Accounting information systems and business process : part 1

Transcription

1 King Saud University College of Administrative Science Department of Accounting Accounting information systems and business process : part 1 Chapter 4 Prepared By: Eman Al-Aqeel Professor : Dr: Suliman ALAraini

2 BUSINESS PPROCESS FUNDAMENTALS The accounting cycle begins when accounting personnel analyze a transaction from a source document and ends with the issuance of financial of financial reports and closing of temporary accounts in preparation for a new cycle. Source document is a piece of paper or an electronic form that records a business activity such as the purchase or sale of goods. An Overview of the Financial Accounting Cycle Based on the preparation of source documents, an AIS records each transaction or business event affecting an organization's financial condition. Journals Accounting personnel record transactions in a journal. The journal is a chronological record of business events by account. Special journals capture a specific type of transaction. They are usually reserved for transactions occurring frequently within an organization. For example : 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. general journal Special journals include entries for all but a few types of transactions and adjusting journal entries, such as for depreciation. The general journal records these entries.

3 Ledgers : journal entries show all aspects of a particular transaction. each entry shows debit and credit amounts, the transaction date, the affected accounts, and a brief description of the event. An AIS records a journal entry, it next posts the entry in the general ledger. A general ledger is a collection of detailed monetary information about an organization's various assets, liabilities, owners' equity, revenues, and expenses. The general ledger includes a separate account (often called a "T account" because of its shape) for each type of monetary item in an organization. A company's chart of accounts provides the organizational structure for the general ledger. The chart of accounts makes use of a block coding structure. Trail Balances and Financial Statements Trail balance: Trail balance is a listing of all accounts and their debit and credit balances. A mismatch in dollar amounts for debits and credits indicates a recording error. Usually the accountant or the computerized AIS prepares three trail balances, each at a different point in the accounting cycle. The first trial balance is called the unadjusted trial balance. Once debit and credit dollar amounts in this trial balance are equal, the accountant will record any necessary adjusting journal entries. A business event does not trigger these journal entries. Adjusting entries include journal entries for depreciation and other unrecorded expenses, prepaid expenses, unearned revenues, and unrecorded revenue. An AIS develops an adjusted trial balance after posting adjusting entries to the general ledger. Once debit and credit amounts in this trial balance are equal, an AIS is ready to produce financial statements.

4 Financial statements: are the primary output of a financial accounting system. These financial statements include : an income statement balance sheet statement of owner's equity cash flow statement an AIS can produce other reports as well. The variety and complexity of these reports depends on the underlying structure of an AIS. The accounting cycle does not end when an AIS generates financial statements. The computerized system must close temporary accounts, such as revenue and expense accounts, so that a new cycle can begin. An AIS makes closing journal entries to erase the balances in these temporary accounts. This is necessary because users are interested in income information for a period of time. When a period ends, the balances in an AIS must start at zero before accumulating new account information for the next period. Since balance sheet accounts show financial performance at a point in time, they are permanent and need not be closed. Once an AIS posts closing entries to the appropriate ledger accounts, the computerized system can produce a final postclosing trial balance. This trial balance will show only the debit and credit amounts for permanent accounts. An AIS will carry these amounts forward to the next accounting cycle.

5 A summary of the steps in the accounting cycle Record transaction in a journal Post journal entries to a ledger Prepare an unadjusted journal entries Record and post adjusting trail balance Prepare an adjusted trail balance Prepare a financial statement Record and post closing journal entries Prepare a post- closing trail balance Coding Systems AISs depends heavily on the use of codes to record, classify, store, and retrieve financial data. For example, It is possible in an manual system to use simple alphabetic descriptions when preparing journal entries. computerized systems more often use : numeric codes (codes that use numbers only) or alphanumeric codes (codes that use numbers and letters) to record accounting transactions.

