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HAPTER 2

Overview of Business Processes

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INTRODUCTION
• Questions to be addressed in this chapter include:
– What are the basic business processes in which an organization engages?
• What decisions must be made to undertake these processes? • What information is required to make those decisions?

– What role does the data processing cycle play in organizing business processes and providing information to users? – What is the role of the information system and enterprise resource planning in modern organizations?

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INFORMATION NEEDS AND BUSINESS PROCESSES
• Businesses engage in a variety of processes, including:
– – – – – – – – – – Acquiring capital Buying buildings and equipment Hiring and training employees Purchasing inventory Doing advertising and marketing Selling goods or services Collecting payment from customers Paying employees Paying taxes Paying vendors
Each activity requires different types of decisions.

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11/e Romney/Steinbart 4 of 119 . © 2008 Prentice Hall Business Publishing Accounting Information Systems.INFORMATION NEEDS AND BUSINESS PROCESSES • Businesses engage in a variety of processes. including: – – – – – – – – – – Acquiring capital Buying buildings and equipment Hiring and training employees Purchasing inventory Doing advertising and marketing Selling goods or services Collecting payment from customers Paying employees Paying taxes Paying vendors Each decision requires different types of information.

Toyota has become the largest automobile manufacturer in the world. © 2008 Prentice Hall Business Publishing Accounting Information Systems. production. 11/e Romney/Steinbart 5 of 119 . a title held by General Motors for almost 100 years.INFORMATION NEEDS AND BUSINESS PROCESSES • Types of information needed for decisions: – Some is financial – Some is nonfinancial – Some comes from internal sources – Some comes from external sources • An effective AIS needs to be able to integrate information of different types and By improving business processes leading to efficient from different sources.

11/e Romney/Steinbart 6 of 119 . © 2008 Prentice Hall Business Publishing Accounting Information Systems. creditors. such as customers. vendors.INTERACTION WITH EXTERNAL AND INTERNAL PARTIES AIS External Parties • The AIS interacts with external parties. and governmental agencies.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 7 of 119 .INTERACTION WITH EXTERNAL AND INTERNAL PARTIES Internal Parties AIS External Parties • The AIS also interacts with internal parties such as employees and management.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 8 of 119 . in that the AIS sends information to and receives information from these parties.INTERACTION WITH EXTERNAL AND INTERNAL PARTIES Internal Parties AIS External Parties • The interaction is typically two way.

OR – Any other event that can be measured in economic terms by an organization. 11/e Romney/Steinbart 9 of 119 . • EXAMPLES: – Sell goods to customers – Depreciate equipment © 2008 Prentice Hall Business Publishing Accounting Information Systems.BUSINESS CYCLES • A transaction is: – An agreement between two entities to exchange goods or services.

© 2008 Prentice Hall Business Publishing Accounting Information Systems.BUSINESS CYCLES • The business transaction cycle is a process that: – Begins with capturing data about a transaction. such as financial statements. 11/e Romney/Steinbart 10 of . – Ends with an information output.

BUSINESS CYCLES • Many business processes are paired in give-get exchanges. 11/e Romney/Steinbart 11 of . • Basic exchanges can be grouped into five major transaction cycles: – Revenue cycle – Expenditure cycle – Production cycle – Human resources/payroll cycle – Financing cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems.

11/e Romney/Steinbart 12 of .BUSINESS CYCLES • Many business processes are paired in give-get exchanges. • The basic exchanges can be grouped into five major transaction cycles: – Revenue cycle – Expenditure cycle – Production cycle – Human resources/payroll cycle – Financing cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems.

11/e Romney/Steinbart 13 of .REVENUE CYCLE • The revenue cycle involves interactions with your customers. • You sell goods or services and get cash. Give Goods Get Cash © 2008 Prentice Hall Business Publishing Accounting Information Systems.

BUSINESS CYCLES • Many business processes are paired in give-get exchanges. • The basic exchanges can be grouped into five major transaction cycles: – Revenue cycle – Expenditure cycle – Production cycle – Human resources/payroll cycle – Financing cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 14 of .

11/e Romney/Steinbart 15 of .EXPENDITURE CYCLE • The expenditure cycle involves interactions with your suppliers. • You buy goods or services and pay cash. Give Cash Get Goods © 2008 Prentice Hall Business Publishing Accounting Information Systems.

BUSINESS CYCLES • Many business processes are paired in give-get exchanges. • The basic exchanges can be grouped into five major transaction cycles: – Revenue cycle – Expenditure cycle – Production cycle – Human resources/payroll cycle – Financing cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 16 of .

Give Raw Materials & Labor Get Finished Goods © 2008 Prentice Hall Business Publishing Accounting Information Systems. raw materials and labor are transformed into finished goods. 11/e Romney/Steinbart 17 of .PRODUCTION CYCLE • In the production cycle.

