© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart1 of 119 C HAPTER 2 Overview of Business Processes

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart2 of 119 INTRODUCTION Questions to be addressed in this chapter include: –What are the basic business processes in which an organization engages? What decisions must be made to undertake these processes? What information is required to make those decisions? –What role does the data processing cycle play in organizing business processes and providing information to users? –What is the role of the information system and enterprise resource planning in modern organizations?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart3 of 119 INFORMATION NEEDS AND BUSINESS PROCESSES Businesses engage in a variety of processes, including: –Acquiring capital –Buying buildings and equipment –Hiring and training employees –Purchasing inventory –Doing advertising and marketing –Selling goods or services –Collecting payment from customers –Paying employees –Paying taxes –Paying vendors Each activity requires different types of decisions.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart4 of 119 INFORMATION NEEDS AND BUSINESS PROCESSES Businesses engage in a variety of processes, including: –Acquiring capital –Buying buildings and equipment –Hiring and training employees –Purchasing inventory –Doing advertising and marketing –Selling goods or services –Collecting payment from customers –Paying employees –Paying taxes –Paying vendors Each decision requires different types of information.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart5 of 119 Types of information needed for decisions: –Some is financial –Some is nonfinancial –Some comes from internal sources –Some comes from external sources An effective AIS needs to be able to integrate information of different types and from different sources. INFORMATION NEEDS AND BUSINESS PROCESSES By improving business processes leading to efficient production, Toyota has become the largest automobile manufacturer in the world, a title held by General Motors for almost 100 years.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart6 of 119 INTERACTION WITH EXTERNAL AND INTERNAL PARTIES The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies. AIS External Parties

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart7 of 119 INTERACTION WITH EXTERNAL AND INTERNAL PARTIES The AIS also interacts with internal parties such as employees and management. AIS Internal Parties External Parties

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart8 of 119 INTERACTION WITH EXTERNAL AND INTERNAL PARTIES The interaction is typically two way, in that the AIS sends information to and receives information from these parties. AIS Internal Parties External Parties

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart9 of 119 A transaction is: –An agreement between two entities to exchange goods or services; OR –Any other event that can be measured in economic terms by an organization. EXAMPLES: –Sell goods to customers –Depreciate equipment BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 10 of 119 The business transaction cycle is a process that: –Begins with capturing data about a transaction. –Ends with an information output, such as financial statements. BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 11 of 119 Many business processes are paired in give-get exchanges. Basic exchanges can be grouped into five major transaction cycles: –Revenue cycle –Expenditure cycle –Production cycle –Human resources/payroll cycle –Financing cycle BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 12 of 119 Many business processes are paired in give-get exchanges. The basic exchanges can be grouped into five major transaction cycles: –Revenue cycle –Expenditure cycle –Production cycle –Human resources/payroll cycle –Financing cycle BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 13 of 119 The revenue cycle involves interactions with your customers. You sell goods or services and get cash. REVENUE CYCLE Give Goods Get Cash

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 14 of 119 Many business processes are paired in give-get exchanges. The basic exchanges can be grouped into five major transaction cycles: –Revenue cycle –Expenditure cycle –Production cycle –Human resources/payroll cycle –Financing cycle BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 15 of 119 The expenditure cycle involves interactions with your suppliers. You buy goods or services and pay cash. EXPENDITURE CYCLE Give Cash Get Goods

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 16 of 119 Many business processes are paired in give-get exchanges. The basic exchanges can be grouped into five major transaction cycles: –Revenue cycle –Expenditure cycle –Production cycle –Human resources/payroll cycle –Financing cycle BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 17 of 119 In the production cycle, raw materials and labor are transformed into finished goods. PRODUCTION CYCLE Give Raw Materials & Labor Get Finished Goods

