Data Flows, Activities, and Structure of Accounting Systems WES Learning Objectives After studying this chapter, you should be able to: 1. Explain the flow of transaction and other event data through an accounting system. 2. Identify and explain the major activities of an accounting system: input, process, store, and output data ~ 3. Divide the accounting system into four business processes and identify typical accounting subsystems, or modules, in each process. 4. Understand how integration of the subsystems is achieved through the sharing of data files and the movement of data from one subsystem to another. a green eyeshade and a sleeve garter. Today Blake was proud that he had by the firms. It was nice being wanted, “Blake, I need to talk to you about. financial statement audit we are start was the supervisor in charge of the audit ofa big client," are going to need several people for this one, and I think was excited that he would be getting his feet ng Next month,” said Shari, Shari you will get some 00d experi i Wet so soon on the job nee Perience from it.” BlakeData Flows, Activities, and Structure of Accountit “Here are some materials o} audit within the next few aye Ay Also, you need to review the working papers from last year's frm,” Blake started feeling a small knot mene conor’ the ‘transaction low’ conceps of auditing at tis graduated with honors, However, Bloke Ate ‘stomach. He had been a good student at the university and had to work on a real live audie! He wanna aon oul ena auditing course and now he was getting ready with—very competent and professional, nPress Shari. He had heard she was a good supervisor to work ik goodn era See =e courte of weeks to do some homework. That night, Blake dug out his old ‘count balances on the financial seq ing inte focus. He reviewed the audit objectives that apply to the a ete ancial statements—validity, completeness, ownership, valuation, classification, cutoff, ace icy, and disclosure. He had memorized these objectives, and each sounded pretty clear at the time, But how was he going to put these into practice? ‘ He flipped back through his auditing standards codification book. He stopped when these words stared back at fi ‘Auditors are required to understand the flow of transactions through computerized financial systems.” Suddenly SAS 43 hit him like a freight train.' Flow of transactions? Flow through financial systems? Shari had used that term earlier today. Wait a minute. Blake knew how to calculate earnings per share. He was well versed in accounting for pensions boy, had the instructor drilled that into his head! He could write a good essay on dollar-value LIFO. But understand the flow of transactions through a system? The knot in his stomach came back. Blake reached for his accounting information systems (AIS) textbook and looked for light at the end of the tunnel. Thought Question: 1. How do updates affect the master, transaction, and open files (ie., the number of records or field data)? 2. Identify the accounting subsystems that might be included in the revenue process in each of these types of organizations: a. A large manufacturing firm that produces cars and trucks b. Alarge insurance company offering life, health, accident, and liability policies . A federal government agency 3. Blake was concerned about whether he understood the flow transactions through an accounting system, What is meant by the “flow of transactions”? HB 4.1. Data Flows in an Accounting System Learning Objective 1: Explain the flow of transaction and other event data through an accounting system, ¢ processes that are familiar with the essential elements and bas In the previous chapter, you became familiar wit he previous chapter, y nents and proce found in computerized accounting systems. ae ection, you will see how the ele als eh the Work together 10 move transaction data through | ystem, Ada and Other Events ‘¢ Cycle of Transactions ; ais are initiated by personnel within the organization who are acting ‘established by management? Examples of these transactions and uerials by purchasing agents, the introduction of raw materials ‘and the sale of finished goods by salespersons. Some transactions and other eve within the framework of authority other events are the purchase of raw ™ into production by production manage?_ a computer PFORTAM—Lor drops 10 # specific level, ‘a liability for federal with the passage of 98 Accounting Information Systems with Practitioner Emphasis astructions i jnen its balance for example, associated and other events may also be initiated by programmed inst example, the purchase af an item of merchandise Inv" ory wl Other transactions and events are initiated by oUsiCe bodies fo income tate Sill others, sich as depreciation ov accra OF IMCTES time. A nansaction must first be recognized through ol Upon recognition, the data that reflect the wansaction system. Transaction data are coded to relate them (© hase subsequent processing and repor ng,’ Thus, a transaction involving © ie ga pavticula’ customer which is a record in the general ledger master file,! and a transaction is in the chart of accounts related to that customer's record in the customer mast! file. The accounts it secs for classify and the accounts in the various subsidiary ledger master files provide the primary Pas y transaction data, “Atransaction or other event may be reported individually or 28 ore reported mation, such as an account balance. Individual ansactions and other events may De P wo customers, vendors, or employees. For example, an invoice reports given sale to a PAT ular arom Aggregate transaction data provide the basis for preparing the financial statements and reports adivessed to groups such as managers, stockholders, or governinent agencie® Most reporting is in summary form, The final resting place for transaction ‘and other event data ordinarily is an archive file. In such a file, the transaction awaits its eventual destruction at a time governed by the company’s record retention policies or by applicable legal requirements The flow of transactions and other events from their point of origin to their final destination mus be understood clearly by the users and implementers of the AIS and by internal and external auditors whose job is to ensure that the system is performing satisfactorily. cement, or judgment into the accounting teas a classification scheme for Nig rekated 10 the cash ACCOUN, jcation, agre' servation, notification, 36 eapinred andinpe n must be accounts that s part ofaggregate, of summary infor 4.1) Ilustration of Data Flows ‘To explain how transaction and other event data flow through an accounting system, a narrative and graphical illustration of ransactions and other events for a small service organization for the mouth of Jannaryis presented. We are using a service organization to simplify the illu stration. Our system contains only sales processing, customer invoicing, cash receipts, and general ledger subs tems, or modules. OE aa rains syacm proceses sass, prepares cunomer Invoices, and eéllects rash, ‘Then the sale and cash receipls data are transferred to the general ledger, where other transactior eater purchases, are entered in our accounting system. Finally, a general ledger acc action data, such # eons nal vancial statements are prepared, Other types of otganizations (ga memthenaen os anal vation) would include the shipping and merchandisé inventory aspects of sa paren aS eed flowchart of the flow of information in our service organizatic a separated into the four subsystems, or modules: a. Sales processing b. Customer invoicing Cash reccipts d. General ledger You may want to read the narrative descriptions that follow for each Hoch te spe Ayo vy wll nc tht ate dna aes However, there are excepti mili o are completed before the activiti note activities and, 1 ul iptions to these timing differences, For e ives of another take place hours, which occws only one time, initiates both the sales peal the activity of entering billabl processes. Processing and the customer invoicit! ation is ales transactions. A systems sons presente in Eshiit .1, which 8 ‘alData Flows, Activities, and Structure of Accounting Systems 99 wai Exhibit 4.1a Flow of Transactions in a Service Organization Sales Processing vionat Ges wou piabinhaus me Goer aaa “ear } re (-/ To ginaal uns! ‘idneon ie \eureanced tanencion) Exhibit 4.1b Flow of Transactions in a Service Organization Customer Invoicingi + Emphas ‘womrari eee) Exhibit 4.1¢ Flow of Transactions in a Service Organization Cash Receipts | Exhibit 4.1d Flow of Transactions in a Serviee Organization General Ledger——_—__ Data Flows, Activities, and Structure of Accounting