11/e Romney/Steinbart 18 of .BUSINESS CYCLES • Many business processes are paired in give-get exchanges. • The basic exchanges can be grouped into five major transaction cycles: – Revenue cycle – Expenditure cycle – Production cycle – Human resources/payroll cycle – Financing cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems.

• Employees are hired. promoted. 11/e Romney/Steinbart . Give Cash Get Labor 19 of © 2008 Prentice Hall Business Publishing Accounting Information Systems. and terminated. trained.HUMAN RESOURCES/ PAYROLL CYCLE • The human resources cycle involves interactions with your employees. evaluated. paid.

11/e Romney/Steinbart 20 of . • The basic exchanges can be grouped into five major transaction cycles: – Revenue cycle – Expenditure cycle – Production cycle – Human resources/payroll cycle – Financing cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems.BUSINESS CYCLES • Many business processes are paired in give-get exchanges.

• You raise capital (through stock or debt). repay the capital. and pay a return on it (interest or dividends). 11/e Romney/Steinbart .FINANCING CYCLE • The financing cycle involves interactions with investors and creditors. Give Cash Get cash 21 of © 2008 Prentice Hall Business Publishing Accounting Information Systems.

BUSINESS CYCLES • Thousands of transactions can occur within any of these cycles. 11/e Romney/Steinbart 22 of . • But there are relatively few types of transactions in a cycle. © 2008 Prentice Hall Business Publishing Accounting Information Systems.

11/e Romney/Steinbart 23 of .BUSINESS CYCLES • EXAMPLE: In the revenue cycle. the basic give-get transaction is: – Give goods – Get cash © 2008 Prentice Hall Business Publishing Accounting Information Systems.

for sales • Receive customer payments • Update Accts Rec. for collections • Handle sales returns. © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 24 of . and bad debts • Prepare management reports • Send info to other cycles Note that the last activity in any cycle is to send information to other cycles. discounts.BUSINESS CYCLES • Other transactions in the revenue cycle include: • • • • • • • • Handle customer inquiries Take customer orders Approve credit sales Check inventory availability Initiate back orders Pick and pack orders Ship goods Bill customers • Update sales and Accts Rec.

/ Payroll Cycle Production Cycle Financing Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 25 of .BUSINESS CYCLES • Click on the buttons below if you wish to see the transactions that occur in the other cycles: Expenditure Cycle Human Res.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. – Interfaces with the general ledger and reporting system.BUSINESS CYCLES • Every transaction cycle: – Relates to other cycles. which generates information for management and external parties. 11/e Romney/Steinbart 30 of .

Finished Goods Revenue Cycle Expenditure Cycle Production Cycle General Ledger and Reporting System • The Revenue Cycle – Gets finished goods from the production cycle./ Payroll Cycle Financing Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 31 of . Human Res. – Provides data to the general ledger and reporting system. – Provides funds to the financing cycle.

Human Res. – Provides data to the general ledger and reporting system. – Provides raw materials to the production cycle.Revenue Cycle Expenditure Cycle Data Raw Mats./ Payroll Cycle Financing Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 32 of . Production Cycle General Ledger and Reporting System • The Expenditure Cycle – Gets funds from the financing cycle.

– Provides data to the general ledger and reporting system. 11/e Romney/Steinbart . 33 of Human Res. Revenue Cycle Expenditure Cycle Production Cycle General Ledger and Reporting System • The Production Cycle: – Gets raw materials from the expenditure cycle. – Gets labor from the HR/payroll cycle./ Payroll Cycle Financing Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems.Finished Goods Raw Mats. – Provides finished goods to the revenue cycle.

– Provides data to the general ledger and reporting system. Romney/Steinbart 34 of Human Res. 11/e .Revenue Cycle Expenditure Cycle Production Cycle General Ledger and Reporting System • The HR/Payroll Cycle: – Gets funds from the financing cycle – Provides labor to the production cycle./ Payroll Cycle Funds Financing Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems.

– Provides funds to the expenditure and HR/payroll cycles.Revenue Cycle Expenditure Cycle Production Cycle General Ledger and Reporting System • The Financing Cycle: – Gets funds from the revenue cycle. 11/e ./ Payroll Cycle Funds Financing Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. – Provides data to the general ledger and reporting system. Romney/Steinbart 35 of Human Res.

/ Payroll Cycle Financing Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. Human Res. – Provides information for internal and external users.Revenue Cycle Expenditure Cycle Data Production Cycle General Ledger and Reporting System Data Information for Internal & External Users • The General Ledger and Reporting System: – Gets data from all of the cycles. 11/e Romney/Steinbart 36 of .

e. © 2008 Prentice Hall Business Publishing Accounting Information Systems. – Not every module is needed in every organization. retail companies don’t have a production cycle.BUSINESS CYCLES • Many accounting software packages implement the different transaction cycles as separate modules. 11/e Romney/Steinbart 37 of .. – Some companies may need extra modules.g. – The implementation of each transaction cycle can differ significantly across companies.

