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decisions about investing or extending credit to the organization. 19. (SO 3) What types of businesses are in the supply chain of an automobile manufacturer? The types of businesses in an automaker’s supply chain are often manufacturers of parts used in cars. This would include manufacturers of tires, batteries, steel, plastic, vinyl and leather, as well as many other manufacturers making the thousands of parts in a car. 20. (SO 3) When a company evaluates a supplier of materials, what kinds of characteristics might be evaluated? The supplier’s characteristics that are likely to be evaluated include price and payment terms, quality, reliability of the materials, as well as whether the supplier can deliver materials when needed. 21. (SO 3) How do you think a company may be able to influence a supplier to meet its business processing requirements? A company may be able to influence a supplier by choosing only suppliers that meet expectations regarding the terms of price, quality, and delivery timing. Those suppliers that do not meet these expectations may not be used in the future. This exerts some influence over suppliers, as the suppliers will lose business if they do not meet the buyer’s requirements. 22. (SO 4) Describe any IT enablement that you have noticed at a large retail store such as Wal-Mart or Target. The most noticeable IT enablement is the use of bar coded systems on the products and how they are read by the cash registers. 23. (SO 4) How do you think the World Wide Web (WWW) has led to business process reengineering at companies such as Lands End or J.Crew? Prior to the World Wide Web, customers placed orders either on the phone or by mail. Both phone and mail orders require employees to take the order and enter it into the computer system. Using online sales, customers enter their own orders and no company personnel are needed to key orders into the computer system. Therefore, there was a major change in the number of people employed to key orders. 24. (SO 4) What two kinds of efficiency improvement result from business process reengineering in conjunction with IT systems? The use of IT systems usually leads to two kinds of efficiency improvements. First, the underlying processes are reengineered (through rethinking and redesign) to be conducted more efficiently. Second, the IT systems improve the efficiency of the underlying processes. 25. (SO 5) Explain the differences between a field, a record, and a file. A field is one set of characters that make up a single data item. For example, last name would be a field in a customer database. A record is a collection of related fields for a single entity. For example, last name, first name, address, phone number, and credit card number fields might make up a single customer record. A file is a collection of similar records. For example, all customer records together make up a customer file.
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26. (SO 5) Explain why random access files would be preferable to sequential access files when payroll personnel are changing a pay rate for a single employee. When the desired action is to access a single record, random access is preferable. If sequential access storage is used, all records must be read in sequence until the desired record is reached. On the other hand, random access allows a single record to be accessed without the necessity of reading other records. This makes it more efficient to access a particular employee record to change the pay rate. 27. (SO 5) Why do real-time systems require direct access files? If transactions are to be processed online and in real-time, it is necessary that the computer access a single record immediately. Thus, direct access files are required so the records can be accessed in real-time. 28. (SO 5) Why is data contained in the data warehouse called nonvolatile? Each time a new transaction is completed, parts of the operational data must be updated. Therefore, the operational database is volatile – with constantly changing information. However, the data warehouse does not change with each transaction. The data warehouse is only changed when periodic updates occur. The data in the data warehouse are nonvolatile because they do not change constantly. 29. (SO 5) How is an extranet different from the Internet? The extranet allows access only to selected outsiders, while the Internet is open to an unlimited number of outsiders (essentially anyone having access to the Internet). On the other hand, extranets are typically used by companies to interact with specific suppliers and customers who have been granted access to a company’s network. 30. (SO 6) Prepare a list of the types of businesses that you have been in that use point of sale systems. Student responses may vary, but would likely include department stores, grocery stores, specialty stores, restaurants, gas stations, and car washes. 31. (SO 6) What do you think would be the advantages of an e-payables system over a traditional system that uses paper purchase orders and invoices? An e-payables system should be faster and more efficient than a paper-based system. In addition, fewer processing errors should be expected from an e-payables system. 32. (SO 7) Describe why enterprise risk management is important. All organizations face risks and Enterprise Risk Management (ERM) assists managers in reducing and controlling risk. ERM also involves personnel across the entire business organization, as they implement strategies to achieve the organization’s objectives. 33. (SO 7) What is the difference between general controls and application controls? General controls apply overall to the IT accounting system. They are controls that are not restricted to any particular accounting application. An example of a general control is the use of passwords to allow only authorized users to log into an IT-based accounting system. Application controls are used specifically in accounting applications to control inputs, processing, and output. Application controls are
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intended to insure that inputs are accurate and complete, processing is accurate and complete, and that outputs are properly distributed, controlled, and disposed. 34. (SO 7) In what way is a code of ethics beneficial to an organization? If top management institutes a code of ethics and emphasizes this code by modeling its principles and disciplining or discharging those who violate the code, it can help reduce unethical behavior in the organization. 35. (SO 8) What roles do accountants have in relation to the accounting information system? Accountants are users of the AIS, they assist in the design of the AIS, and they are auditors of the AIS.