Systems 101 Inputting Sales Transaction Data Exhibit 4.2 shows some 1a 7 . computerized accounting sent looking computer screen forms for entry of sales data into the color and making them look much hee nS 83tem soleware packages embellish the forms by adding daa must be keyed into the ener & Pitted invoice. ‘The arcas with heayy borders denote where captured on memos prepared hayes the data regarding the sales of services could have been tustration are cash sales invoice ne ctbloyees who rendered the services. Two of the sales in out ice numbers 1001 and 1005) and the other four are credit sales (invoice numbers 1002, 1003, 1004 7 numbers. The system also displys any The accounting system automatically assigns the invoice customer code upon entry of a customer name to provide a SALES = TRANSACTION ENTRY SALES TRANSACTION ENTRY EP beatnl) oT HELP PROCESS Invoice No. [1001 Invoice No. [1002 Invoice Date [os/oaite Invoice Date [ovosira ‘Customer Name| Steen Back elroters (202 Customer Namelesc* | 201 CastvCredit__|Cash casnicreait__|creat Billable Biltable | Total Bilable —_—(Bllable | Tota Hours Rate | Amount | |ours Rate __|Amount 6 s100_| ss00 | 2___|stoo _| ss.200 SALES TRANSACTION ENTRY SALES TRANSACTION ENTRY Eom WeLP process Jjcor neue process Invoice No. {1003 Invoice No. [ico Invoice Date [or/07/12 Invoice Date fpri0ir2 Brown [creen ° Customer Name|ero"". | 204 Customer Namels"ee" | 202 castvcreait [Credit casnicredit [Creat Billable faible [Total Biliable ‘Billable Total Hours Rate [Amount Hours ‘Rate [Amount 27 s100 | $2,700 30 _|si00__| $3,000 SALES TRANSACTION ENTRY SALES TRANSACTION ENTRY cor NeLP PROCESS |] |[eor nee process invoice no. 005 Invoice No. [1006 ice Date forest Invoice Date [o1/21/12 Invoice Date lcnerry Red Fi ustomer Name! 203 customer Name|eoee "> | 208 7 [Gardens icashiCreait —_ |Crecit | ‘CashiCredit ash f [Total Billable ‘Bilable— {Total 1 Billable inable lAmount Hours Rate [Amount a ~ 0 [s100 | $6,000 5 js100 | $1,800 : into Computerized Accounting System nsaction Data ii Exhibit ng Sales ‘Th 2 Inpw102 Accounting Information Systems with Practitioner Emphasis check on the that the o sere customer code on the sc customer data, Ifa user sees a wrong customer cod Correct customer name h. master file by the Commands appear that give the user o The system write file (Exhibit 4.4) omitted from the 11, he or she can yori, etrieved from the custome, codes are retrieve ‘ cen. entered Customer codes ave retrieved fron (Exhibit 13 bec wt3)_ On the sales transaction ently sereen (Eshii 12, the tansaction data for all sales (whether cash or cr ome! ner NAMES are customer code, Custom ‘ote that customers are identified only by customer ‘Ansaction file to save input program shapte the sales trans, le space. You will recall from Ghapee 3 that fi ae 7 ed of two files. Acton file, although viewed logically as one file, is actually composed nt Balance Customer Code Customer Name ‘Year-To-Date Sales: Currer er 201 Black Corp. o 0 202 Green Brothers ° oan 203 Cherry Gardens ° pes 204 Brown Company ° a 206 Fed Flag Sales ° Exhibit 4.3 Reuii ng Customer Names from the Customer Master File (© denotes a cash sale, and 1 denotes a credit sale.) Fue 1: Invoice No, lnvoice Date Customer Code —_CashCredit Sal 1001 ova 202 0 1002 onoarr2 201 1 1003 ower 204 1 1004 owtone 202 1 1005 ovine 206 ° 1006 onan 203 1 Fue 2: Invoice No, Billable Hours itaby 1001 6 100 1002 a2 1003 ar 100 1004 30 100 1005 18 100 1008 60 Exhibit 4.4 Writing Sak ransactions to the Sales Transaction ‘The system also writes cash receipts from the cash sale file (Exhibit 4.5) and automatically assigns transactions en action mumbers because other cash receipts trans actions are ansactions are discussed later in this illustvatio ol s r transactions to the cash receip notice a ng in othe § transactio" gap in the wane ¥ subsystems, Thesae Data Flows, Activities, and Structure of Accounting Systems 103 (ther cash receipts occur bet « ipIs occur between the dates of these ‘sales and are discussed later in this illustration.) Transaction cas es Ca NReceipt Customer Invoice Cash Collection Customer uate Code No. Sale on Account ‘Check No. ovoana 202 1001600 99102 cnsss ovewa 206 1005 1,500 0340 Exhibit 4.5 W ng Cash Receipts from Cash Sales to the Cash Receipts Transaction Fi Printing the Sales Journal a from the sales wansaction file ata fi are listed in journal format to provide the sales journal (Exhibit 4.6). Customer names, retrieved from the customer master file, are included to help users interpret the printed information ‘SALES JOURNAL Month Ending 1/31/12 customer; Cash Credit Invoice Date | Code Name Sales Sales No. ovoat2 [202 | Green Brothers $600) 1001 ovoat2 | 201 | Black Corp. $4,200 1002) owo7i2 | 204 | Brown Company 2,700 1003) orior2 | 202 | Green Brothers 3,000 1004) 0122 | 206 | Red Flag Sales 4,500 4005) oveeit2 [203 | Chery Gardens 6,000 4006) Totals $2,100 $15,900 Totals for Customer Codes: 201 ‘$4,200 202, $600 3,000 208 6,000 204 2,700 206 1,500, Exhibit 4.6 Printing the Sales Jov Updating the Customer Master File Data from the sales wransaction file are used 10 update, oF post to, the customer master file, Records for the cusromess to whom sales were made are changed 10 reflect the inerease in the customer's year-to- date sales amount and, if a credit sale, the customer's current balance, Note in Exhibit 4.7 that the year-to-date sales amounts for all five customers have increased from what they were in Exhibit 43, and the current balances have increased for the four customers 1o whom credit sales were made.104 Accounting Information Systems with Practitioner Emphasis a. File Before Posting (as it was in Exhibit 43) rearcTo-bate Sales current Balance Customer Code Customer Name 0 201 Black Co. 0 GC 202 Green Brothers 0 - 203 erry Gardens 0 nace 204 Brow Company 0 sao 206 Red Flag Sales 0 Hs ». File After Posting Year-To-Date Sales Current Balance Customer Code Customer Name 4,200 201 Black Corp. 4,200 202 Green Brothers 3,600 3,000 203 Cherry Gardens 6,000 2,400 208 Brown Company 2,700 7,000 208 Red Flag Sales 1,500 3,600 Ewhibit 4.7 Updating the Customer Master File with te Sales Transa Reading the Flowchart of Sales Processing ad about’how the sales data flow through the three processes journal, and updating the customer master file—you can follow the ing back to and reading the flowchart in Exhibit 4.1a. As noted in the previous chapter, begin reading the flowchart by focusing on the frst activity, which in this case is “Enter Data.” Then observe what flows into this a nid then what flows out of this activity. Next, proceed through the flowchaxt one symbol at a time. ‘The entire narrative description is eaprured in this one picture. Now that you have re inputting sales Uansaction data, printing the sal flow of transaction data by tu Printing Customer Invoices ‘The system prints customer invoices following the entry of sales wansaction data into the system. The data needed for the invoices come from data keyed into the system, and some data, such 4 a name and address, come from the customer master file. Abbreviated printed invoices ‘he Sheva it emp voices are show Exhibit 4.8. Updating the Open Customer Invoice File ‘our of the January sales in our service organization are eredi credit sales. Therefor aa me " el ee to provide means for Keeping up with the cash that is due the organization: and his i oon g da id ct oad a n, and this is accom” (unpaid) custome in Sree ie customer invoices. The sales transaction file mpalates paid) customer invoice file by inserting a new record for each new invoice. See ag TST TRS Cai ealecare cine aoe oes v invoice, See Exhibit 49 also entered in the open invoice file but are shown ‘The reason that €s for cash sales and credit sal ‘at invoices f¢ di : ‘ash sales and g file is that itis a major souta Flows, Activities, and structure of Accounting Systems 105 CUSTOMER INVOICE cos vr |Green Brothers TOMER INVOICE. [Black Corp. | _ invoice No. 1002 Invoice Date ov/oart2 [Cash — CUSTOMER INVOIGE ———— Preen Company, ——Tinsice No. Tioga] Invoice Date (01/0 ‘CUSTOMER INVOICE [Green Brothers involve No. [00a |imoie Date jovani (Gach Crea & CUSTOMER HIVOTGE CUSTOMER VOICE Red Flag Sales invoice No,_| [Cherry Garde invoice No. [1006 | Inve Date rua T—imelee Dele oraaria I Credit X Tat TT Amount Due Exhibit 4.8 Printing Customer Invoices Reading the Flowchart of Customer Invoicing Now that you have read about how the sales data flow through the two processes—printing customer invoices and updating the open customer invoice file—you ean follow the flow of transaction data by turning back to and reading the flowehart in Exhibit 4.1b. Inputting Cash Receipts