SIA

Overview of
Business Processes
Chapter 2
2003 Prentice Hall Business Publishing,

Accounting Information Systems, 9/e, Romney/Steinbart
2-1
Learning Objectives
1
Explain the three basic functions performed by an

accounting information system (AIS).
Describe the documents and procedures used in an
AIS to collect and process transaction data.
Discuss the types of information that can be
provided by an AIS.
Describe the basic internal control objectives of an
AIS and explain how they are accomplished.

2-2
Learning Objective 1
Explain the three basic functions
an accounting information system
(AIS) performs.

2-3
Introduction
This chapter provides an overview

of how an AIS can perform its
three basic functions :
1.
2
3
To collect and store data about the

organizations business activities and
transactions efficiently and effectively
To provide information useful for decision
making
To provide adequate controls to ensure that
data are recorded and processed
accurately
2-4
Introduction
This chapter will examine:

Basic
types of business activities in

which an organization engages
Key decisions that must be
considered when managing those
activities
Information needed to make those
decisions
2-5
Introduction
This chapter:
Describes how data about business
activity is collected, processed and
transformed into useful information for
management
Then, it will introduce the concept of
internal controls
2-6
The Three Basic Functions

Performed by an AIS
1
To collect and store data about the

organizations business activities and
transactions effectively:
Capture
transaction data on source

documents.
Record transaction data in journals, which
present a chronological record of what
occurred.
Post data from journals to ledgers, which
sort data by account type.
2-7

Performed by an AIS
2
To provide management with

information useful for decision
making:
In
manual systems, this information is

provided in the form of reports that fall
into two main categories:
financial statements
managerial reports
2-8

Performed by an AIS
3
To provide adequate internal controls:

Ensure
that the information produced

by the system is reliable.
Ensure that business activities are
performed efficiently and in
accordance with managements
objectives.
Safeguard organizational assets.
2-9
Basic Subsystems in the AIS

1.
2.
3.
The revenue cycle: involves activities of

selling goods or services and collecting
payment for those sales.
The expenditure cycle: involves activities
of buying and paying for goods or
services used by the organization.
The human resources/payroll cycle:
involves activities of hiring and paying
employees.
2-10

4.
5.
The production cycle: involves activities

converting raw materials and labor into
finished goods.
The financing cycle: involves activities
of obtaining necessary funds to run the
organization, repay creditors, and
distribute profits to investors.

2-11

Financing
Cycle
Expenditure
Cycle
Human
Resources
General Ledger & Reporting System

Production
Cycle
Revenue
Cycle

2-12
Describe the documents and
procedures used in an AIS to collect
and process transaction data.

2-13
The Data Processing Cycle
The data processing cycle consists

of four steps:
1.
2.
3.
4.
Data input
Data storage
Data processing
Information Output

2-14
The Data Processing Cycle
The trigger for data input is usually

business activity. Data must be
collected about:
1.
2.
3.
Each event of interest

The resources affected by each
event
The agents who participate in each
event
2-15
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.

2-16

Data Input
Control over data collection is

improved by:
prenumbering
each source document

and using turnaround documents
having the system automatically
assign a sequential number to each
new transaction
employing source data automation
2-17
Common Source
Documents and Functions
REVENUE CYCLE
Source Document
Function
Sales order
Take customer order.
Delivery ticket
Deliver or ship order
Remittance advice
Receive cash.
Deposit slip
Deposit cash receipts.
Credit memo
Adjust customer accounts

2-18
Common Source
EXPENDITURE CYCLE
Source Document Function
Purchase requisition
Request items.
Purchase order
Order items.
Receiving report
Receive items.
Check
Pay for items.

2-19
Common Source
HUMAN RESOURCES CYCLE
Source Document
Function
W4 forms
Collect employee
withholding data.
Time cards
Record time worked

by employees.
Job time tickets
Record time spent

on specific jobs.
2-20
Common Source
GENERAL LEDGER AND
REPORTING SYSTEM
Source Document
Function
Journal voucher
Record entry posted to

general ledger.

2-21

Data Processing
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

2-22

Data Storage
An entity is something about which
information is stored.
Each entity has attributes or
characteristics of interest, which need
to be stored.

2-23
Record Transaction Data

in Journals
After transaction data have been
captured on source documents, the
next step is to record the data in a
journal.
A journal entry is made for each
transaction showing the accounts and
amounts to be debited and credited.

2-24

in Journals
The general journal records infrequent
or nonroutine transactions.
Specialized journals simplify the
process of recording large numbers of
repetitive transactions.
What are the four most common types
of transactions?

2-25

in Journals
1
2
3
4
Credit sales
Cash receipts
Purchases on account
Cash disbursements

2-26

in Journals
Sales Journal
Page 5
Invoice
Number
Account
Debited
Account
Number
Dec. 1
201
Lee Co.
120-122
800.00
Dec. 1
202
May Co.
120-033
700.00
Dec. 1
203
DLK Co.
120-111
900.00
Date
Post
Ref.
TOTAL:
Amount
2,400.00
120/502

2-27
Post Transactions to
Ledgers
Ledgers are used to summarize the
financial status, including the current
balance, of individual accounts.
The general ledger contains
summary-level data for every asset,
liability, equity, revenue, and expense
account of an organization.

