week 1b. chapter 2—ais processes business activities business cycles data processing cycle
TRANSCRIPT
Week 1b
Chapter 2—AIS processes
Business activities
Business cycles
Data Processing Cycle
Business Activities
Basic business activities an organization engages in? Buying buildings/equipment Hiring/training employees Purchasing inventory Selling goods/services Paying Vendors Acquiring capital
Basic Business Processes
Get Cash
Give Cash
Get Ship
Give Cash
GetEmployeeService
Give Cash
Get Silk
Give Cash
Get Cash
Give SilkA set of
Give-Get exchanges
Effective AIS
Each activity requires different types of information.
Information may be financial or non-financial
Source of information may be internal or external
An effective AIS needs to be able to integrate this information
Interaction
Business cycles
Like business activities for the AIS to capture, process, report
Revenue Expenditure
Some companies split out Fixed Assets as there own cycle
PR (in book = HR)
Production Treasury (in book = Financing)
What is missing?
FINANCIAL REPORTING
Most companies now consider the activities around this process a separate cycle
Activities include? Journal entries Financial disclosure Management review
Business Activities = Cycle groupings
Buying buildings/equipment=Fixed Asset Cycle
Hiring/training employees=HR/Payroll Cycle
Cycle counting inventory=Production Cycle
Selling goods/services=Revenue Cycle
Paying Vendors=Expenditure Cycle
Acquiring Capital=Treasury Cycle
Things to keep in mind
Thousand of transactions can occur within a cycle, but there are relatively few types of transactions in a cycle.
Every transaction cycle relates to other cycles and interfaces with the general ledger/reporting system (i.e. Financial Close Cycle), which generates information for management and external parties.
Accounting software packages often separate into modules that mirror cycles.
Not every company uses every cycle.
Chapter 2 – Problem 2.9
Answer to Problem 2.9: Classify each of the following items as belonging in the
revenue, expenditure, human resources/payroll, production, or financing cycle.
a) Purchase raw materials – Expenditure cycle
b) Payoff mortgage on factory – Treasury cycle
c) Hire a new assistant controller – Payroll cycle
d) Establish a $10,000 credit limit for customer XYZ company –
Revenue cycle
Chapter 2 – Problem 2.9 (cont)
Answer to Problem 2.9 (cont): Classify each of the following items as belonging in the
revenue, expenditure, human resources/payroll, production, or financing cycle.
e) Pay for raw materials – Expenditure cycle
f) Disburse payroll checks to factory workers - PR cycle
g) Record goods received from vendor – Expenditure cycle
h) Update the allowance for uncollectible accounts – Financial Reporting cycle
(book=Revenue) i) Decide how many units to make next month –
Production cycleProduction cycle
Data Processing “Cycle”
An important function of the AIS is to efficiently and effectively process the data about a company’s transactions.
The “data processing cycle’s” 4 steps:1. Data input2. Data storage3. Data processing4. Information output
i.e. Collect data
Capture the data Implement control procedures Record in journals
• General for rare or adjusting• Specialized for standardized
Post to ledgers Prepare reports
Data Input
Usually triggered by a business activity
What is captured? Timing of the event (when) Characteristics (what is affected) Participants (who)
Data Input: Internal control considerations
A number of small actions can improve the accuracy and efficiency of data input: Document design (manual)
• Multiple copies• Space for approval sign-off• Pre-numbered
Input (automated)• Fill-in based on key data• Automatic numbering• Smart fields• Matching to existing data
Data Storage
Data needs to be organized for easy and efficient access
With automated systems, master tables (chart of accounts, vendor, customer, inventory, etc.) set-up, content and access is critical to integrity of system
Data storage: Internal control considerations
Sequence codes: consecutive numbering to prevent gaps and/or duplicates
Sub-ledgers/journals: provide more details for like transactions and enhance information retrieval/support
Smart coding: means of grouping items (G/L account, vendors, inventory, customers, etc.) for analysis
Audit trail: adequate documentation to allow tracing of a transaction from beginning to end or from end back to beginning (i.e. posting references, document numbers, bundling)
Audit Trail
Data Processing
Updating data-recording the transaction i.e. purchase of raw material, record a
customer sale Changing data-update to existing permanent
records i.e. change a customer address, change the
name of a vendor Adding data-add a new permanent record
i.e. add new G/L account, add new inventory item
Deleting data-delete permanent record (be very careful do not destroy existing audit trail, usually involves lack of activity in the current period at least) i.e. remove non-active customer
Data (Computer) processing
Master/transaction files Batch/real-time/on-line Queries/reports
I am going to spend little time on this, but expect you to use the terms and concepts pretty readily…ask questions if you need to.
Data processing: Internal control considerations
Access, Access, Access
Edit reports: provides potential errors in data (i.e. unusual account balances (negative cash, credit balance for an expense account)
IT Segregation of duties
Information output
Documents – generated for internal or external use; can be printed or stored electronically (i.e. paychecks, invoices, purchase orders)
Reports – used by employees to control operational activities and by manages to make decisions and design strategies (i.e. general ledger, variance analysis, inventory turnover)
Queries – ad hoc user requests for specific information; often system display only (i.e. vendor address, customer credit limit)
Information output: Internal control considerations
Confidentiality – develop means to restrict access to certain data (SS#s, pricing data, costing, etc.)
Timeliness – information should be available when needed (invoices, M/E reports, audit schedules) by user, not restricted by system processing
Version Control – user should be able to readily determine information “as of” date. Is it as of a certain date/time period (today, M/E, Year-to-date), last processing update, real-time? Previous (historical) data availability should also be based on user needs.