Transaction Data During the month of January, cash is received from the two cash sales and is entered in the comput erized system as was shown in Exhibit 4.2 (invoice numbers 1001 and 1005). These cash receipts ave stored in the cash receipts transaction file as was shown in Exhibit 4.5. Cash i also received in in payment of four invoices, two of which had been issued in December of the previous yc another two that were issued in January of the current year: Exhibit 4.10 shows computer screen forms for enuy of these four cash receipts into the accounting system, The areas with heavy borders denote that data must be keyed into the entry form. The system assigns transaction numbers auomatically and retvieves customer codes from the customer master file upon entay ofthe customer names so the user can verify that the correct customer name has been entered. The sjstem also antomatically vetvieves all Unpaid invoices for the customer whose name was entered so the receipt can be applied 10 a particular invoice or invoices.sis Practitioner cates 106 Accounting Information Systems with PACT —— _ ‘The 8. Fie Betoro Posting ie pate invoice Amount the ca arn Invole® Paid Paid transac customer amount Invoice No. Invoice Date 08 3600 0908 1206/11 a 2400 0999 saneitt aos ‘4200 1000 vant b, File Aer Posting TE Invoice Amount Invoice Date Cd al Paid Invoice No. Invoice Date Code Amount Paid —_—_—, Exhibi 0998 12/06/11 206 3,600 0999 aneitt 203 2,400 ; +1000 sanz 204 4,300 Printi 1001 ovosrte 202 600 owoart2 600 — 1002 ovosre 201 4,200 ra) 1003, owore 208 2,700 1004 omnone 202 3,000 1005, oveuie 206 1,500 oven 4,500 1006 ovresne 203 6,000 Exhibit 4.9 Updating the Open Customer Invoice‘File with the Sales Transaction File [ CASH RECEDPTS ] CASH RECEIPTS : TRANSACTION ENTRY TRANSACTION ENTRY é | or weir pOcESS for WLP pHOcESS “Transaction No. [Cass1 Transaction Wo, [oss2 Date of Receipt [ovo Date of Receipt [ornare Customer Nar Customer Name | : voice No. Invoice No, lamount Amount Check No. J} [cheek te ~__CASHRECEIPTS TRANSACTION ENTRY ,CASHRECETS " |EDIT HELP ‘PROCESS —| kK TRANSACTI sae Bansact Transaction No, [OPSs5 fon Wer paces SNTRY Upd Date of Receipt . Pe Icherny Dat customer Name {22° L203 file j Invoice No. lAmount the, ind Exhibit 4.10 Input_ Data Flows, Activities, and Structure of Accounting Systems 107 — i rhe system writes the cash rece , heh prema ae Peng ate fom both cash sales and the pa of invoices, 10 | i MbILALLL). As before, customer names are omitted from the ansact ul Transaction cash ipt Date Code Paid Sale on Account Check No. ‘CRS5O oVvoane 202 1001 600 99102 crest ovate ke ew — i CRSS3 olan 203 0989 2,400 54445, CRSS4 varia 206 1005 1,500 " 63340 ‘CRS55 ovawi2 204 1003 . 2,700 22221 Exhibit 4.11 Writing Cash Receipts 1 ssactions to the Cash Receipts Trans Printing the Cash Receipts Journal Data from the cash receipts transaction file are also used to prepare the cash receipts journal (Exhibit 4,12), Customer names are retrieved from the customer master file. ‘CASH RECEIPTS JOURNAL Month Ending 1/31/12 Trans] Cash Collection action | Receipt Customer cash on Invoice No. Code Name Sale Account No. cAsso [rose | 202 | Green Brothers $600 1001 (CAS51 [01/0512 | 206 | Red Flag Sales. 33600 298 ‘cRS52 | 01/1412 | 201 | Black Corp. 4,200. 1002 Rss} ov/taii2 | _203 | Cheny Garden 2.400) (0999) cnsss [012112 | 205 | Red Flag Sales 1500 1005. cAsss 01/3112 | 204 [Brown Company. 2700, 1003 retaial 32,100 $12,900 al justomer Codes: Totals for Customer = —_ 202, $600, 203) 2.400 208 2,700 206: 1,500 3,600. Exhibit 4.12 Printing the Cash Receipts Journal Updating the Open Customer Invoice File and the Customer Master File Data from the eash receipts transaction file are used to update, or post to, the open customer invoice file in order to reflect that certain invoices have been paid (E hibit 4.13). The oe receipts transaction file is also used 10 update the customer master file, Records for the caster tha rempited cash in payment of oustanding invoices are changed to reflect the decrease istomers w! s in the customer's current balance (Exhibit 4.14).Praclitio phasis 108 Accounting tnformation Systems with Practionet Emp ‘a. File Before Posting (as it was in Exhibit 4.g{bl) te Invoice Amount tnvoice customer Involce oa Pald Invoice No. Date ‘Code Amount 0 0998 1206/11 208 ae 0999 anes 203 = 1000 42n7/"1 204 "600 o1/oa/t2 600 1001 ovouie 202 a 1002 ouosne 201 oo 1003+ «ow7st2 208 2700 1004 owone 202 3,00 a Aeon 1005 ovewi2 208 1,500 or 1006 + vee 203 6,000 b. File After Posting invoice Customer_-«=«stnvoice ~»«Datelnvoice Amount Invoice No. Date ‘Code Amount Paid Pal 0908 12)06/11 206; 3,600 ovossi2 3,600 0909 sanent 203 2,400 owrane 2,400 1000 sanz 204 4,300 1001 owoane 202 600 ovosii2 600 1002 owoane 201 4200 owiaii2 4,200 1003 owo7ne 208 2,700 ovsit2 2,700 1004 oman 202 3,000 1008 ovane 206 1,500 ovanne 1,500 1006 ovesin2 203 6,000 Exhibit 4.13 Updating the Open Customer Invoice File with the Cash Receipts Transaction File Reading the Flowchart of Cash Receipts Now that you have read about how cash receipts data flow thréugh the three processes—inputting cash receipts transaction data, printing the cash receipts journal, and updating the open Gatamersnveie file and the customer master file—you can follow the flow of transaction data by going back ‘ reading the flowchart in Exhibit 4.1c Py going back to ant Performing File Maintenance on the General Ledger Master File During January an event occurs that requires the addi a ‘The accountant who is responsible for maint ioe isc to the chart of accounts should be assigned the name “Repair Expense” and the number 5690, The new nent Se interactive file maintenance in the general ledger master file (Exhibit 19) Sree eet 8 ae related information are entered into the computerized system. It cha een eeeouNE MET ae account number is already in use, the system so indicates, nt HE system determines that 8 Exhibit 4.16 shows the general ledger master file hefo record was added within the body ofthe file to preserve the, Chapter 3 that the general ledger master file second file stores account debit and credit shibit 4.16. a r the file may Pees a after the file maintenance, Our ne isactaly splint the Becounts. You wil recall ost aati io ant 80 files that are inked. Because tl HIS not alfected by file maintenance and so is Hl included in E3Data Flows, Activities, and Structure of Accounting Systems 109" 8. Fle Bolore Posting (ast vias in Eat 47() Customer code sstomer Cod Customer Name. ‘Year-To-Date Sal ‘Current Balance AREA Customer Name Year-To-DateSalew Current Balance 201 Back cup 44200 4200 202 Green Brothers 3,600 3,000 , 203 Cherry Gardens. 6,000 8,400 204 Brown Company 2,700 7,000 206 Red Flag Sales 1,500 3,600 » Fle Alter Posting Customer Code Customer Name _Year-To-Date Sales Current Balance rere Naeem TerDate Seb Suraet Balance 201 Black Corp. 4,200 0 202 Green Brothers 3,600 3,000 203 Cherry Gardens 6.00 6.000 208 Brown Company 2,700 4300 206 Fed Flag Sates 1.500 ° Exhibit 4.14 Updating the Customer Master File with the Cash Receipts Transaction File FILE MAINTENANCE ENTRY [Account No. ‘Account Type Inputting of Transaction and Other Event Data into the General Ledger Subsystem As mentioned, the simple accounting system described here has only sales processing, customer invoicing, cash receipts, and general ledger subsystems, or modules. Therefore purchases, payroll, and other transactions and events have to be entered through the general ledger subsystem. Some examples, of these transactions and other events are shown in Exhibit 4.17. Transaction numbers are assigned automatically, and account names are displayed antomatically upon enury of account numbers. The ‘ from the general ledger master file. The shaded areas denote the data account names are retrieved that the entry form. 7 Note thar vii explanation ofa transaction can be.entered. This feanire is helpful because of the ote that a.btief ex; vide variery of eransactions that can be entered in the general edger subsystem, The system writes the \anstetions, including the explanations, to the general journal wansaction file. ‘These transactions ave in 2 3 Sane the frst eight records~-that is, asaction numbers GJS50 to G8H3, in Exhibit 4.18.titioner Empha 110 Accounting tnformation (a) File Betore File Maintenance can ‘ho Account Name Balance Balance” 30 | Gash in bank 4,100 4,10 4600 | Equipment 15,000 15,000 4650 | Accumulated depreciation (1,800) (1,800) 2110 | Accounts payable (2,800) (2,800) 3100 | Owner's equity (ea'go0) | (24,800) 4200 _| Sales of services ° ° 5190 | Salary expense 0 ° 5340 Depreciation expense 0 o 5700 Rent expense 0 o negative number denotes @ “A positive number denotes a debit balan credit balance, (0) File After File Maintenance Beginning | Current No. Account Name Balance Balance [1120 [Cash inbank 4,100 4,100 |.