ACC200 - Accounting Information

Systems
Topic 2 Modelling Business Processes

Learning Objectives

1.

2.
3.
4.

5.

Differentiate between the Functional vs Business Process

Perspective
Describe basic subsystems in AIS
Explain the four stages of the data processing cycle
Describe the documents and procedures used in an AIS to
collect and process transaction data
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

Material & Product Flow

Information and material flows in a functional business model

4

Finance & Accounting

Information Flow

Logistics

Information Flow

Manufacturing

Information Flow

Sales

Information Flow

Marketing

Information Flow

Functional Business Model

Top Management

The Functional Perspective of the

Organisation

2-5

The Functional Perspective of the

Organisation (Cont)

Benefits
o
o

Control and coordination: provides sound organisational

control
Specificity: highly defined and specified tasks exist

Problems and limitations

o
o
o
o

Not reflective of the reality of today

Information and communication problems
Slow to react to the environment
Focuses on the wrong things

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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

Top Management
Finance &

Accounts

Accounts

Accounting

Payable

Receivable

Procurement

Manufacturing

Logistics

Information Flow

Supplies

Conversion

Storage & Shipping

Material & Product Flow

Information and material flows in a process business model
9

Customers

Suppliers

Marketing & Sales

Business Processes
Primary Business Processes
Inbound
InboundSales
Sales

Outbound
OutboundSales
Sales

Logistics
Logistics

Logistics
Logistics

Operations
Operations

Marketing
Marketing

Service
Service
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Business Processes
Supporting Business Processes

Procurement
Procurement

Technology
Technology
Development
Development

Human
Human

Firm
Firm

Resources
Resources

Infrastructure
Infrastructure
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Functional vs Process
Functional
perspective

Process
perspective

What is done

How it is done

Vertical, hierarchical

Horizontal, across
the organisation

Objective

Task driven

Customer driven

Personnel

Specialists highly
defined tasks

Generalists tasks
across the process

Focus
Orientation

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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.
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Basic Subsystems in the AIS

4.

5.

The production cycle: involves activities

converting raw materials and labor into
finished goods.
Inventory cycle: involves the receipt and
issue of stock items

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Basic Subsystems in the AIS

Inventory
Cycle

Expenditure
Cycle

Human
Resource Cycle

General Ledger & Reporting System

Production
Cycle

Revenue
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.

2.

3.

4.

Ordering materials,
supplies, and services
Receiving materials,
supplies, and services
Approving supplier
invoices
Cash disbursements

2-17

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.
2.
3.
4.

Sales order entry

Shipping
Billing
Cash collections

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General Ledger and Reporting Activities

1.
2.
3.
4.

Update general ledger

Post adjusting entries
Prepare financial statements
Produce management reports

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The Data Processing Cycle

The data processing cycle consists of

four steps:
1.
2.
3.
4.

Data input
Data storage
Data processing
Information Output

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Four Stages of the Data

Processing Cycle
Data
storage

Data
input

Data
processing

Information
output

2-22

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

2-24

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
2-27

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 machinereadable form, which reduces the probability of human error in applying the
check to the correct account.

2-28

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
2-29

Common Source
Documents and Functions
REVENUE CYCLE
Source Document

Function

Sales order

Take customer order.

Delivery note
Sales Invoice
Remittance advice

Deliver or ship order

Bill customer
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.

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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.

2-35

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 taccount 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:

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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.

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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.
2-40

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.
2-41

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
2-42

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

2-43

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
2-44

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
Digit 3
Digits 4-7
Digits 8-9

Type of Stock (RM, FG, WIP)

Colour
Year of manufacture
Location in warehouse

2-45

DATA STORAGE
Ledger
General ledger

Group coding schemes are often used in assigning general ledger

Subsidiary
account numbers.
The following guidelines should be observed:
ledger
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,
etc.
The second section identifies the primary sub-account, such as current asset or longterm investment.

The third section identifies the specific account, such as accounts receivable or
inventory.

The fourth section identifies the subsidiary account, e.g., the specific customer code for
an account receivable.

The structure of this chart is an important AIS issue, as it must contain sufficient detail to

meet the organizations needs.

DATA STORAGE

Ledger
General ledger
Subsidiary ledger
Coding techniques
Chart of accounts

2-47

DATA STORAGE

In manual systems and some accounting packages, the first place that
Ledger
transactions are entered is the journal.
A general journal is used to record:
General
ledger

Non-routine transactions, such as loan payments

Summaries of routine transactions
Adjusting entries
Closing entries

Subsidiary ledger
Coding techniques
A special journal is used to record routine transactions.
Chart
of accounts
journals are:

The most common special

Cash receipts
Cash disbursements
Credit sales
Credit purchases

Journals

2-48

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

2-49

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

2-50

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.

2-51

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.

2-52

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
Balance Number
name

Credit
limit

301

ABC Co.

Box 5

1,000

555

XYZ Co.

Box 9

6,000 2,000

2 Entities 2
Records

Individual fields

400

Data
values
2-54

Types of Files

Two basic types of files are used to store data.

The master file, which is conceptually similar to
a ledger in a manual system.
(eg customer addresses, general ledger)
The transaction file, which is conceptually
similar to a journal in a manual system.
(eg journals,sales invoices, purchase invoices)

2-55

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

2-56

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.

2-57

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

2-63

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.

2-65

Forms of Information Output

1
2
3

Information is presented in three forms:

Documents
Reports
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.

2-68

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.

2-69

End of Lecture