ACC200 - Accounting Information

Systems

Topic 2 Modelling Business Processes

 Learning Objectives

1. Differentiate between the Functional vs Business Process

Perspective
2. Describe basic subsystems in AIS
3. Explain the four stages of the data processing cycle
4. Describe the documents and procedures used in an AIS to
collect and process transaction data
5. Discuss the types of files used by an AIS.

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 Functional Business Model

Alfred P. Sloan developed the functional organizational model in

the 1930s as chairman of General Motors
The functional model was very successful for decades, but foreign
competition in the 1980s highlighted problems with the model:
Flexibility and rapid decision-making were not possible
Organizations had become overstaffed and top-heavy
Ability to respond to change was limited

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 Information Flow

Marketing

Information Flow

Sales

Information Flow

Material & Product Flow Manufacturing

Top Management

4 Information Flow

Logistics
Information and material flows in a functional business model
Functional Business Model

Information Flow

Finance & Accounting

The Functional Perspective of the
Organisation

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 The Functional Perspective of the
Organisation (Cont)

Benefits
o Control and coordination: provides sound organisational
control
o Specificity: highly defined and specified tasks exist

Problems and limitations

o Not reflective of the reality of today
o Information and communication problems
o Slow to react to the environment
o Focuses on the wrong things 2-6
 What is a Business Process ?

A business process is a series of interlocking

activities that work together, across the
organisation, to achieve some predetermined
organisational goal (typically defined around
satisfying customer needs)

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 Business Process Model

In a process-oriented company, the flow of

information and management activity are
horizontalacross functions
The horizontal flow promotes flexibility and
rapid decision-making
Michael Hammers Reengineering the
Corporation encouraged managers to take a
horizontal business process view of their
companies
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 Top Management

Accounts
Finance & Accounts
Payable Accounting Receivable
Marketing & Sales

Customers
Procurement Manufacturing Logistics
Suppliers

Information Flow

Supplies Conversion Storage & Shipping

Material & Product Flow

Information and material flows in a process business model

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Business Processes

Primary Business Processes

Inbound Sales Outbound Sales

Logistics Logistics

Operations Marketing

Service
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Business Processes

Supporting Business Processes

Technology
Procurement
Development

Human Firm
Resources Infrastructure

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 Functional vs Process
Functional Process
perspective perspective
Focus What is done How it is done

Orientation Vertical, hierarchical Horizontal, across

the organisation

Objective Task driven Customer driven

Personnel Specialists highly Generalists tasks

defined tasks across the process
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Basic Subsystems in the AIS
1. The revenue cycle: involves activities of
selling goods or services and collecting
payment for those sales.
2. The expenditure cycle: involves activities of
buying and paying for goods or services
used by the organization.
3. The human resources/payroll cycle:
involves activities of hiring and paying
employees.

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 Basic Subsystems in the AIS
4. The production cycle: involves activities
converting raw materials and labor into
finished goods.
5. Inventory cycle: involves the receipt and
issue of stock items

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Basic Subsystems in the AIS
Inventory Expenditure Human
Cycle Cycle Resource Cycle

General Ledger & Reporting System

Production Revenue
Cycle Cycle

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 The Expenditure Cycle
Activities and information processing related to:
Purchasing and payment of
Goods and services
Primary objective:
Minimize the total cost of acquiring and
maintaining inventories, supplies, and the
various services the organization needs to
function

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 Expenditure Cycle Activities
1. Ordering materials,
supplies, and services
2. Receiving materials,
supplies, and services
3. Approving supplier
invoices
4. Cash disbursements

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 The Revenue Cycle
Provides goods and services to customers
Collects cash in payment for those sales

Primary Objective:
Provide the right product
In the right place
At the right time for the right price

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 Revenue Cycle Activities
1. Sales order entry
2. Shipping
3. Billing
4. Cash collections

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 General Ledger and Reporting Activities

1. Update general ledger

2. Post adjusting entries
3. Prepare financial statements
4. Produce management reports

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 The Data Processing Cycle
The data processing cycle consists of
four steps:
1. Data input
2. Data storage
3. Data processing
4. Information Output

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 Four Stages of the Data
Processing Cycle
Data
storage

Data Data Information

input processing output

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 Data Input
The first step in the data processing cycle
is data input.
During the data input stage, transaction
data are captured and converted to
machine-processible form.
Traditionally, transaction data has been
captured on preprinted source
documents.
What are some source documents?
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 Data Input
purchase requisitions
checks and remittances from customers

Data input may also require the following

preparation:
classification by assigning identification
codes
verification to ensure data accuracy

transmittal from one location to another

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 Data Input
How can data input accuracy and
efficiency be improved?
Have a well-designed computer screen
resembling that of source documents.
Have the system prompt the user to input
all necessary data.
Use scanning devices instead of keying.

Have source data automation like ATMs.

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 Data Processing Cycle:
Data Input
Historically, most businesses used paper
source documents to collect data and
then transferred that data into a
computer.
Today, most data are recorded directly
through data entry screens.