- 1250 [resis eesiabe——_—_-—vas00 | 1600 _| Equipment 1650 | Accurnulated depreciation (1,800)_| z110__ | Accounts payable (2,800) ~ | Owner's equity (24,800) Sales of services Depreciation expense | | Repair expense Fient expense Exhibit 4.16 Elfect of File Mainte cc on the General Ledger Master File Transferring Data from the Sales Processing and Cash Receipts Subsystem: Periodically, usually at the end of the i a y, usually month, data in the sales ; ; sales and cash recei i summ od errer e ger he ‘ash receipt ‘a tmmatized and wanfered go the general joveal wansaction fle tha eae eee subsystem. This would be done a ie e general ledg subosten Tiswenld ie doe aon pon seein fa appropri ip the general ledge oF oman bution dpe on the een, Our station shows He eitntnariaedteieoeion da envto the general journal ansaetion file in Exhibit 4.18.9 These summarized transaction data last six records —that is, ransaction numbers SA854 to CASE, in the enrate erianatorere tien cn elf rom{ieladeshiiansati celal tannilG {hs exhibits wansferred from the cash receipts wansaction file. ed transactions are the A denotes th rans and CA ae es that the trans ‘A denotes that the transactions were Printing the General Journal Data in the general journal transaction file Account names retrieved from the general led re listed to provide the ge Exh ide the gener ee general journal (Exhibit 4.1 are included in the report,Data Flows, Activities, and Structure of Accounting Systems 111 rhansnenonenay “GENERAL JOURNAL Eo net SRST TRANSACTION ENTRY eee es ‘Transaction Date Transaction We, [GJ651 | | secuntiane | Transaction Date [0114/7 N Acct. : [rlietenee No obit] creat 4120 | Cash in bank 5590 1.200 eed cash 110 Aczcunspavabo Ta | Explanation: [ Repairs to vehicles TERA CURIA ee Zor pe RANSACTION ENTRY TRANSACTION ENTRY : ESS OT —WELr PROCESS. Transaction No. [GJe52 | | Transaction tio. [aves Transaction Date [overs] Transaction Date [ovat — Acct. ‘Acct. No.| _Aecountname | ebit| credt_ | ‘Wo"| —AccountName | oebit| Credit 5130] Salay expense [e300 510] Deore. expense [00 1120 [Cash in bank 300 71650 | Accum. depre. [a Brolenation: [Won para ign or ee Exhibit 4.17 Inputting Other Transaction Data into Computerized Accounting System ‘Transaction No. Transaction Date Account No. Amount” Explanation 1850 ornare 700 3300 office ert 6860 ownora 1120 (6300) Offles vert ovest onnarie 600 11800 Ropar to vehces vest oviarie 210 (1800) Repais oveiles vese ovate 5130 300 Monhiypayot enez ovsilie 1120 (6300) Monty payot ues ovata 5310 300 Deprecaton on equipment ae ovata 1650 (200) . Depreciation on equipment A854 ovawie 120 2100 cach sales sAas4 ovsirie 4200 (2100) Gash sles eae ovavie 1230 15.900 Cred sles SABSS ova 4200 (15,900) Crecit sales asses ovainie 1120 12.900 Colectons on account ee ovsiie 1230 (12.900) Cobectons on account Beginning Balance ‘Account No, Account Name 9,500 Current Balance 1120 ‘Gash in bank 4,100 1290 ‘Accounts receivable ie 00 a 1600 Equipment 15 7 1650 ‘Accumulated deprecation (1,800) (2,100) 2110 ‘Accounts payable (2,800) (4,600) 3100 Owner's. equity (24,800) (24,800) 4200 Sales of services ° (18,000) 5130 Salary expense 0 6,300 5340 Depreciation expense 0 300 5690 Repair expanse ° 1,200 5700 Rent expense ° 3,00 Fie 2: ‘Account No, DebivCredit Activity Transaction No. Transaction Date Explanation 1120 (6.300) ‘Gue50 onion Office rent 1120 (6,300) Guase 1312 Monthiy payro 1120 2.100 sAasi ousit2 Cash sales, 1120 12,900 crass 0131/12 Collections on account 1290 15,900 SAB55 O13i/i2 Credit sales 1200 (12,900) caase 0191/12 Collections on account 1650 (00) Guess OV1/12 Depreciation on equipment 2n0 (1.800) Guest OV1412 Repairs to vehicles 4200 (2,100) SABS4 ovsit2 Cash sales Fee co) oad ousi/i2 Credit sales a? ba 3Je52 01/31/12 Monthly payroll no rd ces 01131112 Depreciation on equipment oo Mans 1651 OV1412 Repairs to vehicles ij Gues0 oVo2 Office rent bit 4.21 Updating the General Ledger Master File with the C seneral Journal Transaction FileData Flows, Activities, and Structure of Accounting Systems 115 SENERAL LEDGER ACCOUNT ‘ACTIVITY REPORT As of 1731/12 eo Transaction | Transaction Page tof3. No. [>——_L_Date Debit |. creait Explanation Account No. 1120 Cashin ba nk Beainning balance $4100, GJ8s0 ontone 3, fi Sisea orsine Seen Monty pyeot Saase ovina 2,100 Cash sales osine — | 12900 Collections on account 19,100 | 9.600 9,600 Current balance 5,500 ‘Account No. 1230 Accounts receivable Beginning balance ‘SASSS $10,300, ovsii2 15,900 Credit sales CAags6 onsite $12,900 | Collections on account 28,200 | 12,200 12,900 ‘Current balance $43,300 ‘Account No. 1600 Equipment Beginning balance ‘$15,000 15,000 o 0 Current balance 315,000 ‘Account No. 1650 Accumulated depreciation Beginning balance $1,600 Jess onavi2 300 Depreciation on equipment ° 2,100 0 ‘Current balance $2,100. Exhibit 4.22 Printing the General Ledger Account Activity Report (EXHIBIT CONTI BB 4.2 Activities of an AIS Learning Objective 2: Identify and explain the major activities of an accounting system: input, proces, store, and arning Objective 2: Identify and e ont data P ion of activities that are designed to produce and deliver infor- An accounting system is ean the data flows in a simple accounting system, you probably mation. As you studied the illus ier» following major activities: iput (capture) data, process noticed that the system was per Olt © @) data, These activities were also discussed in Chapter 3. In daa, store data, and output (commune System has support activities that improve the quality of audition to these majoractiviue, Mare manage people, manage technology, and manage internal pemaioracivives dD ser acti 's of an AIS. The major activities are discussed in this section. control, Exhibit 4.24 shows the a :»-actitioner Emphasis on 116. Accounting information Systems wth Prationer EMDRASE _—_——— ivity REPORT GENERAL LEDGER A yatt2 Page 2013 ; ‘Current balance Tecount No, 3100 Owner's equity Beginning balance $24,800 Net income for period 6,200, 0 | 31,100 2 Current balance sar 100 Tecount No, 4200 Sales of services Beginning balance ‘SARS oneiie Cash sales SAg55 ons Credit sales ° Current balance san FE OS Beginning balance 30 ‘Ges2 o1sii2 6,200 Monthly payroll 6,300 ° 0 ‘Current balance 55900 Exhibit 4.22 (CONTINUED) 4.2a Input (Capture) Data Input data is an information processing activity that captures and feeds wansaction and other datai the accounting system for processing, Input is an interface between the user net ne eee system, Frequently, transaction data are captured on input, or source documents argv eens the computerized accounting system. A discussion of source documents a eG given in Chapter 3. Keying the input data is vulnerable to errors, One of the san ne Mame were transposition error in which two digits in a number are inadvertently inane eon etTOIS is @ bye keyed as 12435, Accordingly, the keyed data must be verified to crea eenSeds thus, 12845 might erroneous data will not be processed imo erroneots output The eee © the extent possible, that programmed error controls, by visual checking, or by a combining otto" May be performed by examine each data element asit is entered and reject the elewaiita ll both. Programmed controls the data clement fails to “pass” certain tests of acceptabilin: Comearg ey & diagnostic message i Hon and reentry can be done at As mentioned in CI er 3, keying © once. As mentioned in Chapter 3, keying errors ean be avoided \ capturing transaction data electronically a the point of ovig °Y scanning source documents oF gin. ss entsita Flows, Activities, andl Structure of Accounting Systems 117 GENERAL LEDGER ACCOUNT ACTIVITY REPORT As of nia Transaction | Transaction ae o Date Debit Credit Explanation Tecaunt - o Curent beans Recount Ne 550 Rapa Spee Beginning balance To 6851 oWraie 1,800 Repairs to vehicles 1800 ° ° Caren Beano im ‘Recount Wo, B70 Rent opens Beahnina bance . 5 C850 | OTE] ° 9.09 feo rent 3 . Cure baanes Convers “This exhibit excludes the $6,300 added to the revenues and expenses. ‘Owner's Equity to pravent double counting of Exhibit 4.22 Income Statement Balance Sheet Horta to 1312 As of 1/31/12 REVENUE ‘ASSETS Sales of services $18,000 Cash $. 