311 exam

Accounting Records in a Computer-Based System-4 steps

1. Compare the AR balance in the balance sheet with the master file AR control account balance. 2. Reconcile the AR control figure with the AR subsidiary account total. 3. Select a sample of update entries made to accounts in the AR subsidiary ledger and trace these to transactions in the sales journal (archive file). 4. From these journal entries, identify source documents that can be pulled from their files and verified. If necessary, confirm these source documents by contacting the customers.

Functions for transforming data into information according to the general AIS model: 4

1. Data Collection 2. Data Processing 3. Data Management 4. Information Generation

What information would we "handle" in each? 2. accounting 3. provide info to users

2.Accounting Capture Financial Transactions (items that effect our pocketbook) Record effects of transactions in accounting records 3. Provide information to users Management reports

batch in order for batch processing to be appropariate..

A batch is a group of similar transactions that are accumulated over time and then processed together. The transactions must be independent of one another during the time period over which the transactions are accumulated in order for batch processing to be appropriate. A time lag exists between the event and the processing.

Why Do So Many AIS Use Batch Processing?

AIS processing is characterized by high-volume, independent transactions, such are recording cash receipts checks received in the mail. The processing of such high-volume checks can be done during an off-peak computer time. This is one reason why batch processing maybe done using real-time data collection.

why document systems? Accountants responsible for: system design

Accounting controls Security procedures Audit trails (SOX) System Design New System System Modifications Interface new application Convert from manual to computerized system Training Employees

centralized data processing

All data processing is performed by one or more large computers housed at a central site that serves users throughout the organization. Primary areas: database administration data processing systems development systems maintenance

technology challenge

Anticipate and adapt to change Integrate the old and the new

system flowcharts why used? 2

Are used to represent the physical relationships between the key elements--input sources, programs, and output products--of computer systems Depict the type of media being used (paper, magnetic tape, magnetic disks, and terminals) from notes: System flowcharts- give you more information on how it happens. Data flow chart will be organized by who is doing it. So starts with sales department then credit department Looks like five different sales orders in chart- is just really one order but indicating multiple people will be getting a copy of that single sales order

Data Attributes

Attribute : relevant characteristic of an entity Something we want to know/capture about the entity

audit trail defined

Audit trail- accounting records described previous provide audit trail for tracing account balances. Important in the conduct of financial audit. External auditor determines validity accuracy and completeness. Auditor can trace AR values on BS to general ledger control account, reconciled with AR subsidiary ledger. Sampling technique auditor will use. Audit of AR often includes confirmation- contacting selected consultores to determine if transactions recorded actually took place.

1. Data Collection 3 functions

Capturing transaction data Recording data onto forms Validating and editing the data

2. data processing examples of functions 8

Classifying Transcribing Sorting Batching Merging Calculating Summarizing Comparing

Information Generation

Compiling Arranging Formatting Presenting info gen fraud : looking for stuff that people throw out ie if didn't shred it, steal misdirect or isuse it. Search through ie trash cans on computer center for discarded output

Uses of Coding in AIS-4

Concisely represent large amounts of complex information that would otherwise be unmanageable Provide a means of accountability over the completeness of the transactions processed Identify unique transactions and accounts within a file Support the audit function by providing an effective audit trail

Potential Advantages of DDP 4

Cost reductions in hardware and data entry tasks Improved cost control responsibility Improved user satisfaction since control is closer to the user level Backup of data can be improved through the use of multiple data storage sites

errors in gathering information

Could be something physical, could be an event but soething you want to gather data about. Whats the price, what is cusotmer etc . Things in brackets are called attributes

teh computer services function and how relates to companies

DDp distributed data processing on one side and centralized data processing on the other most companies fall in between

Data Redundancy Problems 5 but talk about data storage and data updating and currency of info

Data Storage - excessive storage costs of paper documents and/or magnetic form Data Updating - changes or additions must be performed multiple times Currency of Information - potential problem of failing to update all affected files

data sources external vs internal financial transactions

Data sources are financial transactions that enter the information system from internal and external sources External financial transactions are the most common source of data for most organizations. E.g., sale of goods and services, purchase of inventory, receipt of cash, and disbursement of cash (including payroll). Internal financial transactions involve the exchange or movement of resources within the organization. E.g., movement of raw materials into work-in-process (WIP), application of labor and overhead to WIP, transfer of WIP into finished goods inventory, and depreciation of equipment.

