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CHAPTER 1 ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW SUGGESTED ANSWERS TO DISCUSSION QUESTIONS 1.1

The value of information is the difference between the benefits realized from using that information and the costs of producing it. Would you, or any organization, ever produce information if its expected costs exceeded its benefits? If so, provide some examples. If not, why not? Most organizations produce information only if its value exceeds its cost. However, there are two situations where information may be produced even if its cost exceeds its value. a. It is often difficult to estimate accurately the value of information and the cost of producing it. Therefore, organizations may produce information that they expect will produce benefits in excess of its costs, only to be disappointed after the fact. b. Production of the information may be mandated by either a government agency or a private organization. Examples include the tax reports required by the IRS and disclosure requirements for financial reporting.

1.2

Can the characteristics of useful information listed in Table 1-1 be met simultaneously? Or does achieving one mean sacrificing another? Several of the criteria in Table 1.1 can be met simultaneously. For example, more timely information is also likely to be more relevant. Verifiable information is likely to be more reliable. However, achieving one objective may require sacrificing another. For example, ensuring that information is more complete may reduce its timeliness. Similarly, increased verifiability and reliability may reduce its timeliness. The decision maker must decide which trade-offs are warranted in a given situation.

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Ch. 1: Accounting Information Systems: An Overview 1.3

You and a few of your classmates decided to become entrepreneurs. You came up with a great idea for a new mobile phone application that you think will make lots of money. Your business plan won second place in a local competition, and you are using the $10,000 prize to support yourselves as you start your company. a. Identify the key decisions you need to make to be successful entrepreneurs, the information you need to make them, and the business processes you will need to engage in. b. Your company will need to exchange information with various external parties. Identify the external parties, and specify the information received from and sent to each of them. The author turns this question into an in-class group activity. Students are divided up in groups, told to close their books, and given 15 minutes to: a. Think through the business processes, key decisions, and information needs issues in their group. b. Identify the external users of information and specify the information received from and sent to each of them. One group is selected to present their answers to the class. The other groups are told to challenge the group’s answers, provide alternative answers, and chip in with additional answers not provided by the selected group. Since the group that presents is not selected until after the time has expired, students are motivated to do a good job, as they will be presenting to their peers. The value of this activity is not in arriving at a “right answer” as there are many right answers and student answers will vary. Instead, it is in thinking through the issues presented in Table 1-2 (business processes, key decisions, and information needs) and Figure 1-1 (interactions with external parties). Student answers should contain many of the things in Table 1-2 and Figure 1-1 as well as others not shown, as a retail operation differs from an application development enterprise. The author concludes the exercise by having the students turn to Table 1-2 and Figure 1-1 while he emphasizes the need for owners, managers, and employees of organizations to identify the information needed to make key decisions in the company’s business processes and the key information interchanges with external parties. All of the data needed to produce this information must be entered into the AIS, processed, stored, protected, and made available to the appropriate users. While this active learning activity takes more time than a lecture does, it drives the point home much better than a lecture would. It also keeps the students more engaged in the material.

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Accounting Information Systems 1.4

How do an organization’s business processes and lines of business affect the design of its AIS? Give several examples of how differences among organizations are reflected in their AIS. An organization’s AIS must reflect its business processes and its line of business. For example:     

1.5

Manufacturing companies will need a set of procedures and documents for the production cycle; non-manufacturing companies do not. Government agencies need procedures to track separately all inflows and outflows from various funds, to ensure that legal requirements about the use of specific funds are followed. Financial institutions do not need extensive inventory control systems. Passenger service companies (e.g., airlines, bus, and trains) generally receive payments in advance of providing services. Therefore, extensive billing and accounts receivable procedures are not needed; instead, they must develop procedures to account for prepaid revenue. Construction firms typically receive payments at regular intervals, based on the percentage of work completed. Thus, their revenue cycles must be designed to track carefully all work performed and the amount of work remaining to be done. Service companies (e.g., public accounting and law firms) do not sell physical goods and, therefore, do not need inventory control systems. They must develop and maintain detailed records of the work performed for each customer to provide backup for the amounts billed. Tracking individual employee time is especially important for these firms because labor is the major cost component.

Figure 1-4 shows that organizational culture and the design of an AIS influence one another. What does this imply about the degree to which an innovative system developed by one company can be transferred to another company? Since people are one of the basic components of any system, it will always be difficult to transfer successfully a specific information systems design intact to another organization. Considering in advance how aspects of the new organizational culture are likely to affect acceptance of the system can increase the chances for successful transfer. Doing so may enable the organization to take steps to mitigate likely causes of resistance. The design of an AIS, however, itself can influence and change an organization’s culture and philosophy. Therefore, with adequate top management support, implementation of a new AIS can be used as a vehicle to change an organization. The reciprocal effects of technology and organizational culture on one another, however, mean that it is unrealistic to expect that the introduction of a new AIS will produce the same results observed in another organization.

Ch. 1: Accounting Information Systems: An Overview 1.6

Figure 1-4 shows that developments in IT affect both an organization’s strategy and the design of its AIS. How can a company determine whether it is spending too much, too little, or just enough on IT? There is no easy answer to this question. Although a company can try to identify the benefits of a new IT initiative and compare those benefits to the associated costs, this is often easier said than done. Usually, it is difficult to measure precisely the benefits of new uses of IT. Nevertheless, companies should gather as much data as possible about changes in market share, sales trends, cost reductions, and other results that can plausibly be associated with an IT initiative and that were predicted in the planning process.

1.7

Apply the value chain concept to S&S. Explain how it would perform the various primary and support activities. The value chain classifies business activities into two categories: primary and support. The five primary activities at S&S: a. Inbound logistics includes all processes involved in ordering, receiving, and temporarily storing merchandise that is going to be sold to S&S customers. b. S&S does not manufacture any goods, thus its operations activities consists of displaying merchandise for sale and protecting it from theft. c. Outbound logistics includes delivering the products to the customer. d. Sales & marketing includes ringing up and processing all sales transactions and advertising products to increase sales. e. Service includes repairs, periodic maintenance, and all other post-sales services offered to customers. The four support activities at S&S: a. Firm infrastructure includes the accounting, finance, legal, and general administration functions required to start and maintain a business. b. Human resource management includes recruiting, hiring, training, evaluating, compensating, and dismissing employees. c. Technology includes all investments in computer technology and various input/output devices, such as point-of-sale scanners. It also includes all support activities for the technology. d. Purchasing includes all processes involved in identifying and selecting vendors to supply goods and negotiating the best prices, terms, and support from those suppliers.