Brief Exercises 36. (SO 1) For each category of business processes (revenue, expenditure, conversion, administrative), give an example of a business process. Student responses are likely to vary greatly, as they may refer to any of the subprocesses within each category. For example, the revenue processes include sales, sales returns, and cash collections; the expenditure processes include purchasing, purchase returns, cash disbursements, payroll, and fixed asset processes; the conversion processes include planning, resource management, and logistics; administrative processes include capital processes, investments, and general ledger processes. Accordingly, any type of business process can be cited to answer this question, but the student must match the example with the appropriate process. 37. (SO 2) Think of a company that you have worked for or with which you have done business. Which departments within the company need reports generated by the accounting information systems? Student responses are likely to vary greatly, as nearly every department within a business organization uses reports generated by the accounting information systems. For example, sales departments need customer account information to help in their efforts to sell products to customers. Purchasing departments need product information to help in their efforts to purchase products needed in the business. These types of information are maintained in accounting information systems. There are numerous additional examples that could apply. 38. (SO 3) Explain a supply chain linkage and give an example. A supply chain linkage is the connection of activities in the supply chain, including the entities, processes, and information flows that involve the movement of materials, funds, and related information through the full logistics process – from the acquisition of raw materials to the delivery of finished products to the end user. It therefore includes the linked activities of vendors, service providers, customers, and intermediaries. In addition to the example of McDonald’s buns given in the text, another example would be a shirt sold by the Gap. The Gap’s supply chain linkage would likely include a supplier from whom the shirt was purchased, a manufacturer who assembled and sewed the shirt,
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a secondary supplier that provided the fabric from which the shirt was constructed, and a farmer who raised cotton used to make the fabric. 39. (SO 4) Explain how business process reengineering occurs. Also, explain how it differs from the typical changes in company policies. With business process reengineering (BPR), the underlying business processes are reengineered to be conducted more efficiently. In other words, a comprehensive rethinking and redesign takes place in order to enhance performance of the process. A key component of BPR is the leveraging of IT capabilities to improve process efficiencies. BPR differs from typically organizational change in that it involves “thinking outside the box” in order to offer completely new and improved methods for business processes. 40. (SO 5) For an accounts receivable system, what kind of data would be found in the master files and transaction files, respectively? An accounts receivable master file would include relatively permanent data necessary to process customer transactions. This would include a record for each customer. The data in the master file would likely include customer name, address, phone numbers, credit limit, and current balance. A transaction file for accounts receivable would contain the relatively temporary data that must be processed to update the master file, such as details from individual sales and cash collection transactions from customers. 41. (SO 5) Describe the differences in the following three types of processing: a. Batch processing involves the grouping of similar transactions to be processed together; b. Online processing involves processing individual transactions, one-at-a-time; and c. Real-time processing is an online processing method that involves the immediate processing of individual transactions. 42. (SO 5) The networks discussed in this chapter were LANs, Internet, intranet, and extranet. Explain each. A LAN is a computer network that spans a relatively small area such as a building or group of buildings within a business organization. The Internet is the global computer network made up of millions upon millions of computers and subnetworks throughout the world. An intranet is an organization’s private computer network, accessible only by employees of that organization to share data and manage projects. An extranet is an expansion of an intranet that allows limited access to designated outsiders such as customers and suppliers. 43. (SO 7) Give a brief summary of each of the following: a. enterprise risk management is an ongoing strategy-setting and risk assessment process that is effected by top management but involves personnel across the entire entity. b. corporate governance is an elaborate system of checks and balances whereby a company’s leadership is held accountable for building shareholder value and creating confidence in the financial reporting process.
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c. IT governance is the corporate governance process that applies specifically to the proper management, control, and use of IT systems. 44. (SO 9) Describe why accountants should be concerned about ethics. Accountants should be concerned about ethics because accounting information systems are often the tools used to commit or cover up unethical behavior. Accountants need to be aware of the possibility of fraud within the AIS so that they can help develop and implement effective internal controls to reduce the risk of such unethical acts. In addition, accountants need to be prepared to resist the temptation to commit unethical acts and to avoid being coerced into assisting with a fraudulent cover-up. 45. (SO 9) Kelli Droyer is currently pursuing her accounting degree at Bromfeld University. She has excelled in each of her major courses to date; however, she tends to struggle in her computer classes and with assignments requiring use of computer technology. Nevertheless, Kelli confidently claims that she will become an excellent accountant. Comment on the practical and ethical implications of her position. Kelli is mistaken in her position for the following reasons: • Practically speaking, accountants need to be well-informed about the operation of accounting information systems, which nearly always involve computer technology. The AIS is the foundation of most accounting functions, so to resist computer technology would be unreasonable, if not impossible. Also, in order to assist in developing internal controls, accountants must understand the processes within the AIS, including the use of technology, so that effective controls can be developed and implemented to reduce risks. • Ethically speaking, accountants need to be well-informed about the operation of the AIS so that they are poised to recognize fraud and errors that may occur. Without an understanding of the underlying technology, accountants would be unable to effectively capture and monitor business processes. Rather than fulfilling her responsibility as an accountant to develop and implement internal controls, Kelli’s ignorance of the AIS could actually allow fraud to be perpetrated without being prevented or detected. For these reasons, Kelli’s viewpoint is quite dangerous.