– Integrate financial and nonfinancial data. © 2008 Prentice Hall Business Publishing Accounting Information Systems. it is critical that the AIS be able to: – Accommodate the information needs of managers. 11/e Romney/Steinbart 38 of .BUSINESS CYCLES • However the cycles are implemented.

TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE • Accountants play an important role in data processing. They answer questions such as: – What data should be entered and stored? – Who should be able to access the data? – How should the data be organized. stored. and retrieved? – How can scheduled and unanticipated information needs be met? • To answer these questions. accessed. © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 39 of . they must understand data processing concepts. updated.

– In computer-based systems. © 2008 Prentice Hall Business Publishing Accounting Information Systems. – In manual systems.TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE • An important function of the AIS is to efficiently and effectively process the data about a company’s transactions. 11/e Romney/Steinbart 40 of . data is entered into paper journals and ledgers. the series of operations performed on data is referred to as the data processing cycle.

11/e Romney/Steinbart 41 of .TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE • The data processing cycle consists of four steps: – Data input – Data storage – Data processing – Information output © 2008 Prentice Hall Business Publishing Accounting Information Systems.

TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE • The data processing cycle consists of four steps: – Data input – Data storage – Data processing – Information output © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 42 of .

• Data is captured about: – The event that occurred. © 2008 Prentice Hall Business Publishing Accounting Information Systems. – The agents who participated. – The resources affected by the event. • Usually triggered by a business activity.DATA INPUT • The first step in data processing is to capture the data. 11/e Romney/Steinbart 43 of .

© 2008 Prentice Hall Business Publishing Accounting Information Systems. usually in machine-readable form.DATA INPUT • A number of actions can be taken to improve the accuracy and efficiency of data input: – Turnaround documents. The customer account number is coded on the document. which reduces the probability of human error in applying the check to the correct account. 11/e Romney/Steinbart 44 of . • • EXAMPLE: The stub on your telephone bill that you tear off and return with your check when you pay the bill.

EXAMPLES: – ATMs for banking. – Source data automation. 11/e Romney/Steinbart 45 of . • • Capture data with minimal human intervention. – Point-of-sale (POS) scanners in retail stores.DATA INPUT • A number of actions can be taken to improve the accuracy and efficiency of data input: – Turnaround documents. © 2008 Prentice Hall Business Publishing Accounting Information Systems. – Automated gas pumps that accept your credit card.

• How do these improve the accuracy and efficiency of data input? © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 46 of . – Well-designed source documents and data entry screens. – Source data automation.DATA INPUT • A number of actions can be taken to improve the accuracy and efficiency of data input: – Turnaround documents.

DATA INPUT • A number of actions can be taken to improve the accuracy and efficiency of data input: – Turnaround documents. 11/e Romney/Steinbart 47 of . – Source data automation. – Well-designed it mean if adocuments andmissing in the source document number is data • What does entry screens. sequence? – Using pre-numbered documents or having the system automatically assign sequential numbers to transactions. © 2008 Prentice Hall Business Publishing Accounting Information Systems.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. – Well-designed it mean if there are duplicate document source documents and data • What does entry screens. 11/e Romney/Steinbart 48 of .DATA INPUT • A number of actions can be taken to improve the accuracy and efficiency of data input: – Turnaround documents. numbers? – Using pre-numbered documents or having the system automatically assign sequential numbers to transactions. – Source data automation.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 49 of . – Verify transactions. – Using pre-numbered documents or having the system automatically assign for inventory availability before • EXAMPLE: Check sequential numbers to completing transactions.DATA INPUT • A number of actions can be taken to improve the accuracy and efficiency of data input: – Turnaround documents. – Source data automation. – Well-designed source documents and data entry screens. an online sales transaction.

TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE • The data processing cycle consists of four steps: – Data input – Data storage – Data processing – Information output © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 50 of .

DATA STORAGE
• Data needs to be organized for easy and efficient access. • Let’s start with some vocabulary terms with respect to data storage.

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DATA STORAGE
• Ledger
A ledger is a file used to store cumulative information about resources and agents. We typically use the word ledger to describe the set of t-accounts. The t-account is where we keep track of the beginning balance, increases, decreases, and ending balance for each asset, liability, owners’ equity, revenue, expense, gain, loss, and dividend account.
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DATA STORAGE
• Ledger
– Following is an example of a ledger account for accounts receivable:
GENERAL LEDGER ACCOUNT: Accounts Receivable Date Description 01/01/05 01/03/05 Sales 01/13/05 Cash collections 01/23/05 Sales Post Ref S03 CR09 S04 Account Number: 120 Debit 1,300.00 4,600.00 5,600.00 Credit Balance 42,069.00 43,369.00 38,769.00 44,369.00

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DATA STORAGE • Ledger • General ledger The general ledger is the summary level information for all accounts. Detail information is not kept in this account. © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 54 of .

