3 Learning ObjectivesExplain the three basic functions performed by an accounting information system (AIS).Describe the documents and procedures used in an AIS to collect and process transaction data.Discuss the types of information that can be provided by an AIS.Describe the basic internal control objectives of an AIS and explain how they are accomplished.
4 Introduction: S&S, Inc. The grand opening of S&S is two weeks away. Scott and Susan recognize that they need qualified accounting help and have hired a full-time accountant, Ashton Fleming.Ashton is responsible for creating an accounting information system (AIS).
5 Introduction: S&S, Inc. What questions does Ashton ask himself? How am I going to organize things?Where do I start?What information does S&S need in order to operate effectively?How can that information be provided?
6 Introduction: S&S, Inc.How am I going to collect and process data about all the types of transactions that S&S will engage in?How do I organize all the data that will be collected?How should I design the AIS so that the information provided is reliable and accurate?
7 Learning Objective 1Explain the three basic functions an accounting information system (AIS) performs.
8 IntroductionThis chapter provides an overview of how an AIS can perform its three basic functions :To collect and store data about the organization’s business activities and transactions efficiently and effectivelyTo provide information useful for decision makingTo provide adequate controls to ensure that data are recorded and processed accurately
9 Introduction This chapter will examine: Basic types of business activities in which an organization engagesKey decisions that must be considered when managing those activitiesInformation needed to make those decisions
10 Introduction This chapter: Describes how data about business activity is collected, processed and transformed into useful information for managementThen, it will introduce the concept of internal controls
11 The Three Basic Functions Performed by an AIS To collect and store data about the organization’s business activities and transactions efficiently and effectively:Capture transaction data on source documents.Record transaction data in journals, which present a chronological record of what occurred.Post data from journals to ledgers, which sort data by account type.
12 The Three Basic Functions Performed by an AIS To provide management with information useful for decision making:In manual systems, this information is provided in the form of reports that fall into two main categories:financial statementsmanagerial reports
13 The Three Basic Functions Performed by an AIS To provide adequate internal controls:Ensure that the information produced by the system is reliable.Ensure that business activities are performed efficiently and in accordance with management’s objectives.Safeguard organizational assets.
14 Basic Subsystems in the AIS The revenue cycle: involves activities of selling goods or services and collecting payment for those sales.The expenditure cycle: involves activities of buying and paying for goods or services used by the organization.The human resources/payroll cycle: involves activities of hiring and paying employees.
15 Basic Subsystems in the AIS The production cycle: involves activities converting raw materials and labor into finished goods.The financing cycle: involves activities of obtaining necessary funds to run the organization, repay creditors, and distribute profits to investors.
16 Basic Subsystems in the AIS ExpenditureCycleHumanResourcesProductionRevenueFinancingGeneral Ledger & Reporting System
17 Learning Objective 2Describe the documents and procedures used in an AIS to collect and process transaction data.
18 The Data Processing Cycle The data processing cycle consists of four steps:Data inputData storageData processingInformation Output
19 The Data Processing Cycle The trigger for data input is usually business activity. Data must be collected about:Each event of interestThe resources affected by each eventThe agents who participate in each event
20 Data Processing Cycle: Data Input Historically, most businesses used paper source documents to collect data and then transferred that data into a computer.Today, most data are recorded directly through data entry screens.
21 Data Processing Cycle: Data Input Control over data collection is improved by:prenumbering each source document and using turnaround documentshaving the system automatically assign a sequential number to each new transactionemploying source data automation
22 Common Source Documents and Functions REVENUE CYCLESource Document FunctionSales order Take customer order.Delivery ticket Deliver or ship orderRemittance advice Receive cash.Deposit slip Deposit cash receipts.Credit memo Adjust customer accounts
23 Common Source Documents and Functions EXPENDITURE CYCLESource Document FunctionPurchase requisition Request items.Purchase order Order items.Receiving report Receive items.Check Pay for items.