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 18 of 119 Many business processes are paired in give-get exchanges. The basic exchanges can be grouped into five major transaction cycles: –Revenue cycle –Expenditure cycle –Production cycle –Human resources/payroll cycle –Financing cycle BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 19 of 119 The human resources cycle involves interactions with your employees. Employees are hired, trained, paid, evaluated, promoted, and terminated. HUMAN RESOURCES/ PAYROLL CYCLE Give Cash Get Labor

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 20 of 119 Many business processes are paired in give-get exchanges. The basic exchanges can be grouped into five major transaction cycles: –Revenue cycle –Expenditure cycle –Production cycle –Human resources/payroll cycle –Financing cycle BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 21 of 119 The financing cycle involves interactions with investors and creditors. You raise capital (through stock or debt), repay the capital, and pay a return on it (interest or dividends). FINANCING CYCLE Give Cash Get cash

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 22 of 119 Thousands of transactions can occur within any of these cycles. But there are relatively few types of transactions in a cycle. BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 23 of 119 EXAMPLE: In the revenue cycle, the basic give-get transaction is: –Give goods –Get cash BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 24 of 119 Other transactions in the revenue cycle include: BUSINESS CYCLES Handle customer inquiries Take customer orders Approve credit sales Check inventory availability Initiate back orders Pick and pack orders Ship goods Bill customers Update sales and Accts Rec. for sales Receive customer payments Update Accts Rec. for collections Handle sales returns, discounts, and bad debts Prepare management reports Send info to other cycles Note that the last activity in any cycle is to send information to other cycles.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 25 of 119 Click on the buttons below if you wish to see the transactions that occur in the other cycles: BUSINESS CYCLES Expenditure Cycle Expenditure Cycle Human Res./ Payroll Cycle Human Res./ Payroll Cycle Production Cycle Production Cycle Financing Cycle Financing Cycle

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 26 of 119 Transactions in the expenditure cycle: BUSINESS CYCLES MAJOR GIVE-GET: Give cash; get goods or services OTHER TRANSACTIONS Requisition goods and services Process purchase orders to vendors Receive goods and services Store goods Receive vendor invoices Update accounts payable for purchase Approve invoices for payment Pay vendors Update accounts payable for payment Handle purchase returns, discounts, and allowances Prepare management reports Send info to other cycles Back

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 27 of 119 Transactions in the HR/payroll cycle: BUSINESS CYCLES MAJOR GIVE-GET: Give cash; get labor OTHER TRANSACTIONS Recruit, hire, and train employees Evaluate and promote employees Discharge employees Update payroll records Pay employees Process timecard and commission data Prepare and distribute payroll Calculate and disburse tax and benefit payments Prepare management reports Send info to other cycles Back

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 28 of 119 Transactions in the production cycle: BUSINESS CYCLES MAJOR GIVE-GET: Give labor and raw materials; Get finished goods OTHER TRANSACTIONS Design products Forecast, plan, and schedule production Requisition raw materials Manufacture products Store finished goods Accumulate costs for products Prepare management reports Send info to other cycles Back

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 29 of 119 Transactions in the financing cycle: BUSINESS CYCLES MAJOR GIVE-GET: Give cash; get cash OTHER TRANSACTIONS Forecast cash needs Sell securities to investors Borrow money from lenders Pay dividends to investors and interest to lenders Retire debt Prepare management reports Send info to other cycles Back

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 30 of 119 Every transaction cycle: –Relates to other cycles. –Interfaces with the general ledger and reporting system, which generates information for management and external parties. BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 31 of 119 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle The Revenue Cycle –Gets finished goods from the production cycle. –Provides funds to the financing cycle. –Provides data to the general ledger and reporting system. Finished Goods Funds Data

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 32 of 119 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle The Expenditure Cycle –Gets funds from the financing cycle. –Provides raw materials to the production cycle. –Provides data to the general ledger and reporting system. Funds Raw Mats. Data

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 33 of 119 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle The Production Cycle: –Gets raw materials from the expenditure cycle. –Gets labor from the HR/payroll cycle. –Provides finished goods to the revenue cycle. –Provides data to the general ledger and reporting system. Raw Mats. Data Finished Goods Labor