11/e Romney/Steinbart 55 of . The detail isn’t there. And Cory Campbell owes XYZ $300. has three customers. but you will not be able to tell how much individual customers owe by looking at that account.DATA STORAGE • Ledger • General ledger Example: Suppose XYZ Co. © 2008 Prentice Hall Business Publishing Accounting Information Systems. The balance in accounts receivable in the general ledger will be $600. Anthony Adams owes XYZ $100. Bill Brown owes $200.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. one for Bill Brown.DATA STORAGE • Ledger • General ledger • Subsidiary ledger The subsidiary ledgers contain the detail accounts associated with the related general ledger account. 11/e Romney/Steinbart 56 of . and one for Cory Campbell. The accounts receivable subsidiary ledger will contain three separate t-accounts—one for Anthony Adams.

11/e Romney/Steinbart 57 of .DATA STORAGE • Ledger • General ledger • Subsidiary ledger The related general ledger account is often called a ―control‖ account. © 2008 Prentice Hall Business Publishing Accounting Information Systems. The sum of the subsidiary account balances should equal the balance in the control account.

DATA STORAGE • • • • Ledger General ledger Subsidiary ledger Coding techniques • Coding is a method of systematically assigning numbers or letters to data items to help classify and organize them. 11/e Romney/Steinbart 58 of . There are many types of codes including: – Sequence codes – Block codes – Group codes © 2008 Prentice Hall Business Publishing Accounting Information Systems.

The numbering helps ensure that: – All items are accounted for. © 2008 Prentice Hall Business Publishing Accounting Information Systems.DATA STORAGE • • • • Ledger General ledger Subsidiary ledger Coding techniques • With sequence codes. 11/e Romney/Steinbart 59 of . which would suggest errors or fraud. – There are no duplicated numbers. items (such as checks or invoices) are numbered consecutively to ensure no gaps in the sequence.

11/e Romney/Steinbart 60 of .DATA STORAGE • • • • Ledger General ledger Subsidiary ledger Coding techniques • When block codes are used. blocks of numbers within a numerical sequence are reserved for a particular category. • EXAMPLE: The first three digits of a Social Security number make up a block code that indicates the state in which the Social Security number was issued: – 001–003 New Hampshire – 004–007 Maine – 008–009 Vermont © 2008 Prentice Hall Business Publishing Accounting Information Systems.

• EXAMPLE: The code in the upper.DATA STORAGE • • • • Ledger General ledger Subsidiary ledger Coding techniques • When group codes are used. 11/e Romney/Steinbart 61 of © 2008 Prentice Hall Business Publishing . two or more subgroups of digits are used to code an item. right-hand corner of many checks is a group code organized as follows: – – – – Digits 1–2 Digit 3 Digits 4–7 Digits 8–9 Bank number Federal Reserve District Branch office of Federal Reserve State Accounting Information Systems.

11/e Romney/Steinbart 62 of . The following guidelines should be observed: Subsidiary ledger – The code should be consistent with its intended use. – Keep it simple in order to: • Minimize costs • Facilitate memorization • Ensure employee acceptance – Make sure it’s consistent with: • The company’s organization structure • Other divisions of the organization © 2008 Prentice Hall Business Publishing Accounting Information Systems. sure techniques – Provide enough digits to allow room for growth.DATA STORAGE • • • • Ledger • Group coding schemes are often used in assigning general General ledger ledger account numbers. so make Codingyou know what users need.

Group coding is often used for these numbers. – The fourth section identifies the subsidiary account. DATA STORAGE • • • • • Ledger General ledger Subsidiary ledger Coding techniques Chart of accounts © 2008 Prentice Hall Business Publishing Accounting Information Systems.: – The first section identifies the major account categories.g. – The third section identifies the specific account. such as accounts receivable or inventory. liability.. The structure of this chart is an important AIS issue. etc. such as current asset or long-term investment. as it must contain sufficient detail to meet the organization’s needs. – The second section identifies the primary sub-account. 11/e Romney/Steinbart 63 of . the specific customer code for an account receivable. e. such as asset.g. revenue.• • • The chart of accounts is a list of all general ledger accounts an organization uses. e.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. can S&S easily distinguish the – With this chart of Codingcosts they incur for automobile insurance from the costs for techniques health insurance? Chart of accounts • Table 2-4 in your textbook contains the chart of accounts for S&S.DATA STORAGE • • • • • LedgerWhat is the account number for federal unemployment taxes – payable? General ledger – What is the account number for cost of goods sold? – What the range of account numbers for expenses? Subsidiaryisledger accounts. 11/e Romney/Steinbart 64 of .

