Chapter 2: The Business Environment and the AIS Accounting Information Systems: Essential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing Chapter 2: The Business Environment and the AIS Slides Authored by Somnath Bhattacharya, Ph.D. Florida Atlantic University

The Business Firm as a System Organization Information System Operational Organization’s functions Business Firm Environment of the Firm AIS Transaction Cycles Business Events from Operations Figure 2-1

System Characteristics of Business Firms Objectives Environment Constraints Input-Process-Output Feedback Controls Subsystems

Examples of AIS Subsystems (Merchandising) Inventory System General Ledger Order entry Sales Billing/ A. Receivable Cash Receipts Purchasing/ A. Payable/ Cash Disb. Human Resource Management (Payroll) Revenue Cycle Expenditure Shipping Receiving Ext/Fin. reporting Tax & req. reporting Internal reporting No Planning/Control, Investment, or Production Cycles reflected here

Examples of AIS Subsystems: Service Firm Revenue General Ledger System Human resource Management (payroll) Service firm Revenue Cycle Billing/ A.Receivables Cash Receipts No Purchasing, Production, Planning/Control, Investment Cycles reflected here

Examples of AIS Subsystems: Production Cycle Inventory System Human Resource Management (Payroll General Ledger Purchasing/ A. Payable/ Cash Disb. Production Production Cycle No Revenue, and Investment Cycles reflected here

Organizational Structure in Business Firms Hierarchical Matrix: Blend functional and project-oriented structures Decentralized Network

A Networked Organizational Structure Consultant Training Marketing Consulting Services Consultant Recruitment Operation Management Customer Project Team Customer Services Management Figure 2-5

The Operational System of a Manufacturing Firm Facilities Labor (human services) Data Funds Acquiring Materials Producing Finished Goods Storing Shipping to Customer Supporting Operations AIS Information Material from Supplier Manufacturing Firm Data and information flow Physical flows Figure 2-7

Useful Data Elements Concerning a Business Event The nature of the element and when it occurred Which “agents” were involved What kinds of resources were involved and in what quantities Where the event took place

Data Management: Some Specifics Records { File

Some More Specifics The manual activity of journalizing transactions is equivalent to the computerized recording of transactions in a transaction file In general, manual accounting journals are equivalent to computerized transaction files Similarly, manual general ledger and subsidiary ledgers are equivalent to computerized Master files. e.g., There is typically 1 record in the general ledger for each account in an entity’s chart of accounts Examples of Master files include: Accounts Receivable Master File Accounts Payable Master File Inventory Master File 12

Basic Rules of Flowcharting - I 1) The flow begins at the upper left-hand corner of the sheet and generally moves from left to right and from top to bottom 2) All steps are clearly presented in a sequence, or a series of sequences. No obvious gaps in the procedure should be present 3) Symbols are used consistently throughout. Thus the symbol for manual processing (an inverted trapezoid) should appear each time a clerk performs a step in the procedure Examples: What is what? Figure 2-9

Basic Rules of Flowcharting - II 4) The dispositions of all documents and reports are shown. In fact, the final “resting place” of every copy of every of every prepared document should be specified. Typical dispositions include placing documents in files, sending documents to outside parties such as customers, forwarding documents to connecting procedures (such as a general ledger procedure), and distributing reports to managers. If the disposition consists of destroying a document, this action may be represented in the manner shown below: Source Document Destroy From prior processing Figure 2-9 - continued

Basic Rules of Flowcharting - III 5) The “sandwich” rule is consistently applied. This rule states that a processing symbol should be sandwiched between an input symbol and an output symbol, in the manner shown below: Input document Output Manual Process Figure 2-9 - continued

Basic Rules of Flowcharting - IV 6) When a document crosses an organizational line within the flowchart, the document is pictured again in the new organizational unit. However, the repetition is not usually necessary in some instances if the organizational units are adjacent 7) All symbols contain a brief but specific label written inside the symbols 8) Multiple copies of documents are drawn as an overlapping group and are numbered in the upper right-hand corners; these numbers remain the copies during their flows through the procedure Figure 2-9 - continued

Basic Rules of Flowcharting - V 9) Added comments are included within annotation symbols and are attached to appropriate symbols, such as the processing symbols to which the comments are related 10) Ample connections (cross-references) are provided. The symbols used in forming the connections depend on the situation. Thus, if two sheets are needed to to contain the flowchart, the flows between pages are formed by off-page connector symbols. In those cases where the procedure being flowcharted links to an adjoining procedure, the connection can be formed by a terminal symbol Figure 2-9 - continued

Basic Rules of Flowcharting - VI 11) Exceptional Occurrences, such as back orders, are clearly noted. They may appear as (i) comments within annotation symbols, (ii) separate flowcharts, with references to the main flowchart, or (iii) decision branches, as shown below: Customer Credit Satisfactory? Reject Order Accept Rejection Letter Acknowledgement Sales Order To Customer To sales Order Processing From prior processing Figure 2-9 - continued

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