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Accounting Information Systems 1.8

IT enables organizations to easily collect large amounts of information about employees. Discuss the following issues: These questions involve traditional economic cost/benefit issues and less well-defined ethical issues. a. To what extent should management monitor employees’ e-mail? Generally, the courts have held that organizations have the right to monitor employees’ email. Such monitoring can have disastrous effects on employee morale, however. On the other hand, it might provide legitimate information about group members’ individual contributions and productivity. b. To what extent should management monitor which websites employees visit? Students are likely to argue whether or not this should be done. One potential benefit that could be argued is the likelihood that if employees are aware that they will be monitored they will be less prone to surf the Web for non-work-related uses. c. To what extent should management monitor employee performance by, for example, using software to track keystrokes per hour or some other unit of time? If such information is collected, how should it be used? Arguments pro and con can be generated about the effects of such monitoring on performance and on morale. Clearly, the specifics of any incentive schemes tied to such metrics are important. d. Should companies use software to electronically “shred” all traces of e-mail? Arguments can be raised on both sides of this issue. Try to get students to go beyond the legal ramifications of recent news stories and to explore the ethical implications of destroying different kinds of email. e. Under what circumstances and to whom is it appropriate for a company to distribute information it collects about the people who visit its website? Direct students to the guidelines followed by organizations that certify how various websites use the information they collect. Students are likely to make the argument that personal information is inherently private and sacrosanct. To challenge that view, ask them about the legitimacy of developing and maintaining a reputation. Doesn’t that involve the divulgence and sharing of personal information among strangers? Ask the class if it is feasible (or undesirable) to totally prevent or prohibit such sharing of information. The instructor should also refer the students to Generally Accepted Privacy Principles (GAPP), as one of its criteria concerns sharing information with 3rd parties. The instructor and the students could read the GAPP criterion about sharing data together, and then discuss what they think. Remind the students that GAPP is not regulatory law – just recommended best practice.

Ch. 1: Accounting Information Systems: An Overview

SUGGESTED ANSWERS TO THE PROBLEMS 1.1

IT is continually changing the nature of accounting and the role of accountants. Write a twopage report describing what you think the nature of the accounting function and the accounting information system in a large company will be like in the year 2030. Numerous answers are possible. Several articles addressing this topic have appeared in Strategic Finance and the Journal of Accountancy.

1.2

Adapted from the CMA Examination a. Identify and discuss the basic factors of communication that must be considered in

the presentation of the annual report. The annual report is a one-way communication device. This requires an emphasis on clarity and conciseness because there is no immediate feedback from the readers as to what messages they are receiving. The preparer must attempt to identify the users/audience of the report, and to determine their values, beliefs, and needs. Then the preparer can determine the language, i.e., words and phrases that would be appropriate and familiar to the users/audience. The preparer must also consider the organization of the material in the report. Logical ordering and attractive formatting facilitate the transmission of ideas. b. Discuss the communication problems a corporation faces in preparing the annual

report that result from the diversity of the users being addressed. The different users of annual reports have differing information needs, backgrounds, and abilities. For some users, the annual report may serve as an introduction to the company and/or the only significant information about the company. By using the report to communicate to all users, the problems the corporation faces include the following. 

In an attempt to reach several audiences, a company may include information for each audience. Consequently, the annual report may grow in size and complexity to the point where it contains more information than many users want to receive or are able to comprehend, i.e., information overload. In some cases, technical concepts may be reduced to concepts that are more common; this reduces precision and conciseness thereby leading to more generalizations.



Care must be taken in the presentation of information. Words and phrases familiar to one user group may not be understood by those in other user groups. Graphic displays that are meaningful to some may be meaningless to others.

c. Select two types of information found in an annual report, other than the financial

statements and accompanying footnotes, and describe how they are helpful to the users of annual reports. Other than the financial statements and accompanying footnotes, an annual report provides information concerning

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Accounting Information Systems      

Management's discussion and analysis of results. Organizational objectives, strategies, and management's outlook for the future. Board of Directors members and the officers and top management of the organization. Segment data and performance information. New initiatives and research information. Recent stock price history and stock information.

Students will have many and varied answers as to how the information is helpful, which should lead to a rich class discussion. This discussion can be combined with the discussion of part e. d. Discuss at least two advantages and two disadvantages of stating well-defined

corporate strategies in the annual report. Stating well-defined corporate strategies in a company's annual report accomplishes the following: Advantages:  Communicates the company's plan for the future and resolves any disparate issues.  Provides a vehicle for communicating the company's strengths.  Builds investor confidence and portrays a positive image. Disadvantages:  Locks management into fulfilling stated objectives and strategies, causing inflexibility.  Communicates to unintended users who could put the company at risk (i.e., competitors). e. Evaluate the effectiveness of annual reports in fulfilling the information needs of

the following current and potential users: shareholders, creditors, employees, customers, and financial analysts. Annual reports fulfill users' information needs as discussed below. 1. Shareholders. Annual reports meet the statutory requirement that publicly held corporations are to report annually to stockholders and report on the stewardship of management to both current and potential stockholders. The annual report gives shareholders financial and operating information such as income from operations, earnings per share, the Balance Sheet, Cash Flow Statement, and related footnote disclosure that potential shareholders need to evaluate the risks of and potential returns on investment. However, the volume of data presented in annual reports can result in information overload that reduces the value of the reports. Confusion can result from reducing technical concepts to common concepts or by the presentation of duplicate messages by different forms of media. 2. Creditors. The annual report of public companies provides financial information as well as trend information. This allows creditors to project financial solvency and to evaluate the company’s ability to repay loans. 3. Employees. The annual report gives the employees information such as a description of the company's pension plan and the employee stock incentive plan. This gives employees a base from which to compare their benefits program to those of other companies. Annual reports also provide employees with a year-end review of the results to which they have contributed during the year. In this sense, the annual report provides reinforcement and rewards. The annual report also informs or reminds employees of the organization's values 1-7 ©2018 Pearson Education, Inc.

Ch. 1: Accounting Information Systems: An Overview and objectives and sensitizes them to the aspects of the organization with which they are not familiar. On the other hand, the employee already knows how the organization is performing so the annual report does not provide any substantive additional information. 4. Customers. The annual report provides customers with trend information and management performance information. They can use this to assess the company's past and current performance. 5. Financial analysts. The set of audited comparative financial statements provides the basis for analysis done by financial analysts. Notes, which are an integral part of the statements, describe or explain various items in the statements, present additional detail, or summarize significant accounting policies. Financial analysts are the most sophisticated class of users of annual reports. However, some data may be too condensed. Analysts may also need information in addition to that provided in annual reports to facilitate their analyses. f.

Annual reports are public and accessible to anyone, including competitors. Discuss how this affects decisions about what information should be provided in annual reports. Management may omit information entirely from the annual report or disguise it because competitors have access to annual reports. The objective of reporting should be to reveal as much as possible without giving away proprietary information or a competitive edge.

1.3

The use of IT at USAA a. Why should USAA collect data on which auto parts are fixed most frequently?

What could it do with this data? Companies should gather and store data if the benefits received from the data are greater than the cost of collecting it. The data regarding the auto parts that get fixed most frequently is probably not costly to gather. It would probably be part of the claims information submitted by the insured parties. Therefore, the only significant cost would be to store the data and process it. USAA passes the data on the parts to parts manufacturers, suppliers, and the Big Three automobile manufacturers. These companies use the data to improve their parts. Some use the data to determine which new products to offer. For example, one supplier may see that other suppliers are producing low quality products and determine that they could produce a better product for the same or a lower price. b. Even though USAA offered to waive the deductible, the repair shops still managed

to convince 95% of the owners to replace rather than repair their damaged windshields. How could USAA use its AIS to persuade more shop owners to repair rather than replace their windows? USAA began capturing data on the repair records of the various shops that worked for them. They published this information in the newsletter sent to repair shops. The shops noticed how they compared to other shops and began repairing more windshields. Over a four-year period, the number of repaired windshields rose from 5% to 28%.