– A general journal is used to record: • • Summaries of routine transactions • Adjusting entries • Closing entries DATAtransactions.• In manual systems and some accounting packages. 11/e Romney/Steinbart 65 of . the first place that transactions are entered is the journal. such as loan payments STORAGE Non-routine • • • • • • Ledger – A special journal is used to record routine transactions. The General most common special journals are: ledger • Cash receipts SubsidiaryCash disbursements • ledger • Credit sales Coding techniques • Credit purchases Chart of accounts Journals © 2008 Prentice Hall Business Publishing Accounting Information Systems.

11/e Romney/Steinbart 66 of .DATA STORAGE • • • • • • Journals • Audit trail • An audit trail exists when there is sufficient Ledger documentation to allow the tracing of a transaction from beginning to end or from the General ledger end back to the beginning. Subsidiary ledger posting references and • The inclusion of document numbers Coding techniques enable the tracing of transactions through the journals and ledgers Chart of therefore facilitate the audit trail. and accounts © 2008 Prentice Hall Business Publishing Accounting Information Systems.

DATA STORAGE • Now that we’ve learned some storage terminology. let’s return to the data storage process. the next step is to record the data in a journal. • When transaction data is captured on a source document. 11/e Romney/Steinbart 67 of . © 2008 Prentice Hall Business Publishing Accounting Information Systems. • A journal entry is made for each transaction showing the accounts and amounts to be credited.

you probably worked with journals that looked something like this: 01/15/04 Accounts receivable Sales revenue 2.200 01/18/04 Cash 1. 11/e .DATA STORAGE • If you took a principles of financial accounting class.200 2.800 900 900 Romney/Steinbart 68 of Accounting Information Systems.800 Accounts receivable 01/21/04 Salaries expense Cash © 2008 Prentice Hall Business Publishing 1.

DATA STORAGE • You may not have gotten much experience with special journals. – Entries are originally made in the general journal only for: • Non-routine transactions • Summaries of routine transactions – Routine transactions are originally entered in special journals. journal entries really work like this. 11/e Romney/Steinbart 69 of © 2008 Prentice Hall Business Publishing . but in most real-world situations. The most common special journals are: • • • • Credit sales Cash receipts Credit purchases Cash disbursements Accounting Information Systems.

11/e Romney/Steinbart 70 of .DATA STORAGE • Let’s work through an example with a special journal. © 2008 Prentice Hall Business Publishing Accounting Information Systems. In this case we’ll use the sales journal.

was sent Invoice No. Lee Co. 12/01/04 201 Lee Co. a sale is made to Lee Co. 120-122 © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 71 of .DATA STORAGE • On December 1.00 Invoice Account Account Date Number Debited Number Post Ref. for $800. 201. Page 5 Sales Journal Amount 800.

12/01/04 201 Lee Co. 120-122 © 2008 Prentice Hall Business Publishing Accounting Information Systems. was about the 122nd customer.DATA STORAGE • The general ledger account number for accounts receivable is No. Page 5 Sales Journal Amount 800. so their subsidiary account number is 120122. 11/e Romney/Steinbart 72 of . Lee Co.00 Invoice Account Account Date Number Debited Number Post Ref. 120.

for $700.00 © 2008 Prentice Hall Business Publishing Accounting Information Systems. Page 5 Invoice Date Number 12/01/04 201 12/01/04 202 Sales Journal Account Account Debited Number Post Ref. 120-122 May Co. 11/e Romney/Steinbart 73 of . Lee Co.DATA STORAGE • The next sale on December 1 was made to May Co. 120-033 Amount 800.00 700.

DLK Co.00 © 2008 Prentice Hall Business Publishing Accounting Information Systems. 120-122 120-033 120-111 Amount 800. Account Number Post Ref. Page 5 Invoice Date Number 12/01/04 201 12/01/04 202 12/01/04 203 Sales Journal Account Debited Lee Co. 11/e Romney/Steinbart 74 of . for $900.DATA STORAGE • The third and final sale on December 1 was made to DLK Co.00 900. May Co.00 700.

at day’s end. – A $900 debit will be posted to DLK Co. – A $700 debit will be posted to May Co. they will post each individual transaction to the accounts receivable subsidiary ledger: – An $800 increase in accounts receivable (debit) will be posted to Lee Co. Consequently.DATA STORAGE • Suppose the company making these sales posts transactions at the end of each day.’s subsidiary account (120-033). 11/e Romney/Steinbart 75 of .’s subsidiary account (120-122).’s subsidiary account (120-111). © 2008 Prentice Hall Business Publishing Accounting Information Systems.