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 34 of 119 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle The HR/Payroll Cycle: –Gets funds from the financing cycle –Provides labor to the production cycle. –Provides data to the general ledger and reporting system. Labor Funds Data

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 35 of 119 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle The Financing Cycle: –Gets funds from the revenue cycle. –Provides funds to the expenditure and HR/payroll cycles. –Provides data to the general ledger and reporting system. Funds Data Funds

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 36 of 119 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle The General Ledger and Reporting System: –Gets data from all of the cycles. –Provides information for internal and external users. Information for Internal & External Users Data

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 37 of 119 Many accounting software packages implement the different transaction cycles as separate modules. –Not every module is needed in every organization, e.g., retail companies don’t have a production cycle. –Some companies may need extra modules. –The implementation of each transaction cycle can differ significantly across companies. BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 38 of 119 However the cycles are implemented, it is critical that the AIS be able to: –Accommodate the information needs of managers. –Integrate financial and nonfinancial data. BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 39 of 119 Accountants play an important role in data processing. They answer questions such as: –What data should be entered and stored? –Who should be able to access the data? –How should the data be organized, updated, stored, accessed, and retrieved? –How can scheduled and unanticipated information needs be met? To answer these questions, they must understand data processing concepts. TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 40 of 119 An important function of the AIS is to efficiently and effectively process the data about a company’s transactions. –In manual systems, data is entered into paper journals and ledgers. –In computer-based systems, the series of operations performed on data is referred to as the data processing cycle. TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 41 of 119 The data processing cycle consists of four steps: –Data input –Data storage –Data processing –Information output TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 42 of 119 The data processing cycle consists of four steps: –Data input –Data storage –Data processing –Information output TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 43 of 119 The first step in data processing is to capture the data. Usually triggered by a business activity. Data is captured about: –The event that occurred. –The resources affected by the event. –The agents who participated. DATA INPUT

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 44 of 119 A number of actions can be taken to improve the accuracy and efficiency of data input: –Turnaround documents. DATA INPUT EXAMPLE: The stub on your telephone bill that you tear off and return with your check when you pay the bill. The customer account number is coded on the document, usually in machine-readable form, which reduces the probability of human error in applying the check to the correct account.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 45 of 119 A number of actions can be taken to improve the accuracy and efficiency of data input: –Turnaround documents. –Source data automation. DATA INPUT Capture data with minimal human intervention. EXAMPLES: –ATMs for banking. –Point-of-sale (POS) scanners in retail stores. –Automated gas pumps that accept your credit card.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 46 of 119 A number of actions can be taken to improve the accuracy and efficiency of data input: –Turnaround documents. –Source data automation. –Well-designed source documents and data entry screens. DATA INPUT How do these improve the accuracy and efficiency of data input?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 47 of 119 A number of actions can be taken to improve the accuracy and efficiency of data input: –Turnaround documents. –Source data automation. –Well-designed source documents and data entry screens. –Using pre-numbered documents or having the system automatically assign sequential numbers to transactions. DATA INPUT What does it mean if a document number is missing in the sequence?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 48 of 119 A number of actions can be taken to improve the accuracy and efficiency of data input: –Turnaround documents. –Source data automation. –Well-designed source documents and data entry screens. –Using pre-numbered documents or having the system automatically assign sequential numbers to transactions. DATA INPUT What does it mean if there are duplicate document numbers?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 49 of 119 A number of actions can be taken to improve the accuracy and efficiency of data input: –Turnaround documents. –Source data automation. –Well-designed source documents and data entry screens. –Using pre-numbered documents or having the system automatically assign sequential numbers to transactions. –Verify transactions. DATA INPUT EXAMPLE: Check for inventory availability before completing an online sales transaction.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 50 of 119 The data processing cycle consists of four steps: –Data input –Data storage –Data processing –Information output TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 51 of 119 Data needs to be organized for easy and efficient access. Let’s start with some vocabulary terms with respect to data storage. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 52 of 119 Ledger DATA STORAGE A ledger is a file used to store cumulative information about resources and agents. We typically use the word ledger to describe the set of t-accounts. The t-account is where we keep track of the beginning balance, increases, decreases, and ending balance for each asset, liability, owners’ equity, revenue, expense, gain, loss, and dividend account.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 53 of 119 Ledger –Following is an example of a ledger account for accounts receivable: DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 54 of 119 Ledger General ledger DATA STORAGE The general ledger is the summary level information for all accounts. Detail information is not kept in this account.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 55 of 119 Ledger General ledger DATA STORAGE Example: Suppose XYZ Co. has three customers. Anthony Adams owes XYZ $100. Bill Brown owes $200. And Cory Campbell owes XYZ $300. The balance in accounts receivable in the general ledger will be $600, but you will not be able to tell how much individual customers owe by looking at that account. The detail isn’t there.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 56 of 119 Ledger General ledger Subsidiary ledger DATA STORAGE The subsidiary ledgers contain the detail accounts associated with the related general ledger account. The accounts receivable subsidiary ledger will contain three separate t-accounts—one for Anthony Adams, one for Bill Brown, and one for Cory Campbell.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 57 of 119 Ledger General ledger Subsidiary ledger DATA STORAGE The related general ledger account is often called a “control” account. The sum of the subsidiary account balances should equal the balance in the control account.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 58 of 119 Ledger General ledger Subsidiary ledger Coding techniques DATA STORAGE Coding is a method of systematically assigning numbers or letters to data items to help classify and organize them. There are many types of codes including: –Sequence codes –Block codes –Group codes