8,500 TOTAL REVENUE $18,000 ‘Accounts receivable 13.300 Equipment $15,000 EXPENSES Accumulated depre. | = 2,100 _12,900 Salary expense 6,300 TOTAL ASSETS $35,700 Depreciation expense 300 Rapairexpense 1.800 aaiLimes AND Rent expense 3.300. owner S EQUITY, A S 11,700 ccounts payable 4,600 TOTAL EXPENSE: caren pao NET INCOME £8,300 TOTAL LIABILITIES & OWNER'S EQUITY $35,700 Exhibit 4.23 Preparing the Financial Statementsphasis 4 118 Accounting information Systemts with Practitioner E | ‘Support i Actuites [ Manage Technology + | | pfanage intemal Contol Major Activities Exhibit 4.24 Activities of an AIS 4.2b Process Data ty that transforms data according to a prescribed set of t cry of ways. Some of the most basic types of be built from combinations of these Process data js an information processing instructions. An accounting system processes data in av ed here. More complex forms of processing may processing are basic forms. . el Classification, Data may be classified, or placed into categories. All transaction data are classified by the account they affect. For example, when inventory is received, the cost of the purchase goes into the inventory account. Inventory transaction data may be further classified into receipts, issuances, and back orders. General ledger accoums are classified into balance sheet and income statement accounts, Classification usually is accomplished by transaction coding. # Calculation, or Computation, Data may be manipulated mathematically. A very simple example is the multiplication of a unit cost by a quantity to produce the extended cost. More complex examples are the determination of payroll withholdings, purchase or sales discounts, and sales commissions. Some quantitative models that are used for decision support involve large numbers of complex calculations. # Comparison. Data elements may be compared to determine whether they are similar. For example, a comparison is made when the name of a customer is checked against a list. of individuals or organizations to whom credit terms have been extended. A comparison also is made to determine whether an employee's year-to-date earnings have reached the Federal Insurance Contributions Act (FICA) tax ceiling. J porting Sor ring hs onsisis of rearranging eer ds ina file into some meaningful sequence, usually i ig order ofa data element within the record. For example, vendor fle aay besonted 1 alphabetical order by vendor name, or in ascending order byvendor munber As noted in our illustration of data flows in an 2 st nae account number before updating the general ledger master dle ce ee file is sorted by cdger master ing i agroun names before up g file to bring together all transactions . Updating or Posting. The updating, or posting, of master files and o discussed not only in our if tion of dat. i ly a flows in an accor fesse not only n ov istration an accounting system at the beginning of this chapter i a in ceapie T 3. An ex; imple is the updating of a customer master file (using h “ as to rhe customey a gl the increase ina customer's current balance for the amonan cae taal 10 c pier. Anothes e la me pean example is the updating of the customer open invoice fe (using the cas receipts transaction file) to refl iy ‘e. Upd is one of the most cor lect the payment of an invoice, U ig processing activities and plays a le st a . Processing activities and plays ‘al ro most accounting subse. Cofthe most comme s systems, pen files by transaction files wasData Flows, Activities, and Structure of Accounting Systems _ 119 ization, or Ageresati ; ; aver 3, dala * Ageregation Data may be added to produce a summary total. As diseussed in aeaaee ped Into appa eCtion files (sales, cash receipts, purchases, cash disbursements) are summarized into ay » a . 5 saminar PPrepriate paits of debit-credit journal entries before being transferred to the general journal wansaction file. : 4. Merging. Merging consists of combin files arc already ordered on the mple, inventory reorder file ay be combined into a single Ng Wo or more files imto a single new file. Usually, the separate same data clement, and the resulting file is similarly ordered. For Ss prepared by regional warehouses, cach sorted by part number, i 7 company-wide reorder file also sorted by part number a File maintenance. Vile maintenance is a nonroutine process in which a user makes changes directly toa master file. Typical file maintenance includes adding new records to a file (as was donc in our illustration of data flows in an accounting system), deleting unwanted records, and changing the content of existing records. For example, a new vendor may be added toa vendor master file, or an sisting vendor's address may be changed. Account balances, which’are updated by routine trans- adit evidence would action posting, should not normally be changed by file maintenance because be incomplete, Y 4.2c Store Data Store data is an information processing activity that provides for the storage of data to accommodate the timing differences among the input, process, and output of the data. Data that have been entered and processed at different times can be accumulated and combined to produce types of output that otherwise would not be possible if it was not for the storage activity. Data can then be retrieved from storage as needed to satisfy the requirements of th ‘The stored data must be able to support an organization’s operations, mandatory external reporting requirements, and management decision making. Data find their way into storage as.a result of the enuy of transaction and other data. Data routinely needed for the organization’s day-to-day operations and the form in which they must be delivered are known in advance and can be planned. However, requests for information to support management's decision-making function may be nonroutine, and their specific nature may be difficult or impossible to plan. The requests depend on what management needs at a given moment. Thus the stored data must be maintained in a state of readiness, and the accounting system must be able to respond to requests as they arrive. To provide the various kinds of requests for information, the data are stored in meaningful struc- tures, A popular data structure is the database management system that includes one systemwide “superfile” containing all the individual files in an accounting system. Data files store sets of related records, such as inventory or sales records. An elaborate system of linkages among the files enables information to be retrieved on demand, Database management systems provide for the organizati routine reporting needs. But the most impressive capability of a database management system is that it can respond to managers’ unexpected requests for information, Database managenient systems ave discussed in more detail in Chapters 12 and 13. - Accountants and other users typically view data as being stored in “files."’ Files provide logical models ofthe stored data, as opposed to the actual physical arrangement on the storage medium. Accounting subsystems require several data files (as well as program files to instruct the computer in how to input, process, store, and output the data). The data files in accounting systems are primarily of four main lypes: reference files, open files, wansaction files, and master files, Explaviations and examples of these files were presented in Chapter 3. The major subsystems and the data files accountants and others use ae discussed later in this chaptpractitioner Emphasis 120 Accounting information Systems with and distributes cata 10 Users The output may be ‘ce or paycheck, ora y voice synthesis, 4.2d Output (Communicate) Data formals, unting syste omer itvoi or possid! eves, aced sa cu tivity that ret asers and the Onput data is an information processing Ontpat is the second main interface between the v a document, such a firvancial statement, a management FePor’, . c 5 r 7 " display, y graph. The output medium maybe paper, meron, cides 7 Ee 2 ig he inp 1 another chi - medium, YI from the system is in a machine lable me ing ag. ihe broad range erat user is deferred ro some Ue! proces EE i nce eva corresponding A fing apstem to meet a corESPOneNE ee fine met ems are examples OF SN TI status erie as ing from transaction i a nn files after updat re master and open files a om trans aaa ee ability, and ownershiP equity accounts Sometimes the outp computer, and the interface with of available media enables an accoum The financial statements and many reports focus on the balances recor files has been completed. Thus the balance sheet lists the bility, an urement presents the in the general ledger master file and their asso jated balances. The income § a mompare balances equivalent information for the revenue and expense accounts. A stats report aera Pere in a master file that result after being updated by tan action files and after unde BON ined for nance. For example, a customer master file nay contain fields in which sales by mont “ i be each of the 12 months of the previous