Ais CH-2

C HAPTER 2
Overview of Business
Processes
Business Process: a defined as a sequence of activities

performed by a business for acquiring, producing, and
selling goods and services.
© 2006
2008 Prentice Hall Business Publishing Accounting Information Systems, 10/e
11/e Romney/Steinbart 1 of 38
BUSINESS PROCESSES
• Businesses engage in a variety of processes,
including:
– Acquiring capital
– Buying buildings and equipment Each activity
– Hiring and training employees requires
different types
– Purchasing inventory of decisions.
– Doing advertising and marketing
– Selling goods or services Each decision
– Collecting payment from customers requires
– Paying employees different types
of information.
– Paying taxes
– Paying vendors
© 2006
35
BUSINESS PROCESSES
• Many business processes are paired in give-get
exchanges.
• Basic exchanges can be grouped into five major
transaction cycles:
• A transaction- is agreement between two entities to
exchange goods or services or any other event that can be
measured in economic terms.
– Revenue cycle
– Expenditure cycle
– Production cycle
– Human resources/payroll cycle
– Financing cycle
© 2006
35
TRANSACTION CYCLES
• Transactions in the revenue cycle:
MAJOR GIVE-GET • Bill customers
• Give goods or services; get • Update sales and Accts
cash Rec. for sales
OTHER TRANSACTIONS • Receive customer
• Handle customer inquiries payments
• Take customer orders • Update Accts Rec. for
• Approve credit sales collections
• Check inventory • Handle sales returns,
availability discounts, and bad debts
• Initiate back orders • Prepare management
• Pick and pack orders reports
• Ship goods • Send info to other cycles
© 2006
35
TRANSACTION CYCLES
• Transactions in the expenditure cycle:
MAJOR GIVE-GET: • Update accounts payable
• Give cash; get goods or for purchase
services • Approve invoices for
payment
OTHER TRANSACTIONS
• Pay vendors
• Requisition goods and
services • Update accounts payable
• Process purchase orders to for payment
vendors • Handle purchase returns,
• Receive goods and discounts, and allowances
services • Prepare management
• Store goods reports
• Send info to other cycles
• Receive vendor invoices
© 2006
35
TRANSACTION CYCLES
• Transactions in the HR/payroll cycle:
MAJOR GIVE-GET: • Pay employees
• Give cash; get labor • Process timecard and
OTHER TRANSACTIONS commission data
• Recruit, hire, and train • Prepare and
employees distribute payroll
• Evaluate and promote • Calculate and disburse
employees tax and benefit
• Discharge employees payments
• Prepare management
• Update payroll records
reports
• Send info to other cycles
© 2006
35
TRANSACTION CYCLES
• Transactions in the production cycle:
MAJOR GIVE-GET: • Store finished goods
• Give labor and raw • Accumulate costs for
materials; Get finished products
goods • Prepare management
OTHER TRANSACTIONS reports
• Design products • Send info to other cycles
• Forecast, plan, and
schedule production
• Requisition raw
materials
• Manufacture products
© 2006
35
TRANSACTION CYCLES
• Transactions in the financing cycle:
MAJOR GIVE-GET: • Pay dividends to
• Give cash; get cash investors and interest to
OTHER TRANSACTIONS lenders
• Forecast cash needs • Retire debt (pay off)
• Sell securities to • Prepare management
investors reports
• Borrow money from • Send info to other cycles
lenders
© 2006
35
TRANSACTION CYCLES
• Every transaction cycle:

– Relates to other cycles.
– Interfaces with the general ledger and
reporting system, which generates information
for management and external parties.
© 2006
35
Business Process Give–Get
© 2008
Coding Systems
• AISs depend on coding to
– record,
– store,
– classify and
– retrieve financial data.
• Coding is a method of systematically
assigning numbers or letters to data items
to help classify and organize them.
© 2006
35
Coding Systems
• Codes are necessary to
– Uniquely identify transactions and accounts
– Compress data
– Aid in classification of accounts or transactions
– Communicate special meaning
– Relate similar items
© 2006
35
Types of Codes
» Mnemonic Codes
» sequence codes
» block codes
» group codes
• Mnemonic Codes
– give visible clues concerning the objects they
represent.
© 2006
35
Sequence Codes
• Assign numbers or letters in consecutive order.

