LECTURE 2

BUSINESS ACTIVITIES AND TRANSACTION PROCESSING

Organisation structure & AIS

The structure of an organization helps to allocate 1. Responsibility roles defining 2. Authority define access control 3. Accountability whose accountable to which asset common method segment by business function Business AIS helps improve operation efficiency make better decisions , maximizing profit. NPO/NGO improve operations efficiency, maximize benefits derived from their resources Business activities Organizing capital, premises&equipment Acquisition,
Recruiting employees, Acquiring inventory, Manufacturing products, Marketing&selling a product/service, cash collection, cash disbursement

Organization of Computer Services Function in a Centralized System

Organizational Structure for a Distributed Processing system

Transactions Processing
Manual TP: journal ledger summarize, produce meaningful information. Computerized TP : capture record posting data

CAPTURING DATA
Use source documents that are standardized, prenumbered because: 1. Easy to understand 2. Capture all the information that is needed. 3. Provide information on the responsible person who prepare and authorizing each source document. 4. Avoid repetition of any fixed information 5. Prenumbered easy to verify that all transactions are recorded, no documents have been misplaced. Example: Sales invoices, credit note, receipts, payment voucher

Suggestion designing a form

1. 2. 3. 4. 5. 6. simple and easy to understand name describing its function Have serial specific ID no. very important control Sufficient space provided for recording necessary information Related information should be grouped together If need multipart form create by filled out once, reduce repetitious writing 7. explanatory note provided in a suitable place if there is ambiguity 8. Related forms that has similar information are placed in the same position ease burden of completing the form 9. multipart form Routing instructions in an appropriate place. Eg: coloured paper where each copy is to be sent. 10. Information on the form follow a logical sequence

RECORDING TRANSACTION
1.
made on a journal, Types of journal : Specialized journal Used for repetitive transactions and simplify the process of recording a large number of similar transactions exp. Sales journal, purchases journal, cash receipts journal and cash payment journal. General journal Records the transactions that cannot be categorized and recorded in any of the specialized journal ( non- routine transaction such as purchase or sale of asset, interest accruals and adjustment.

2.

POSTING TRANSACTION
Data in journals posted to ledgers groupings similar transactions types meaning full information to be obtained. 1. General ledger : Many accounts are recorded at summary level for the assets, liability, expenses and revenue. 2. Subsidiary ledger: Maintained for AR, AP & inventory (large number of transaction occurred). The summary recorded in special accounts (control account in GL), to help preserve the completeness. Posting process accounts in ledger would be arranged in a logical manner by assigning each account with a unique number or account code. The list of all the account names and codes chart of accounts A well-designed chart of accounts should accomplish the following: adequate description of each account distinction between account titles assistance in the preparation of required reports

Information for decision making

2nd function of AIS 1. financial statements: Statement of financial performance Income statement Statement of financial position (balance sheet) Statement of cash flows Statement of changes in equity 2. Management reports for management control purposes. For example: inventory levels to monitor low or high turnover of product decide on reorder level, marketing strategy profitability of each product to decide which product should be focus on performance of each salesperson for reward and incentives, training requirements daily cash balances and commitments short term cash management extent of back orders delaying customers orders is not good, should decide to change vendor

Internal Control Issues

Adequate internal controls are required to: facilitate the capture of reliable business data safeguard assets and business data enable the execution of management objectives Internal control principals include: documented procedures quality of personnel authority recording of transactions internal verification

Impact of IT on AIS
Manual system is a system composed of human resources. Computerized system is system composed of computer resources. Computer-based accounting system is accounting system used by both human and computer resources. Information technology (IT) is the processing of information using computer systems. Computers assist in processing high volumes of data at high speeds and the power of computers has increased because of improvement in technology.

Transforming the Data into Information

Functions for transforming data into information according to the general AIS model:
1. 2. 3. 4. Data Collection Data Processing Data Management Information Generation

1. Data Collection
Capturing transaction data Recording data onto forms Validating and editing the data

2. Data Processing
Classifying Transcribing Sorting Batching Merging Calculating Summarizing Comparing

3. Data Management
Storing Retrieving Deleting

4. Information Generation
Compiling Arranging Formatting Presenting

The Evolution of IS Models: The Flat-File Model

Data Redundancy Problems

Data Storage - excessive storage costs of paper documents and/or magnetic form Data Updating - changes or additions must be performed multiple times Currency of Information - potential problem of failing to update all affected files Task-Data Dependency - users inability to obtain additional information as needs change Data Integration - separate files are difficult to integrate across multiple users

The Evolution of IS Models: The Database Model

Information Systems for Business Transactions

Supplier
Old Process Purchasing Purchase Order Goods Goods New Process Purchase Order Purchasing Copy Of Purchase Order

Supplier

Receiving
Receiving Documents Accounts Payable Payment Invoice Database

Receiving

Accounts Payable Payment

ISSUE OF ACCOUNTING INDEPENDENCE

Information reliability requires accounting independence.
Accounting activities must be separate and independent of the functional areas maintaining resources. Accounting supports these functions with information but does not actively participate. Decisions makers in these functions require that such vital information be supplied by an independent source to ensure its integrity.