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 59 of 119 Ledger General ledger Subsidiary ledger Coding techniques DATA STORAGE With sequence codes, items (such as checks or invoices) are numbered consecutively to ensure no gaps in the sequence. The numbering helps ensure that: –All items are accounted for. –There are no duplicated numbers, which would suggest errors or fraud.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 60 of 119 Ledger General ledger Subsidiary ledger Coding techniques DATA STORAGE When block codes are used, blocks of numbers within a numerical sequence are reserved for a particular category. EXAMPLE: The first three digits of a Social Security number make up a block code that indicates the state in which the Social Security number was issued: –001–003New Hampshire –004–007Maine –008–009Vermont

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 61 of 119 Ledger General ledger Subsidiary ledger Coding techniques DATA STORAGE When group codes are used, two or more subgroups of digits are used to code an item. EXAMPLE: The code in the upper, right-hand corner of many checks is a group code organized as follows: –Digits 1–2Bank number –Digit 3Federal Reserve District –Digits 4–7Branch office of Federal Reserve –Digits 8–9State

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 62 of 119 Ledger General ledger Subsidiary ledger Coding techniques DATA STORAGE Group coding schemes are often used in assigning general ledger account numbers. The following guidelines should be observed: –The code should be consistent with its intended use, so make sure you know what users need. –Provide enough digits to allow room for growth. –Keep it simple in order to: Minimize costs Facilitate memorization Ensure employee acceptance –Make sure it’s consistent with: The company’s organization structure Other divisions of the organization

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 63 of 119 Ledger General ledger Subsidiary ledger Coding techniques Chart of accounts DATA STORAGE The chart of accounts is a list of all general ledger accounts an organization uses. Group coding is often used for these numbers, e.g.: –The first section identifies the major account categories, such as asset, liability, revenue, etc. –The second section identifies the primary sub-account, such as current asset or long-term investment. –The third section identifies the specific account, such as accounts receivable or inventory. –The fourth section identifies the subsidiary account, e.g., the specific customer code for an account receivable. The structure of this chart is an important AIS issue, as it must contain sufficient detail to meet the organization’s needs.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 64 of 119 Ledger General ledger Subsidiary ledger Coding techniques Chart of accounts DATA STORAGE Table 2-4 in your textbook contains the chart of accounts for S&S. –What is the account number for federal unemployment taxes payable? –What is the account number for cost of goods sold? –What is the range of account numbers for expenses? –With this chart of accounts, can S&S easily distinguish the costs they incur for automobile insurance from the costs for health insurance?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 65 of 119 Ledger General ledger Subsidiary ledger Coding techniques Chart of accounts Journals DATA STORAGE In manual systems and some accounting packages, the first place that transactions are entered is the journal. –A general journal is used to record: Non-routine transactions, such as loan payments Summaries of routine transactions Adjusting entries Closing entries –A special journal is used to record routine transactions. The most common special journals are: Cash receipts Cash disbursements Credit sales Credit purchases