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Accounting Information Systems c. How does the image-processing system at USAA add value to the organization? The system adds value by streamlining business processes and making them more effective and efficient. Before the image-processing system was installed, policy service representatives had to work with paper documents. Customer files were often missing or incomplete and documents were misfiled. The result was delays, multiple phone calls, and an inability to bring problems to timely closure. Now the documents are never missing or misplaced and service representatives have all the information they need to make a decision on the first phone call. d. How do the remote deposit capture and mobile banking system at USAA add

value to the organization? USSA’s customers are widely scattered and USAA does not have local offices everywhere there are military personnel. In addition, military personnel also are deployed in areas where they have ready access to cell phones but not personal computers. Therefore, USAA needs a way to deposit funds on a timely basis and to interact by phones that are able to access the Internet. The new applications meet these needs. e. Do an Internet search and find out what other advancements USAA has

introduced. Write a brief paragraph on each new application or other newsworthy item you find (maximum limit of three applications or items). Students should be able to find numerous applications or newsworthy items. Here is a sampling of articles that may be of interest. You should make sure the links are still active before telling the students about them. http://pirp.harvard.edu/pubs_pdf/mosco/mosco-p94-9.pdf Harvard Business School Case 9-190-155

1.4 F

Match the description in the right column with the information characteristic in the left column. 1. Relevant

a. The report was carefully designed so that the data contained on the report became information to the reader

E, C 2. Reliable

b. The manager was working one weekend and needed to find some information about production requests for a certain customer. He was able to find the report on the company’s network.

3. Complete

c. The data on a report was checked by two clerks working independently

G, B 4. Timely

d. An accounts receivable aging report that included all customer accounts

5. Understandable

e. A report checked by 3 different people for accuracy

6. Verifiable

f. An accounts receivable aging report used in credit granting decisions

7. Accessible

Ch. 1: Accounting Information Systems: An Overview 1.5

The Howard Leasing Company Student solutions will vary based on their background and education. The following is one possible solution. a. What is an accounts receivable aging report? An accounts receivable aging report lists customer account balances by length of time outstanding. b. Why is an accounts receivable aging report needed for an audit? An accounts receivable aging report is needed during an audit to determine whether the company’s accounts receivable balance is properly valued. c. What is an accounts receivable aging report used for in normal company operations? An accounts receivable aging report is used in normal company operations to provide information for:  Evaluating current credit policies  Determining appropriate credit limits for new customers  Deciding whether to increase or decrease the credit limit for existing customers  Estimating bad debts  Initiating collection procedures for overdue accounts d. What data will you need to prepare the report? To prepare an accounts receivable aging report, credit sales and cash collections data is needed for each customer granted credit. e. Where will you collect the data you need to prepare the report? The data needed to prepare the accounts receivable aging report can be collected from the sales transaction and cash collections files or tables f.

How will you collect the necessary data for the report? If the data is in machine-readable form, it can be collected by preparing and running programs or queries that will extract the sales and cash receipts data. If the data is maintained on paper, it can be collected from daily or monthly sales reports and daily or monthly cash receipts reports

g. What will the report look like (i.e., how will you organize the data collected to create the information your supervisor needs for the audit)? Prepare an accounts receivable aging report in Excel or another spreadsheet package. The accounts receivable aging report should look something like the following, whether it is prepared on paper or in Excel: Customer Number

Customer Name

0-30 Days Outstanding

31-60 Days Outstanding

1-10

61-90 Days Outstanding

91+ Days Outstanding

Accounting Information Systems h. How will you distribute the report? How many copies will you make? Who should receive the copies? What security features will you implement? The accounts receivable aging report should be restricted to employees with operational or authoritative responsibility for customer accounts, such as the accounts receivable clerk, the credit manager, and the controller. If the report is in an electronic form, access to the report should be restricted to appropriate authorized personnel. If the report is distributed on paper, only as many copies as necessary should be produced and they should be delivered in a manner that ensures the confidentiality of the data. Security features could include placing the report on a password-protected server or encrypting the file prior to emailing it or placing it on a server. 1.6

The use of IT at Tesco a. What kind of information do you think Tesco gathers? 

The Clubcard application filled out in the store captures data such as customer names, addresses, household size, ages of children, dietary preferences, and income levels.



When the Clubcard is used to qualify for the discounts, Tesco computers record everything a customer purchases.

b. How do you think Tesco has motivated over 12 million customers to sign up for its Clubcard program? 

It offers merchandise discounts to customers who sign up and gives card users a point for every pound spent. Points can be used to reduce the price of future purchases or exchanged for frequent flier miles.



Big spenders are sent special promotions

c. What can Tesco accomplish with the Clubcard data it collects? Think in term of strategy and competitive advantage. 

Customized Coupons and promotions. Tesco analyzes customer purchases and customizes its marketing based on the results. Quarterly, Tesco mails active Clubcard customers three coupons for frequently purchased items and three coupons for items they are likely to buy or that Tesco wants them to try. Tesco is so good at understanding their customer’s tastes and preferences that their coupons are 10 to 15 times more likely to be used than other coupons. The quarterly mailing also contains vouchers that allow members to redeem their accumulated points. Some 95% of all vouchers are redeemed.



Cross marketing. Analysis of customer data allows Tesco to discover unique buying habits. For example, men who purchased diapers for newborns buy more beer than the normal male – presumably because they are more likely to stay at home and less likely to go out.



Improved decision-making. Tesco has been able to make better decisions and set better company goals than ever before. Using data on purchases and the ethnic makeup of the neighborhoods surrounding the stores, Tesco is able to stock goods that have greater customer appeal. For example, Tesco noticed that customers in a small store in a South Asian and Arab part of town were not buying complete meals. They went elsewhere to buy certain staple foods and Asian brands. Further analysis led to the decision to replace the 1-11 ©2018 Pearson Education, Inc.

Ch. 1: Accounting Information Systems: An Overview small store with a Supercenter that offered more than 800 foreign products. It included a halal butcher shop, the latest movies from India, Arabic and Asian newspapers, and an Indian jewelry counter. Tesco also redesigned its shopping carts to handle the bulk purchases of its customers more easily. 

Customer loyalty. Tesco used Clubcard data to neutralize Wal-Mart’s most significant advantage. Tesco identified 300 items that price-sensitive shoppers frequently purchased and lowered their prices. This kept the customers most likely to shop at Walmart from defecting.



New product rollouts. Analysis of Clubcard data showed that affluent customers were not buying certain products like fruit, cheese, and wine. This led to the introduction of a premium quality brand, “Tesco’s Finest,” that successfully attracted affluent customers. Customer data also allows Tesco to figure out quickly how new initiatives are working. For example, when Tesco rolled out ethnic foods for Indians and Pakistanis, data analysis showed that white affluent customers were also buying the products. The rollout was quickly expanded to include them.



Improved supplier relationships. Outside companies are taking advantage of Tesco’s data to improve their decision-making. When Kimberly-Clark introduced a premium toilet paper, it used Clubcard data to track who purchased it and who continued to purchase it. Further analysis showed that those who bought the toilet paper also were big buyers of skin-care products. This allowed Kimberly-Clark to develop a marketing program that offered free beauty treatments to those who continued to buy the toilet paper.

d. What are some of the disadvantages to the Clubcard program? Some critics believe that loyalty card programs 

Are too expensive to maintain and that companies can buy data to achieve similar results for less than the loyalty program costs.