Problems 46. (SO 2) If an accounting information system were entirely a manual system (no computers used), explain how data would be captured, recorded, classified, summarized, and reported. Discuss how the sophistication of the company’s computer system impacts the accounting output and, alternatively, how the requirements for accounting outputs impact the design of the accounting information system. In a manual accounting information system, data would be captured on source documents and recorded by hand in subledgers or special journals. Account classifications would be determined by the accountants responsible for recording the transaction. The accountants would perform mathematical computations to summarize the records and post them to a general ledger. The general ledger would be manually summarized at the end of the period so that financial statements
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could be prepared. The financial reports would be manually compiled based on the ending general ledger balances. Since a great deal of paper and human processing are required for a manual system, it is prone to error. More sophisticated, computerbased systems tend to produce more output that is more accurate because they are programmed to process data consistently. They also use programming to perform mathematical computations, which promotes accuracy and time savings. Therefore, IT usage to support business processes results in increased accuracy, increased efficiency, and reduced costs. The requirements for accounting outputs impact the design of the AIS. Work steps within a business process can be designed to capture data in a manner that is consistent with the desired content and format of the related output. This promotes efficiency and effectiveness of the overall process. When business process reengineering is used to design business processes, IT systems can be introduced to take advantage of the speed and efficiency of computers to enhance the AIS. 47. (SO 1,3) Classify each of the following processes as either a revenue process, expenditure process, conversion process, or administrative process: a. Selling common stock to raise capital - ADMINISTRATIVE b. Purchasing electronic components to manufacture DVD players EXPENDITURE c. Moving electronic components from the stockroom to the production floor to begin making DVD players - CONVERSION d. Paying employees at the end of a payroll period - EXPENDITURE e. Preparing financial statements - ADMINISTRATIVE f. Receiving cash payments from customers - REVENUE g. Buying fixed assets - EXPENDITURE h. Moving manufactured DVD players from the production floor to the warehouse CONVERSION 48. (SO 1) Business processes are composed of three common stages: an initial event, a beginning, and an end. For items a through h listed in Problem 47, identify the applicable initial event, beginning, and end of the process. Student responses may vary as their experiences are likely to be different. Different businesses may have different events that trigger these processes; however, the following are common examples: a. Selling common stock to raise capital: Initial Event – Contacting and communicating with investors; Beginning – Receiving consideration from investor; End – Recording transactions in the accounting records. b. Purchasing electronic components to manufacture DVD players: Initial Event – Receiving a purchase request from operations personnel; Beginning – Placing an order with a supplier; End – Recording the payment for the component parts. c. Moving electronic components from the stockroom to the production floor to begin making DVD players: Initial Event – Receiving a request from the Production department for the movement of materials; Beginning – Removing
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inventory from the stockroom; End – Recording the receipt of goods in the production area. d. Paying employees at the end of a payroll period: Initial Event – Receiving a time sheet or other record of time worked; Beginning – Recording hours in the payroll records; End – Distributing paychecks or depositing paychecks in employee accounts. e. Preparing financial statements: Initial Event – Preparing end-of-period adjusting entries; Beginning – Summarizing adjusted account balances; End – Compiling data in financial statement format and writing related disclosure notes. f. Receiving cash payments from customers: Initial Event – Communicating with customer about a sale; Beginning – Notifying customer of amounts owed related to the sale; End – Recording the receipt of cash and deposit in a bank account. g. Buying fixed assets: Initial Event – Planning for an expenditure as part of a capital budgeting process; Beginning – Placing an order for the fixed asset; End – Receiving the asset and recording it in a subsidiary ledger. h. Moving manufactured DVD players from the production floor to the warehouse: Initial Event – Receiving notification from the Production department regarding completion of products; Beginning – Removing finished goods from the production floor; End – Recording the receipt of finished goods in the warehouse. 49. (SO 1,2,7) Each of the points listed next represents an internal control that may be implemented within a company’s accounting information system to reduce various risks. For each point, identify the appropriate business process (revenue, expenditure, conversion, administrative). In addition, refer to the description of business processes under Study Objective 2 in the chapter, and identify the appropriate subprocess. (Some subprocesses may be used more than once, and others may not be used at all.) a. Customer credit must be authorized before a business transaction takes place. Revenue process, sales subprocess b. An authorized price list of goods for sale is provided. Revenue process, sales subprocess c. A shipping report is prepared for all shipments of goods so that customers may be billed in a timely manner. Revenue process, sales subprocess d. Access to personnel files and paycheck records is available only in accordance with management specifications. Expenditure process, payroll subprocess e. New vendors are required to be authorized before a business transaction takes place. Expenditure process, purchasing subprocess f. Access to cash is restricted to those employees authorized by management. Revenue or Expenditure process, Cash collection or cash disbursement subprocess, respectively g. Costs of goods manufactured is properly summarized, classified, recorded, and reported. Conversion process, resource management subprocess h. Amounts due to vendors are reconciled by comparing company records with statements received from the vendors. Expenditure process, cash disbursements subprocess
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i.