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 66 of 119 Ledger General ledger Subsidiary ledger Coding techniques Chart of accounts Journals Audit trail DATA STORAGE An audit trail exists when there is sufficient documentation to allow the tracing of a transaction from beginning to end or from the end back to the beginning. The inclusion of posting references and document numbers enable the tracing of transactions through the journals and ledgers and therefore facilitate the audit trail.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 67 of 119 Now that we’ve learned some storage terminology, let’s return to the data storage process. When transaction data is captured on a source document, 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 credited. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 68 of 119 If you took a principles of financial accounting class, you probably worked with journals that looked something like this: DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 69 of 119 You may not have gotten much experience with special journals, but in most real-world situations, journal entries really work like this. –Entries are originally made in the general journal only for: Non-routine transactions Summaries of routine transactions –Routine transactions are originally entered in special journals. The most common special journals are: Credit sales Cash receipts Credit purchases Cash disbursements DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 70 of 119 Let’s work through an example with a special journal. In this case we’ll use the sales journal. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 71 of 119 On December 1, a sale is made to Lee Co. for $800. Lee Co. was sent Invoice No DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 72 of 119 The general ledger account number for accounts receivable is No Lee Co. was about the 122 nd customer, so their subsidiary account number is DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 73 of 119 The next sale on December 1 was made to May Co. for $700. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 74 of 119 The third and final sale on December 1 was made to DLK Co. for $900. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 75 of 119 Suppose the company making these sales posts transactions at the end of each day. Consequently, at day’s end, they will post each individual transaction to the accounts receivable subsidiary ledger: –An $800 increase in accounts receivable (debit) will be posted to Lee Co.’s subsidiary account ( ). –A $700 debit will be posted to May Co.’s subsidiary account ( ). –A $900 debit will be posted to DLK Co.’s subsidiary account ( ). DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 76 of 119 Then a summary journal entry must be made to the general journal. The sales for the period are totaled. In this case, they add up to $2,400. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 77 of 119 The “120/502” that appears beneath the total indicates that a summary journal entry is made in the general journal with a debit to accounts receivable (120) and a credit to sales (502). DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 78 of 119 The entries in the general journal are periodically (or automatically) posted to the general ledger. The $2,400 debit to accounts receivable will be posted to the accounts receivable control account, and the $2,400 credit will be posted to the general ledger account for sales. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 79 of 119 From time to time, the subsidiary account balances will be added up, and this sum will be compared to the balance of the control account. What does it mean if they aren’t equal? DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 80 of 119 Review so far: –When routine transactions occur, they are recorded in special journals. –When non-routine transactions occur, they are recorded in the general journal. –Periodically, the transactions in the special journal are totaled, and a summary entry is made in the general journal. –The individual line items in the special journal are posted to the subsidiary ledger accounts. –The items in the general journal are posted to the general ledger. –Periodically, the balances in the general ledger control accounts are compared to the sums of the balances in the related subsidiary accounts. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 81 of 119 Click the button below if you wish to go through a summary of the remaining steps in the accounting cycle: DATA STORAGE See Remainder Of Accounting Cycle See Remainder Of Accounting Cycle