Slows down checkout lines



Are a threat to the customer’s privacy

e. Do an Internet search to find out how Tesco is doing in comparison to Walmart

and other grocers and retailers. Write a few paragraphs explaining your findings. Students should easily be able to find information that updates the competition between these two powerhouse retail companies. Source: Rohwedder, Cecille. “No.1 Retailer in Britain Uses ‘Clubcard’ to thwart Walmart,” Wall Street Journal, June 6, 2006, pg A1.

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Accounting Information Systems 1.7

Have you ever imagined having one electronic device that does everything you would ever need? Mobile phone makers in Japan have gone beyond the imagining phase. Cell phones in Japan are becoming more versatile than ever. Newer models of cell phones contain a myriad of applications and can do many of the things that a personal computer (PC) can do. PCs are also able to function as phones. A small but growing number of professionals are trading in their laptops for handheld computers. Cell phone manufacturers in the United States and elsewhere are quickly catching up to their Japanese counterparts. As technology is moving so quickly, there are no right answers to this question. There are thousands of new cell phone applications are created each year. The author does not usually collect this problem. Instead, he has the students describe the different things they do with their phones. He then adds other things that he and others he knows use them for. The point is to discuss how fast technology is changing, the need to keep up with the changes, and the use of technology as a competitive advantage. Some things to consider mentioning are: a. What commercial activities can be done with a cell phone? With a cell phone/PC combination device? What do you do when you’re on your cell phone? What do you expect to be doing in five years? Newer models of cell phones contain a myriad of applications, including video cameras, digital music players, television remote features, and digital recording. For example: 1. The E-wallet function virtually turns a cell phone into a credit card or debit card. Such a cell phone can buy items from a vending machine or convenience store, pay for train tickets and cab fares, and purchase and sell stocks and bonds. Businesses cater to this new technology by including bar codes in their catalogues or on street advertisements. Users can then use their phone to scan the barcode that brings the user to that company’s website. Users may then proceed to learn more about the item and order it with a click of the button. 2. The Japanese now use cell phones to watch up to 7 free television stations. Newer models can digitally record up to 30 minutes of those television programs. 3. SONY has a hard disk recorder that can be programmed via mobile phone to record TV shows. 4. Cell phones are also being used as a remote for televisions and karaoke players. 5. The Japanese also use cell phones as video cameras and music players. 6. Users everywhere use cell phones to navigate to their destination. b. How can businesses utilize this technology to attract more customers, sell more products, advertise their products, facilitate the sale of products, and conduct and manage their businesses more efficiently and effectively? In order to make products and services available to the consumers using cell phones, an infrastructure must be in place. Such things as bar coded products and vending machines that accept e-wallet transactions from cell phones are necessary for the device to be of use to the consumer. Businesses that can provide this infrastructure will be well positioned to take advantage of the cell phone/PC revolution. Indeed, auction sites have noticed heavier volume from mobile users buying and selling items. Brokerages are reporting that 20%–30% of trades are coming from mobile devices. 1-13 ©2018 Pearson Education, Inc.

Ch. 1: Accounting Information Systems: An Overview c. What are some problems or drawbacks you can see with using these devices in business? The problems and drawbacks of these new devices include a relatively high sales price, short battery life, limited performance, having to drill down several menu layers to reach desired functions, and theft.

1.8 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. Pay off mortgage on factory

– Financing cycle

c. Hire a new assistant controller

– Human resources/payroll cycle

d. Establish a $10,000 credit limit for a new customer – Revenue cycle e. Pay for raw materials

– Expenditure cycle

f. Disburse payroll checks to factory workers

– Human resources/payroll cycle

g. Record goods received from vendor

– Expenditure cycle

h. Update the allowance for uncollectible accounts

– Revenue cycle

i. Decide how many units to make next month

– Production cycle

j. Complete picking ticket for customer order

– Revenue cycle

k. Record factory employee timecards

– Human resources/payroll cycle

l. Sell concert tickets

– Revenue cycle

m. Draw on line-of-credit

– Financing cycle

n. Send new employees to a business ethics course

– Human resources/payroll cycle

o. Pay utility bills

– Expenditure cycle

p. Pay property taxes on office building

– Expenditure cycle

q. Pay federal payroll taxes

– Human resources/payroll cycle

r. Sell DVD player

– Revenue cycle

s. Collect payment on customer accounts

– Revenue cycle

t. Obtain a bank loan

– Financing cycle

u. Pay sales commissions

– Human resources/payroll cycle

v. Send an order to a vendor

– Expenditure cycle

w. Put purchased goods into the warehouse

– Expenditure cycle

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Accounting Information Systems

SUGGESTED ANSWERS TO THE PROBLEMS 2.1

The chart of accounts must be tailored to an organization’s specific needs. Discuss how the chart of accounts for the following organizations would differ from the one presented for S&S in Table 2-4. Some of the changes in the chart of accounts for each type of entity include the following: a.

University 

No equity or summary drawing accounts. Instead, have a fund balances section for each type of fund.



Several types of funds, with a separate chart of accounts for each. The current fund is used for operating expenses, but not capital expenditures. Loan funds are used to account for scholarships and loans. Endowment funds are used to account for resources obtained from specific donors, generally with the objective that principal be preserved and that income be used for a specific purpose. Plant funds are used for major capital expenditures. Most fund categories would be further divided into restricted and unrestricted categories.



Unlikely to have Notes Receivable, but may have Accounts Receivable for students who pay tuition in installment payments.



Tuition and fees would be one source of revenue. Others include gifts, investment income, sales of services, and, for public universities, state appropriations.



Student loans are an asset; student deposits are a liability.

Bank 

Loans to customers would be an asset, some current others noncurrent, depending upon the length of the loan.



No inventory



Customer accounts would be liabilities.



Classification of revenue would be among loans, investments, service charges, etc.



No cost of goods sold.

Government Unit 

No equity or summary drawing accounts. Instead, have fund balances.



Balance sheet shows two major categories: (1) assets and (2) liabilities and fund equity.



Separate chart of accounts for each fund (general fund, special revenue fund, capital projects fund, and debt service fund).



Revenue and expenditure accounts would be grouped by purpose (e.g., police, highways, sanitation, education, etc.). 2-5

Ch. 2: Overview of Business Processes



Encumbrance accounts



Revenues would include taxes, licenses and permits, fines, and charges for specific services.



Taxes receivable as a separate category due to importance.



No cost of goods sold.

Manufacturing Company  Several types of inventory accounts (raw materials, work-in-process, and finished goods). 

Additional digits to code revenues and expenses by products and to code assets/liabilities by divisions.

Expansion of S&S 

Additional digits to code:  Revenues and expenses by products and by stores  Assets/liabilities by stores.

2-6

Accounting Information Systems

2.2

Design a chart of accounts for SDC. Explain how you structured the chart of accounts to meet the company’s needs and operating characteristics. Keep total account code length to a minimum, while still satisfying all of Mace’s desires. (Adapted from the CMA Exam) A six-digit code (represented by letters ABCDEF) is sufficient to meet SDC’s needs: A This digit identifies the 4 divisions plus the corporate office B This digit represents major account types (asset, liability, equity, revenue, expense). C This digit represents the major classification within account type: 

For balance sheet accounts, this represents specific sub-categories (current assets, plant and equipment, etc.), as only six categories are needed.



For expense and revenue accounts, this digit represents the product group, as again there are only five products plus general costs.

D This digit represents specific accounts or cost centers: 

For balance sheet accounts, this is the control account; one digit is adequate because the problem says no more than 10 categories.