Employee wage rates and paycheck deductions must be authorized by management. Expenditure process, payroll subprocess j. Specific procedures such as the performance of a background check are carried out for all new employee hires. Expenditure process, payroll subprocess k. The purchasing manager is notified when stock levels are low so that items may be restocked to prevent backorders. Conversion process, resource management subprocess l. Two signatures are required on checks for payments in excess of $5000. Expenditure process, cash disbursement subprocess m. When excess cash is on hand, the funds are invested in short-term securities. Administrative process, investment subprocess n. Goods received are inspected, and any damaged or unmatched items are promptly communicated to the vendor. Revenue process, sales subprocess o. The monthly bank statement is reconciled to the company’s cash records by an outside accountant. Revenue or Expenditure process, Cash collection or cash disbursement subprocess, respectively 50. (SO 3) Using an internet search engine, search for the terms “RFID” and “supply chain.” Put both of these terms in your search and be sure that “supply chain” is in quotation marks. Read some of the resulting web sites you find and answer these questions: a. What is RFID? Radio-frequency identification (RFID) technology helps companies identify and manage large lots of goods, typically received and stored in cartons or on skids. The cartons or skids include tags that are encoded with identifying information about the items, their supplier, and their purchase transaction. These tags can be instantly read and recorded by the company through the use of antennae or battery-operated transmitters and radio waves. b. How is RFID related to the supply chain? RFID enhances supply chain management by significantly reducing the time required to record purchases and inventory tracking. The instantaneous reading of RFID tags allows the items to move swiftly through the logistics process with increased speed and accuracy of the underlying records. c. How will RFID improve the accuracy of data from the supply chain? Accuracy is increased by the use of tags containing company and product identifiers. These tags reduce the risk of recording items in duplicate. They also aid in inventory tracking through enhanced security of products being moved between locations. 51. (SO 7) Go to the COSO web site and locate the guidance on enterprise risk management. The executive summary of the article “Enterprise Risk Management – Integrated Framework” can be downloaded at no cost. Read the sections titled “Roles and Responsibilities” and “Use of this Report.” Describe the roles that various parties should play in enterprise risk management. Although everyone within a business entity has responsibility for its ERM processes, the chief executive officer is ultimately responsible and must assume ownership of the process. Accordingly, the CEO should bring together key managers from each functional area to plan,
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implement, and monitor the process. The board of directors should provide necessary oversight and maintain contact with top management, internal auditors, and external auditors regarding the ERM process. Other managers should support the organization’s philosophy, promote compliance with its risk appetite, and manage risks within their areas of responsibility. The CFO and internal auditors typically have a support role. External to the business organization, three groups are key to the effective use of ERM: regulators, professional organizations, and educators. Regulators are expected to refer to the COSO framework in the development of expectations as well as the conduct of their examinations for business organizations they oversee. Professional organizations should consider the COSO framework in the development of guidelines for financial management, auditing, and related topics. Educators are urged to incorporate the framework into university curricula, as well as to conduct research and analysis on potential enhancements to the ERM process. 52. (SO 9) Using an internet search engine, search for the term (in quotations) “earnings management.” From the items you read, answer the following questions: a. Is earnings management always criminal? No, earnings management is not always illegal. Since accounting principles allow for some flexibility, accountants may use the discretion at their disposal in preparing financial statements. b. Is earnings management always unethical? No, earnings management is not always unethical, due to the materiality constraint. Yet earnings management becomes unethical when it “crosses the line” to reflect management’s desires rather than an accurate representation of the company’s financial performance. If earnings management deceives or distracts investors, it is unethical. 53. (SO 9) Using an internet search engine, search for “HealthSouth” and “fraud” or “Scrushy” (the name of the company’s CEO). Explain the fraud that occurred at HealthSouth Corporation. What was the ultimate result of the prosecution of HealthSouth officials? HealthSouth’s fraud was an elaborate earnings management scheme whereby earnings were overstated by at least $1.4 billion. False revenues were recorded with corresponding decreases in contra-revenue accounts, expenses, and/or liabilities and increases in assets. Ultimately, after a long and dramatic trial, Scrushy was acquitted of all criminal charges due to lack of evidence tying him to the fraud.
Cases 54. Gas-Up & Go Mart and the accounting information system. 1. Accounting data is likely to be captured at Gas-Up & Go at the gas pump if the customer uses a debit card or credit card to pay for a gas purchase at the pump. Even if the customer chooses to pay inside, the information pertaining to the sale of gasoline is recorded at the pump. The snacks must be purchased inside the store, but can be added to the gasoline charge. The accounting effect is that the
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sale and the payment collected should increase the Sales account and Cash or Accounts Receivable, respectively. 2. The records that capture the accounting data would be maintained within the computer system. Although a manual process is required to operate the gas pump and cash register, the remainder of the system is computer-based, so the system records the sale and all related data. 3. Internal controls would include the security cameras in the store and gas filling area, as well as reconciliation procedures. Like the McDonalds’ example, a manager is likely to close and reconcile the cash register and gas pump sales at the end of the day. 4. The summarization of accounting data is likely to occur at the end of the period when financial reports are prepared. These steps are probably accomplished by the computer software. 5. Financial reporting occurs at the end of the period, as data are summarized into reports used for internal and external purposes. This likely includes a combination of manual and computerized processes. There are likely to be separate classifications for the sales of gasoline versus snack items. 55. Business processes and IT enablement at fast food restaurants. Student responses may vary, but are likely to consistent with the following: a. List and describe four different activities that are manual parts of business processes at a restaurant such as Wendy’s. Manual processes are required to: • greet customers at the drive-through window or counter • enter customer orders on the cash register touch-screens • prepare the food • gather the customer’s order • collect payment from the customer • clean the dining area • refill the condiment dispensers, etc. • reconcile the cash in the cash register to amounts included in the sales summaries b. List and describe four different activities that are IT enabled parts of business processes at a restaurant such as Wendy’s. IT enables processes are used to: • record customer orders input in the cash registers. The system accumulates sales data based on the orders transacted • prepare sales amounts based upon the pre-programmed prices of items ordered and applicable tax rates • determine the amount of change due to customers based on the amount of cash collected • prepare a sales receipt upon completion of a sales transaction • transfer order details to the food preparation stations so that the items can be prepared and assembled • prepare a daily summary for each cash register at the end of the shift 56. Business processes at department stores.