DATA STORAGE • Then a summary journal entry must be made to the general journal. Account Number Post Ref. May Co.400. DLK Co.00 120/502 Romney/Steinbart 76 of © 2008 Prentice Hall Business Publishing Accounting Information Systems.400.00 900. Page 5 Invoice Date Number 12/01/04 201 12/01/04 202 12/01/04 203 Sales Journal Account Debited Lee Co. they add up to $2. The sales for the period are totaled.00 700. 11/e .00 2. 120-122 120-033 120-111 TOTAL Amount 800. In this case.

400. Page 5 Invoice Date Number 12/01/04 201 12/01/04 202 12/01/04 203 Sales Journal Account Debited Lee Co. 120-122 120-033 120-111 TOTAL Amount 800. Account Number Post Ref.00 120/502 Romney/Steinbart 77 of © 2008 Prentice Hall Business Publishing Accounting Information Systems. DLK Co. May Co.00 900.00 700.00 2.DATA STORAGE • The ―120/502‖ that appears beneath the total indicates that a summary journal entry is made in the general journal with a debit to accounts receivable (120) and a credit to sales (502). 11/e .

400 debit to accounts receivable will be posted to the accounts receivable control account. 11/e .400 credit will be posted to the general ledger account for sales. and the $2.400 2.800 900 900 Romney/Steinbart 78 of Accounting Information Systems.DATA STORAGE • The entries in the general journal are periodically (or automatically) posted to the general ledger. The $2.400 12/01/04 Cash 1.800 Accounts receivable 12/01/04 Salaries expense Cash © 2008 Prentice Hall Business Publishing 1. 12/01/04 Accounts receivable Sales revenue 2.

• What does it mean if they aren’t equal? © 2008 Prentice Hall Business Publishing Accounting Information Systems. and this sum will be compared to the balance of the control account.DATA STORAGE • From time to time. the subsidiary account balances will be added up. 11/e Romney/Steinbart 79 of .

– When non-routine transactions occur. – The individual line items in the special journal are posted to the subsidiary ledger accounts. 11/e Romney/Steinbart 80 of . and a summary entry is made in the general journal.DATA STORAGE • Review so far: – When routine transactions occur. © 2008 Prentice Hall Business Publishing Accounting Information Systems. the balances in the general ledger control accounts are compared to the sums of the balances in the related subsidiary accounts. they are recorded in special journals. – Periodically. – Periodically. they are recorded in the general journal. – The items in the general journal are posted to the general ledger. the transactions in the special journal are totaled.

DATA STORAGE • Click the button below if you wish to go through a summary of the remaining steps in the accounting cycle: See Remainder Of Accounting Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 81 of .

11/e Romney/Steinbart 85 of © 2008 Prentice Hall Business Publishing .COMPUTER-BASED STORAGE CONCEPTS • Now let’s move on to discussing some computer-based storage concepts. including: – – – – – – – – – Entity Attribute Record Data Value Field File Master File Transaction File Database Accounting Information Systems.

11/e Romney/Steinbart 86 of . The student information system stores information about students.COMPUTER-BASED STORAGE CONCEPTS • An entity is something about which information is stored. one entity is the student. • In your university’s student information system. • What are some other entities in your student information system? © 2008 Prentice Hall Business Publishing Accounting Information Systems.

11/e Romney/Steinbart 87 of .COMPUTER-BASED STORAGE CONCEPTS • Attributes are characteristics of interest with respect to the entity. • Some attributes that a student information system typically stores about the student entity are: – Student ID number – Phone number – Address • What are some other attributes about students that a university might store? © 2008 Prentice Hall Business Publishing Accounting Information Systems.

10–30 Col. 1–9 Col. 31–40 Col.COMPUTER-BASED STORAGE CONCEPTS • A field is the physical space where an attribute is stored. • The space where the student ID number is stored is the student ID field. 41–50 328469993 328500732 529036409 SIMPSON ANDREWS FLANDERS ALICE BARRY CARLA 4053721111 4057440236 4057475863 Romney/Steinbart 88 of © 2008 Prentice Hall Business Publishing Accounting Information Systems. Col. 11/e .

41–50 328469993 328500732 529036409 SIMPSON ANDREWS FLANDERS ALICE BARRY CARLA 4053721111 4057440236 4057475863 Romney/Steinbart 89 of © 2008 Prentice Hall Business Publishing Accounting Information Systems. 1–9 Col. 10–30 Col.COMPUTER-BASED STORAGE CONCEPTS • A record is the set of attributes stored for a particular instance of an entity. Col. 11/e . • The combination of attributes stored for Barry Andrews is Barry’s record. 31–40 Col.