year nnd cach of the 12 months of the curr it yea ie pudgeted sales for the customer for each of the 12 months of the € ‘Some status reports list ent yea only a small subset of the total number of records in a file. An example is an inventory reorder report tht identifies only those items whose on-hand balane «have fallen below preseribed minima levels Ihe contrast to status reports, which are produced om, tata in tie master files, activity reports are produced from data in the transaction fies. “An activity report isa listing of the wansachort file showing the transaction activities that have oce irred over a period of time. An & ample is a sales journal. More than one status or activity report may be produce dd from a single file, each formatted to meet adifferent need, The contents of report may be sorted differently from the records in the file. A sales a eenetion file normally would be ordered chronology ly, whereas an invento! ¢ report prepared from the same file might be sorted by inventory item. Frequently, a report may contain information that is not contained in the principal file from which it is produc ed. This additional information may be ret jeved from another file or derived from a calcu- idm, For example, a purchase activity report may show both the vendor number and the vendor earns the report is essentially a listing of the purchase transaction file, but the vendor names may have sane enieved from the vendor master file beeause they are nok reco ied in the transaction file. In her situations, data may be derived from calculations ‘either based on historical data.or originating from some other sources. Reports may include estimates or projections of what might happen if a contain course of action were followed. 3 “Aa important element of the outpnt activity sche formatting of the information for communication to the user: Information formats are referred to as forms regardless of the medium, such as a document report, or screen display. The way the form is designed depends on the medium, but in all cases the principal objective isto provide for the effective and ciclont wanater of infornvation't® ahe ht eran aang reports containing tables of figures have been the traditional medium ofc eeereai ae oevting data, Screen displays also often present data jn tabular form. T of comm rer acenuly will continue as dhe prinipal output format forthe foreseeable fi saree eran formats, such as the graphical representation of data, are gaining i fauure, However; ott mor provide the quantitative detail of tables of figures but Se ae ee Graphics aot re for the underlying meaning of the data Accordingly, poate date CODE aovning vo multimedia (and multformat) communications PARTE e eee increasingly a fated to the users in more than one form, For example, a table of a data may be communt lisplay may be supplemented by synthesized pice onan be supplemented by graph; ora screen dData Flows, Activities, and Structure of Accounting Systems 121 output from the ac . eae erating: theeh ec ceMting system naust meet the organization's and users’ information requ ments. Meeting their requirements is the chery ganiza 5 ise aining, operating, and S the chief justification for the investment in implementing, maintaining, ation bee tolling the AIS. To this end, an accounting system should not only jde usefull informati fs 4 ide Ty the informa BUt also provide icin a timely, effeetive, and casptounderstand mann Dae Hon should provoke action of some kind or influence someone's behavior: Ifit i ither, the va : fails 10 do either, the value of the ouput and the justification for the accounting system are in doubt. Bh 43 Structure of an AIS ing Objective 3: e the Learning Objective 3: Divide the accounting systam into four business cesses and identify typical acconnting subsystems, or modules, in each process, ‘Types of accounting systems are as numerous as types of organizations. This lack of uniformity complicates a person’ ability to understand accounting systems. Systems are customarily divided into component subsystems, or: modules, but there is more than one way to do this. Also, a subsystem that exists In one organization’s accounting system may not have a counterpart in another organization’s accounting system. For example, servicthe organizations have no merchandise inventory for resale; merchandising organizations have no production operations; and nonprofit institutions have no ownership equity. Even the accounting systems for two merchandising organizations will differ 43a Business Processes and Subsystems Im the face of this complexity and diversity, several attempts have been made to simplify the under- standing of accounting systems and to establish a framework to unify the elements and processes that are common to all accounting systems. One of the most successful att business processes. A business process is a group of interrelated but comprise the first, or most general, level of subsystems in an AIS of events they capture, process, store, and communicate. Four business processes that comprise an AIS are listed below and are also identified in the block. diagram in Exhibit 4.25. # Revenue process mpts produced the notion of he business processes ¢ defined according to the types = Purchasing process = Inventory process = Financial process pezountog fromaos sm — Ivenony Financial Revenue coe poooee ocaee Exhibit 4.25 Business Processes of an AISmore subsystems that fae their gy o! iaput (comm ach business process ¢ cess: NC and rence of eat 4 jstel each of unique responsibilities, 30 10 SPC revere th 1 # nnd 68 jon. ‘These subsystems 4° th iene DUSINESS PFOCESS ay, rf ‘whereas " s mounting SUDSYSLEMS ay jations. The subsystem, rjc principal subsystem ation about business ns in this second le referred to ‘al terms SO they havé Gefined more narrowly and may ha perform well-defined actiitie “which are exp! Paihia each business process are Snowmt ? Ex nforn abs general defined in ge vance, 20 of organi ‘ections: T ste Financial process - Purchasing process ‘Soles or sales ‘order processing Inventory management shipping Accounts receivable tems of Business Processes in an AIS Exbibit 4.26 Subsys Revenue Process “he revenue Pro activities rc encom mone referred to as the sell ling o ig and collection process cess , som ribution of goor yds a iT goods and services to customers and th ‘ and the receipt © Javed 10 the d passesData Flow tivities, and Structure of Accounting jn eseange nd services. The re Mapsstems—sales, sales order proce “eecivable cant be further subdivided i ‘The sales subsystem is concerned y yorision of services. This subsyste ue process is typically broken down into its . Accounts receivable, and sales analysis. Accounts Mo Customer invoicing and cash reccipts subsystems. with the sale of goods or services for immediate delivery of goods or ystem may include establishing credit terms, recording sales tax data, and determining ales commissions. Any organization that provides goods or services on demand, stich asarcaal store or a health-care facility, vequires a sales subgretem, © ‘The sales order processing subsystem deals with the processing of orders received from customers for subsequent delivery of goods or provision of services, This is tur extension of the sal subsystem in iat it includes the same activities; however, an added activity here is the management of unfilled sales orders. , ‘The shipping subsystem handles the retrieval of goods from the warehouse and the preparation of the goods for shipment and the accompanying paperwork. It includes recording the shipment of the goods: Shipping may extend to identifying appropriate modes of shipment and negotiating with common ¢ All organizations that ship significant amounts of goods require a shipping subsystem. The accounts receivable subsystem is concerned with receiving payment for goods and services sold tocasiomets. It involves preparing customer invoices and periodic customer statements, maintaining records of customer balancesand total receivables, and collecting cash. Accounts receivable sometimes is divided into two subsystems: customer invoicing and cash receipts. All organizations that extend credit to customers or who bill third parties, such as credit card companies or health-care facilities, need an accounts receivable subsystem, The sales analysis subsystem is a decision support activity dealing with the analysis of historical sal daa to provide management with information for marketing and similar pumposes. Organizations selling multiple products may benefit from having a sales analysis subsystem. The data files that are used by the subsystems in the revenue process are shown in the following