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a. Describe any necessary supporting processes that precede the sale of a product to you. Some of the supporting processes that precede a sale to a customer include acquiring, pricing and display of the merchandise, hiring and training sales personnel and cashiers, preparation of cash register drawers with adequate change, and programming the system to recognize the items when they are read by a bar code scanner. b. Describe any necessary supporting processes that occur after a sale to you. Some of the supporting processes that occur after a sale to a customer include handling customer returns, summarization of the sales data, reconciling the cash registers with the computerized data from the registers, preparation of a bank deposit, periodic sales reporting, and reconciliation of the bank statements. 57. Business processes at Culpe’s Cues Co. a. What are the business processes that apply to this business? The business processes described include the expenditure process involved in purchasing materials needed to manufacture pool cues and disbursing cash to suppliers for materials purchased. The case also describes revenues processes for sales of pool cues over the internet, customer collections, and sales returns (replacements). This business would also include subprocesses for payroll expenditures to pay James and Rebecca Culpe for their time worked, and fixed asset processes to handle any capital assets acquired (such the workshop, office space, furniture and computers, tools and equipment, delivery vehicle, etc.). In addition, conversion processes would involve planning of the manufacturing process, planning and managing materials and resources needed for production, and logistics (movement of the manufactured goods through the production process through delivery to a customer). b. How would the business processes change if Culpe’s Cues expanded to a regional focus? If Culpe’s Cues expanded to a regional focus, it is likely that its business would grow. James and Rebecca Culpe may have difficulty managing a regional business on their own, so they would likely need to hire and train employees to join their business. As more people became involved in the business processes, they would need to determine how responsibilities would be divided and how to implement internal controls in the processes. James Culpe may no longer be able to personally handle all deliveries. The company’s website may also need to be enhanced to handle the additional volume anticipated in connection with the business expansion. c. How would the business processes change if Culpe’s Cues began selling pool balls and other billiard equipment in addition to cues? If Culpe’s Cues began selling pool balls and other billiard equipment in addition to its pool cues, its business processes would change. If Culpe’s acquired this type of merchandise, it would have to enhance its expenditures processes to include the types of suppliers of these billiard accessories. It would also need to consider the logistics of inventory storage. In addition, its revenue processes would need to be enhanced to differentiate sales of manufactured cues versus other billiard merchandise. Its website would need to be updated to handle the additional product lines.
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Turner/Accounting Information Systems, 2e Solutions Manual Chapter2 Concept Check 1. d 2. c 3. b 4. c 5. a 6. b 7. b 8. c 9. c 10. c 11. b 12. d
Discussion Questions 13. (SO 1) What is the relationship between business processes and the accounting information system? As the systematic steps are undertaken within a business processes, the corresponding data generated must be captured and recorded by the accounting information system. 14. (SO 1) Why is it sometimes necessary to change business processes when IT systems are applied to business processes? When IT systems are applied to business processes, some of the detailed transaction data may no longer be taken from paper-based source documents, and manual processing may no longer be needed to summarize and post that data. Accordingly, some of the related manual steps within the business process can be eliminated or changed. 15. (SO 2) Are manual systems and processes completely outdated? No, manual systems and business processes are not completely outdated. Manual records and tasks may still be involved in the business processes of even the largest and most sophisticated accounting information systems. 16. (SO 2) What is the purpose of source documents? Source documents capture the key data of a transaction, including date, purpose, entity, quantities, and dollar amounts.
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17. (SO 2) What are some examples of turnaround documents that you have seen? An example of a turnaround document, as described in the chapter, is a credit card statement, where the statement itself (as received in the mail by the credit card holder) represents the output of the credit card company’s accounting information system. When the credit card holder returns the top portion of the statement with his or her payment, it then becomes an input to the company’s cash collection process. 18. (SO 2) Why would the training of employees be an impediment to updating legacy systems? One of the advantages of legacy systems is that they are well supported and understood by existing personnel who are already trained to use the system. Since those legacy systems are not generally based on user-friendly interfaces and they tend to be use software written in older computer languages, there is likely to be a significant investment of time and human resources required to maintain the system. In addition, legacy systems are often difficult to modify. Employees may be reluctant to forego their investment or to commit additional time in support of an updated system that becomes more challenging to maintain. 1. 19. (SO 2) Why is it true that the accounting software in and of itself is not the entire accounting information system? The accounting software is not the entire accounting information system; rather, it is a tool that supports the organization’s unique business processes. The software must often be customized to meet the needs of the organization and to integrate well with the manner in which transactions are processed. The human resources and/or manual records and documents that are part of the business processes are also an integral part of the accounting information system. 20. (SO 2) How is integration across business processes different between legacy systems and modern, integrated systems? Integration across business processes within a legacy system is extremely challenging and costly, as those systems are usually not based on user-friendly interfaces that are difficult to modify. It is also difficult to find programmers to perform such tasks. The result is that organizations which integrate business processes between legacy systems typically must resort to enhancements to their existing software or bridging their existing software to new systems or interfaces. On the other hand, modern, integrated systems are based on a single software system that integrates many or all of the business processes within the organization, thus eliminating the coordination and updating efforts required by the older systems. 21. (SO 3) How does client-server computing divide the processing load between the client and server? In client-server computing, the processing load is assigned to either the server or the client on the basis of which one can handle each task most efficiently. The server is more efficient in managing large databases, extracting data from databases, and running high-volume transaction processing software applications. The client is more efficient at manipulating subsets of data and presenting data in a user-friendly, graphical-interface environment.