• With sequence codes, items (such as
checks or invoices) are numbered
consecutively to ensure no gaps in the
sequence. The numbering helps ensure
that:
– All items are accounted for
– There are no duplicated numbers, which would suggest
errors or fraud
© 2006
35
block codes
• are sequential codes in which specific blocks

of numbers within a numerical sequence are
reserved for particular uses in the particular
category..
• EXAMPLE: in the chart of accounts: All assets
start with “1”
© 2006
35
group codes
• two or more subgroups of digits are

used/combined to code an item.
• EXAMPLE: Group coding schemes are
often used in assigning general ledger
account numbers.
© 2006
35
group codes
• The chart of accounts is a list of all general ledger
accounts an organization uses.
• Group coding is often used for these numbers, e.g.:
– The first section identifies the major account
categories, such as asset, liability, revenue, etc.
– The second section identifies the primary sub-
account, such as current asset or long-term
investment.
– The third section identifies the specific account, such
as accounts receivable or inventory.
• The structure of this chart is an important AIS issue, as it
must contain sufficient detail to meet the organization’s
needs.
© 2006
35
Design Considerations in Coding
Codes:
• should serve some useful purpose.
• should plan for future expansion- Provide enough digits to
allow room for growth.
• The code should be consistent with its intended use, so Make
sure it’s consistent with:
– The company’s organization structure
– Other divisions of the organization
• should Keep simple in order to:
– Facilitate memorization
– Ensure employee acceptance
© 2006
35
THE DATA PROCESSING CYCLE
• The data processing cycle consists of four
steps:
Input Process Output
– Data input
– Data storage
– Data processing
– Information output Storage
© 2006
35
Data Input—Capture
• As a business activity occurs data is collected about:
1. Each activity of interest
2. The resources affected
3. The people who are participating
• Data are collected on source documents

– E.g., a sales-order form
© 2006
35
Data Input—Capture
• A source document
– records a business activity such as the
purchase or sale of goods,
– can be a piece of paper, or
– can be in electronic form.
• The data from paper-based will eventually
need to be transferred to the AIS
© 2006
35
Data Input—Accuracy and Control
• Well-designed source documents can

ensure that data captured is
– Accurate
• Provide instructions and
• Check boxes
– Complete
• Internal control support
• Pre-numbered documents
© 2006
35
Data Storage
• Types of AIS storage:

– Paper-based
• Ledgers
• Journals
– Computer-based
© 2006
35
DATA STORAGE
• General ledger
– is the summary level information for each:
• Asset, liability, equity, revenue, and expense
– Detail information is not kept in this account
© 2006
35
DATA STORAGE
• General ledger
Example: Suppose XYZ Co. has three
customers. Anthony Adams owes XYZ $100. Bill
Brown owes $200. And Cory Campbell owes
XYZ $300. The balance in accounts receivable in
the general ledger will be $600, but you will not
be able to tell how much individual customers
owe by looking at that account. The detail isn’t
there.
© 2006
35
DATA STORAGE
• Subsidiary ledger
• The subsidiary ledgers contain the detail data
associated with the related general ledger account.
• For example, the accounts receivable subsidiary
ledger will contain three separate t-accounts—one
for Anthony Adams, one for Bill Brown, and one for
Cory Campbell.
• The related general ledger account is often called a
“control” account.
• The sum of the subsidiary account balances should
equal the balance in the control account.
© 2006
35
Journals
The journal
• is the first place that transactions are entered in manual systems
• is a chronological record of business events by account.
• may be a general journal or a special journal
• A general journal allows any type of accounting transaction to
be recorded,
– If companies adopt special journal, a general journal is used
to record:
• Non-routine transactions, such as loan payments
• Summaries of routine transactions
• Adjusting entries
• Closing entries.
© 2006
35
Journals
• A special journal is used to record routine transactions. The
most common special journals are:
• Sales Journal
– Record of credit sales transactions
• Purchases Journal
– Record of credit purchase transactions
• Cash Receipts Journal
– Record of transactions involving receipts of cash
• Cash Disbursements Journal
– Record of transactions involving disbursements of cash
© 2006
35
COMPUTER-BASED STORAGE
CONCEPTS
• An entity- is something about which an
organization wishes to store data.
– Person, place, or thing (Noun)
• In your university’s student information system,
one entity is the student. The student
information system stores information about
students.
• What are some other entities in your student
information system?
© 2006
35
CONCEPTS
• Attributes- are characteristics of interest with
respect to the entity. Or are facts about the entity
• Some attributes that a student information
system typically stores about the student entity
are:
– Student ID number
– Phone number
– Address
• What are some other attributes about students
that a university might store?
© 2006
35
CONCEPTS
• A field is the physical space where an attribute is
stored.
• The space where the student ID number is
stored is the student ID field.
Student Id Last Name First Name Phone number

328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
© 2006
35
CONCEPTS
• A record is the set of attributes stored for a
particular instance of an entity. i.e, Group of
related attributes about an entity
• The combination of attributes stored for Barry
Andrews is Barry’s record.

328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
© 2006
35
CONCEPTS
• A data value is the intersection of the row and
column.
• The data value for Barry Andrews’ phone
number is 405-744-0236.

