1. Week 1b

2. Chapter 2—AIS processes
Business activities
Business cycles
Data Processing Cycle

3. Business Activities
Basic business activities an organization engages in?
Buying buildings/equipment
Hiring/training employees
Purchasing inventory
Selling goods/services
Paying Vendors
Acquiring capital

4. Basic Business Processes
A set of
Give-Get exchanges

5. Effective AIS Each activity requires different types of information.
Information may be financial or non-financial
Source of information may be internal or external
An effective AIS needs to be able to integrate this information

6. Interaction
S/Ls

7. Business cycles
Like business activities for the AIS to capture, process, report
Revenue
Expenditure
Some companies split out Fixed Assets as there own cycle
PR (in book = HR)
Production
Treasury (in book = Financing)

8. What is missing? FINANCIAL REPORTING
Most companies now consider the activities around this process a separate cycle
Activities include?
Journal entries
Financial disclosure
Management review

9. Business Activities = Cycle groupings
Buying buildings/equipment=
Fixed Asset Cycle
Hiring/training employees=
HR/Payroll Cycle
Cycle counting inventory=
Production Cycle
Selling goods/services=
Revenue Cycle
Paying Vendors=
Expenditure Cycle
Acquiring Capital=
Treasury Cycle

10. Things to keep in mind
Thousand of transactions can occur within a cycle, but there are relatively few types of transactions in a cycle.
Every transaction cycle relates to other cycles and interfaces with the general ledger/reporting system (i.e. Financial Close Cycle), which generates information for management and external parties.
Accounting software packages often separate into modules that mirror cycles.
Not every company uses every cycle.

11. Chapter 2 – Problem 2.9 Answer to Problem 2.9:
Classify each of the following items as belonging in the revenue, expenditure, human resources/payroll, production, or financing cycle.
Purchase raw materials –
Expenditure cycle
Payoff mortgage on factory –
Treasury cycle
Hire a new assistant controller –
Payroll cycle
Establish a $10,000 credit limit for customer XYZ company –
Revenue cycle

12. Chapter 2 – Problem 2.9 (cont)
Answer to Problem 2.9 (cont):
Classify each of the following items as belonging in the revenue, expenditure, human resources/payroll, production, or financing cycle.
e) Pay for raw materials –
Expenditure cycle
f) Disburse payroll checks to factory workers -
PR cycle
g) Record goods received from vendor –
h) Update the allowance for uncollectible accounts –
Financial Reporting cycle (book=Revenue)
Decide how many units to make next month – Production cycle
Production cycle

13. Data Processing “Cycle”
An important function of the AIS is to efficiently and effectively process the data about a company’s transactions.
The “data processing cycle’s” 4 steps:
Data input
Data storage
Data processing
Information output

14. i.e. Collect data Capture the data Implement control procedures
Record in journals
General for rare or adjusting
Specialized for standardized
Post to ledgers
Prepare reports

15. Data Input Usually triggered by a business activity What is captured?
Timing of the event (when)
Characteristics (what is affected)
Participants (who)

16. Data Input: Internal control considerations
A number of small actions can improve the accuracy and efficiency of data input:
Document design (manual)
Multiple copies
Space for approval sign-off
Pre-numbered
Input (automated)
Fill-in based on key data
Automatic numbering
Smart fields
Matching to existing data

17. Data Storage Data needs to be organized for easy and efficient access
With automated systems, master tables (chart of accounts, vendor, customer, inventory, etc.) set-up, content and access is critical to integrity of system

18. Data storage: Internal control considerations
Sequence codes: consecutive numbering to prevent gaps and/or duplicates
Sub-ledgers/journals: provide more details for like transactions and enhance information retrieval/support
Smart coding: means of grouping items (G/L account, vendors, inventory, customers, etc.) for analysis
Audit trail: adequate documentation to allow tracing of a transaction from beginning to end or from end back to beginning (i.e. posting references, document numbers, bundling)

19. Audit Trail

20. Data Processing Updating data-recording the transaction
i.e. purchase of raw material, record a customer sale
Changing data-update to existing permanent records
i.e. change a customer address, change the name of a vendor
Adding data-add a new permanent record
i.e. add new G/L account, add new inventory item
Deleting data-delete permanent record (be very careful do not destroy existing audit trail, usually involves lack of activity in the current period at least)
i.e. remove non-active customer

21. Data (Computer) processing
Master/transaction files
Batch/real-time/on-line
Queries/reports
I am going to spend little time on this, but expect you to use the terms and concepts pretty readily…ask questions if you need to.

22. Data processing: Internal control considerations
Access, Access, Access
Edit reports: provides potential errors in data (i.e. unusual account balances (negative cash, credit balance for an expense account)
IT Segregation of duties

23. Information output
Documents – generated for internal or external use; can be printed or stored electronically (i.e. paychecks, invoices, purchase orders)
Reports – used by employees to control operational activities and by manages to make decisions and design strategies (i.e. general ledger, variance analysis, inventory turnover)
Queries – ad hoc user requests for specific information; often system display only (i.e. vendor address, customer credit limit)

24. Information output: Internal control considerations
Confidentiality – develop means to restrict access to certain data (SS#s, pricing data, costing, etc.)
Timeliness – information should be available when needed (invoices, M/E reports, audit schedules) by user, not restricted by system processing
Version Control – user should be able to readily determine information “as of” date. Is it as of a certain date/time period (today, M/E, Year-to-date), last processing update, real-time? Previous (historical) data availability should also be based on user needs.