable Debit/Credit Memoranda Denotes return of damaged goods Identifies discrepancies about amount owed

Outputs of the Sales Process Financial Statements Customer Billing Statement Summarizes outstanding sales invoices Total amount currently owed Aging Report Accounts receivable balances Categorized based on time outstanding

Outputs of the Sales Process Bad Debt Report Information on collection follow-up procedures Helps manage overdue accounts Cash Receipts Forecast Source documents used as inputs Prior payment experience and aging analysis aid in preparation

Accounts Receivable Aging Report

Outputs of the Sales Process Approved Customer Listing Report Identifies customers approved for sales Includes customer information such as billing address, credit limits, and billing terms Sales Analysis Reports Detailed information captured by AIS Aid in decision-making process for production planning and marketing efforts

Sales Process Summary

Study Break #3 ________ is (are) a collection of activities or flow of work in an organization that creates value. An economic event Accounting transactions A business process A chart of accounts

Study Break #4 Which of the following is NOT an objective of the sales process? Controlling inventory Tracking sales of goods and/or services to customers Billing for goods and services Forecasting sales and cash receipts

The Purchasing Process Begins with request for goods/services Ends with payment of cash Primary Objectives of Purchasing Process Purchase high-quality goods at best price Pay vendors at the optimal time

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

Data Flow Diagram of Purchasing Process

Inputs to the Purchasing Process Purchase Requisition Identifies item requested May indicate name of vendor Purchase Order Based on Purchase Requisition Includes vendor information Vendor Invoice Includes prices, shipping terms, and discounts

Inputs to the Purchasing Process Receiving Report Count and condition of goods received Bill of Lading Accompanies the goods sent Carrier assumes responsibility for the goods Packing Slip Specific goods and quantities included in shipment Included in merchandise package

Sample Packing Slip

Outputs of the Purchasing Process Financial Statement Information Vendor Checks Supported by a voucher Signed by a person designated by management Check Register List of all checks issued for a particular period By-product of batch processing

Outputs of the Purchasing Process Discrepancy Reports Notes differences in quantities or amounts Based on reconciliation of purchase order, receiving report, and the purchase invoice Cash Requirements Forecast Predicts future payments and payment dates Utilizes multiple source documents

Purchasing Process Summary

IT in Sales and Purchasing Electronic input Wireless capabilities Automated data-entry technology Bar code readers Inventory Management Systems RFID tags

Current Trends in Business Processes Business Processes Outsourcing (BPO) Business without boundaries Offshoring Business Process Management Software (BPM) Collect corporate knowledge, data, and business rules Accomplish business processes more efficiently