Chapter 2 AIS

enterprise resource planning (ERP) system

- A system that integrates all aspects of an or- ganization's activities—such as accounting, finance, marketing, human resources, manufactur- ing, inventory management— into one system. An ERP system is modularized; companies can purchase the individual modules that meet their specific needs. An ERP facilitates information flow among the company's various business functions and manages communications with outside stakeholders.

subsidiary ledger

. Contains detailed data for any general ledger account with many individual subaccounts

The four different types of data processing activities, referred to as CRUD, are as follows

. Creating new records such as adding new employees to employee database 2. Reading, retrieving, or viewing existing data. 3. Updating previously stored data. IE Entering in Payment to A/P 4. Deleting data, such as purging the vendor master file of all vendors the company no lon- ger does business with.

source data automation

. Devices that capture transaction data in machine-readable form at the time and place of their origin

documents

A record of a transaction or other company data. Examples include checks, invoices, receiving reports, and purchase requisitions.

QUERY

A request for the database to provide the information needed to deal with a problem or answer a question.

. 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.

A,C,E

To what extent should accountants be involved in producing reports that include more than just financial measures of performance? Why?

Accountants have been trained in how to design systems to maximize the reliability of the information produced. If relevant information is not produced by the AIS, there is danger that the information may be unreliable because the people responsible for its production have not been trained in, or adequately aware of, the potential threats to reliability and the best measures for dealing with those threats

Which of the following is most likely to be a general ledger control account? a. accounts receivable c. prepaid rent b. petty cash d. retained earnings

Accounts Receivable

attribute

Characteristics of interest that need to be stored

turnaround documents

Company data sent to an external party and then returned to the system as input

transaction file

Contains records of individual busi- ness transactions that occur during a specific time period

general ledger

Contains summary-level data for every asset, liability, equity, revenue, and expense account

data value

Contents of a specific field, such as "George" in a name field

Disadvantages of an ERP System

Costly• Significant amount of time to implement• Customizing or standardizing a business process •Complexity •User resistance (learning new things is sometimes hard for employees)

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

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

Which of the following is NOT a step in the data processing cycle? a. data collection c. data storage b. data input d. data processing

Data Collection

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 cardb. 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.

Each document shall consist of: Sales Invoice Customer name Address Product code Number Customer account number Product description Customer order number Quantity ordered Salesperson code Quantity shipped Shipping Address Unit price Shipper and date shipped Extended price Terms of sale Taxes, if applicable Total Amount due Purchase Order Ship to address Item numbers ordered Bill to address Payment terms Purchasing agent number Shipping instructions Quantity of parts ordered Supplier name or number Prices of parts ordered Date of purchase Taxes, if any Total amount of purchase Receiving Report Vendor name Vendor number Vendor address Date received Shipper Receiving clerk number Quantity received Part number received Description/quality remarks Purchase order number Inspected by

ERP stands for

Enterprise Planning Resource

Which of the following would contain the total value of all inventory owned by an organization? a. source document c. cash budget b. general ledger

General Ledger

how an ERP can connect and integrate the revenue, expenditure, human resources/payroll, and financing cycles of a business.

In accounting, an ERP can be used as a database software package that supports all of the revenue, expenditure, human resources/payroll and financing cycles. For the revenue cycle, one may be able to sell goods/service and receive payments for those goods. For the expenditure cycle, an employee may purchase supplies and pay accounts. Human Resources may be able to enter new employees, track employee hours and make salary payments to employees. In the Production cycle, an erp would allow employees to schedule labor, raw materials and equipment to manufacturer and finish products to sell. General Ledger- Produce Reports and Financial Statements with all information gathered in different cycles using the Integrated ERP.

source documents

Initial record of a transaction that takes place; usually recorded on pre- printed forms or formatted screens

sequence code

Items are numbered consecutively to account for all items; missing items cause a gap in the numerical sequence

reports

System output, that is used by employees to control operational activities, by managers to make decisions and design strategies, and by investors and creditors to understand a company's business activities.

coding

Systematic assignment of numbers or letters to items to classify and organize them

mneumonic code

Letters and numbers, derived from the item description, are interspersed to identify items; usually easy to memorize

chart of account

List of general ledger account num- bers; allows transaction data to be coded, classified, and entered into proper accounts; facilitates prepa- ration of financial statements and reports

The chart of accounts must be tailored to an organization's specific needs. Banks:

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.

More advantages of an ERP System

Management gains greater visibility into every area of the enterprise and greater moni- toring capabilities. Employees are more productive and efficient because they can quickly gather data from both inside and outside their own department. ● The organization gains better access control. An ERP can consolidate multiple permis- sions and security models into a single data access structure. ● Procedures and reports are standardized across business units. This standardization can be especially valuable with mergers and acquisitions because an ERP system can replace the different systems with a single, unified system. ● Customer service improves because employees can quickly access orders, available in- ventory, shipping information, and past customer transaction details. ● Manufacturing plants receive new orders in real time, and the automation of manufactur- ing processes leads to increased productivity.

Update customer address change

Master file

Update unit pricing information

Master file

The chart of accounts must be tailored to an organization's specific needs. Universities:

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

The chart of accounts must be tailored to an organization's specific needs. Government

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.) .• 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.