Database Backup Procedures ie destructive updates, how to implement backup procedures

Destructive updates leave no backup. To preserve adequate records, backup procedures must be implemented, as shown below: The master file being updated is copied as a backup. A recovery program uses the backup to create a pre-update version of the master file.

sequential codes- 2 disadvantages

Disadvantages: arbitrary information hard to make changes and insertions

ER (entitiy relationship) Diagram models ..

ER Diagram models the data used and or affected by the system ie sales order and shipping log 1 to 1 . box sales order line to box, skipping log

ER diagram M to M example

ER diagram - taking those relationships and evaluating how they fit together= more complex . relationships but how sources of info link together First step when developing a system is the entity relationship entity chart under "cardinalities" ie registering for classes Explaining relationship using entity relationship diagram. Ie any vendor could supply multiple types of inventory and one inventory item could be supplied by many different people (M to M relationship)

Five common documentation techniques:

Entity Relationship Diagram Data Flow Diagrams System Flowcharts Program Flowcharts Record Layout diagrams

information captured or created to: 3

Facilitate the transaction eg. Receive the order and get it to the customer Accounting Capture Financial Transactions (items that effect our pocketbook) Record effects of transactions in accounting records Provide information to users Management reports

revenue cycle from notes and 2 subsystems explained

Firms sell their goods and services to customers through the revenue cycle which involves processing cash sales, credit sales and receipt of cash following a credit sale. Revenue cycle transactions also have a physical and financial component which are processed separately. Subsystems (2): Sales order processing - sales made on credit- preparing sales orders, granting credit, shipping products, billing customers, recording transaction in ie AR, inventory expenses etc Cash receipts - for credit sales some period of time between sale and receipt of cash- includes collecting cash, depositing cash in bank and recording in accounts

general journal register

General Journal Variety of entries Register (or log) Receiving log, shipment log Supporting documentation

ledgers general ledger vs subsidiary ledger

General Ledger summarizes activity for ALL of the organization's accounts Subsidiary Ledger contains details of individual accounts (e.g. Accounts receivable by customer

GL/FRS

General Ledger/ Financial Reporting System (GL/FRS) produces financial statements and reports

ledger and two categories

Ledger - book of accounts that reflects financial effects of the firm's transactions after they are posted from journals. Ledgers whow activity by account type and indicates ie increases decreases and current balances of each account. Two categories: general ledgers- firm's account info -highly summarized control accounts 2. Subsidiary ledgers- details that support particular control account GL summarizes activity for each of organizations financial statements Subsidiary ledgers kept in various accounting departments of firm ie inventory ap payroll AR, provides better control and support of operations due to separation.

Modern Systems versus Legacy Systems legacy system characteristics

Legacy systems characteristics: mainframe-based applications batch oriented early legacy systems use flat files for data storage later legacy systems use hierarchical and network databases data storage systems promote a single-user environment that discourages information integration

Potential Disadvantages of DDP 7

Loss of control Mismanagement of company resources Hardware and software incompatibility Redundant tasks and data Consolidating tasks usually segregated Difficulty attracting qualified personnel Lack of standards

MRS

Management Reporting System (MRS) produces special-purpose reports for internal use

accounting records - manual systems and documents

Manual systems- describes the purpose of each type of accounting record used in transaction cycles. Begin with traditional records used in manual systems ie documents and journals and then examine their digital counterparts in computer-based system Documents- documents initiate transaction processing or are output of a process, provide auditors with evidence of economic events:

Computer Files 4 master file transactionf ile reference file archive file

Master File - generally contains account data (e.g., general ledger and subsidiary file) Transaction File - a temporary file containing transactions since the last update Reference File - contains relatively constant information used in processing (e.g., tax tables, customer addresses) Archive File - contains past transactions for reference purposes

Advantages of Batch Processing-2

Organizations can increase efficiency by grouping large numbers of transactions into batches rather than processing each event separately. Batch processing provides control over the transaction process via control figures.