For expense accounts, this is the cost center; one digit is adequate because the problem indicates no more than 6 cost centers.

EF These two digits represent the subsidiary accounts and natural expense categories: 

For expense accounts, these represent the 56 natural expense categories and variances for each cost center.



For the balance sheet, these two digits accommodate up to 100 subsidiary accounts.

2-7

Ch. 2: Overview of Business Processes

2.3 An audit trail enables a person to trace a source document to its ultimate effect on the financial statements or work back from amounts in the financial statements to source documents. Describe in detail the audit trail for the following: a. The audit trail for inventory purchases includes linking purchase requisitions, purchase orders, and receiving reports to vendor invoices for payment. All these documents would be linked to the check or EFT transaction used to pay for an invoice and recorded in the Cash Disbursements Journal. In addition, these documents would all be linked to the journal entry made to record that purchase. There would be a general ledger account number at the bottom of each column in the journal. The journal reference would appear in the General Ledger, Inventory Ledger, and Accounts Payable ledger.

Purchase Requisition

Purchase Order

Receiving Report

Invoice

Accounts Payable Ledger

Cash Disbursement s Journal

Payment

General Ledger Trial Balance

Financial Statements 2-8

Accounting Information Systems

The audit trail for the sale of inventory links the customer order, sales order, and shipping document to the sales invoice. These documents are linked to the journal entry recording the sale of that merchandise. The invoice would also be linked to the cash received from the customer and to the journal entry to record that receipt.

Customer Order

Sales Order

Shipping Documents

Sales Journal

Invoice

Accounts Receivable Ledger

Payment General Ledger Cash Receipts Journal Trial Balance

Financial Statements

2-9

Ch. 2: Overview of Business Processes

The audit trail for employee payroll links records of employee activity (time cards, time sheets, etc.) to paychecks and to the journal entry to record payment of payroll. In a manufacturing company, there would also be links to the job-time tickets used to allocate labor costs to specific products or processes.

Employee Paycheck

Employee Time Card

Cash Disbursements Journal

Payroll Journal

General Ledger

Trial Balance

Financial Statements

2-10

Accounting Information Systems

2.4

Your nursery sells various types and sizes of trees, bedding plants, vegetable plants, and shrubs. It also sells fertilizer and potting soil. Design a coding scheme for your nursery. Grading depends upon the instructor’s judgment about the quality of the coding scheme. The coding scheme should be either a group or block coding. In addition, the student’s solutions should provide sufficient detail in order to determine whether the solution represents a group or block coding scheme.

2.5

Match the following terms with their definitions a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. r. s. t. u. v. w. x. y. z.

10 23 7 16 1 13 26 21 2 25 19 22 4 8 17 3 11 9 6 24 5 12 14 18 20 15

2-11

Ch. 2: Overview of Business Processes

2.6

For each of the following scenarios identify which data processing method (batch or online, real-time) would be the most appropriate. Some students will respond that all can and ought to be done with online-real time processing. While all can certainly be done that way, batch processing does have its advantages (cheaper, more efficient, etc.). In making the decision between batch and online-real time processing, designers must consider the need for current and accurate data. Batch processing is often used for data that does not need frequent updating and naturally occurs or is processed at fixed times. For example, while employee check in and checkout times may be gathered in real time, payroll is usually only processed at a fixed interval such as weekly, biweekly, or monthly. a. b. c. d. e. f. g. h.

online-real time online-real time batch online-real time batch batch batch on-line real time

2.7 After viewing the Web sites, and based on your reading of the chapter, write a 2 page paper that describes how an ERP can connect and integrate the revenue, expenditure, human resources/payroll, and financing cycles of a business. Student solutions will vary depending on the demonstrations they observe. However, the demonstrations should give the students a more concrete and visual understanding of what an ERP system is and does. Student solutions should at least discuss how an ERP could integrate all of the various cycle activities of a business into one integrated system. 2.8

Identify whether the following transactions belong in a master file or a transaction file. a. Update customer address change – Master file b. Update unit pricing information – Master file c. Record daily sales – Transaction file d. Record payroll checks – Transaction file e. Change employee pay rates – Master file f. Record production run variances – Transaction file g. Record Sales Commissions – Transaction file h. Change employee office location – Master file i. Update accounts payable balance – Master file j. Change customer credit limit – Master file k. Change vendor payment discount terms – Master file l. Record purchases – Transaction file

2-12

Accounting Information Systems

2.9

You were hired to assist Ashton Fleming in designing an accounting system for S&S. Ashton has developed a list of the journals, ledgers, reports, and documents that he thinks S&S needs (see Table 2-6). He asks you to complete the following tasks: a. Specify what data you think should be collected on each of the following four documents: sales invoice, purchase order, receiving report, employee time card b. Design a report to manage inventory. c. Design a report to assist in managing credit sales and cash collections. d. Visit a local office supply store and identify what types of journals, ledgers, and blank forms for various documents (sales invoices, purchase orders, etc.) are available. Describe how easily they could be adapted to meet S&S’s needs. No single answer exists with this case. Indeed, solutions will vary depending upon student ingenuity and creativity. Student answers can be compared to examples of these documents found in chapters 10 and 11. a.

A sample invoice is presented in the Revenue Cycle chapter. A sample purchase order is presented in the Expenditure Cycle chapter. A sample receiving report also appears in the Expenditure Cycle chapter. Although student designs will vary, each document should contain the following data items: Sales Invoice Customer name and address Customer account number Customer order number Salesperson code Shipping Address Shipper and date shipped Terms of sale Total Amount due Purchase Order Ship to address Bill to address Purchasing agent number Quantity of parts ordered Prices of parts ordered Taxes, if any Receiving Report Vendor name Vendor address Shipper Quantity received Description/quality remarks Inspected by

Product code or number Product description Quantity ordered Quantity shipped Unit price Extended price Taxes, if applicable

Item numbers ordered Payment terms Shipping instructions Supplier name or number Date of purchase Total amount of purchase

Vendor number Date received Receiving clerk number Part number received Purchase order number

2-13

Ch. 2: Overview of Business Processes

Employee Time Card Employee name Employee number Pay period Department number Employee signature b.

The report to manage inventory should contain the following information:         

Preferred vendor Product number Description Reorder point Quantity on Hand Quantity Available Vendor performance history Quantity on order Lead time

The report to manage credit sales and cash collections should include:     

Total regular hours Time in/ Time out Total overtime hours Approved by

Credit sales per period Cash collections per period Aging of accounts receivable Customers by geographic region Uncollectible accounts per period

The answers to this will vary depending upon the types of documents carried in the office supplies stores visited by the students. A fruitful topic for class discussion, or a possible additional case assignment, is to compare the design of paper documents to the data entry screen layouts used in various popular accounting packages.