table: ing, shipping Revenue Process Subsystems Data Files Used —————E————— eee Sales order processing Customer master file Open sales order file Shipping Sales transaction file Open sales order file Customer invoicing Sales transaction file Customer master file Open customer invoice file Cash receipts Cash receipts transaction file Open customer invoice file Customer master file Sales history file Purchasing Process ! The purchasing process, sometimes called the expenditure, procurement, or acquisition process, “compasses activities related to the acquisition of goods and services and the disbursement ok mer it exchange for these goods and services, The purchasing proces (Exhibit 46) is tpieally Deeley Om into its subsystems—purchase order processing, receiving, andl accounts payable. In tsener Emphasis ystems with Pract ash disbursements subsystems common to teat payroll as usual purchase ‘ent from the payroll processing, Payroll 124 Accounting Information 8 invoicing and G However, iti ewhat differ Indes the «subdivided into vendor Flered a part of the purchasing Proce its complexity makes it som for resale. Payroll inc can be furthe accounts payable Payroll may be cons aseparate business | OL for example, merchandise inventory sand casi disbursements Subsystems: processing subsystem Purchase orders may nitoring of agree™ Motors to the Salvation Army (0 I system refers to the receipt inspecuer to Feeording the receipt of goods hhasing significant amounts of im process because sance and tracking of Purchase orders to he for goods or services. ThE purchasing subsystem may aovents with subcontractors: Virtually all organi roca governments, need 22 ordering subsystem Bord acceptance of goods delivered to the and distributing the goods within ventories or supplies requires payable, The purchase order deals with the issu vendors, or suppliers negotiation and mor extend to the ions, from Ge The receiving sub: jon by vendors. It inchud! organization pure! organizat the organization. Any a receiving subsystem. ‘The accounts payable subsystem i vendors. It involves processing inv and total liabilities, and disbursing ng and cash disbursement gods and services purchased from vendors, maintaining records of vendor balances Mie sgmetimes is divided into two subsystems anizations require payable s concerned with paying for es received from cash, Accounts payal | Virtually all org vendor invoic an accounts and sales commissions to cludes the custody and Italso includes depos and local taxing vroll subsystems the payment of wages, salaries, ‘sand other deductions. It in hheld from employee earnings. appropriate federal, state anizations require as follows: subsystem. The payroll subsystem provides for employees and the related withholding of taxes disposition of liabilities arising from amounts wit iting tax thholdings and reporting withholding data to the ror those staffed solely by volunteers, all org; ‘ems in the purchasing process are authorities. Except f “The data files that are used by the subsys Parchasing Process Subsystems Data Files Used Vendor master file Open purchase order file Purchase order processing Purchases transaction file Receiving e order file - Open purch: Vendor invoicing Purchases transaction file Vendor master file Open vendor invoice file Cash disbursements. Cash disbursements transaction file Open vendor invoice file vovol Vendor master file Payroll transaction file Cash disbursements , transaction file Employee master file Tax table reference file Taxing authority master file125 ihe scope of the inventory process ¢o construction organizations, the inven olraw materials into finished goods, 4 pends on the n, iar ofan organization, In manufacturing and ne acess encompasses aetvties related 4 the transformation tvs. the manufacturing environment We ation ot produet cos, and the management of inven process. 11a merchandising organiza” ey PEaeES May be referred to as the proxtuetion business jecumulation of product costs and the ar inventory process encompasses activities related to the ian the ventory process eneomparee se G merchandise inventories. In a service orgai and the management of parts and supplies fevers pees pera cece he inventory process (Exhibit 4 inc onganization i Forcxanpla ae eo is broken down into its subsystems depending on the nature of ao an acturing organization the subsystems would be production control, ¥ management, and cost accounting, In a service organization the subsystems would be inventory management (for paris and supplies inventory) and costaccounting, ‘The production control subsystem is used in a manufacturing organization, It handles the initiation ofproduction orders in the factory and the wracking and control of production operations. In addition, the preparation of bills of materials, labor and machine schedules, and produet routing through the factory are all part of this subsystem, . The inventory management subsystem refers. to accounting for raw materials, finished goods, merchandise, and supplies inventories. Inventory management extends to the regulation of inventory levels to satisty demand while avoiding the extremes of stockouts or excessive inventory levels. All organizations that have inventory require an inventory management function. ‘The cost accounting subsystem is concerned with the accumulation of product costs in manufac- turing and merchandising organizations or with the accumulation of the costs of providing services. All nanufacturing and most merchandising and service organizations need cost accounting subsystems, The data files that are used by the subsystems in the inventory process are shown in the following table Inventory Process Subsystems Data Files Used Production control Open production order file Inventory management Raw materials inventory master file Finished goods in ster file Merchandise inventory master file Supplies inventory master file Inventory transaction file ventory Production cost transaction file Work-in-process inventory master file {also called open job master file) eee ee Financial Process 1? Cost accounting nly referred to as the general ledger. Three types of entries are found The financial process is commo? invhe financial process: sferred from other processes to the Financial process. Because reports 1. Data captured in and wansferre’ 101! nd governmental regulatory reports, and intemal (such as the financial statemenn ea from this process require information from all the management reports) Sa eae esential information, usually in summrarized form, from the subsystems, this process receives € P inventory processes revenue, purchasing, and inventory Pting Information Systems with Pr actitioner Et phasis vents that occur in aN Organi. aT ; ; ~ gnancial process. Some everntte, pure 2 Transactions originally recorded in the financial PONT alt with the revenue, purchasing, counting system’ fot stocks and bonds and the zation and need to be recorded in the ac ‘or inventory proce and expenses, accrued assets, Hiabilit The data files that are used in the financ nsaction file General journal Chart of accounts reference file General ledger master file 4.3b Integration of the Subsystems Learning Objective 4: Understand how int and the movement of data from one subsystem to another ‘The accounting subsystems are not stand-alone ‘ring data from one subsystem to another fess process and amo niships among the accounting subsy another, sharing data files and transfer ships exist among subsystems within a busin Exhibit 4.27 shows the rel REVENUE PROCESS Sales order processing s. Examples of these ¢ ; cl onid interest os payment of stock dividends and bond inter® eu the 10008! 