6 Purposes of Codes: codes serve many purposes in AISs: 1. One is to uniquely identify such things as individual accounts or specific transactions. 2. To compare data. In general, written descriptions waste space. It is important for AISs to classify accounts by type (e.g., bank checking account) or to classify transactions by type (e.g., "cash" versus "credit" sale), by date, or perhaps by geographic location. 3. To facilitate the classification of accounts and transactions. 4. To communicate special meanings. It is sometimes necessary to convey data so that they are meaningless to most, but convey information to those "in the know." Types of Codes There are several types of codes typically used in AISs: 1. Mnemonic codes: help the user remember what they represent. Product codes often make use of mnemonic codes to denote colors and sizes. S, M, L, and XL are examples of mnemonic codes describing apparel sizes. 2. Sequence code: is simply a sequential set of numbers used to identify customer accounts, employee payroll checks, customer sales invoices, and so forth. 3. Block codes: sequential codes in which specific blocks of numbers are reserved for particular uses. Typical application, the lead digit, or two lead digits, in the sequence code acts as the block designator and subsequent digits are identifiers. A frequent use of block codes in AISs is in creating a chart of accounts. A chart of accounts: is a list that describes all the accounts used by a business for its income statement and balance sheet. Notice that current assets occupy the block of numbers form 100 to 199, noncurrent assets occupy the block of numbers from 200 to 299, and so forth.

7 4. group code :Combining two or more subcodes creates a group code. Since each subcode is a field of the group code, it is accurate to consider a group code as a set of fields, each of which describes separate accounting data. Design Considerations in Coding: The most important requirement of an accounting code is that it serve some useful purpose. This allows a manager to identify the product with the department that produces it. Another important design requirement is consistency. This means that, wherever possible, accounting codes should be consistent with those codes already in use. A tradeoff in designing account codes exists between obtaining efficiency and allowing for growth. Fewer digits in the code means less space needed to enumerate the code and less chance for data transaction errors, so the code becomes more useful. COLLECTING AND REPORTING ACCOUNTIN INFORMATION The design of an effective AIS usually begins by considering the outputs from the system. These outputs are informational objectives for an AIS and are therefore goals toward which the system should strive. Thus, systems designers create outputs first. Among the outputs of an AIS are : (1) reports to management (2) reports to investors and creditors (3) files that retain transaction data (4) files that retain current data about accounts (e.g., inventory records). The most important of these outputs are the reports to management. These reports are the tools managers use to aid their decision-making activities.

8 Report formats vary There are : 1. hard-copy (paper) reports, 2. soft copy (screen) reports 3. audio outputs 4. Graphics enhance reports in any form. 5. Many reports today appear on company web sites. Considerations in Report Design There are many different types of accounting reports. Some reports, such as financial statement reports, are prepared periodically. An AIS might issue other reports only when a particular event occurs. Reports that only list exceptional conditions are known as exception reports. Good output reports share similar characteristics regardless of their type. Among these characteristics are: 1. usefulness 2. convenience of format 3. ease of identification 4. consistency. For a report to be useful, it must serve some managerial purpose. Often, a convenient format not only serves internal managerial purposes but also helps stockholders, creditors, and potential investors. Computerized AISs are often guilty of generation too many reports. These systems frequently include more data in reports than managers can use effectively. The term information overload describes this problem, although the term is a misnomer. For example, summary reports should contain financial totals, comparative reports should list like numbers (e.g., budget versus actual figures) in adjacent columns, and descriptive reports (e.g., marketing reports) should present results systematically. Finally, numbers should be expressed in the units (dollars, dozens and so forth) most useful to the recipients.

9 Sometimes the most convenient format is graphical. A pie chart is an example. Good managerial reports always contain fundamental identification, including headings (company name, organizational division or department, etc.) and page numbers. The reports of AISs are usually time-oriented and therefore should also includes dates. AIS reports should be consistent in at least three ways: 1. over time So that the information will be easy to understand. To compare information from one period with that of another. 2. across departmental or divisional levels. So that supervisors may compare departmental performance and create standards for the company. To conflicts with the informational needs of individual departmental managers. 3. with general accounting practice. To makes a report intelligible to external readers and more understandable to internal managers. Source Documents: Collecting the Data for Output Reports In an AIS the chief concerns in the data collection process are: Accuracy Timeliness cost-effectiveness. Source documents of the types help manage the flow of accounting data in several ways : 1. they dedicate the kinds of data to be collected and help ensure legibility, consistency, and accuracy in the recording of the data. 2. they encourage the completeness of accounting data because these source documents clearly enumerate the information required. 3. they serve as distributors of information because individuals or departments needing the information receive copies of the same form.