2-14

Accounting Information Systems

2.10 Correct answers bolded 1. Which of the following statements is (are) true? a. Turnaround documents are company output sent to an external party and returned as an input document. b. Data is one of a company’s most important resources but to function properly most organizations do not have to have the data readily and easily accessible. c. Each type of entity possesses the same set of attributes or characteristics of interest that are stored, but the specific data values for those attributes will differ depending on the entity. d. On-line data processing is almost always cheaper and more efficient than batch processing, e. Reaping the potential benefits of ERP systems and mitigating their disadvantages requires conscious effort and involvement by top management. 2. Which of the following statements is (are) true? a. The data capture or input process is usually triggered by a top management decision. b. With sequence codes, items are numbered consecutively to account for all items and missing items cause a gap in the numerical sequence. c. Cumulative accounting information is stored in general and subsidiary journals. d. Computers store data in a field; the fields containing data about entity attributes constitute a record. e. Updating done periodically, such as daily or weekly, is referred to as batch processing. 3. Which of the following statements is (are) true? a. Source data automation devices capture transaction data in paper form at the time and place of their origin. b. General ledgers are often used for accounts receivable, inventory, fixed assets, and accounts payable. c. Master files are permanent and exist across fiscal periods; individual master file records may change frequently. d. When choosing an ERP system, make sure it has a module for every critical company process and that you are not paying for modules that you do not need. e. If an ERP system does not meet your needs, it can almost always be inexpensively modified to meet your unique needs

2-15

Ch. 2: Overview of Business Processes

4. Which of the following statements is (are) true? a. Using source data automation or well-designed turnaround documents and data entry screens helps ensure captured data are accurate and complete b. If the sum of all subsidiary ledger account balances does not equal its general ledger control account balance, a recording error has occurred. c. Online, real-time processing updates transactions as they occur, helping ensure stored information is current and useful in making decision. d. It is usually best to let a user determine what data to input rather than have data input screens list the data the user needs to enter e. A group codes is derived from the description of the item and is usually easy to memorize. 5. Which of the following statements is (are) true? a. Online batch processing is where transaction data are entered, edited, and processed as they occur. b. ERP implementation costs for large companies with multiple sites are usually about half the cost of the ERP user license. c. Well-designed documents and screens improve accuracy and completeness by providing instructions or prompts about what data to collect d. Data in ledgers is organized logically using coding techniques that assign numbers or letters to items to classify and organize them. e. In an ERP system, data entry controls such as validating data item and checking them for accuracy at the time of initial entry are not needed. 6. Which of the following statements is (are) true? a. Input controls are improved by using pre-numbered source documents or by the system automatically assigning a sequential number to each transaction. b. With mnemonic codes, blocks of numbers are reserved for specific categories of data. c. As ERP modules do not automatically trigger additional actions in other modules, it is less important to understand business processes and their interactions. d. In an integrated ERP system, undetected data entry errors can automatically propagate throughout the system e. A purchase to pay ERP module facilitates, production scheduling, work-inprocess, quality control, cost management, and manufacturing processes 7. Which of the following statements is (are) true? a. To ensure credit sales policies are followed, the system can be programmed to check a customer’s credit limit and payment history. b. A transaction file contains records of individual business transactions and is similar to a general ledger in a manual AIS. c. An ERP system uses a centralized database to share information across business processes and coordinate activities.

2-16

Accounting Information Systems

d. It is difficult for an ERP system to provide management with the up-to-date information needed to plan, control, and evaluate an organization’s business e. Use of pre-numbered documents makes it harder to verify that all transactions have been recorded and that none has been misplaced. 8. Which of the following statements is (are) true? a. A chart of accounts facilitates preparing financial statements because data stored in individual accounts can easily be summed for presentation. b. A database query can provide the information needed to deal with problems and questions that need rapid action or answers. c. Repetitive and frequently used database queries are usually developed by users; one-time queries are usually developed by information systems specialists. d. Transaction files are permanent and must be maintained for several years for backup purposes. e. A journal entry shows the accounts and amounts to be debited and credited. 9. Which of the following statements is (are) true? a. Transaction data are almost always recorded in a ledger before they are entered into a journal b. Documents are records of transaction or other company data that can be printed out or stored as electronic images in a computer c. ERP systems are not effective in integrating nonfinancial company operations with a traditional accounting system. d. Since batch processing data are current and accurate only immediately after processing it is used for applications that do not need frequent updating. e. Well-designed screens improve accuracy and completeness by using checkoff boxes or pull-down menus to present the available options 10. Which of the following statements is (are) true? a. An audit trail is a transaction path through a data processing system from point of origin to final output, but not backward from final output to point of origin. b. The need for reports should be periodically assessed, because they are often prepared long after they are needed, wasting time, money, and resources c. An AIS has traditionally been referred to as a transaction processing system because its only concern was financial data and accounting transactions. d. Accountants and systems developers do not need to understand how data are captured, organized, stored, processed, or accessed. e. A master file, like a ledger in a manual AIS, stores cumulative information about an organization.

2-17

Ch. 2: Overview of Business Processes

SUGGESTED ANSWERS TO THE CASES 2.1

Bar Harbor Blueberry Farm Data from Case

Date March 7 March 11 March 14 March 21 March 21 March 24

Supplier Invoice AJ34 14568 893V 14699 10102 10145

Supplier Name Bud’s Soil Prep Osto Farmers Supply Whalers Fertilizer Osto Farmers Supply IFM Wholesale IFM Wholesale

Supplier Address PO Box 34 45 Main Route 34 45 Main 587 Longview 587 Longview

Amount $2,067.85 $ 67.50 $5,000.00 $3,450.37 $4,005.00 $ 267.88

Purchases Journal Page 1 Date

Supplier

March 7 March 11 March 14 March 21 March 21 March 24

Bud’s Soil Prep Osto Farmers Supply Whalers Fertilizer Osto Farmers Supply IFM Wholesale IFM Wholesale

March 31

TOTAL

Supplier Invoice AJ34 14568 893V 14699 10102 10145

Account Number 23 24 36 24 38 38

Post Ref √ √ √ √ √ √

Amount $2,067.85 $ 67.50 $5,000.00 $3,450.37 $4,005.00 $ 267.88 14,858.60

2-18

Accounting Information Systems

General Ledger Accounts Payable Date March 1

Description Balance Forward

Account Number: 300 Post Ref

Debit

√

March 31

Credit

Balance $18,735.55

14,858.60

33,594.15

Purchases Date March 1 March 31

Account Number: 605 Description Balance Forward

Post Ref

Debit

√

14,858.60

2-19

Credit

Balance $54,688.49 69,547.09

Ch. 2: Overview of Business Processes

Account Payable Subsidiary Ledger Account No: 23 Date March 1 March 7

Description Balance Forward Supplier invoice AJ34

Account No: 24 Date March 1 Mar 11 Mar 21

Whalers Fertilizer

Description Balance Forward Supplier invoice 893V

Account No: 38 Date March 1 Mar 21 Mar 24

Osto Farmers Supply

Description Balance Forward Supplier invoice 14568 Supplier invoice 14699

Account No: 36 Date March 1 March 14

Bud’s Soil Prep

IFM Wholesale

Description Balance Forward Supplier invoice 10102 Supplier invoice 10145

PO Box 34

Terms: 2/10, Net 30 Credit Balance 0.00 2,067.85 2,067.85

Debit

45 Main Debit

Route 34 Debit

587 Longview Debit

Terms: 2/10, Net 30 Credit Balance 0.00 67.50 67.50 3,450.37 3,517,87

Terms: 2/10, Net 30 Credit Balance 0.00 5,000.00 5,000.00

Terms: 2/10, Net 30 Credit Balance 0.00 4,005.00 4,005.00 267.88 4,272.88

2-20

CHAPTER 3 SYSTEMS DEVELOPMENT AND DOCUMENTATION TECHNIQUES SUGGESTED ANSWERS TO DISCUSSION QUESTIONS 3.1

Identify the DFD elements in the following narrative: A customer purchases a few items from a local grocery store. Jill, a salesclerk, enters the transaction in the cash register and takes the customer’s money. At closing, Jill gives both the cash and the register tape to her manager. Data Flows: merchandise, payment, cash and register tape Data Source: customer Processes: capture sales and payment data and collect payment, give cash and register tape to manager Storage: sales file (register tape), cash register

3.2

Do you agree with the following statement: “Any one of the systems documentation procedures can be used to adequately document a given system”? Explain. It is usually not sufficient to use just one documentation tool. Every tool documents a uniquely important aspect of a given information system. For example:  System flowcharts are employed to understand physical system activities including inputs, outputs, and processing.  Data flow diagrams provide a graphic picture of the logical flow of data within an organization.  Business process diagrams show the activities a company engages in to do business and the diagrams can be used to evaluate internal controls strengths and weaknesses. Each alternative is appropriate for a given aspect of the system. As a result, they work together to fully document the nature and function of the information system.