Basic AIS Functions

1. Collect and store data about the organizations business activities and transactions efficiently and effectively 2. Provide information useful for decision making 3. Provide adequate controls to ensure that data are recorded and processed accurately.

1. Collect and store data

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.

TRANSACTION PROCESSING
Data Files

Input

Process
Feedback Loop

Output

Control

Sensor

Capture Transaction Data on Source Documents

Sales Order Purchase Order

Source documents are special forms used to capture transaction data.

Sales Invoice

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.

System - Inputs
Input documents can be categorized into three types . . .
Source Documents

Product Documents
Turn-around Documents

Creation of a Source Document

Order Data Collectio n 1 Source 1 Document 2 3

Sales Order
Customer

Sales System

A Product Document
Order Data Collectio n Source 1 Document 2 3 Sales Order

Customer

Bill

Remittance Advice Product Document

Sales System

A Turnaround Document
Order Data Collection

Source 1 Document

3 Sales Order

Customer

Bill Remittance Advice Product Document

Sales System

Cheque 1

2 Remittance Advice

Cash Receipts System

Revenue Cycle
Source Document Function

Sales Order
Delivery Ticket Deposit Slip Credit Memo

Record Customer Order

Record Delivery to Customer Record Amounts Deposited Support Adjustments to Customer A/cs

Remittance Advice Receive Cash

General Ledger & Reporting System

General Ledger and Reporting System Journal Voucher Record entry posted to general ledger.

Expenditure Cycle
Source Document
Purchase Requisition Purchase Order

Function
Request that purchasing department order goods. Request goods from vendors.

Receiving Report
Cheques

Record receipt of merchandise.

Pay for items.

Human Resource Cycle

Source Document
W4 forms Time cards Job time tickets

Function
Collect employee withholding data. Record time worked by employees. Record time spent on specific jobs.

Data Files

Input

Process
Feedback Loop

Output

Control

Sensor

Data Processing
Updating previously stored information about the resources affected by the event and agents who participated in the activity.

Batch vs Online
batch processing
Periodic updating of the data stored A system whereby business transactions are accumulated over a period of time and prepared for processing as a single unit or batch.

on-line (real-time) processing.

A system whereby each transaction is processed immediately, without the delay of accumulating transactions into a batch. Always current. Immediate updating as each transaction occurs

Control Posting
can be achieved through audit trail An audit trail provides a means to check the accuracy and validity of ledger postings.

Data Files

Input

Process
Feedback Loop

Output

Control

Sensor

Storage
Ledgers and files provide storage of data in both manual and computerized systems.
The General Ledger The Accounts Payable Ledger The Accounts Receivable Ledger

A ledger is a book of financial accounts, which reflect the financial effects of the firms transactions after they are posted from the various journals.

Flow of Information From the Economic Event to the General Ledger

Order
Sales Order Journal Entry

Sales Journal

Customer
Post Post

AR Sub Ledger
Periodically reconcile subsidiary ledger to General Ledger

General Ledger

File
A file is an organized collection of data.
Files may be in Manual or Computer (magnetic)

A transaction file is a collection of transaction input data - normally temporary in nature. A master file is a collection of data that are of a more permanent or continuing interest A reference (table) file contains data that are necessary to support data processing

2. PROVIDE USEFUL INFORMATION

Information is provided in the form of reports that fall into two main categories:
financial statements managerial reports

3. PROVIDE ADEQUATE CONTROL

Ensure that the information produced by the system is reliable. Safeguard organizational assets. Ensure that business activities are performed efficiently and in accordance with managements objectives.

Internal Control Considerations

1. Provide for adequate documentation of all business activities.
allows management to verify that assigned responsibilities were completed correctly.

2. Design the AIS for effective segregation of duties.

refers to dividing responsibility for different portions of a transaction among several people.

Segregation of Duties

Authorization

Recording

Custody

Group Presentation for next week

1. Find one accounting package that available in Malaysian market 2. Explain background (history, developer, distributor) of that package 3. Explain modules that available in that software.