10 4. source documents help to establish the authenticity of accounting data. This is useful for such purpose as establishing an audit trail, testing for authorization of cash disbursement checks or inventory disbursements, and establishing accountability for the collection or distribution of money. Both manual and computerized AISs use source documents extensively. In many AISs today, source documents are still written or printed on paper. Large companies are increasingly moving to paperless offices via the internet or electronic data interchange. The general ledger module of an AIS generates trial balance and financial statement reports as outputs of the financial accounting cycle. Performance reports can show variances from budget, or they may be exception reports, showing only those variances that exceed predefined parameters. Remember, that journal entries are chronological listings of transactions and they do not easily reveal all activity related to a particular account. CORE BUSINESS PROCESSES An AIS collects and reports data reports data related to an organization's business processes. The nature and type of business processes vary with the characteristics of a specific entity, although most business entities have the same core processes. The AIS will collect data associated with economic and business events within these processes. An economic event is an activity that involves an increase and/or decrease in dollar amounts on the financial statements. Since economic events impact financial statements, they are often called accounting transactions. Accountants record these events or transactions in the journal.

11 A business event is an activity that does not impact the financial statements, but is nevertheless important to the business. Two core business processes that are common to almost every business are sales and purchases. The objective of grouping similar activities is to cluster these events together in a way that simplifies information processing. Information processing requires recording maintaining, and reporting on the business and economic activities that make up a business process. 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. Objectives of the AIS for the Sales Process Revenues result from an organization's sale of goods or services. They may also result from donations or gifts, as in the case of many not-for-profit organizations. The primary objective in processing revenues is to achieve timely and efficient cash collection. Objectives of the AIS for the Sales Process : tracking sales of goods and / or services to customer. Filling customers orders. Billing for goods and services. Collecting payment for goods and services. Forecasting sales and cash recipes. Events in the Sales Process Figure 4-9 provides an overview of the AIS for the sales process in a high-level systems flowchart. This view assumes an online sales order. Notice the lack of paper documents and electronic images replace written documents. The flowchart also assumes that the AIS uses a centralized database that integrates all the data files.

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13 Example: Methuselah Nyang'oro needs to purchase a book for a class. He decides to buy the book online from fast text's AIS, on receipt of the order, verifies Methuselah's credit card and checks its inventory to make sure the book is available. The company then sends Methuselah an confirmation, verifying the transaction. Fast Text's AIS next notifies its warehouse via to pack and ship the book. The ware-house processes the shipment information and creates a packing slip. Warehouse personnel then package the packing slip with the book and send it to Methuselah. The major events in Fast Text's sales process are : the sales order the shipment of goods the customer payment Fast Text will record information about each of these events. This information allows them to produce a variety of reports such as book sales by regions of the country. Inputs to the Sales Process

14 The diagram includes identification of the data inputs and information outputs to the process. As mentioned, the inputs (and output) to an AIS need not be paper documents. Today, with the increasing popularity of EDI systems and electronic commerce, much of the input and output related to business processes is electronic. inputs can also be: voice inputs, touch-tone telephone signals video signals magnetic ink characters (as on checks), or scanned images. Input (source document ) : A. Sales order at the time a customer contracts for goods or services. B. sales invoice reflects the product or products purchased, price, and the terms of payment. C. remittance advice When the customer makes a payment, a remittance advice may accompany the payment. You have probably seen a remittance advice before. When you pay your Visa or MasterCard bill. D. Shipping notice When the warehouse releases goods for shipment, the warehouse clerk prepares a shipping notice. A copy of this prompts the accounts receivable department to bill the customer.packing E. Debit/credit memoranda are source documents affecting both the sales and purchasing process. An organization issues these memoranda to denote the return of damaged goods of discrepancies about the amount owed. Business organizations are beginning to recognize the value of the data they collect about their customers and sales transactions in terms of improving customer satisfaction and profitability. As a result, they are purchasing or developing customer relationship management (CRM) systems to gather, maintain, and use these data. For example, a retail store may collect data about its customers' buying habits.