3-1

Ch. 3: Systems Development and Documentation Techniques 3.3 Compare the guidelines for preparing flowcharts, BPDs, and DFDs. What general

design principles and limitations are common to all 3 documentation techniques? Similar design concepts include the following: 

All three methods require an initial understanding of the system before actual documentation begins. This insures that the system is properly represented by the diagram.



All three methods require the designer to identify the elements of the system and to identify the names and relations associated with the elements.



All three methods encourage the designer to show only the regular flows of information and not to be concerned with unique situations.



All three require more than one “pass” to capture the essence of the system accurately.

The product of all three methods is a model documenting the flow of information, processes, and/or documents in an information system. All three documentation methods are limited by the nature of the models they employ, as well as by the talents and abilities of the designer to represent reality. 3.4

Your classmate asks you to explain flowcharting conventions using real-world examples. Draw each of the major flowchart symbols from memory, placing them into one of four categories: input/output, processing, storage, and flow and miscellaneous. For each symbol, suggest several uses. The major flowcharting symbols and their respective categories are shown in Fig. 3.8 in the text. With respect to how symbols are used, student answers will vary. Possible examples include: Input/Output Symbols  Document: an employee time card, a telephone bill, a budget report, a parking ticket, a contract  Display: student information monitors, ATM monitors, a computer monitor. Processing Symbols  Processing: processing a student payroll program, assessing late fees  Manual operation: writing a parking ticket, preparing a paper report, collecting and entering student payments Storage Symbols  Database: alumni information database, a student information database or an airline reservation database stored on-line.  Magnetic tape: archival student information Flow (Miscellaneous)  Communication link: a telephone linkage that connects you to an on-line database.

3-2

Accounting Information Systems SUGGESTED ANSWERS TO THE PROBLEMS

Prepare flowcharting segments for each of the following operations:

3.1

processing transactions stored on a sequential medium such as a magnetic tape to update a master file stored on magnetic tape Old Master File

Transactions

Update File

New Master File

A sequential medium has to be read and processed from beginning to end and you cannot store the updated information on the input tape. Instead, you have to create a new master file on a new tape, as shown above

processing transactions stored on magnetic tape to update a database

Transactions

Update database

Data base

Virtually all databases are stored on a random access device so a record that is to be updated can be found, updated, and written back to the same hard drive or other random access device. c.

querying a database and printing the query result

Data base

Query database and generate report

3-3

Report / Query result

Ch. 3: Systems Development and Documentation Techniques 3.1 (continued) Assorted Flowcharting Segments d.

using a terminal to enter paper-based source document data and send it to a remote location where a corporate computer updates the company database. View Data Update Database

Terminal

Source Data

Database

Enter Data

using a terminal to query your customer sales database Display D Query & Response Terminal

Query Customer Sales Data

Customer Sales Database

Enter Query

a scheduled automatic backup of a database to an external hard drive

Database

Scheduled Automatic Backup

3-4

External Hard Drive

Accounting Information Systems 3.1 (continued) Assorted Flowcharting Segments

use a terminal to enter employee hours recorded on time cards to update both the payroll transaction file and the wage data in the payroll master file

View timecard data entered

Payroll Transaction File

Terminal

Timecard

Enter timecard data

Record timecard data on the payroll transaction file and update wage data maintained on the payroll master file

Payroll Master File

3-5

Ch. 3: Systems Development and Documentation Techniques 3.1 (continued) Assorted Flowcharting Segments h.

use a terminal to access a price list in the sales database to complete a purchase order. An electronic copy of the purchase order is sent to the vendor and a backup copy is printed and filed by vendor name Purchase Order (electronic)

to To Vendor

Access price list, create electronic purchase order, & print paper backup

Sales Database

View Price List

Terminal

copy

Request Price list Purchase Order (paper)

make an airline reservation online from your home computer

Customer View Reservation Data

Airline

Make an airline reservation

Update Reservation file

Computer

Reservation request

3-6

Reservation File

Accounting Information Systems 3.2

Prepare a system flowchart of the process described. Remote location job-time ticket

View jobtime ticket form Terminal

Terminal

Express-mailed weekly to headquarters

Enter job-time ticket data

Payroll summary report

Weekly: Update payroll, work in process, & payroll transaction databases, disburse funds, print reports

Supervisor

Scan job time tickets

Disburse Funds Employee Payments Government Payments

View payroll data

401K company Payments

Work in process database

Payroll transaction file

Payroll database

3-7

Employee query

3.2

Employee

Prepare a business process diagram for the process described. Activities Performed

Job Sites Enter jobtime tickets

Data Processing Process jobtime tickets weekly

Weekly

Remote locations

Express mail paper jobtime tickets

Enter jobtime tickets daily

Update payroll database, work in process database, payroll transaction file

Disburse funds to employees, government, 401K company

Payroll Supervisor

Create and send summary payroll report

Review summary payroll report

Employees Access payroll data using Internet

3-8

Accounting Information Systems 3.3

Prepare a document flowchart to reflect how ANGIC Insurance Company processes its casualty claims.

CLAIMS DEPARTMENT

ADJUSTER From claimant

Notice of Loss

START

1 2

Proof of Loss Form Proof of

Prepare proof of loss form, claim record

From Claimant

Loss

DATA PROCESSING

4 1 2

Proof of Loss Proof of

Notice of Loss

Loss

Claim Record

Adjuster’s Report

To Claimant Adjuster’s Report

Loss

Proof of Loss Proof of

Authorize Claim Payment

Loss

Proof of Loss

Proof of Loss Proof of

Claim Record 2

Prepare Separate Report

Assist claimant with form

Notice of Loss

Proof of Loss

Prepare Check & Disbursement List

Disbursement List

Proof of Loss

Adjuster’s Report

To claimant

Check

To Claimant

3-9

Accounting

Ch. 3: Systems Development and Documentation Techniques 3.3

Employee Claims Department

Prepare a BPD to reflect how ANGIC Insurance Company processes its casualty claims.

Activities Performed From Claimant Receive notice of loss

Data Processing Department

Adjustor

Claims Department

Prepare proof of loss form, send to claimant

Initiate record of claim

Receive notice of loss & record of claim Help claimant complete proofof-loss, agree on loss amount

Receive authorized proof-ofloss

Prepare & disburse payment check

Prepare adjuster report

Receive proofof-loss, adjustor report

Authorize payment to claimant

Accounting Review cash disbursement list

3-10

Prepare cash disbursements list

Accounting Information Systems 3.4

Prepare a BPD that documents Beccan’s business processes.