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 Data Processing Cycle:
Data Input
Control over data collection is improved
by:
pre-numbering each source document
and using turnaround documents
having the system automatically assign a
sequential number to each new
transaction
employing source data automation

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 Data Processing Cycle:
Data Input
A number of actions can be taken to
improve the accuracy and efficiency of
data input:
Turnaround documents

EXAMPLE: The stub on your telephone bill that you tear off and return with
your check when you pay the bill.
The customer account number is coded on the document, usually in machine-
readable form, which reduces the probability of human error in applying the
check to the correct account.

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 Data Processing Cycle:
Data Input
A number of actions can be taken to
improve the accuracy and efficiency of
data input:
Turnaround documents
Source data automation

Capture data with minimal human intervention.

EXAMPLES:
ATMs for banking
Point-of-sale (POS) scanners in retail stores
Automated gas pumps that accept your credit card

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 Common Source
Documents and Functions
REVENUE CYCLE
Source Document Function

Sales order Take customer order.

Delivery note Deliver or ship order
Sales Invoice Bill customer
Remittance advice Receive cash.

Deposit slip Deposit cash receipts.

Credit/Debit memo or note Adjust customer accounts 2-30

Common Source
Documents and Functions
EXPENDITURE CYCLE
Source Document Function
Purchase requisition Request items.

Purchase order Order items.

Delivery Note Take goods into stock .
Supplier Invoice Record amount due
Goods received note Receive items.
Cheque Pay for items. 2-31
 Common Source
Documents and Functions
HUMAN RESOURCES CYCLE
Source Document Function

Time cards Record time worked

by employees.

Job time tickets Record time spent

on specific jobs.

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 Common Source Documents
and Functions

GENERAL LEDGER AND

REPORTING SYSTEM
Source Document Function
Journal voucher Record entry posted to
general ledger.

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 Data Storage
A companys data is one of its most
important resources.
An organization must have ready and
easy access to its data in order to
function properly.
Accountants need to know how to
manage data for maximum corporate use.

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 DATA STORAGE
Data needs to be organized for easy and
efficient access.
Lets 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 Account Number: 120

Date Description Post Ref Debit Credit Balance

01/01/05 42,069.00
01/03/05 Sales S03 1,300.00 43,369.00
01/13/05 Cash collections CR09 4,600.00 38,769.00
01/23/05 Sales S04 5,600.00 44,369.00 2-37
 DATA STORAGE
Ledger
General ledger

The general ledger is the summary level information

for all accounts. Detail information is not kept in this
account.

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 DATA STORAGE
Ledger
General ledger

Example: Suppose XYZ Co. has three customers.

Anthony Adams owes XYZ $100. Bill Brown owes
$200. And Cory Campbell owes XYZ $300. The
balance in accounts receivable in the general ledger
will be $600, but you will not be able to tell how much
individual customers owe by looking at that account.
The detail isnt there.
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 DATA STORAGE
Ledger
General ledger

Subsidiary ledger

The subsidiary ledgers contain the detail accounts

associated with the related general ledger account.
The accounts receivable subsidiary ledger will
contain three separate t-accountsone for Anthony
Adams, one for Bill Brown, and one for Cory
Campbell.
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 DATA STORAGE
Ledger
General ledger

Subsidiary ledger

The related general ledger account is often called

a control account.
The sum of the subsidiary account balances
should equal the balance in the control account.

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 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. There are many types of codes
including:
Sequence codes
Block codes
Group codes

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 DATA STORAGE
Ledger
General ledger

Subsidiary ledger

Coding techniques

With sequence codes, items (such as checks or invoices) are numbered

consecutively to ensure no gaps in the sequence. The numbering helps
ensure that:
All items are accounted for
There are no duplicated numbers, which would suggest errors or fraud

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 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. (pg 27 Sunrise Pharmaceuticals)
EXAMPLE: The first digit represents the major account category (eg . 1000 series are assets.
Thee 2nd represent current or fixed asset, & 3rd and 4th digit represents the specific asset.
-1000-1999 Assets
- 2000-2999 Liabilities
- 3000-3999 Equity
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 DATA STORAGE
Ledger
General ledger

Subsidiary ledger

Coding techniques

When group codes are used, two or more subgroups of digits are used
to code an item.
EXAMPLE: Product item codes:
Digits 1-2 Type of Stock (RM, FG, WIP)
Digit 3 Colour
Digits 4-7 Year of manufacture
Digits 8-9 Location in warehouse 2-45
 DATA STORAGE
Ledger
General ledger
Group coding schemes are often used in assigning general ledger
Subsidiary ledger
account numbers. The following guidelines should be observed:
The code should be consistent with its intended use, so make sure you
Coding
know whattechniques
users need.
Provide enough digits to allow room for growth.
Keep it simple in order to:
Minimize costs
Facilitate memorization
Ensure employee acceptance
Make sure its consistent with:
The companys organization structure
Other divisions of the organization
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 The chart of accounts is a list of all general ledger accounts an organization uses.
Group coding is often used for these numbers, e.g.:
The first section identifies the major account categories, such as asset, liability, revenue,
DATA STORAGE etc.
The second section identifies the primary sub-account, such as current asset or long-
term investment.
Ledger
The third section identifies the specific account, such as accounts receivable or
inventory.
General ledger
The fourth section identifies the subsidiary account, e.g., the specific customer code for
Subsidiary ledger an account receivable.
The structure of this chart is an important AIS issue, as it must contain sufficient detail to
Coding techniques meet the organizations needs.

