1. Overview of Business Processes
Chapter 2
Edited Hull, Hayes, and El-Masry
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2. The Three Basic Functions Performed by an AIS (Pg. 7)
The efficient and effective processing of data about a company’s transactions:
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.
Page 22
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3. 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 statements
managerial reports
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4. Comparison of financial Statements and Management Reports
Management Reports Financial Statements
1. Internally focus
2. No mandatory rules
3. Financial and nonfinancial information; subjective information possible
4. Emphasis on the future
5. Internal evaluation and decisions based on very detailed information
1. Externally focus
2. Must follow externally imposed rules
3. Objective financial information
4. Historical orientation
5. Information about the firm as a whole
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5. 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.
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6. Basic Subsystems in the AIS
Financing
Cycle
Expenditure
Cycle
Human
Resources
General Ledger & Reporting System
From Ch 2, page 23
Production
Cycle
Revenue
Cycle

7. Cycle Give – Get Transactions
Financing cycle get cash, give cash
Expenditure cycle – give cash, get goods
Human resources cycle – give cash, get labor
Production cycle – give labor, give raw materials, get finished goods
Revenue cycle – give goods, get cash
Figure 2-1, p 25
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8. Capture Transaction Data on Source Documents
Control over data collection is improved by prenumbering each source document.
Accuracy and efficiency in recording transaction data can be further improved if source documents are properly designed.
P 27, Note Table 2-2; page 27 – 28;
Source documents generally help improve accuracy in transactin processing because (a) they specify which information to collect due to their structure; (B) standard information is preprinted on the document; and © they provide directins and steps for completing the form.
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9. Turnaround Documents are records of company data sent to an external party and then returned to the system as an input.
Page 28
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10. Source Documents and Functions for the Revenue Cycle
Source Document Function
Sales order Record customer order.
Delivery ticket Record delivery to customer.
Sales invoice Bill customer for sales on account
Remittance advice Receive cash.
Deposit slip Record amounts deposited.
Credit memo Support adjustments to customer accounts.
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11. Source Documents and and Functions for the Expenditure Cycle
Source Document Function
Purchase requisition Request that purchasing department order goods.
Purchase order Request goods from vendors.
Receiving report Record receipt of merchandise.
Check Pay for items.
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12. Source Documents and Functions for the Human Resource Cycle
Source Document Function
W4 forms Collect employee withholding data.
Time cards Record time worked by employees.
Job time tickets Record time spent on specific jobs.
(Job Costing System)
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13. Source Documents and Functions for the General Ledger & Reporting System
Source Document Function
Journal voucher Record entry posted to general ledger.
(JV) May come from various journals.
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14. 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.
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15. 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?
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16. Record Transaction Data in Journals
Credit sales
Cash receipts
Purchases on account
Cash disbursements
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17. Record Transaction Data in Journals
Page 5
Sales Journal
Invoice Account Account Post
Date Number Debited Number Ref. Amount
Dec Lee Co
Dec May Co
Dec DLK Co
TOTAL: ,400.00
120/502

18. Post Transactions to Ledgers
The general ledger contains summary-level data for every asset, liability, equity, revenue, and expense account of an organization.
A subsidiary ledger records all the detailed data for any general ledger account that has many individual subaccounts.
Commonly used subsidiary ledgers….
accounts receivable
inventory
accounts payable
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19. Post Transactions to Ledgers
Sales Journal Page 5
Invoice Account Account Post
Date Number Debited Number Ref. Amount
Dec DLK Co
TOTAL ,400.00
120/502
General Ledger Account: Accounts Receivable Account Number: Date Description Post Ref Debit Credit Balance Dec. 1 Sales SJ5 2, ,400

20. Post Transactions to Ledgers
Sales Journal Page 5
Invoice Account Account Post
Date Number Debited Number Ref. Amount
Dec DLK Co
TOTAL ,400.00
120/502
General Ledger Account: Credit Sales Account Number: Date Description Post Ref Debit Credit Balance Dec. 1 Sales SJ , ,400

21. What is an Audit Trail?
An audit trail provides a means to check the accuracy and validity of ledger postings.
Observe that the posting reference for $2,400 credit to the sales account in the general ledger, SJ5, refers back to page 5 of the sales journal.
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22. 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.
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23. Chart of Accounts Long-Term Liabilities (220-239) 222 Mortgage Payable
OWNERS’ EQUITY ( )
301 Capital Stock
330 Retained Earnings
SALES ( )
400 Sales Revenue
EXPENSES ( )
500 Cost of Goods Sold
523 Rent Expense
528 Advertising Expense
573 Utility Expense
ASSETS ( )
Current Assets ( )
101 Cash
105 Accounts Receivable
107 Inventory
Long-Term Assets ( )
151 Land
152 Building
LIABILITIES ( )
Current Liabilities ( )
201 Notes Payable
202 Accounts Payable
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24. Financial Statements
The second function of the AIS is to provide management with information useful for decision making.
The preparation of financial statements consists of a sequence of activities.
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25. 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.
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26. Managerial Reports
The AIS must also be able to provide managers with detailed operational information about the organization’s performance.
What reports does management need?
inventory status
budgets
performance reports
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27. Managerial Reports What is a budget?
A budget is the formal expression of goals in financial terms.
What are some types of budgets?
cash
operating
capital
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28. 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.
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29. Managerial Reports
Magic Co. Monthly Performance Report Budget Actual Variance
Sales $32,400 $31, ($900)
Cost of Goods , ,000 (2,000)
Gross Margin $20,400 $17,500 ($2,900)
Other Expenses , , ,000
Operating Income $11,400 $10, ($900)
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30. 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.
Page 36
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31. 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, including:
a-authorizing transactions
b-recording transactions
c-custody of assets
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32. Enterprise Resource Planning (ERP)
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.
Major ERP systems include ORACLE and SAP. Refer to SQL Oracle Handouts (DDL, DML, and DQL).
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