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 82 of 119 The rest of the story: –As transactions occur, they are recorded in journals and then posted to ledgers. –But that’s not the end of the story. –At the end of each accounting period, we complete the process by carrying out the following steps. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 83 of 119 Using the balances in the general ledger, prepare a trial balance. DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 84 of 119 Prepare the end-of-period adjusting entries. –Record in journal –Post to ledger Make an adjusted trial balance. Using the numbers in the adjusted trial balance, prepare an income statement. Prepare closing entries. Prepare: –Statement of stockholders’ equity –Balance sheet –Statement of cash flows DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 85 of 119 Now let’s move on to discussing some computer-based storage concepts, including: –Entity –Attribute –Record –Data Value –Field –File –Master File –Transaction File –Database COMPUTER-BASED STORAGE CONCEPTS

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 86 of 119 An entity is something about which information is stored. In your university’s student information system, one entity is the student. The student information system stores information about students. What are some other entities in your student information system? COMPUTER-BASED STORAGE CONCEPTS

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 87 of 119 Attributes are characteristics of interest with respect to the entity. Some attributes that a student information system typically stores about the student entity are: –Student ID number –Phone number –Address What are some other attributes about students that a university might store? COMPUTER-BASED STORAGE CONCEPTS

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 88 of 119 A field is the physical space where an attribute is stored. The space where the student ID number is stored is the student ID field. COMPUTER-BASED STORAGE CONCEPTS Col. 1–9Col. 10–30Col. 31–40Col. 41– SIMPSONALICE ANDREWSBARRY FLANDERSCARLA

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 89 of 119 A record is the set of attributes stored for a particular instance of an entity. The combination of attributes stored for Barry Andrews is Barry’s record. COMPUTER-BASED STORAGE CONCEPTS Col. 1–9Col. 10–30Col. 31–40Col. 41– SIMPSONALICE ANDREWSBARRY FLANDERSCARLA

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 90 of 119 A data value is the intersection of the row and column. The data value for Barry Andrews’ phone number is COMPUTER-BASED STORAGE CONCEPTS Col. 1–9Col. 10–30Col. 31–40Col. 41– SIMPSONALICE ANDREWSBARRY FLANDERSCARLA

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 91 of 119 A file is a group of related records. The collection of records about all students at the university might be called the student file. If there were only three students and four attributes stored for each student, the file might appear as shown below: COMPUTER-BASED STORAGE CONCEPTS Col. 1–9Col. 10–30Col. 31–40Col. 41– SIMPSONALICE ANDREWSBARRY FLANDERSCARLA

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 92 of 119 A master file is a file that stores cumulative information about an organization’s entities. It is conceptually similar to a ledger in a manual AIS in that: –The file is permanent. –The file exists across fiscal periods. –Changes are made to the file to reflect the effects of new transactions. COMPUTER-BASED STORAGE CONCEPTS

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 93 of 119 A transaction file is a file that contains records of individual transactions (events) that occur during a fiscal period. It is conceptually similar to a journal in a manual AIS in that: –The files are temporary. –The files are usually maintained for one fiscal period. COMPUTER-BASED STORAGE CONCEPTS

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 94 of 119 A database is a set of interrelated, centrally- coordinated files. When files about students are integrated with files about classes and files about instructors, we have a database. COMPUTER-BASED STORAGE CONCEPTS Student File Class File Instructor File