1–9 Col. 31–40 Col.COMPUTER-BASED STORAGE CONCEPTS • A data value is the intersection of the row and column. 10–30 Col. Col. 41–50 328469993 328500732 529036409 SIMPSON ANDREWS FLANDERS ALICE BARRY CARLA 4053721111 4057440236 4057475863 Romney/Steinbart 90 of © 2008 Prentice Hall Business Publishing Accounting Information Systems. • The data value for Barry Andrews’ phone number is 405-744-0236. 11/e .

the file might appear as shown below: Col. 11/e . 10–30 Col. 41–50 328469993 328500732 529036409 SIMPSON ANDREWS FLANDERS ALICE BARRY CARLA 4053721111 4057440236 4057475863 Romney/Steinbart 91 of © 2008 Prentice Hall Business Publishing Accounting Information Systems. • The collection of records about all students at the university might be called the student file. 1–9 Col. 31–40 Col. If there were only three students and four attributes stored for each student.COMPUTER-BASED STORAGE CONCEPTS • A file is a group of related records.

– The file exists across fiscal periods. – Changes are made to the file to reflect the effects of new transactions.COMPUTER-BASED STORAGE CONCEPTS • A master file is a file that stores cumulative information about an organization’s entities. • It is conceptually similar to a ledger in a manual AIS in that: – The file is permanent. 11/e Romney/Steinbart . 92 of © 2008 Prentice Hall Business Publishing Accounting Information Systems.

– The files are usually maintained for one fiscal period. © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 93 of . • It is conceptually similar to a journal in a manual AIS in that: – The files are temporary.COMPUTER-BASED STORAGE CONCEPTS • A transaction file is a file that contains records of individual transactions (events) that occur during a fiscal period.

Student File Instructor File © 2008 Prentice Hall Business Publishing Accounting Information Systems. • When files about students are integrated with files about classes and files about instructors. we have a database.COMPUTER-BASED STORAGE CONCEPTS • A database is a set of interrelated. 11/e Romney/Steinbart 94 of Class File . centrallycoordinated files.

TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE • The data processing cycle consists of four steps: – Data input – Data storage – Data processing – Information output © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 95 of .

11/e Romney/Steinbart 96 of . it must be processed.DATA PROCESSING • Once data about a business activity has been collected and entered into a system. © 2008 Prentice Hall Business Publishing Accounting Information Systems.

– Deleting data. a customer address. e..DATA PROCESSING • There are four different types of file processing: – Updating data to record the occurrence of an event. – Adding data. © 2008 Prentice Hall Business Publishing Accounting Information Systems. – Changing data. e.g. recording a sale to a customer. and the agents who participated. removing an old customer that has not purchased anything in 5 years. e.g. 11/e Romney/Steinbart 97 of .. a new customer. the resources affected by the event..g..g. e.

11/e Romney/Steinbart 98 of .DATA PROCESSING • Updating can be done through several approaches: – Batch processing © 2008 Prentice Hall Business Publishing Accounting Information Systems.

the batches are entered into the computer system. © 2008 Prentice Hall Business Publishing Accounting Information Systems. and stored in a temporary file.DATA PROCESSING • Batch processing: – Source documents are grouped into batches. transaction reports. – Output is printed or displayed. along with error reports. – Periodically. sorted. – The temporary transaction file is run against the master file to update the master file. 11/e Romney/Steinbart 99 of . and control totals. edited. and control totals are calculated.

11/e Romney/Steinbart 100 of .DATA PROCESSING • Updating can be done through several approaches: – Batch processing – Online batch processing © 2008 Prentice Hall Business Publishing Accounting Information Systems.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. – Periodically.DATA PROCESSING • Online batch processing: – Transactions are entered into a computer system as they occur and stored in a temporary file. – The output is printed or displayed. the temporary transaction file is run against the master file to update the master file. 11/e Romney/Steinbart 101 of .

real-time processing © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 102 of .DATA PROCESSING • Updating can be done through several approaches: – Batch processing – Online batch processing – Online.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. real-time processing – Transactions are entered into a computer system as they occur.DATA PROCESSING • Online. – Output is printed or displayed. 11/e Romney/Steinbart 103 of . – The master file is immediately updated with the data from the transaction.

DATA PROCESSING • Updating can be done through several approaches: – Batch processing – Online batch processing – Online. which of these approaches would you prefer that your university was using? • Why? © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 104 of . real-time processing • If you’re going through enrollment.

11/e Romney/Steinbart 105 of .TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE • The data processing cycle consists of four steps: – Data input – Data storage – Data processing – Information output © 2008 Prentice Hall Business Publishing Accounting Information Systems.

• EXAMPLE: Employee paychecks or purchase orders for merchandise. • Documents generated at the end of the transaction processing activities are known as operational documents (as opposed to source documents).INFORMATION OUTPUT • The final step in the information process is information output. 106 of © 2008 Prentice Hall Business Publishing Accounting Information Systems. • This output can• be in the are records of form of: Documents – Documents transactions or other company data. 11/e Romney/Steinbart . • They can be printed or stored as electronic images.