2-28
Ledgers
A subsidiary ledger records all the
detailed data for any general ledger
account that has many individual
subaccounts.
What are some commonly used
subsidiary ledgers?
accounts receivable
inventory
accounts payable
2-29
Ledgers
What is the general ledger account

corresponding to a subsidiary ledger
called?
control account
A control account contains the total

amount for all individual accounts in
the subsidiary ledger.
2-30
Post Transactions to Ledgers

Sales Journal
Page 5
Date
Invoice
Number
Account
Debited
Account
Number
Post
Ref.
Amount
Dec 1
203
DLK Co.
120-111
900.00
Total
2,400.00
120/502
General Ledger
Account: Accounts Receivable Account Number: 120
Date
Description
Dec 1
Sales
Post Ref.
SJ5
Debit
2,400

Credit
Balance
2,400
2-31
What is the
Chart of Accounts?
The chart of accounts is a list of all
general ledger accounts used by an
organization.
It is important that the chart of
accounts contains sufficient detail to
meet the information needs of the
organization.

2-32
Discuss the types of information that
an AIS can provide.

2-33
Providing Information for

Decision Making
The second function of the AIS is to
provide management with information
useful for decision making.
The information an AIS provides falls
into two main categories:
Financial
Statements
Managerial Reports
2-34
Financial Statements
Prepare a trial balance.
Make adjusting entries.
Prepare the adjusted trial balance.
Produce the income statement.
Make closing entries.
Produce the balance sheet.
Prepare the statement of cash flows.

2-35
Managerial Reports
The AIS must also be able to provide
managers with detailed operational
information about the organizations
performance.
Two important types of managerial
reports are
budget
performance reports
2-36
Managerial Reports
What is a budget?
A budget is the formal expression of
goals in financial terms.
One of the most common types of
budget is a cash budget.

2-37
Managerial Reports
What is a performance report?
A performance report lists the

budgeted and actual amounts of
revenues and expenses and also
shows the variances, or differences,
between these two amounts.

2-38
Managerial Reports
Magic Co. Monthly Performance Report
Budget
Actual
Variance
Sales $32,400 $31,500 ($900)
Cost of Goods 12,000 14,000 (2,000)
Gross Margin $20,400 $17,500 ($2,900)
Other Expenses
9,000 7,000 2,000
Operating Income $11,400 $10,500
($900)
2-39
Describe the basic internal control
objectives of an AIS and explain how
they are accomplished.

2-40
Internal Control
Considerations
1
2
The third function of an AIS is to

provide adequate internal controls to
accomplish three basic objectives:
Ensure that the information is reliable.
Ensure that business activities are
performed efficiently.
Safeguard organizational assets.
2-41
Internal Control
Considerations
What are two important methods for

accomplishing these objectives?
Provide for adequate documentation
of all business activities.
Design the AIS for effective
segregation of duties.

2-42
Adequate Documentation
Documentation allows management to
verify that assigned responsibilities
were completed correctly.
What did Ashton encounter while
working as an auditor that gave him a
firsthand glimpse of the types of
problems that can arise from
inadequate documentation?
failure to bill for repair work

2-43
What is
Segregation of Duties?
Segregation of duties refers to dividing
responsibility for different portions of a
transaction among several people.
What functions should be performed
by different people?
authorizing transactions
recording transactions
maintaining custody of assets
2-44
End of Chapter 2

2-45

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Overview of

2003 Prentice Hall Business Publishing,

Explain the three basic functions performed by an

2003 Prentice Hall Business Publishing,

2003 Prentice Hall Business Publishing,

This chapter provides an overview

To collect and store data about the

This chapter will examine:

types of business activities in

The Three Basic Functions

To collect and store data about the

transaction data on source

The Three Basic Functions

To provide management with

manual systems, this information is

The Three Basic Functions

To provide adequate internal controls:

that the information produced

Basic Subsystems in the AIS

The revenue cycle: involves activities of

Basic Subsystems in the AIS

The production cycle: involves activities

2003 Prentice Hall Business Publishing,

Basic Subsystems in the AIS

General Ledger & Reporting System

2003 Prentice Hall Business Publishing,

2003 Prentice Hall Business Publishing,

The Data Processing Cycle

The data processing cycle consists

2003 Prentice Hall Business Publishing,

The Data Processing Cycle

The trigger for data input is usually

Each event of interest

Data Processing Cycle:

2003 Prentice Hall Business Publishing,

Data Processing Cycle:

Control over data collection is

each source document

Take customer order.

Deliver or ship order

Deposit cash receipts.

Adjust customer accounts

Pay for items.

Record time worked

Job time tickets

Record time spent

Record entry posted to

2003 Prentice Hall Business Publishing,

Data Processing Cycle:

2003 Prentice Hall Business Publishing,

Data Processing Cycle:

2003 Prentice Hall Business Publishing,

Record Transaction Data

2003 Prentice Hall Business Publishing,

Record Transaction Data

2003 Prentice Hall Business Publishing,

Record Transaction Data

2003 Prentice Hall Business Publishing,

Record Transaction Data

2003 Prentice Hall Business Publishing,

2003 Prentice Hall Business Publishing,

What is the general ledger account

A control account contains the total

Post Transactions to Ledgers