1. System Descriptions

2. What we will do today… Today, we will describe the billing and cash receipts systems of a simple company The points to think about are –Why do we do all of the things that we do? –How can we tell this story more efficiently and (perhaps) effectively? We will tell the story sort of like a “play” with characters acting out parts.

3. Why do we care about accounting information systems? Another way of asking this question is: What do we wish to accomplish with our system? There are several related answers to this question, including the following: Make certain that the transaction information that is recorded fully and correctly reflects the transactions which have occurred. Provide some protection against theft and fraudulent financial statements. Provide managers with the type of information that they require to make decisions.

4. The first two items are termed control characteristics of the system. How does the system (the way you process information) influence the likelihood that your information is correct and does it provide some checks against theft? The third item relates to the efficiency of the information system at providing useful information for management decisions.

5. 1) All transactions which were entered into were recorded. In other words, there are no transactions (such as purchases for credit) which exist, but which did not get recorded. 2) All transactions which were recorded actually occurred. We want to make sure that transactions did not accidentally get recorded twice and that no fraudulent transactions were recorded. 3) All transactions which occurred and which were recorded were properly authorized. Suppose the mailroom clerk sold the company truck for $25.00 to his best friend! 4) All recorded transactions are recorded and transcribed accurately. We want to make sure (first of all) that everything got entered correctly! The double-entry system of bookkeeping helps with this. We will focus, in this course, on the control characteristics of the system. Specifically, we will want our system to provide some assurance of the following issues: We will refer to these control objectives of the system as Input completeness (#1), input validity (#2 and #3), and input accuracy (#4). We will also be concerned with some other “accuracy” and “completeness” issues related to updating the general ledger, but we will worry about this later. These control issues will be discussed in the last segment of the course.

6. Transaction cycles When a company sells its product, it increases one asset (either cash or accounts receivable) and decreases another (inventory). Profit comes from the difference in value between the asset received and the asset given up. We can think of the sale and purchase of inventory as cycles. You continually have to purchase new items to sell our you will go out of business.

8. These cycles are important because we can use our knowledge about the relationships between sales, accounts receivable, and cash receipts (inventory, purchases, accounts payable, and cash disbursements) to decrease the possibility of errors and theft. As an example, consider a situation in which a customer calls and says that he received an invoice from your company and that he never purchased anything. You should be able to trace the invoice (the bill) back to a sales transaction and a contract to purchase. This brings up an interesting question: how could we trace an invoice back to a contract to purchase? The answer to this question is what this course is all about. The primary way we make sure that our system achieves the control objectives we outlined above is by establishing documentation procedures that tie recorded transactions to existing transactions.

9. The Players Sales manager Accounts Receivable clerk Shipping Clerk Mailroom clerk Cashier General Ledger Clerk Sales Transactions Sales and Billing Process

10. Sales (approving the transaction) Sales Dept: From the Purchase Order, fill out the Charge Sale Invoice document, leaving blank the “verified by” space then give it to A/R. This is a Sales Order Header. Accts Rec: Approve the transaction and complete the Sales Order. This will be an invoice when the items have been shipped. Send 2 copies of the invoice to Shipping (one is a packing slip). Send an “approved” copy back to Sales. Sales Dept: Send the vendor acknowledgement back to the customer. Inform the customer of the sales order number for future correspondence, give them someone to contact and an estimated date.

11. Sales (executing the transaction) Shipping: Fills the order, notes the quantity shipped and computes the extension and total sale. Sends a copy to the customer (as a packing slip). Fills in the BOL# and returns to A/R. Accts Rec: Record the account receivable in the A/R subsidiary ledger (This is like a file for this particular customer). Send a copy of the complete invoice to the G/L department. Send a copy of the complete invoice to the customer.

12. Sales (recording the sale in the General Journal) G/L department (accounting) Record the invoice from Accounts Receivable.

13. Sales clerks receives a PO Forwards to Accounts Receivable for approval Accounts Receivable Prepares Sales Order Header Prepare S/O SALES

14. Approves the transaction and annotates the SO header making it a Sales Order Returns Sales Order to sales clerk. Checks the A/R subsidiary ledger Approved Sales Send copies to shipping (one is Packing Slip) Shipping A/R

15. Approved Customer Prepare V/A Prepare vendor acknowledgement Send to customer SALES

16. Approved Fills the order, notes the quantity shipped and computes the extension and total sale. Sends a copy to the customer (as a packing slip). Invoice A/R w/ BOL Customer Fills in the BOL# and returns to A/R. SHIPPING

17. Invoice Record the account receivable in the A/R subsidiary ledger (This is like a file for this particular customer). Send a copy of the complete invoice to the G/L department. Send a copy of the complete invoice to the customer. G/L Invoice Customer A/R

18. Record the invoice from Accounts Receivable. Invoice Accts. RecXXX Sales XXX G/L

20. I remember that! 1.How many points is the SUA worth? 2.The projects all use Microsoft Access (T/F) 3.The class has one group project (T/F) 4.Students can post to the blog (T/F)