Recording and processing information about a transaction at the time it takes place is referred to as which of the following?

Online, Real-Time Processing

audit trail

Path of a transaction through a data processing system from point of ori- gin to final output, or backward from final output to point of origin

field

Portion of a data record that contains the data value for a particular attri- bute, like a cell in a spreadsheet

record

Portion of a data record that contains the data value for a particular attribute, like a cell in a spreadsheet

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

Which of the following is LEAST likely to be a specialized journal? a. sales journal c. prepaid insurance journal b. cash receipts journal d. cash disbursements journal

Prepaid Insurance Journal

Which of the following documents is most likely to be used in the expenditure cycle?

Receiving Report

data base

Set of interrelated, centrally coordinated files

block code

Sets of numbers are reserved for specific categories of data

which of the following is not an advantage of ERP system?

Simplicity and reduced costs

entity

Something about which information is stored

master file

Stores cumulative information about an organization; like a ledger in a manual AIS

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.:Employee Payroll

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.

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.: For Inventory Purchases

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.

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.: For sale of inventory

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.

control account

The general ledger account cor- responding to a subsidiary ledger, where the sum of all subsidiary ledger entries should equal the amount in the general ledger account

data processing cycle

The steps a company must follow to efficiently and effectively process data about its transactions

Some individuals argue that accountants should focus on producing financial statements and leave the design and production of managerial reports to information systems specialists. What are the advantages and disadvantages of following this advice?

There are no advantages to accountants focusing only on financial information. Both the accountant and the organization would suffer if this occurred. Moreover, it would be very costly to have two systems rather than one that captures and processes operational facts at the same time as it captures and reports financial facts. The main disadvantage of this is that accountants would ignore much relevant information about the organization's activities. To the extent that such nonfinancial information (e.g., market share, customer satisfaction, measures of quality, etc.) is important to management, the value of the accounting function would decline.

Record Daily Sales

Transaction

Record Payroll checks

Transaction

Records of company data sent to an external party and then returned to the system as input as called

Turnaround documents

group code

Two or more subgroups of digits are used to code items

batch processing

Updating done periodically, such as daily

online, real-time processing

Updating each transaction as it occurs real time

general ledger

Used to record infrequent or nonrou- tine transactions

specialized journal

Used to record large numbers of repetitive transactions

With respect to the data processing cycle, explain the phrase "garbage in, garbage out." How can you prevent this from happening?

When garbage aka errors, is allowed into a system that error is processed and the resultant data stored. The stored data at some point will become output. Thus, the phrase garbage in, garbage out. Data errors are even more problematic in ERP systems because the error can affect many more applications than an error in a non-integrated database.

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 completeb. 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 entere. A group codes is derived from the description of the item and is usually easy to memorize.

a,b,c

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. 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.

a,c

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 resourcesc. 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.

b,c,e

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.

b,d,e

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.

b,e

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

c,d

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.

c,d

7. How does the chart of accounts list general ledger accounts? a. alphabetical order d. the order in which they appear in financial statements b. chronological order c. size order

d the order in which they appear in financial statements

Record Sales commissions

transactions

Record production run variance

transactions

Change employee office location

master file

Change employee pay rates

master file

change customer credit limit

master file

change vendor payment discount terms

master file

update accounts payable balance

master file

An ERP system, with its centralized database, provides significant advantages:

provides an integrated, single view of the organization's data and financial situation. Storing all corporate information in a single database breaks down barriers between departments and streamlines the flow of information. ● Data input is captured or keyed once, rather than multiple times, Downloading data from one system to another is no longer needed.

All of the information (name, GPA, Major...) about a particular student is stored in the same ___________

record

Record Purchases

transactions

The data processing cycle is an example of a basic process found throughout nature. Relate the basic input/process/store/output model to the functions of the human body.

• Brain. We read, see, hear, and feel things. We process that input in order to understand what it is and how it relates to us. We store that data in our brains and then process it again in order to produce solve problems, make decisions, etc., which represent output. • Stomach. We take food in as input. It is processed to produce energy to fuel all bodily functions. If we eat more food than the body needs at any one time it is stored as fat. The output is walking, talking, thinking - all functions fueled by the energy produced. Human waste is also an output of that process.

To prevent data input errors:

• Data captured on source documents and keyed into the system are edited by the computer to detect and correct errors and critical data is sometimes double keyed .• Companies use turnaround documents to avoid the keying process. • Companies use source data automation devices to capture data electronically to avoid the keying and some of the editing process .• Well-designed documents and screens improve accuracy and completeness by providing instructions or prompts about what data to collect, grouping logically related pieces of information close together, using check off boxes or pull-down menus to present the available options, and using appropriate shading and borders to clearly separate data items. • Data input screens are preformatted to list all the data the user needs to enter. • Prenumbered source documents are used or the system automatically assigns a sequential number to each new transaction. This simplifies verifying that all transactions have been recorded and that none of the documents has been misplaced. • The system is programmed to make sure company policies are followed, such as approving or verifying a transaction. For example, the system can be programmed to check a customer's credit limit and payment history, as well as inventory status, before confirming a sale to a customer.

The chart of accounts must be tailored to an organization's specific needs. Manufacturers

• 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.