1. Chapter 4 Accounting Information Systems and Business Processes: Part I
Introduction
Business Process Fundamentals
Collecting and Reporting Accounting Information
Core Business Processes 2

2. Introduction
AISs depend on the flow of data through various organizational subsystems.
Effective processing systems ensure capture of appropriate data and accurate information reporting.
Transaction processing cycles organize transactions related to an organization’s business processes.

3. Business Process Fundamentals
The accounting cycle begins when accounting personnel analyze a transaction from a source document.
A source document is a piece of paper or electronic form that records a business activity such as the purchase or sale of goods.

4. Journals Accounting personnel record transactions in a journal.
The journal is a chronological record of business events by account.
A journal may be a general journal or a special journal.
A general journal allows any type of accounting transaction to be recorded.
A special journal captures specific types of transactions.

5. Ledgers A ledger may be a general ledger or a subsidiary ledger.
A general ledger is a collection of detailed monetary information about an organization’s assets, liabilities, revenues, and expenses.
A subsidiary ledger contains detailed records pertaining to a particular account in the general ledger.

6. Trial Balances
Once an AIS records journal entries and posts them to the general ledger, the system can create a trial balance.
Three end of period trial balances are needed:
A preadjusting trial balance after all entries have been posted;
An adjusted trial balance after adjustments have been recorded and posted;
A postclosing trial balance after temporary accounts have closing entries have been recorded and posted.

7. Financial Statements
Financial statements are the primary output of a financial accounting system.
These statements include:
Income Statement
Statement of Owners Equity
Balance Sheet
Statement of Cash Flows

8. Coding Systems
AISs depend on coding to record, store, classify and retrieve financial data.
Computer systems most often use numeric or alphanumeric codes for processing accounting transactions.
Purposes of coding:
Uniquely identify transactions and accounts
Compress data
Aid in classification process
Convey special meanings

9. Types of Codes
Mnemonic Codes give visible clues concerning the objects they represent.
Sequence Codes assign numbers or letters in consecutive order.
Block Codes are sequential codes in which specific blocks of numbers are reserved for particular uses.
Group Codes reveal two or more dimensions or facets pertaining to an object.

10. Design Considerations in Coding
Codes should serve some useful purpose.
Codes should be consistent.
Codes should be standardized throughout the organization.
Codes should plan for future expansion.

11. Collecting and Reporting Accounting Information
Design of an effective AIS begins by considering outputs from the system.
Outputs of an AIS include:
reports to management
reports to investors and creditors
files that retain transaction data
files that retain current
data about accounts

12. Considerations in Report Design
Reports that only list exceptional conditions are exception reports.
Reports should be useful to managerial decision-making without creating information overload.
Format should be convenient, contain fundamental identification, and be consistent.

13. Core Business Processes
An AIS collects and reports data related to an organization’s business processes.
An economic event is an economic activity that involves an increase and/or decrease in dollar amounts in the financial statements.
Since economic events impact financial statements, they are often called accounting transactions.
A business event is one that does not impact financial statements, but is nevertheless important to the business.

14. The Sales Process
The sales process begins with a customer order for goods or services and ends with the collection of cash from the customer.
The primary objective is to achieve timely and efficient revenue collection.
An organization that generates revenues, but fails to collect these revenues on a timely basis, may find itself in a position where it cannot pay its bills.

15. Objectives of the Sales Process
Tracking sales of goods and/or services to customers.
Filling customer orders.
Billing customers for goods and services
Collecting payment for goods and services.
Forecasting sales and cash receipts.

16. Inputs to the Sales Process
Sales Order - prenumbered and usually prepared in multiple copies; used to prepare sales invoice
Sales Invoice - prepared after shipment of goods or providing of a service
Remittance Advice - serve as source document for credits to accounts receivable
Shipping Notice - warehouse prepares after goods are released for shipment
Debit/Credit memo - issued for sales returns and allowances; debit memos increase amount customer owes

17. Outputs of the Sales Process
Financial Statement Information
Customer Billing Statement - includes customer account activity such as sales, returns, and cash receipts
Accounts Receivable Aging Report - contains data concerning the status of open balances of all active credit customers arranging the overdue amounts by time periods

18. Outputs of the Sales Process
Bad Debt Report - customer accounts written off.
Cash Receipts Forecast - all data gathered from source documents in revenue transactions are inputs to this forecast.
Customer Listing - shows customer codes, contacts, shipping and billing addresses, credit limits, and billing terms.
Sales Analysis Reports - captures detailed data about each sale in order to monitor sales activities and plan production and marketing efforts.

19. Most Important Control of the Credit Sales Process
Credit check must be performed by someone other than the salesperson.
Credit check may even be automated.
Check for credit approval, documentation, credit limit and current state of balances.

20. Most important Control in the Cash Sales Process
Most important control in a Cash Sale is to ensure that the transaction (event) is originally recorded.
May use scanners or other mechanical devices.
Most important is customer audit.
What are some examples of Customer Audit?

21. The Purchasing Process
The purchasing process begins with a request for goods or services and ends with the payment of cash to the vendor.
Purchase may be for either goods or services and for cash or on credit.

22. Objectives of the Purchasing Process
Tracking purchases of goods and/or services from vendors
Tracking amounts owed
Maintaining vendor records
Controlling inventory
Making timely and accurate vendor payments
Forecasting purchases and cash outflows

23. Inputs to the Purchasing Process
Purchase Requisition - shows items requested by stores and may indicate the name of the vendor
Purchase Order - based on purchase requisition but also includes vendor information and payment terms
Vendor Invoice - includes items shipped by vendors, prices, shipping terms and discounts provided
Receiving Report - reflects the count and condition of received goods
Bill of lading – accompanies the goods sent
Packing slip – included in the merchandise package
Debit/Credit Memoranda - debits or credits accounts payable

24. Outputs of the Purchasing Process
Financial Statement Information
Vendor Checks - should be supported by a voucher and signed by a person designated by management
Check Register - lists all checks issued for a particular period
Discrepancy Reports - used to identify any differences among quantities on the purchase order, receiving report, and vendor invoice
Cash Requirements Forecast - predicts future payments and payment dates by reference to outstanding purchase order, unbilled receiving reports and vendor invoices

25. Most Important Control in the Purchasing Process
The most important control of the Purchasing process is to control the relationship between the purchasing agent and the vendor.
This is done by using a Master Vendor List.
Request for Bid (RFB) or Request for Proposal (RFP).