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 95 of 119 The data processing cycle consists of four steps: –Data input –Data storage –Data processing –Information output TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 96 of 119 Once data about a business activity has been collected and entered into a system, it must be processed. DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 97 of 119 There are four different types of file processing: –Updating data to record the occurrence of an event, the resources affected by the event, and the agents who participated, e.g., recording a sale to a customer. –Changing data, e.g., a customer address. –Adding data, e.g., a new customer. –Deleting data, e.g., removing an old customer that has not purchased anything in 5 years. DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 98 of 119 Updating can be done through several approaches: –Batch processing DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 99 of 119 Batch processing: –Source documents are grouped into batches, and control totals are calculated. –Periodically, the batches are entered into the computer system, edited, sorted, and stored in a temporary file. –The temporary transaction file is run against the master file to update the master file. –Output is printed or displayed, along with error reports, transaction reports, and control totals. DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 100 of 119 Updating can be done through several approaches: –Batch processing –Online batch processing DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 101 of 119 Online batch processing: –Transactions are entered into a computer system as they occur and stored in a temporary file. –Periodically, the temporary transaction file is run against the master file to update the master file. –The output is printed or displayed. DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 102 of 119 Updating can be done through several approaches: –Batch processing –Online batch processing –Online, real-time processing DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 103 of 119 Online, real-time processing –Transactions are entered into a computer system as they occur. –The master file is immediately updated with the data from the transaction. –Output is printed or displayed. DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 104 of 119 Updating can be done through several approaches: –Batch processing –Online batch processing –Online, real-time processing If you’re going through enrollment, which of these approaches would you prefer that your university was using? Why? DATA PROCESSING

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 105 of 119 The data processing cycle consists of four steps: –Data input –Data storage –Data processing –Information output TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 106 of 119 The final step in the information process is information output. This output can be in the form of: –Documents INFORMATION OUTPUT Documents are records of transactions or other company data. EXAMPLE: Employee paychecks or purchase orders for merchandise. operational documentsDocuments generated at the end of the transaction processing activities are known as operational documents (as opposed to source documents). They can be printed or stored as electronic images.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 107 of 119 The final step in the information process is information output. This output can be in the form of: –Documents –Reports INFORMATION OUTPUT Reports are used by employees to control operational activities and by managers to make decisions and design strategies. They may be produced: –On a regular basis –On an exception basis –On demand Organizations should periodically reassess whether each report is needed.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 108 of 119 The final step in the information process is information output. This output can be in the form of: –Documents –Reports –Queries INFORMATION OUTPUT Queries are user requests for specific pieces of information. They may be requested: –Periodically –One time They can be displayed: –On the monitor, called soft copy. –On the screen, called hard copy.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 109 of 119 Output can serve a variety of purposes: –Financial statements can be provided to both external and internal parties. –Some outputs are specifically for internal use: For planning purposesFor planning purposes INFORMATION OUTPUT Examples of outputs for planning purposes include: –Budgets Budgets are an entity’s formal expression of goals in financial terms. –Sales forecasts

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 110 of 119 Output can serve a variety of purposes: –Financial statements can be provided to both external and internal parties. –Some outputs are specifically for internal use: For planning purposes For management of day-to-day operationsFor management of day-to-day operations INFORMATION OUTPUT Example: Delivery schedules

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 111 of 119 Output can serve a variety of purposes: –Financial statements can be provided to both external and internal parties. –Some outputs are specifically for internal use: For planning purposes For management of day-to-day operations For control purposesFor control purposes INFORMATION OUTPUT Performance reports are outputs that are used for control purposes. These reports compare an organization’s standard or expected performance with its actual outcomes. Management by exception is an approach to utilizing performance reports that focuses on investigating and acting on only those variances that are significant.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 112 of 119 Output can serve a variety of purposes: –Financial statements can be provided to both external and internal parties. –Some outputs are specifically for internal use: For planning purposes For management of day-to-day operations For control purposes For evaluation purposesFor evaluation purposes INFORMATION OUTPUT These outputs might include: –Surveys of customer satisfaction. –Reports on employee error rates.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 113 of 119 The traditional AIS captured financial data. –Non-financial data was captured in other, sometimes-redundant systems Enterprise resource planning (ERP) systems are designed to integrate all aspects of a company’s operations (including both financial and non-financial information) with the traditional functions of an AIS. ROLE OF THE AIS

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 114 of 119 We’ve learned about the basic business processes in which an organization engages, the decisions that need to be made, and the information required to make those decisions. We’ve reviewed the data processing cycle and its role in organizing business processes and providing information to users. Finally, we’ve touched on the role of the information systems in modern organizations and introduced the notion of enterprise resource planning systems. SUMMARY