53, Endof-period adjustments required in the fh ss, and contra a ial process ave: ragration of the subsystems is act events ae the issuance jal proc jition of prepaid income cou etfed in the financial proces, counts are FeC0) quod through the sharing of data fie ¢ integrated with one These interrelation: nig subsystems in different processes, ‘stems and provides a very broad subsystems. Rather they PURCHASING PROCESS Purchase order INVENTORY precassing PROCESS Inventory Customer invoicing —t Cash receipts Exhibit 4.27 Integration of Accounting Subsyst Vendor invoicing FINANCIAL, PROCESS Cash disbursements fan AIS fo 1S fora Merchandising Organizatio®Data Flows, Activities, and Structure of Accounting Systems 127 overview ofa simple AIS, T Phis diagram is for exhibit includes nechandioane stam shows only en subsystems; payroll for example, is omitted. VENtOrY anne eezation; therefore, as apposed to a service organization, this Kekdes the production subgaree ets 8 opposed to manufacturing organization, this exhibit crave certainly not ge sie ens AS Mentioned caulier, accounting systems are not uniform, and they are cerain'y Not as simple as this diagram implies. Each block represents a different subsystem, aa eile a block as consisting of the elements (source documents, transaction files, master files, open Bes, reference files, and outputs) and the computer programs related to that subsystem, The computer programs would consist of at least one program for entering data and one or more programs lo process, store, reutieve, and output data. p ° The sale of goods and services originates in the sales o ales order processing subsystem (depending on whether the goods or services are to be delivered immediately or at some future date). Sales data subsequently flow into shipping, inventory management, customer invoicing, and cash receipts. The purchase of goods and services originates in the purchase order processing subsystem, and purchase data subsequently flow into receiving, inventory management, vendor invoicing, and cash disburse- ments. Sales, cash receipts, inventory, purchases, and cash disbursements provide input data into the financial business process. The relationship between the general ledger subsystem and the other accounting subsystems is a strong one. Note that all transaction data eventually flow into the general ledger. This is because the financial statements and many other essential reports are generated by this, subsystem. ‘i Exhibit 4.28 presents more detail than does Exhibit 4.27 by including data files to show that data‘are shared and transferred to achieve integration. The files in Exhibit 4.28 are the minimum ones required by an accounting system. As before, each rectangle represents a different subsystem. But now that the relevani data files are shown, you can view each block as consisting of only the source documents, outputs, and computer programs related to that subsystem. REVENUE PROCESS INVENTORY PROCESS PURCHASING PROCESS i” ‘cae ns Through Files and Overview of an AIS mn of Accounting Subsyst Exhibit 4.28 Integratisruacttioner Emphasis 128 Accounting Information Systems with PrachO™ Emphasis «het you understand ESRD : 4 purehase w a about Is would gg, Auser can enter data diveciy uid be entered 1D the purchase I he entered in the receiving anation ma \ few comments of expt: + example, dat into an appropriate subsystem. F Ft of ordered Z00 "5 order processing subsystem da Fvjomi re receipt ar ordered BOT Te ome fed into the sales order subsystem, You can begin 16 aie tlowschart at tbe point whe e dae cl Feeder DrOCesing : * shore ave entered i is the point where dat ave ¢ ie reverie bu: proces processing subsystem or at flowchart by 80" start your reading of this subsystem, We w' with you. mand are stored in the open sales that are relevant to the Sales Order Processing re entered in the sales 0 ne goods. ed from the custom ctrieved from the inv sing subsyst rl proces Data, such @ yer master file. D ntory maste ss customer Hames van ia such as the description of an file Data about a sale a order file pending shipment of th entering of a sales order are retrieve c inventory are item of merchand emered in the shipping Shipping used to: Data about the shipme’ subsystem and are stored in the of goods to fill the ‘ales transaction file, The sales ra 1. Update the open sales order file to show that the sales ord 2. Update the customer master file 10 show the increase in the custom 3. Update the inventory master file to show the decrease in the numb: Data from sales transaction file are summarized and transferred to th « file, which resides in the general ledger subsystem. has been filled. ner’s current balance. jer of units on hand. fe general journal transaction Customer Invoicing and Cash Receipts Ihe sales transaction file is also used to update the open invoice file to insert a new record about the fe goods that were shipped. Data necessary for preparing invoices, such as customer en arieved from the customer master file, When cash is received for the payment aris invoice, data are entered in the cash receipts subsystem and stored in the cash receipts trans tion file. The cash receipts transaction file is used to: 1. Update the open customer invoice file to show that the invoice has been paid. , Lipdate the customer master file to show the decrease in the customer's current balance. Data from the cash receipts transaction file are summarized and transferred to the general journal transaction file, which resides in the general ledger subsystem. nay oo bone ae to read through the purchasing business process in Exhibit 4.28. You can refer to the appendix at the en cha stance. Ni i seine the ventory nates He Be a Nd Therefeve the on tne a5 needs to enter data directly into the inventory aianee rote Sen eee ae ly -ss process is when inventory balances need to be adjusted because of shrinkage or obsolescence: new invoice for th name and address, a SUMMARY B Much ea be teamed about the AIS by tracing the flow of trzinsaction and other event data thro agh the tem. he accounting system's major activities of input, process, store, and output : sess} a ao system's mah 1 PFOCESS, Store, 2 are necess move a through the sper, he input and output activities form the wo Peininee ves with t vis in which data are fed into the system for processi et : . the sj sing and subsequently return ; 5 in wh ino y ret ars it processed frm Inpuuting daca is vulnerable to ervors, so verification is nese 1 ae the nit hat contaminated data e c rt i Pan aees ce 1a will be processed further, Data storage supports both the routine operation——_______Data Flows, Activities, and Structure of Accounting 5y andthe nonroutine decision support aspects of ficiently communicate information to thee” measured by its ability Lo supply users wien he ee wide range of media is available to help Business processes provide a fj uanscend the differences amone stems are Composed of four busin Accounting system. The output must effectively and eles The success of the accounting system can be te Hight outputs, at the right time, and in the right form. A achieve this objective. ‘Amework for underst; ee rating systems that is sufficiently general to oe pats ste i various ypes of orgaizations. Accounting busines processes constinte the Fist, oF mos genera level of ane cnet kl cae Refs ikl cn The nan pertains an ncn ah Ferexcamples sales Order pete Otthe organization. The subsystemsat the second level may include, yee ceeicitgg a ocessings shipping, customer invoicing, cash receipts, purchase order processing, receiving, vendor invoicing, cash disbursements, and inventory management. The ems incorporated into any given xe subsyst porated into any given accounting system are highly integrated, shating common data and wansferring data from one subsystem to another a a APPENDIX —CHAPTER 4 a Interpretation of Purchasing Process in Exhibit 4.28 1, When the data for the purchase order are input into the accounting system, the data are stored in an open purchase order file pending receipt of the goods. The vendor address is retrieved from the vendor master file, and the inventory description is retrieved from the inventory master file. 2 When the merchandise inventory is received, data regarding this event are entered in the purchases tansaction file. 3. The purchases transaction file is used to update the open purchase order file to show that the items of inventory have been received. The purchase order now is closed, and the associated record will be purged. Data from the purchases transaction file are used to update the inventory master file The purchases transaction file is used to update the vendor master file for the amount owed to the vendor. | 7 6. Data from the purchases transaction file flow into the general journal transaction file, 7 A record for a vendor invoice is created in the open vendor invoice file upon receipt of the invoice from the vendor 8. When payment is made for the invoice, da 9. The cash disbursements transaction file is record is now closed and will be purged. 10. The cash dishursements transaction file is us paid to the vendo! 11, Data from the cash disbursements transac QUESTIONS, PROBLEMS, AND ACTIVITIES [i ta are entered in the cash disbursements transaction file. used to update the open vendor invoice file. The invoice ed to update the vendor master file for the amount jon file flow into the genera wansaction file, jour HW Discussion Le An AIS a. can only exi b. primarily processes data ¢. supports the operations d. isa single large system IP [CIA adapted} 11015. «with compu 7 and produce management, ‘an organization, ss reports anna ‘and decision-making functions in an organization,