15 Outputs of the Sales Process Outputs (report ) A. Financial statement information An AIS uses some of these outputs to produce external accounting reports, such as financial statements, as well as internal reports, such as management reports. B. Customer billing statement This statement summarizes outstanding sales involves for a particular customer and shows the amount currently owed. C. The aging report shows the accounts receivable balance broken down into categories based on time outstanding. D. The bad debt report contains information about collection follow-up procedures for overdue customer accounts. This allows management to track the effectiveness or collection efforts. E. Cash receipts forecast. Data such as sales amounts, terms of sale, prior payment experience for selected customers, and information from aging analysis reports and cash collection reports are all inputs to this forecast. F. Customer listing This report is likely to show customer ID numbers (for uniquely identifying each customer), contact name(s), shipping and billing addresses, credit limits, and billing terms. G. Sales analyses report By capturing detailed data about each sale, the AIS produces reports to help management monitor sales activities and plan production and marketing effort. The Purchasing Process The purchasing process begins with a request for goods or services and ends with the payment of cash to the vendor. Objectives of the Purchasing Process The major objective of accounts payable processing is to pay vendors at the optimal time. As a result, a company can take advantage of cash discounts offered and avoid finance charges for late payments. The purchasing department is responsible for maintaining a list of authorized vendors. This entails ensuring the authenticity of vendors.

16 Business today are strengthening their relationships with their vendors or suppliers, recognizing that they are partners in a supply chain. Objectives of the AIS for the purchasing Process : A. Tracking purchases of goods and / or services to customer. B. Tracking amounts owed. C. Maintaining vendor records. D. Controlling inventory E. Making timely and accurate vendor payment. F. Forecasting purchases and cash outflows. Events in the Purchasing Process As with the sales process, the flowchart assumes a centralized database and a mix of paper documents and electronic images. Example: Anita Joarder, an employee at Fast Text, needs to purchase a new computer. She pulls up the purchase requisition form from the company's intranet and fills in the appropriate information. By clicking her mouse on the "submit" button, she forwards her request electronically to the purchasing department. A purchasing agent creates an electronic purchase order based on the information Anita provided. The agent consults the vendor file to locate an authorized vendor for the requested computer. The AIS then sends an electronic version of the order to the receiving department and another copy to the vendor. When the computer arrives from the vendor, a receiving clerk consults the AIS to make sure that a purchase order exists for the goods received. The clerk then enters information about the receipt (e.g., date, time, count, and condition of merchandise) to create an electronic receiving report. Upon receipt of an electronic vendor invoice and the receiving report, the accounts payable system remits payment to the vendor. The economic and business events in Fast Text's purchasing process are : the purchase request purchase order receipt of goods, and payment to the vendor. The company's AIS records information about each of these events and produces a variety of reports.

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18 Inputs to the Purchasing Process The accounts payable system matched three source documents before remitting payment to the vendor. These documents are : the purchase order the receiving report, and the purchase invoice. A purchase invoice is a copy of the vendor's sales invoice. The purpose of matching the purchase order, receiving report, and purchase invoice is to maintain the best possible control over cash payments to vendors. Computerized AISs call this a three-way match. It is relatively easy for an automated system to identify discrepancies between quantitative data such as quantities ordered system to identify discrepancies between quantitative data such as quantities ordered and dollar amounts. A computerized AIS can search more efficiently for duplicate payments than a manual system. Input ( sources document ) : A. The purchase requisition shows the item requested and may show the name of the vendor who supplies it. Important part of the AIS for the purchasing process is a list of authorized vendors to avoid payments to unauthorized or nonexistent vendors. B. The purchase order includes vendor information and payment terms. C. Vendor listing. D. The bill of lading is a receipt provided by the freight carrier to the supplier when the carrier assumes responsibility for the goods. It may contain information about the data shipped, the point of delivery for freight payment (either shipping point or destination), the carrier, the route, and the mode of shipment (e.g., rail). E. Packing slip This document indicates the specific quantities and items in the shipment and any goods that are on back order. F. Debit / credit memoranda.

19 Outputs of the Purchasing Process Outputs ( records ) : A. Financial statement information. B. Vendor checks. C. The check register lists all checks issued for a particular period. D. Discrepancy reports are necessary to note any differences between quantities or amounts on the purchase order, the receiving report, and the purchase invoice. The purpose of the discrepancy report is to ensure that no one authorizes a vendor check until the AIS properly explains any differences. E. cash requirements forecast The purchasing process produces a cash requirements forecast in the same manner as revenue processing produces the cash receipts forecast. F. Sales analysis report

20 Customers سسسسس Places online orders System checks Inventory and Credits Inventory sales Orders & customers files Send order confirmation to customer Payment and customer files Process customers payment information Send notice to warehouse to pick and ship Process shipping information Inventory & sales files Create and print packing slip packing slip Process and print report Management report

21 send packing slip to customers with goods Financial statements Cash receipt forecasts Customer Listing

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