Real-Time Systems-4 ie time lag, processing of transactions, resources, development time

Process transactions individually at the moment the economic event occurs No time lag between the economic event and the processing Generally require greater resources than batch processing since they require dedicated processing capacity; however, these cost differentials are decreasing Oftentimes have longer systems development time

Accounting System Records product documents

Product Documents - the result of transaction processing Payroll Check Customer invoice (bill) Accounts payable check (to vendor)

converison cycle subsystems explained

Production and the cost accounting system. Production system involves planning, scheduling, and control of the physical product through the manufacturing process. Includes determining raw material requirements, authorizing work to be performed and release of raw materials into production and directing movement of WIP through stages of manufacturing. Cost accounting system monitors flow of cost info including labor overhead and RM. info produced used for inventory valuation, budgeting cost control performance reporting etc Manufacturing firms convert RM into FG through conversion cycle operations. In service firms/retail may not have formal conversion cycle but still engage in value added conversion cycle activities. Merchandising companies do not account for these activities through formal conversion cycle subsystems, but some service organizations like public accounting firms, law firms consulting firms track specific costs ie labor to client accounts

Regardless of physical form or technology, useful information has the following characteristics: 5

Relevance: serves a purpose Timeliness: no older than the time period of the action it supports Accuracy: free from material errors Completeness: all information essential to a decision or task is present Summarization: aggregated in accordance with the user's needs

DDP Distributed Data Processing

Reorganizing the computer services function into small information processing units that are distributed to end users and placed under their control

group codes and two disadvantages

Represent complex items or events involving two or more pieces of data using fields with specific meaning For example, a coding scheme for tracking sales might be 04-09-476214-99, meaning: 04 as store number column, 09 in debt number column, next six digits in item number column and 99 in saleperson column Disadvantages: arbitrary information overused

Sequential Codes 4

Represent items in sequential order Used to pre-number source documents Track each transaction processed Identify any out-of-sequence documents

Quantify the Business Rules cardinaliities

Represent the numerical mapping between entities: one-to-one one-to-many ie customer order many-to-many ie vendor inventory

Block Codes-3 ie what used for, what represent and what does it allow for ,and one disadvantage

Represent whole classes by assigning each class a specific range within the coding scheme Used for chart of accounts The basis of the general ledger Allows for the easy insertion of new codes within a block Don't have to reorganize the coding structure Disadvantage: arbitrary information

Accounting System Records Source Documents

Source Documents - used to capture and formalize transaction data needed for transaction processing Sales Order Purchase Order Time Card

Special Journals

Specific class or type of transactions Sales, Accounts Payable

Information System Objectives 3

Stewardship function of management Management decision making Firm's day-to-day operations

3. Data Management

Storing Retrieving Deleting

System Decomposition vs. System Interdependency

System Decomposition the process of dividing the system into smaller subsystem parts System Interdependency distinct parts are not self-contained they are reliant upon the functioning of the other parts of the system all distinct parts must be functioning or the system will fail

AIS Subsystems

TPS, GL/FRS, MRS

data redundancy problems- 5 but talk about task-data dependency and data integration

Task-Data Dependency - user's inability to obtain additional information as needs change Data Integration - separate files are difficult to integrate across multiple users

Computer-Based Systems relation to audit trail. what is the physical trail in computer based systems where is data stored

