week 1b. chapter 2—ais processes business activities business cycles data processing cycle
TRANSCRIPT
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Week 1b
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Chapter 2—AIS processes
Business activities
Business cycles
Data Processing Cycle
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Business Activities
Basic business activities an organization engages in? Buying buildings/equipment Hiring/training employees Purchasing inventory Selling goods/services Paying Vendors Acquiring capital
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Basic Business Processes
Get Cash
Give Cash
Get Ship
Give Cash
GetEmployeeService
Give Cash
Get Silk
Give Cash
Get Cash
Give SilkA set of
Give-Get exchanges
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Effective AIS
Each activity requires different types of information.
Information may be financial or non-financial
Source of information may be internal or external
An effective AIS needs to be able to integrate this information
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Interaction
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Business cycles
Like business activities for the AIS to capture, process, report
Revenue Expenditure
Some companies split out Fixed Assets as there own cycle
PR (in book = HR)
Production Treasury (in book = Financing)
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What is missing?
FINANCIAL REPORTING
Most companies now consider the activities around this process a separate cycle
Activities include? Journal entries Financial disclosure Management review
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Business Activities = Cycle groupings
Buying buildings/equipment=Fixed Asset Cycle
Hiring/training employees=HR/Payroll Cycle
Cycle counting inventory=Production Cycle
Selling goods/services=Revenue Cycle
Paying Vendors=Expenditure Cycle
Acquiring Capital=Treasury Cycle
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Things to keep in mind
Thousand of transactions can occur within a cycle, but there are relatively few types of transactions in a cycle.
Every transaction cycle relates to other cycles and interfaces with the general ledger/reporting system (i.e. Financial Close Cycle), which generates information for management and external parties.
Accounting software packages often separate into modules that mirror cycles.
Not every company uses every cycle.
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Chapter 2 – Problem 2.9
Answer to Problem 2.9: Classify each of the following items as belonging in the
revenue, expenditure, human resources/payroll, production, or financing cycle.
a) Purchase raw materials – Expenditure cycle
b) Payoff mortgage on factory – Treasury cycle
c) Hire a new assistant controller – Payroll cycle
d) Establish a $10,000 credit limit for customer XYZ company –
Revenue cycle
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Chapter 2 – Problem 2.9 (cont)
Answer to Problem 2.9 (cont): Classify each of the following items as belonging in the
revenue, expenditure, human resources/payroll, production, or financing cycle.
e) Pay for raw materials – Expenditure cycle
f) Disburse payroll checks to factory workers - PR cycle
g) Record goods received from vendor – Expenditure cycle
h) Update the allowance for uncollectible accounts – Financial Reporting cycle
(book=Revenue) i) Decide how many units to make next month –
Production cycleProduction cycle
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Data Processing “Cycle”
An important function of the AIS is to efficiently and effectively process the data about a company’s transactions.
The “data processing cycle’s” 4 steps:1. Data input2. Data storage3. Data processing4. Information output
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i.e. Collect data
Capture the data Implement control procedures Record in journals
• General for rare or adjusting• Specialized for standardized
Post to ledgers Prepare reports
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Data Input
Usually triggered by a business activity
What is captured? Timing of the event (when) Characteristics (what is affected) Participants (who)
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Data Input: Internal control considerations
A number of small actions can improve the accuracy and efficiency of data input: Document design (manual)
• Multiple copies• Space for approval sign-off• Pre-numbered
Input (automated)• Fill-in based on key data• Automatic numbering• Smart fields• Matching to existing data
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Data Storage
Data needs to be organized for easy and efficient access
With automated systems, master tables (chart of accounts, vendor, customer, inventory, etc.) set-up, content and access is critical to integrity of system
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Data storage: Internal control considerations
Sequence codes: consecutive numbering to prevent gaps and/or duplicates
Sub-ledgers/journals: provide more details for like transactions and enhance information retrieval/support
Smart coding: means of grouping items (G/L account, vendors, inventory, customers, etc.) for analysis
Audit trail: adequate documentation to allow tracing of a transaction from beginning to end or from end back to beginning (i.e. posting references, document numbers, bundling)
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Audit Trail
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Data Processing
Updating data-recording the transaction i.e. purchase of raw material, record a
customer sale Changing data-update to existing permanent
records i.e. change a customer address, change the
name of a vendor Adding data-add a new permanent record
i.e. add new G/L account, add new inventory item
Deleting data-delete permanent record (be very careful do not destroy existing audit trail, usually involves lack of activity in the current period at least) i.e. remove non-active customer
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Data (Computer) processing
Master/transaction files Batch/real-time/on-line Queries/reports
I am going to spend little time on this, but expect you to use the terms and concepts pretty readily…ask questions if you need to.
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Data processing: Internal control considerations
Access, Access, Access
Edit reports: provides potential errors in data (i.e. unusual account balances (negative cash, credit balance for an expense account)
IT Segregation of duties
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Information output
Documents – generated for internal or external use; can be printed or stored electronically (i.e. paychecks, invoices, purchase orders)
Reports – used by employees to control operational activities and by manages to make decisions and design strategies (i.e. general ledger, variance analysis, inventory turnover)
Queries – ad hoc user requests for specific information; often system display only (i.e. vendor address, customer credit limit)
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Information output: Internal control considerations
Confidentiality – develop means to restrict access to certain data (SS#s, pricing data, costing, etc.)
Timeliness – information should be available when needed (invoices, M/E reports, audit schedules) by user, not restricted by system processing
Version Control – user should be able to readily determine information “as of” date. Is it as of a certain date/time period (today, M/E, Year-to-date), last processing update, real-time? Previous (historical) data availability should also be based on user needs.