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22. (SO 3) Why do you think the client computer may be a better computer platform for presentation of data? The client computer is better for presentation of data because it manipulates subsets of data without being bogged down by the processing load of the entire data set. In addition, the client computer maintains presentation software in a user-friendly format for reporting purposes.
23. (S04) What are the distinguishing characteristics of cloud computing? Cloud computing is a centralized approached to computing, whereby computing services are outsourced to a third party provider. Accordingly, a company’s software and data may reside on the server of the provider. This offers many advantages, including the ability to scale the level of service to the needs of the company, as well as cost savings associated with the reduced infrastructure. 24. (S04) Why do you think a company would benefit from using cloud computing rather than client server computing? The primary benefits of cloud computing are in the areas of access, scalability, and cost savings. Companies are likely to benefit from using cloud computing when their employees may need to access and read data from many different locations while using different types of computing devices. In addition, since cloud computing is a pay-for-service model, companies only pay for the level of service they need, so it is not necessary to invest in capacity that may not yet be required. Also, the cost savings result from the reduced infrastructure (including equipment, hardware, software, maintenance, and technical employees). 25. (SO4) If your personal data were stored on a computer in cloud computing, would you have any concerns about it? Student responses may vary, and although the risks of cloud computing are discussed in a later chapter, students may identify concerns about security of private data stored in the cloud and access to data in the event of a service interruption. 26. (SO 5) Why do you think there are different market segments for accounting software? There are different market segments for accounting software to support the different needs of organizations depending on their size and the complexities of their business processes. 27. (SO 5) How would accounting software requirements for large corporations differ from requirements for small companies? Larger companies tend to need more power and functionality from their software systems because of their size and the complexities of their business processes. This may especially be true of large, multinational corporations which need to integrate business processes located all around the globe. Small companies are not likely to need such extensive power and functionality from their systems. 28. (SO 5) What are some of the differences between ERP systems and accounting software for small companies? ERP systems are multimodule software systems designed to manage all aspects of an enterprise. The modules (financials, sales,
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purchasing, inventory management, manufacturing, and human resources) are based on a relational database system that provides extensive set-up options to facilitate customization to specific business needs. Thus, the modules work together to provide a consistent user interface. These systems are also extremely powerful and flexible. Many of the software systems in the small and mid market categories are not true ERP systems with fully integrated modules; however, these systems assimilate many of the features of ERP systems. 29. (SO 5) Why would accounting software development companies be interested in expanding their software products into other market segments? Software development companies and software vendors often attempt to increase the appeal of their software products to more than one market segment when the features of their products may fit the needs of different sized organizations. In addition, there is a trend toward increasing the functionality of existing systems to offer increased flexibility and functionality to meet such diverse needs. Since business organizations make considerable investments in the software products that comprise their accounting information systems, it is not surprising that there is much competition among the companies that provide these systems. 30. (SO 6) Given the business and accounting environment today, do you think it is still important to understand the manual input of accounting data? Manual input of data is still important to understand in today’s accounting environment. Many business organizations still use some manual processes for reading source documents and keying the relevant information into the accounting information system. Even hightech point of sale systems require manual processes to input the accounting data contained on bar codes. 31. (SO 6) What are the advantages to using some form of IT systems for input, rather than manual input? Using IT systems for input has the advantages of reducing the time, cost, and errors that tend to occur with manual data input. 32. (SO 6) Why would errors be reduced if a company switched input methods from manual keying of source documents to a bar code system? With manual input, human efforts are required to write on the source documents and to manually key in the data. Errors tend to occur from time-to-time with such a system. On the other hand, the manual steps of writing and keying are eliminated when using a bar code system, thus reducing the likelihood of error. 33. (SO 7) In general, what types of transactions are well suited to batch processing? Batch processing is best suited to applications having large volumes of similar transactions that can be processed at regular intervals, such as payroll. 34. (SO 7) Why might the time lag involved in batch processing make it unsuitable for some types of transaction processing? By necessity, batch systems involve a time lag while all transactions in the batch are collected. This means that available information in files will not always be current, as it would be in real-time systems.
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Chapter 2 Solutions
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Therefore, when constantly up-to-date information is needed by users on a timely basis, batch processing is likely to be unsuitable for transaction processing. 35. (SO 7) How would real-time processing provide a benefit to managers overseeing business processes? Real-time processing is beneficial for business managers because it provides for system checks for input errors. Therefore, errors can be corrected immediately, thus increasing the quality of the information for which the manager is held accountable. In addition, real-time systems enhance the efficiency of information availability. 36. (SO 8) How do internal reports differ from external reports? Although internal and external reports are both forms of output from an accounting information system, they have different purposes. Internal reports provide feedback to managers to assist them in running the business processes under their control. On the other hand, external reports (such as the financial statements) are used by external parties to provide information about the business organization. 37. (SO 8) What are some examples of outputs generated for trading partners? Invoices and account statements are examples of outputs generated for customers; whereas checks and remittance advices are examples of outputs sent to vendors. 38. (SO 8) Why might it be important to have internal documents produced as an output of the accounting information system? It is important to produce internal documents as an output of an accounting information system because internal documents provide feedback needed by managers assist them in running the business processes under their control. These internal documents can be customized to allow a manger to “drill down” into the details of the process being managed. 39. (SO 9) How does documenting a system through a pictorial representation offer benefits? A pictorial representation of an accounting information system is beneficial because it provides a concise and complete way for accountants to analyze and understand the procedures, processes, and the underlying systems that capture and record the accounting data.
