GAGE COLLEGE- ADDISSU GEBEYA CAMPUS INS.

TESFAHUN KEBEDE

Chapter -2

2. Overview of Business Processes

In the previous chapter, we have already discussed well about the business activities which is
commenced in different business firms. Hence, these business activities need different processes
to bring the necessary valuable information via using streamlined and automated utilization of
AIS effectively.
The merit of knowing different types of information needed for decision making in the business
firms are vitally fundamental.
These types of information are listed hereunder as follows:
1. Financial information
2. Non financial information
3. Internal source information
4. External source information

2.1. Business Processes and Events

Business process and events accomplished mostly among two parties, it may be occurred
between an internal and external parties. The interaction is typically two-way, in that the AIS
sends information to and receives information from these parties.

 An effective AIS needs to be able to integrate information of different types and different
sources.
The basic functions performed by AIS through business process are:
 Collect and store data about the organization’s business activities
 Providing useful information to mgt. for decision making
 To provide adequate internal controls
2.2. Identifying Events in Business Process
As you know very well, let’s see some business events happened in business transactions. A
transaction is an agreement made between two parties to exchange goods and services or any
other event that can be measured in economic terms by organizations.
 A good example is selling goods to customers

 The five measure transactions cycles occurred in give-get exchange business events are
1) Revenue cycle:-
 It involves in the activities of selling goods or services and collecting payment for these sales.
2) Expenditure cycle:-
 It involves in activities of buying and paying for goods and services used by the organization.

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3) Production/conversion cycle:-
 It involves in the activities of converting raw materials and labor in to finished goods.
4) Human resource/payroll cycle:-
 It involves in the activities of hiring and paying employees.
5) Financing cycle:-
 It involves in the activities of obtaining necessary funds to run organizations, repay creditors, and distribute
profits to investors.
Let’s see, the graph that shows the basic subsystems in the accounting information system

GENERAL LEDGER &REPORTING SYSTEM

Each transaction cycle can include many different business processes or activities. Each business
process can be relatively simple or quite complex.

2.3. Organizing data in an AIS

Accounting is the language of business that refers to data identification, collection, and storage
process as well as an information development, measurement, and communication process.
And also, accounting is an information system, since an AIS collects, records, stores, and
processes accounting and other data to produce information for decision makers.

 In a simple word, we can say that; AIS Processes Data to Produce Information for
Decision Makers

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2.4.1 TYPES OF FILE

1st. Data inputting
2nd. Data storing
3rd. Data processing
4th. Information output

2.4. Types of Files and Data

INS. TESFAHUN KEBEDE

Decision making
by users based on
the information

The data processing cycle comprises four main steps:

T
D
IS
A
There are 6 types of files that are commonly found in accounting information system. These
are:-

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1. Work File
Any other file which is required to enable the processing of business data to be carried out is
a work file (excluding files required for security or audit purposes).
2. Master File
Master files are files of a fairly permanent nature, e.g., customer ledger, purchase ledger,
inventory pay roll etc. They include some information which is continuously updated by
recent transactions.
Master files can be further subdivided into two types of files: Static master file/Reference
files and Dynamic master files/table files
1. Static master files ( reference files)
The business entities that these files describe are at a permanent or semi-permanent nature
(e.g., products, suppliers, customers, employees etc.). These are subject to occasional
relation.
2. Dynamic master files ( table files)
The business entities these files describes are of transitory importance to the business (e.g.,
customer orders, work orders, job tickets, projects, price lists, wage rates) etc.
3. Audit File
Audit files are a particular transaction file. They play the same role in computerized
information systems as the postings in a traditional manual ledger. They enable the auditor
to check the correct functioning of the computer procedures, by storing copies of all the
transactions which cause the permanent system file to be altered.
4. Transaction File
Transaction files are files in which the data relating to business events is recorded, prior to a
further stage of processing and are created from source documents used for recording events
or transactions. This further processing may be the use of the transaction data to update
master files, or the achieving of the transaction for audit purposes.
After the transaction file is processed, it is usually reinitialized, and further transactions are
then recorded in it.
5. Back Up or Security File

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These files are taken in order to provide back copies, in case of loss or damage to current
versions, and arc copies of currently used master files kept in the computer library as a
measure of security.
6. History Files
History files are often stored on magnetic tape and are kept in case past information is ever
required.
 For example, an employee who was dismissed three years back may wish to apply
for unemployment insurance.

2.4.2 TYPES OF DATA

The type of data included in AIS depends on the nature of the business, but it may consist of
the following:

1. Sales orders
2. Customer billing statements
3. Sales analysis reports
4. Purchase requisitions
5. Vendor invoices
6. Check registers
7. General ledger
8. Inventory data
9. Payroll information
10. Timekeeping
11. Tax information

2.5. Events and Activities

An organization’s AIS play an important role in helping it adopt and maintain a strategic
position. Achieving a close fit among activities and events requires that data be collected about
each activity. It is also important that the information system collect and integrate both financial
and nonfinancial data about the organization’s activities.

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 To provide value to their customers, most organizations perform a number of

different activities. Those activities can be conceptualized as forming a value chain

consisting of five primary activities that directly provide value to customers:
1. Inbound logistics consists of receiving, storing, and distributing the materials an
organization uses to create the services and products it sells.

For example, an automobile manufacturer receives, handles, and stores steel, glass, and
rubber.

2. Operations activities transform inputs into final products or services.

For example, assembly line activities convert raw materials into a finished car.

3. Outbound logistics activities distribute finished products or services to customers.

Example - shipping automobiles to car dealers.

4. Marketing and sales activities help customers buy the organization’s products or services.

Example - Advertising on marketing and sales activity.

5. Service activities provide post-sale support to customers.

Examples include repair and maintenance services.

Support activities allow the above five primary activities to be performed efficiently and
effectively. They are grouped into four categories:

1. Firm infrastructure
2. Human resources activities
3. Technology activities
4. Purchasing activities

 Well-designed AIS can add value to an organization by:

1. Improving the quality and reducing the costs of products or services.

2. Improving efficiency.

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3. Sharing knowledge.
4. Improving the efficiency and effectiveness of its supply chain.
5. Improving the internal control structure.
6. Improving decision making.

Eventually, we can conclude that; since accounting data comes from accounting information

systems, AIS knowledge and skills are critical to an accountant’s career success. Interacting
with AIS is one of the most important activities that accountants perform.

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