11/e Romney/Steinbart 107 of .INFORMATION OUTPUT • The final step in the information process is information output. • They may be produced: – On a regular basis – On an exception basis – On demand • Organizations should periodically reassess whether each report is needed. © 2008 Prentice Hall Business Publishing Accounting Information Systems. • Reports are used by employees to • This output can be in the form of: control operational activities and by – Documents – Reports managers to make decisions and design strategies.

– On the screen. • They may be requested: – Periodically – One time • They can be displayed: – On the monitor. • This output can be in the form of: – Documents – Reports – Queries • Queries are user requests for specific pieces of information. © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 108 of . called soft copy. called hard copy.INFORMATION OUTPUT • The final step in the information process is information output.

– Some outputs are specifically for internal use: • For planning purposes • Examples of outputs for planning purposes include: – Budgets • Budgets are an entity’s formal expression of goals in financial terms. 11/e Romney/Steinbart 109 of . – Sales forecasts © 2008 Prentice Hall Business Publishing Accounting Information Systems.INFORMATION OUTPUT • Output can serve a variety of purposes: – Financial statements can be provided to both external and internal parties.

11/e Romney/Steinbart 110 of .INFORMATION OUTPUT • Output can serve a variety of purposes: – Financial statements can be provided to both external and internal parties. – Some outputs are specifically for internal use: • For planning purposes • For management of day-to-day operations • Example: Delivery schedules © 2008 Prentice Hall Business Publishing Accounting Information Systems.

• Performance reports are outputs that are used for control purposes. Output can servereports compare an organization’s • These a variety of purposes: standard or expected performance with – Financial statements can be provided to both its actual outcomes. external and internal parties. • Management by exception is an approach to utilizing performance – Some outputs are specifically for internal use: reports that • For planning purposes focuses on investigating and acting on only those variances that are • For management of day-to-day operations significant. • For control purposes

INFORMATION OUTPUT

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• Output can serve a variety of purposes:
– Financial statements can be provided to both external and internal parties. – Some outputs are specifically for internal use:
• • • • For planning purposes For management of day-to-day operations For control purposes For evaluation purposes • These outputs might include:
– Surveys of customer satisfaction. – Reports on employee error rates.
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INFORMATION OUTPUT
• Behavioral implications of managerial reports:
– YOU GET WHAT YOU MEASURE!

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.INFORMATION OUTPUT • Suppose an instructor wants to improve student learning. This behavior would be a dysfunctional result of the measurement. – The improved attendance may or may not improve learning outcomes. – Some students may in fact reduce their studying because they believe they can use the attendance score to boost their grade. – Students may be getting better grades when attendance is measured. but not learning more. – The result will be better student attendance. measuring it).. i.e. 11/e Romney/Steinbart 114 of . – He decides to encourage better attendance by grading students on attendance (i. you get what you measure.e. © 2008 Prentice Hall Business Publishing Accounting Information Systems.

11/e Romney/Steinbart 115 of . – The resulting costs far outweighed the savings. – A hacker broke in and devastated some of their data files.INFORMATION OUTPUT • Budgets can cause dysfunctional behavior. © 2008 Prentice Hall Business Publishing Accounting Information Systems. the IT department did not buy a security package for its system. – EXAMPLE: In order to stay within budget. – Critical security measures were foregone in order to meet budgetary goals.

• Does this mean organizations shouldn’t budget? © 2008 Prentice Hall Business Publishing Accounting Information Systems. 11/e Romney/Steinbart 116 of .INFORMATION OUTPUT • Budgeting can also be dysfunctional in that the focus can be redirected to creating acceptable numbers instead of achieving organizational objectives.

” • In other words. you have to aim. • Just be careful where you aim! © 2008 Prentice Hall Business Publishing Accounting Information Systems. • With financial results.INFORMATION OUTPUT • The saying goes. you’re also unlikely to achieve when you don’t aim. 11/e Romney/Steinbart 117 of . if you want a roast goose. “Not many people sit around and have a roast goose fall in their lap.

© 2008 Prentice Hall Business Publishing Accounting Information Systems. sometimes-redundant systems • Enterprise resource planning (ERP) systems are designed to integrate all aspects of a company’s operations (including both financial and non-financial information) with the traditional functions of an AIS. 11/e Romney/Steinbart 118 of . – Non-financial data was captured in other.ROLE OF THE AIS • The traditional AIS captured financial data.

11/e Romney/Steinbart 119 of . and the information required to make those decisions. • We’ve reviewed the data processing cycle and its role in organizing business processes and providing information to users. the decisions that need to be made. © 2008 Prentice Hall Business Publishing Accounting Information Systems.SUMMARY • We’ve learned about the basic business processes in which an organization engages. we’ve touched on the role of the information systems in modern organizations and introduced the notion of enterprise resource planning systems. • Finally.