Brief Exercises 40. (SO 1) Think about your most recent appointment at the dentist’s office. Describe the business process that affected you as the patient/customer. In addition, describe the administrative and accounting processes that are likely to support this business. As a patient, you would experience the revenue processes as you receive services from the hygienist and dentist. You would also be affected by the billing and
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Chapter 2 Solutions
Foundational Concepts of the AIS
collections processes when you receive an invoice for services rendered and submit payment for those services. The dental office would need to have specific steps in place for recording the services provided to each patient so that they can be properly billed and reported. These steps may be very detailed, especially in instances where patient fees must be allocated between dental insurance companies and the patients themselves. There would also need to processes in place for purchasing, as a dentist’s office is expected to make regular purchases of supplies as well as to handle the other operating costs of the business. Payroll processes would also be needed to account for the time and pay of each employee in the dentist’s office, and fixed asset processes would be needed to support the investments in and depreciation of office furniture and equipment, fixtures, and dental equipment. Finally, it is possible that the business may have administrative processes in place to handle investment, borrowing, and capital transactions. Once these transactions are recorded, the business must have processes in place to post the related data to the general ledger and summarize it in a manner that facilitates the preparation of financial statements and other accounting reports. 41. (SO 2) Describe the purpose of each of the following parts of a manual system: a. source document – captures the key data of a transaction, including the date, purpose, entity, quantities, and dollar amounts. b. turnaround document – provides a connection between different parts of the accounting system by serving as the output of one system and the input to another system in a subsequent transaction. c. general ledger – provides details for the entire set of accounts used in the organization’s accounting systems. d. general journal – captures the original transactions for non routine transactions, adjusting entries, and closing entries. e. special journal – captures the original transactions for routine transactions such as sales, purchases, payroll, cash receipts, and cash disbursements. f. subsidiary ledger – maintains detailed information regarding routine transactions, with an account established for each trading partner. 42. (SO 2) Consider the accounting information system in place at an organization where you have worked. Do you think that it was a manual system, legacy system, or an integrated IT system? Describe one or two characteristics of that accounting information system that lead you to your conclusion. Student responses are likely to vary greatly, as they may refer to any work experience. Characteristics of manual systems may include paper-based documents and records, and manual processes performed by humans. Characteristics of legacy systems may include older technology including a mainframe computer and the use of software languages such as COBOL, RPG, Basic, and PL1. Characteristics of an integrated IT system include powerful,
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Chapter 2 Solutions
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technologically advanced computer systems with Internet interfaces, which are typically marked by efficiencies in terms of limited paperwork and user-friendly interfaces. 43. (SO 2) Suppose that a company wants to upgrade its legacy system, but cannot afford to completely replace it. Describe two approaches that can be used. One approach to updating a legacy system is to use screen scrapers, or frontware, which add modern, user-friendly screen interfaces to an existing system. Another approach is to bridge the legacy system to new hardware and software using enterprise application integration, or EAI. 44. (SO 4) Both Gmail and iCloud for iTunes were mentioned as examples of cloud computing. Can you describe any other examples of cloud computing? Student responses are likely to vary greatly, but may include examples such as the following: video and photo storage in the cloud, as well as document storage; online collaboration tools to facilitate groups who hold meetings and/or work on projects requiring participation from multiple locations; online data sharing between trading partners; virtual office space for people who travel or telecommute. 45. (SO 5, 7) Consider the real world example of Cole Haan presented in this chapter. a. Use Exhibits 2-3 and 2-4 to help you determine the approximate range of Cole Haan’s annual revenues. Since Cole Haan’s ERP system, falls in the High End or Tier 1 market segment, the company’s revenues must be over $100 million. b. What are the advantages Cole Haan likely realized as a result of having real-time data available? The advantages to real-time data processing include: • reduced errors, since the system checks inputs and corrects errors immediately • more timely information • constantly up-to-date data files • integrated business processes into a single database so that a single system can be achieved. 46. (SO 6) Using IT systems to input accounting data can reduce costs, time, and errors. Give an example showing how you think IT systems can lead to these reductions (cost, time, and errors). Student responses may vary. The responses below apply to the savings a company would be expected to realize upon implementation of a bar code system as a method of inputting data. Using IT systems to input data can help reduce costs, such as when bar code systems at a self-checkout line eliminate the human resource costs of using a checkout clerk.