The audit trail is less observable in computer-based systems than traditional manual systems The data entry and computer programs are the physical trail The data are stored in magnetic files

The Relational Data Base Model

The relational model portrays data in the form of two dimensional tables: relation - the database table attributes (data elements) - form columns tuples (records) - form rows data - the intersection of rows and columns

Organizational Structure 3

The structure of an organization helps to allocate 3 Responsibility Authority Accountability

transaction cycles .... what do they do? exist in what types of businesses? explanation of the three kinds objectives

Transaction cycles- process most of firms economic activity - expenditure cycle, conversion cycle and the revenue cycle. Exist in all types of businesses both profitable seeking and not for profit. Every business incurs expenditures in exchange for resources (expenditure), provides value added through its products or services (conversion) and received revenue from outside sources (revenue cycle)

TPS

Transaction processing system (TPS) supports daily business operations

Manual Process Model

Transaction processing, information processing, and accounting are physically performed by people, usually using paper documents. Useful to study because: helps link AIS courses to other accounting courses often easier to understand business processes when not shrouded in technology facilitates understanding internal controls

Manual System Accounting Records -turnaround documents

Turnaround Documents - a product document of one system that becomes a source document for another system Remittance Advice (e.g. invoice "tear-off) Production planning material forecast

Data Flow Diagrams (DFD)

Use symbols to represent the processes, data sources, data flows, and entities in a system A Model of the system processes Represent the logical elements of the system Does not represent the physical system

how do we assure information collected and assembled is timely, of quality, and secure?

We don't lose it Not changed inappropriately Access is controlled

Computer-Based Accounting Systems 2 classes of systems

batch systems real-time systems

organizational structure so business organization --> 4 and then 2 more under finance

business organization --> marketing, finance, administration, production treasurer and controller under finance

data management fraud

changing/altering data in order to ie better selves, ulterior motives, damaging company data

journal defined in notes, special journals

chronological record of financial transaction. Primary sources of data entry into journals are documents. Each transaction results in a separate journal entry which identifies accounts affected and amounts to be debited and credited - two classes of journals=special and general Special journals - record specific classes of transactions that occur in high volume - can be grouped tg in a special journal and processed more efficiently han general journal permits.

Modern systems characteristics:

client-server based and process transactions in real time use relational database tables have high degree of process integration and data sharing some are mainframe based and use batch processing

Primary Keys help us find and link data ie AR AP inv customer sales order

customer number vendor number part nubmer sales order number

record layout example ie customer number

customer number would be key and then others would be custoemr name, street address, city zip code etc Record layout is via computer and similar to access ie key- saying what storing for ie customer file

Flow of Economic Events Into the General Ledger

customer's order --> sales order --> JE made then goes to sales journal but also sales order goes to AR subs ledger but JE goes to sales jouonral--> post and goe sto GL and AR subs ledger also goes to GL when reconciled periodically

register

denotes certain types of special journals like payroll journal aka payroll register. Also use "register" to denote a log ie receiving register is log of all receipts of raw materials or merchandise ordered from vendors

We want to capture data about ... what and three

entity Physical Resource (e.g. inventory, cash) Event (e.g. customer order, payment received) Agent (e.g. salesperson, customer, employee)

accounts payable record

ill from supplier. Employee number would be primary key . another concept is business rules so how go about organizing busines. One to one is only one possible combination. One to many is a particular items could have many items connected to it. Customers may place many orders and have to allow for that when designing your system.

accounting independence what requires this? explanations 3

information reliability requires accounting independence 3: Accounting activities must be separate and independent of the functional areas maintaining resources. Accounting supports these functions with information but does not actively participate. Decisions makers in these functions require that such vital information be supplied by an independent source to ensure its integrity.

journal vouchers and each contains

journal vouchers=written authorizations prepared for every transaction that meets general journal requirements. Each journal voucher contains: 1. Unique voucher number, 2. Transaction date 3. Transaction amount 4. Ledger accounts to be updated 5.signatures of individuals authorized to create or approve journal voucher.