24 Common Source Documents and Functions HUMAN RESOURCES CYCLESource Document FunctionW4 forms Collect employeewithholding data.Time cards Record time workedby employees.Job time tickets Record time spenton specific jobs.
25 Common Source Documents and Functions GENERAL LEDGER ANDREPORTING SYSTEMSource Document FunctionJournal voucher Record entry posted togeneral ledger.
26 Data Processing Cycle: Data Processing Batch processing is the periodic updating of the data stored about resources and agentsOn-line, real-time processing is the immediate updating as each transaction occurs
27 Data Processing Cycle: Data Storage An entity is something about which information is stored.Each entity has attributes or characteristics of interest, which need to be stored.
28 Record Transaction Data in Journals After transaction data have been captured on source documents, 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 debited and credited.
29 Record Transaction Data in Journals The general journal records infrequent or nonroutine transactions.Specialized journals simplify the process of recording large numbers of repetitive transactions.What are the four most common types of transactions?
30 Record Transaction Data in Journals Credit salesCash receiptsPurchases on accountCash disbursements
31 Record Transaction Data in Journals Page 5Sales JournalInvoice Account Account PostDate Number Debited Number Ref AmountDec Lee CoDec May CoDec DLK CoTOTAL: ,400.00120/502
32 Post Transactions to Ledgers Ledgers are used to summarize the financial status, including the current balance, of individual accounts.The general ledger contains summary-level data for every asset, liability, equity, revenue, and expense account of an organization.
33 Post Transactions to Ledgers A subsidiary ledger records all the detailed data for any general ledger account that has many individual subaccounts.What are some commonly used subsidiary ledgers?accounts receivableinventoryaccounts payable
34 Post Transactions to Ledgers What is the general ledger account corresponding to a subsidiary ledger called?control accountA control account contains the total amount for all individual accounts in the subsidiary ledger.
36 What is the Chart of Accounts? The chart of accounts is a list of all general ledger accounts used by an organization.It is important that the chart of accounts contains sufficient detail to meet the information needs of the organization.
37 Learning Objective 3Discuss the types of information that an AIS can provide.
38 Providing Information for Decision Making The second function of the AIS is to provide management with information useful for decision making.The information an AIS provides falls into two main categories:Financial StatementsManagerial Reports
39 Financial Statements Prepare a trial balance. Make adjusting entries. Prepare the adjusted trial balance.Produce the income statement.Make closing entries.Produce the balance sheet.Prepare the statement of cash flows.
40 Managerial ReportsThe AIS must also be able to provide managers with detailed operational information about the organization’s performance.Two important types of managerial reports arebudgetperformance reports
41 Managerial Reports What is a budget? A budget is the formal expression of goals in financial terms.One of the most common types of budget is a cash budget.
42 Managerial Reports What is a performance report? A performance report lists the budgeted and actual amounts of revenues and expenses and also shows the variances, or differences, between these two amounts.
43 Managerial ReportsMagic Co. Monthly Performance Report Budget Actual VarianceSales $32,400 $31, ($900)Cost of Goods , ,000 (2,000)Gross Margin $20,400 $17,500 ($2,900)Other Expenses , , ,000Operating Income $11,400 $10, ($900)
44 Learning Objective 4Describe the basic internal control objectives of an AIS and explain how they are accomplished.
45 Internal Control Considerations The third function of an AIS is to provide adequate internal controls to accomplish three basic objectives:Ensure that the information is reliable.Ensure that business activities are performed efficiently.Safeguard organizational assets.
46 Internal Control Considerations What are two important methods for accomplishing these objectives?Provide for adequate documentation of all business activities.Design the AIS for effective segregation of duties.
47 Adequate Documentation Documentation allows management to verify that assigned responsibilities were completed correctly.What did Ashton encounter while working as an auditor that gave him a firsthand glimpse of the types of problems that can arise from inadequate documentation?failure to bill for repair work
48 What is Segregation of Duties? Segregation of duties refers to dividing responsibility for different portions of a transaction among several people.What functions should be performed by different people?authorizing transactionsrecording transactionsmaintaining custody of assets