1. Core Concepts of ACCOUNTING INFORMATION SYSTEMS Moscove, Simkin & Bagranoff John Wiley & Sons, Inc. Developed by: S. Bhattacharya, Ph.D. Florida Atlantic University

2. Chapter 7 Accounting Information Systems and Business Processes: Part II Introduction Additional Business Processes Business Processes in Special Industries Business Process Reengineering

3. Introduction Many organizations have specialized information needs, apart from the typical AIS requirements. The focus of AISs is moving from transaction processing to capturing data around business processes. Two important transaction processing cycles common to many organizational entities are the production and financing cycles.

4. The Resource Management Process Organizations use resources to produce goods or services sold to generate revenues. Two other resources besides inventory requiring attention by an AIS are human resources and fixed assets.

5. Human Resource Management An organization’s human resource management activity includes the personnel function and the payroll function. The personnel function is responsible for hiring employees and maintaining personnel records. The payroll function is responsible for maintaining the accounting records related to employee remuneration.

6. Objectives of Human Resource Management Hiring, training, and employing workers Maintaining employee earnings records Complying with regulatory reporting requirements Reporting on payroll deductions Making timely and accurate payments to employees Providing an interface for personnel and payroll activities

7. Inputs to Human Resource Management Personnel Action Forms - document the hiring of new employees or changes in employee status Time Sheets - used to track hours worked Payroll Deduction Forms - authorize the payroll system to deduct amounts from gross pay for items such as retirement, insurance, or union dues Tax Withholding Forms - authorize payroll to reduce gross pay by the appropriate withholding tax.

8. Outputs of Human Resource Management Financial Statement Information Employee Listings - shows current employees and may contain address and other demographic information Paychecks - the final documents in the process; subject to strict internal controls Check Registers - used to make journal entries for salary and payroll tax expenses

9. Outputs of Human Resource Management Deduction Reports - contain summaries of deductions for employees as a group Tax (Regulatory) Reports - reports the government requires for income tax, social security tax, and unemployment tax information Payroll Summaries - used by management in analyzing expenses

10. Fixed Asset Management Fixed assets are assets with usable lives of more than one year. The objective of a fixed-asset management system is to manage the purchase, maintenance, valuation and disposal of an organization’s fixed assets.

11. Objectives of Fixed Asset Management Tracking purchases of fixed assets Recording fixed asset maintenance Valuing fixed assets Allocating fixed asset costs (recording depreciation) Tracking fixed asset disposals

12. Inputs to Fixed Asset Management Purchase Requisition Receiving Reports Supplier Invoices Construction Work Orders - if the company builds the asset Repairs and Maintenance Reports - notifies a company’s AIS to update expense or asset accounts for repairs and maintenance Fixed Asset Change Forms - used as the basis for transferring fixed assets from one location to another, retiring, selling or trading-in fixed assets

13. Outputs of Fixed Asset Management Financial Statement Information Fixed Asset Register - lists identification numbers for each fixed asset and each assets location Depreciation Register - shows depreciation expense and accumulated depreciation for each fixed asset Repair and Maintenance Reports - show the current period’s repair and maintenance expenses as well as each fixed asset’s repair and maintenance history Retired Assets Report - shows all assets disposed of during the accounting period

14. The Production Process The production process begins with a request for raw material and ends with the transfer of finished goods to warehouses. This cycle concerns the capture of data and the reporting of information associated with producing goods in manufacturing organizations.

15. Objectives of the Production Process Track purchases and sales of inventories Monitor and control manufacturing costs Control inventory Control and coordinate the production process Provide input for budgets

16. Cost Accounting Subsystem Provides important control information for the budget process. Can be characterized as job costing or process costing systems. A job costing information system keeps track of costs for each product or group of products, called a job. Process costing systems make use of averages to calculate the costs associated with goods in process and finished goods produced.

17. Just-in-Time (JIT) Inventory Systems Inventory control ensures that the production cycle processes inventory transactions appropriately so that the financial statements correctly state the value of the inventory and cost of goods sold accounts. The objective of JIT is to minimize inventories at all levels. The production AIS may be integrated with a computer integrated manufacturing (CIM) system.

18. Inputs to the Production Process Material Requisition Form - directs stores to issue materials or parts to designated work centers or authorized persons Bill of Materials - shows the types and quantities of parts needed to make a single unit of product Master Production Schedule - shows the quantities of goods needed to meet sales demands

19. Inputs to the Product Conversion Process Production order - incorporates data from sales orders or forecasts, operations lists and bills of materials in order to authorize the production of an order or batch Job Time Card - shows the distribution of labor costs to specific jobs or production orders

20. MRP Material requirements planning (MRP I) system monitors the acquisition and use of parts and subassemblies. Manufacturing resource planning (MRP II) is a more complex version of MRP II which uses the information from the bill of materials and production schedule to coordinate the purchase and use of raw material inventories.

21. Outputs of the Product Conversion Process Financial Statement Information Materials Price Lists - shows prices charged for raw materials Periodic Usage Reports - provides managerial information about how various production departments are using raw materials Inventory Reconciliation Reports - reconciles physical inventory with perpetual records

22. Outputs of the Product Conversion Process Inventory Status Reports - allows purchasing and production managers to monitor inventory levels Production Cost Reports - details the actual costs for each production operation, each cost element, and/or each separate job Manufacturing Status Reports - provide managers with information about the status of various jobs

23. The Financing Process The financing process is where a company gets and uses financial resources, such as cash, other liquid assets and investments. The financing process includes the activities of borrowing cash or selling ownership shares.

24. Objectives of the Financing Process Effective cash management – organizations can make use of lockbox systems and electronic funds transfer (EFT). Minimizing cost of capital, or the cost of obtaining financial resources. Earn maximum return on investments by using financial planning models. Project cash flows

25. Inputs to the Financing Process Remittance Advices - accompanies a customer’s payment Deposit Slips - banks provide to document account deposits Checks - companies receive and issue checks Bank Statements - used to reconcile the cash balance in the company’s ledger against the cash balance in the bank account Stock Market Data Interest Data Financial Institution Profiles

26. Outputs of the Financing Process Financial Statement Information Cash Budget Investment Reports Debt and Interest Reports Financial Ratios Financial Planning Model Reports

27. Business Processes in Special Industries Vertical market refers to markets or industries that are distinct in terms of the services they provide or the goods they produce. These organizations may require more information than is typically output from a traditional AIS. Examples of specialized information needs include time and billing systems, activity based costing systems, and point-of-sale systems.

28. Industries with Specialized AISs Professional service Not-for-profit Health care Retail Construction Government Banking and Financial services Hospitality

29. Business Process Reengineering Today, AISs are less concerned with accounting transactions and more concerned with business events. Business events include important activities that affect the business but are not captured by the financial accounting system. Business process reengineering (BPR) concerns redesigning business processes from scratch.

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31. Chapter 7