328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
© 2006
35
CONCEPTS
• A file is a group of related records.
• The collection of records about all students at
the university might be called the student file. If
there were only three students and four
attributes stored for each student, the file might
appear as shown below:
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
© 2006
35
CONCEPTS
• A transaction file is a file that contains records
of individual transactions (events) that occur
during a fiscal period/specific period of time
• It is conceptually similar to a journal in a
manual AIS in that:
– The files are temporary.
– The files are usually maintained for one fiscal
period.
© 2006
35
CONCEPTS
• A master file is a file that stores cumulative information about
an organization’s entities.
• It is conceptually similar to a ledger in a manual AIS in that:
– The file is permanent.
– The file exists across fiscal periods.
– Changes are made to the file to reflect the effects of new
transactions, i.e, it is updated by transaction with the
transaction file.
© 2006
35
CONCEPTS
• A database is a set of interrelated, centrally-
coordinated files.
• When files about students are integrated with
files about classes and files about instructors,
we have a database.
Student Class
File File
Instructor
File
© 2006
35
DATA PROCESSING
• Once data about a business activity has been collected
and entered into a system, it must be processed.
• There are four different types of file processing:
– Updating existing records - to record the
occurrence of an event, the resources affected by
the event, and the agents who participated, e.g.,
recording a sale to a customer.
– Changing data/record, e.g., a customer address.
– Create/ add new records, e.g., a new customer.
– Deleting records or data from records, e.g.,
removing an old customer that has not
© 2006
35
DATA PROCESSING
• Updating can be done through the

following approaches:
– Batch processing
– Online, batch processing
– Online, real-time processing
© 2006
35
DATA PROCESSING
• Batch processing:
– Source documents are grouped into batches,
and control totals are calculated.
– Periodically, the batches are entered into the
computer system, edited, sorted, and stored
in a temporary file.
– The temporary transaction file is run against
the master file to update the master file.
– Output is printed or displayed, along with error
reports, transaction reports, and control totals.
© 2006
35
DATA PROCESSING
• Online, batch processing:

– Transactions are entered into a computer
system as they occur and stored in a
temporary file.
– Periodically, the temporary transaction file is
run against the master file to update the
master file.
– The output is printed or displayed.
© 2006
35
DATA PROCESSING
• Online, real-time processing

– Transactions are entered into a computer
system as they occur.
– The master file is immediately updated with
the data from the transaction.
– Output is printed or displayed.
© 2006
35
INFORMATION OUTPUT
• The final step in the information process is

information output.
• This output can be in the form of:
– Documents
– Reports
– Queries
© 2006
35
INFORMATION OUTPUT
• Documents are records of transactions or other
company data.
• EXAMPLE: Employee paychecks or purchase orders
for merchandise
• Documents generated at the end of the transaction
processing activities are known as operational
documents (as opposed to source documents).
• They can be printed or stored as electronic images.
© 2006
35
INFORMATION OUTPUT
• Reports are used by employees to control operational
activities and by managers to make decisions and design
strategies.
• They may be produced:
– On a regular basis
– On an exception basis
– On demand
• Reports
– should be useful for managerial decision-making,
– should not create information overload.
• Format of the report should
– contain fundamental identification,
– be convenient, and
– be consistent
© 2006
35
INFORMATION OUTPUT
• Queries are user requests for specific pieces of
information.
• They may be requested:
– Periodically
– One time
• Outputs can be displayed:
– Displayed on a screen, called soft copy
– Printed on paper, called hard copy
© 2006
35
INFORMATION OUTPUT
• Output can serve a variety of purposes:
– Financial statements can be provided to both
external and internal parties.
– Some outputs are specifically for internal use:
1. For planning purposes
• Examples of outputs for planning purposes include:
– Budgets
• Budgets are an entity’s formal expression of goals in
financial terms
– Sales forecasts
2. For management of day-to-day operations
• Example: delivery schedules
© 2006
35
INFORMATION OUTPUT
3. For control purposes
• Performance reports are outputs that are used for control
purposes.
• These reports compare an organization’s standard or expected
performance with its actual outcomes.
• Management by exception is an approach to utilizing
performance reports that focuses on investigating and acting
on only those variances that are significant.
4. For evaluation purposes
• These outputs might include:
– Surveys of customer satisfaction
– Reports on employee error rates
© 2006
35

Ais CH-2

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ais CH-2

Uploaded by

Copyright:

Available Formats

C HAPTER 2

Business Process: a defined as a sequence of activities

• Every transaction cycle:

• Assign numbers or letters in consecutive order.

• are sequential codes in which specific blocks

• two or more subgroups of digits are

• Data are collected on source documents

• Well-designed source documents can

• Types of AIS storage:

Student Id Last Name First Name Phone number

Student Id Last Name First Name Phone number

Student Id Last Name First Name Phone number

• Updating can be done through the

• Online, batch processing:

• Online, real-time processing

• The final step in the information process is

You might also like