Chart of accounts

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 DATA STORAGE
In manual systems and some accounting packages, the first place that
Ledger
transactions are entered is the journal.
A generalledger
General journal is used to record:
Non-routine transactions, such as loan payments
Subsidiary
Summariesledger
of routine transactions
Adjusting entries
Coding techniques
Closing entries
A special journal is used to record routine transactions. The most common special
Chart ofare:
journals accounts
Cash receipts
Cash disbursements
Credit sales
Credit purchases

Journals
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 Fundamental Data Storage
Concepts and Definitions
What is an entity?
An entity is something about which
information is stored.
What are some examples of entities?

employees

inventory items

customers

suppliers

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 Fundamental Data Storage
Concepts and Definitions
What are attributes?
Each entity has attributes, or
characteristics of interest, which need to
be stored.
What are some examples?

employee pay rates

customer addresses

supplier credit terms

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 Fundamental Data Storage
Concepts and Definitions
Computers store data by organizing
smaller units of data into large, more
meaningful ones.
A field is the smallest element of data
storage.
A number of fields are grouped together
to form a record, which is a collection of
data values that describe specific
attributes of one entity.
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 Fundamental Data Storage
Concepts and Definitions
Related records are grouped together to
form a file.
What is an example of a file?

the accounts receivable file

Files containing related data are

combined to form a data base.

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Fundamental Data Storage
Concepts and Definitions
Data base

File

Record

Field 2-53
 Fundamental Data Storage
Concepts and Definitions
Accounts Receivable File
Attributes
Customer Customer Address Credit Balance
Number name limit

301 ABC Co. Box 5 1,000 400

555 XYZ Co. Box 9 6,000 2,000

2 Entities 2 Data
Individual fields values
Records
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Types of Files
Two basic types of files are used to store
data.
1 The master file, which is conceptually
similar to a ledger in a manual system.
(eg customer addresses, general ledger)
2 The transaction file, which is conceptually
similar to a journal in a manual system.
(eg journals,sales invoices, purchase
invoices)
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 The Data Processing Cycle
The trigger for data input is usually
business activity. Data must be
collected about:
1. Each event of interest
2. The resources affected by each event
3. The agents who participate in each
event

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 Data Processing

Additions insert new records into a master file.

Deletions remove records from a master file.

Updates revise current balances in master files.

Changes modify the data values of other fields in

master files.

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 Data Processing
The most common data processing activity is
data maintenance.
Data maintenance is the periodic processing
of transactions to update stored data.
What are some commonly used types of data
maintenance?

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 Data Processing Cycle:
Data Processing Methods
Batch processing is the periodic updating
of the data stored about resources and
agents
On-line, real-time processing is the
immediate updating as each transaction
occurs

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 Batch Processing
Batch processing is updating master files
periodically to reflect all transactions that
occurred during a given time period.
The master file is updated at set times or
whenever a manageable number of
transactions are gathered.
Transaction data can either be entered as
a batch or as each transaction occurs.

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Batch Processing
Group source documents into batches.

Master
file

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 On-line, Real-Time Processing
In on-line, real-time processing, the
computer captures data electronically,...
edits it for accuracy and completeness,
and...
immediately processes it.

The computer also processes information

requests from users.

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On-line, Real-Time Processing
Enter transactions into system as they occur.

Master
file

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 Advantages of Each Method
The main advantage of batch processing
was efficiency in processing.
On-line data entry is more accurate than
periodic batch input because the system
can refuse incomplete of erroneous
entries.
Real-time processing ensures that the
information in master files is always
current.
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 Information Output
The final step in the data processing
cycle is information output.

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 Forms of Information Output
Information is presented in three forms:
1 Documents
2 Reports
3 Responses to a query

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 Purpose of Information Output
External users:
Financial statements are produced to
meet stewardship requirements.
Income tax returns and filings with the
Securities Commission are produced to
comply with legal requirements.

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 Purpose of Information Output
Internal users:
Budgets, sales forecasts, and projected
cash flow statements are prepared for
planning purposes.
Production and delivery schedules, open
purchase orders, and inventory stock
status reports are prepared to help
effectively manage day-to-day operations.

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 What is an Audit Trail?

Documentation with appropriate reference numbers

which provide the means for locating and examining
the appropriate source documents in order to verify
that the transactions did occur and was recorded
accurately.

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End of Lecture