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Chapter 2 Solutions
Foundational Concepts of the AIS
Using IT systems to input data can help save time, such as when bar code systems at a checkout line can reduce the checkout time to a fraction of the time required to manually record the transaction. This is because it eliminates the manual processes involved in writing data on a source document and/or keying the data into the software system. Using IT systems to input data can help reduce errors, such as when bar code systems eliminate the duplicate manual processes involved in writing data on a source document and later keying the data into the software system. 47. (SO 8) Identify whether the following reports would be categorized as trading partner documents, internal documents, internal reports, or external reports: a. daily cash receipts listing – internal document b. accounts receivable aging – internal report c. wire transfer of funds to a vendor – trading partner document d. customer price list – trading partner document e. general ledger – internal report f. statement of cash flows – external report g. sales invoice – trading partner document h. production schedule – internal document i. customer address list – internal document j. payroll journal – internal report 48. (SO 8) Which type of accounting information system reports would likely be prepared most frequently by financial accountants? By managerial accountants? Financial accounts are most likely to prepare external reports (such as financial statements and other reports provided to external users of the company’s accounting information); whereas managerial accountants are most likely to prepare internal reports (such as journals and other reports that provide feedback to managers about their areas of responsibility). 49. (SO 9) Identify which of the cardinal relationships apply, from the following: a. component part – product b. customer – product c. employee ID badge – employee d. employee – supervisor e. vendor – check
Problems
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Many to many Many to many One to one One to many One to many
Chapter 2 Solutions
Foundational Concepts of the AIS
50. (SO 2) Suppose that a large company is considering replacing a legacy system that is nearing obsolescence. Describe any aspects of this decision that the company should consider. When considering whether or not to replace a legacy system, a company should conduct a cost-benefit analysis. A business organization may decide to maintain a legacy system if it determines that the replacement costs would be too high. In such cases, the organization would likely place strong emphasis on the advantages of its legacy system, including its degree of customization and the extent of historical data that it contains which would be difficult to integrate into a new system. On the other hand, if the organization decided to replace its legacy system, it is likely that its reasons included such things as difficulty in supporting the older hardware, software, and programming language of its legacy system, difficulty in integrating the legacy system with newer business applications, and lack of user-friendly interfaces and supporting documentation from the legacy system. 51. (SO 1, 9) Visit the campus bookstore at your university. From what you see happening at the bookstore, try to draw a process map of how the processes at that store serve students, the customers. Refer to the separate Microsoft Excel file “Chapter 2 Solutions Pictorial Representations.xls 52. (SO 5) Look at Exhibit 2-4 and pick one accounting software product from the midmarket segment and one software product from the tier 1 ERP segment. Using those brand names of software, search the Internet for information about those products. Based on your investigation, what are the differences between the two software products you chose? (Hint: To begin your search, you might try examining the following websites. www.accounting-software 411.com , www.findaccountingsoftware.com, and www.2020software.com) Student responses are likely to vary greatly, depending upon the software brands selected. However, the modules within the midmarket products may not be fully integrated or may be less complex than the Tier 1 ERP systems. 53. (SO 6) Using an Internet search engine, search for the term “RFID.” From the results you find, describe how RFID will be used as an input method. RFID stands for radio-frequency identification. RFID technology helps companies identify and manage large lots of goods, typically received and stored in cartons or on skids. The cartons or skids include tags that are encoded with identifying information about the items, their supplier, and their purchase transaction. RFID is used as an input method whereby the tags can be instantly read and recorded by using antennae or battery-operated transmitters and radio waves.
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54. (SO 3) Using an Internet search engine, search for the terms “client-server” and “scalable.” From the results you find, explain why client-server systems are scalable. Scalable systems have the ability to handle growth or increased capabilities. Thus, client-server systems are deemed to be scalable because of the manner in which tasks are divided. Since client PCs normally accomplish local processing tasks, additional client PCs could be added to the network to handle new or growing subsets of data from the server.
55. (SO 4) Using an Internet search engine, search for the terms “Amazon elastic cloud.” Describe what you find. Why do you believe it is called elastic? Amazon Elastic Compute Cloud (Amazon EC2) is a web service that provides resizable compute capacity in the cloud. It is designed to make web-scale computing easier for developers. Amazon EC2’s simple web service interface allows users to obtain and configure capacity with minimal friction. It provides complete control of users’ computing resources and allows users to run on Amazon’s computing environment. Amazon EC2 reduces the time required to obtain and boot new server instances to minutes, allowing users to quickly scale capacity as their computing requirements change. Amazon EC2 provides developers the tools to build failure resilient applications and isolate themselves from common failure scenarios. The term “elastic” likely refers to the ability for users to quickly scale capacity both up and down as their computing requirements change. Thus, users can create, launch, and terminate server instances as needed.
Cases 56. Pictorial representations of a drive-through window at a fast food chain. Student responses are likely to vary, but may be similar to those shown in the Microsoft Excel file “Chapter 2 Solutions Pictorial Representations.xls 57. Pictorial representations of a college’s parking services processes. Student responses are likely to vary, but may be similar to those shown in the Microsoft Excel file “Chapter 2 Solutions Pictorial Representations.xls
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Chapter 3 Solutions
Fraud, Ethics, and Internal Control
Turner/Accounting Information Systems, 2e Solutions Manual Chapter 3
Concept Check 1. b 2. c 3. a 4. d 5. d 6. b 7. b 8. a 9. a 10. d 11. c 12. b 13. c 14. d
Discussion Questions 15. (SO 1) Management is held accountable to various parties, both internal and external to the business organization. To whom does management have a stewardship obligation and to whom does it have reporting responsibilities? Management has a stewardship obligation to the shareholders, investors, and creditors of the company, i.e., any parties who have provided funds or invested in the company. Management has a reporting responsibility to business organizations and governmental units with whom the company interacts. 16. (SO 2, 4) If an employee made a mistake that resulted in a loss of company funds and misstated financial reports, would the employee be guilty of fraud? Discuss. No, a mistake, or unintentional error, does not constitute fraud. In this situation, there is no theft or concealment, so fraud does not exist. 17. (SO 2, 3) Do you think it is possible that a business manager may perpetrate fraud and still have the company’s best interest in mind? Discuss. Student responses may vary. Those agreeing that it is possible may refer to the fraud triangle and note that the incentive may be job-related (such as opportunities to produce enhanced
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