Employee Retail Store

Activities Performed Weekly & rush orders

Review inventory, place order Shipping Clerk

Warehouse Inventory Control Clerk

Count inventory and reconcile to corporate database

Receive goods

Fill orders, authorize delivery, ship goods System generates purchase requisition

Purchasing Department

Warehouse Receiving Clerk

Quarterly

Adjust & approve purchase requisition

Finalize & approve system generated PO

Receive system prepared receiving report

Maintain & update perpetual inventory system

Send PO to vendor

Receive goods, complete receiving report: date and quantity

Accounts Payable

From vendor Receive vendor invoice

Get receiving report & PO

3-11

Reconcile P.O., receiving report, invoice

Disburse funds to vendors

3.5 a.

Prepare a context diagram and level 0 DFD to document the payroll processing system at No-Wear Products. Context Diagram for the payroll processing system at No-Wear Products

3-12

Accounting Information Systems 3.5

a. (continued.)

Level 0 Data Flow Diagram for the payroll processing system at No-Wear Products.

3.5

b. Prepare a document flowchart to document the payroll processing system at No-

Wear Products. 3-13

Ch. 3: Systems Development and Documentation Techniques

3-14

Accounting Information Systems 3.6 a.

Prepare a context diagram and a level 0 DFD to document accounts payable processing at S&S.

3-15

Ch. 3: Systems Development and Documentation Techniques 3.6

a. (continued.) Level 0 Data Flow Diagram of S&S Accounts Payable

3-16

3.6

Prepare a document flowchart to document accounts payable processing at S&S. S&S Accounts Payable Accounts Payable

From Purchasing

From Receiving

From Vendor

Receiving Report

Purchase Order

Controller

Receiving Report

Vendor Invoice Check 1

Vendor Invoice

Prepare Vendor Checks

Check 1

Cash Disbursement Purchase Order Receiving Report

Purchase Order

To Vendor

Journal

Vendor Invoice

Review and Sign Checks

Prepare Monthly Accounts Payable

Accounts Payable Report

Receiving Report

Check 2

Accts Payable Ledger

Vendor Invoice

Purchase Order

Receiving Report

Record Accounts Payable

Match Pur Ord, Receiving Report, Invoice

Purchase Order

Vendor Invoice

Owner/Manager

Vendor Invoice

Receiving Report

Check 2

Vendor Invoice

Rec.Reprt

Vendor Invoice

Check 1

Check 2

Accounts Payable Report

Review Acc Payable Report

3-17

Ch. 3: Systems Development and Documentation Techniques 3.7 a.

Develop a context diagram and a level 0 DFD for the cash receipts system at S&S.

Bank Deposit

Payment at Sale Cash Receipts System

Customers Remitances on Account

Cash Receipts Report

Management

Aged Trial Balance Credit and Collections

3-18

Accounting Information Systems 3.7

a. (continued) Level 0 Data Flow Diagram of the Cash Receipts System at S&S:

Customers

Remittance File

Payments at Sale Remittances on Account

1.0 Process Payments

Remittance Slips

2.0 Update Customer Accounts

Endorsed Checks & Cash, Deposit Slip

Bank

Accounts Receivable Ledger

3.0 Prepare Reports

Aged Trial Balance

Cash Receipts Report

Management

3-19

Credit and Collections

Ch. 3: Systems Development and Documentation Techniques 3.7

Prepare a document flowchart to document the cash receipts system at S&S.

3-20

3.7

Employee Treasurer

Prepare a business process diagram for the cash receipts system at S&S Activities Performed From customer Receive cash and remittance advices, endorse checks, and prepare deposit slip

Clerk Deposit cash in bank Accounts Receivable

Management: Scott & Susan

Weekly

Receive remittance advice, update accounts receivable

Generate cash receipt report & aged trial balance using A/R ledger

Review cash receipts report

Credit and Collections

Review aged trail balance

3-21

3.8

Draw a context diagram and at least two levels of DFDs for the preceding operations.

Invoice

Coupon Order Phone Order Cancellation Payment

Shipping Notice Cancellation Response Mail Order System

Customer

Customer Order Inquiry Response

Order Inquiry

Product Inquiry Response Payment Inquiry Response

Product Inquiry Payment Inquiry

3-22

Accounting Information Systems 3.8.

Level 0 Data Flow Diagram for a mail order company:

phone order coupon order

cancellation response

order inquiry 1.0 Process Order Transaction

Customer

product inquiry response

Customer

order inquiry response

order cancellation product inquiry

valid order invoice Order File

product details

Customer shipping notice

valid order customer details 2.0 Process Shipment

Product File product details

billed order

Customer File

payment inquiry

Accounts Receivable File

Customer

billed order

payment 3.0 Process Payment Transaction

3-23

payment inquiry response

Ch. 3: Systems Development and Documentation Techniques 3.8.

Level 1 Data Flow Diagram for a mail order company:

Customer order cancellation

1.1 Process Order

valid order

cancelled order

order

1.2 Process order cancellation

cancellation response

Order File

Customer order details Product File order inquiry product details 1.4 Process product inquiry

1.3 Process order inquiry

product inquiry response

product inquiry inquiry response

Customer

3-24

Accounting Information Systems 3.9 a.

Prepare a context diagram and at least two levels of DFDs for this process.

Registration request Course enrollment reports Course Registration System

Student

Instructor

Fees notice Prerequisite notice Course closed notice Student acceptance notice

Level 0 Data Flow Diagram for a course registration system:

accounts receivable file

Instructor

student records file

Registration details

Student

fees notice

class lists file

1.0 Register student

course records file

prerequisite notice course closed notice student acceptance notice

3-25

course enrollment report 2.0 Prepare course enrollment reports

Ch. 3: Systems Development and Documentation Techniques 3.9

a. (continued) Level 1 Data Flow Diagram for a registration system:

accounts receivable file

1.1 Check fees due

student record file paid registration details

course file

fees notice registration details

1.2 Check prerequisites

prerequisite notice

class list file

valid registration details 1.3 Check class availability closed course notice

Student student acceptance notice

3-26

accepted registration details

1.4 Register student

Accounting Information Systems 3.9

Prepare a flowchart to document this process.

Student

Registration system

Check for unpaid fees

Accounts Receivable

Check Course Prerequisites

Student transcripts

Check course availability & add student to class

Class Enrollment

Registration Request

Calculate fees and tuition, update accounts receivable, send student registration report

If fees are owed, registration is cancelled and the registration report becomes a bill for unpaid fees. If a requested class is full, the report indicates “course closed.” If the student is accepted into the course(s), then course day, time, and room are printed next to the course. Fees and tuition are printed on the report.

Send course enrollment reports

Course Enrollment Report

Instructors

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Ch. 3: Systems Development and Documentation Techniques 3.10 a.

Prepare and file a tax return with the tax owed to the Internal Revenue Service.

Context

IRS Payment and Form 1040

Level 0

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Accounting Information Systems 3.10 (continued) b.

A customer pays an invoice with a check. Accounts receivable is updated to reflect the payment. The check is recorded and deposited into the bank.

Context

Level 0

Payment Data

2.0 Record Customer Payment

Accounts Receivable

1.0 Record Cash Receipts

Payment

Payment Customer

Bank Cash Receipts 3.0 Prepare Deposit

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