Illustrate the "logic" used in programs rectangle rhombus (rotated square) oval trapezoid (four lines kind of like rhombus) arrow

logial process decision=rotated square oval=terminal start or end operation rhombus/trapezoid- input/output operation arrow=flow of logical processes

purchase order cash receipts cash disbursements empoyee payroll earnings records

po# receipt # check # employee #

point of DFD

point of data flow diagram = see how information flows through the system Data Flow diagram = how information flows between entities. Will also show things that are being processed - what are the steps/what are we doing with that information . arrow is also important bc shows where the data is flowing. Testing if understand story? If start at beginning and diagram going step by step of what is happening. Ie sales order cycle- customer will be sending us some info regarding sales order, then approval process. Arrow pointing from above- approving sales and checking if really want to sell to that person.

conversion cycle 2 subsystems

production planning and control cost accounting

four subsystems explained expenditure cycle

purchases/accounts payable system - recognizes need to acquire physical inventory and places an order with the vendor. When goods received, purchases system records event by increasing inventory and establishing an account payable to be paid at a later date Cash disbursements system - when obligation created in purchases system is due, this system authorizes the payment, disburses the funds to the vendor and records transaction by reducing cash and AP Payroll system - collects labor usage data for each employee, computes payroll, disburses paychecks to employees. Payroll is a special case purchases and disbursements system. Most firms have separate system for payroll processing bc complex Fixed asset system- processes transactions pertaining to acquisition maintenance and disposal of its fixed assets. Relatively permanent assets that represent organizations largest financial investment ie land, buildings, furniture, machinery and motor vehicles

expenditure cycle - four subsystems

purchasing/AP cash discursements payroll fixed assets

six steps in value chain

r&d, design, production, marketing, distribution, customer service

What information would we "handle" in each? 1. facilitate the transaction

receive the order and get it in to the custoer

cardinalities...

represents the numerical mapping between entities: one-to-one one-to-many many-to-many

revenue cycle two subsystems

sales order processing cash receipts

two common techniques in audit trail

sampling and confirmaiton

common method of organization

segmenting by business function

audit trail from source document to financial statements-four total

source doc --> journal --> GL --> financial statements Accountants should be able to trace in both directions.

explain types of documents from notes - source documents, product documents, turnaround documents, remittance advice

source documents: economic events result in creation of some documents at the beginning of transaction- capture/formalize transaction data . economic event causes sales clerk to prepare multipart sales order - formal evidence sale occured Product documents- result of transaction processing ie payroll check to employee is a product document of the payroll system Turnaround documents- product documents of one system that become source documents for another system ie customer received perforated two part bill. One portion is actual bill and other is remittance advice. Customers remove remittance and return it to company with payment. Remittance advice is a turnaround document containing important info about customers account to help cash receipts system process payment

Journals 3

special journals general journals register (or log)

example sub vs GL

subsidiary ledgers ie all AR balances for all custoemrs, total that up and goes to GL in AR t-account

conversion cycle -two subsystems

the production system (planning, scheduling, and control of the physical product through the manufacturing process) the cost accounting system (monitors the flow of cost information related to production)

cycle subsystems- revenue what is time lag due to in this system?/two subsystems

time lag between the two due to credit relations with customers : physical component (sales order processing) financial component (cash receipts)

expenditure cycle- what is time lag due to /two subsystmes

time lag between the two due to credit relations with suppliers: physical component (acquisition of goods) financial component (cash disbursements to the supplier)

general journal define from notes

use to record nonrecurring, infrequent and dissimilar transactions ie depreciation and closing entries. Common to replace traditional general journal with collection

value chain, three cycles etc

value chain = The linked set of activities that increases the usefulness (value) of an organization's products or services. revenue, expenditure, conversion

relational databases- how are relationships established?

via the primary key tables are linked via the key (think access)