Financial Information Systems Exam 2
Kinds of data entry tasks in procurement process
While there are a variety of data-entry points for the procurement process, attention must be focused on (1) purchase order entry (Most voluminous task) and (2) data entry related to selecting and making payments on account
Resources in procurement process
"Resources" in this context include both goods and services. Examples: Acquired goods may consist of raw materials, parts or components, supplies, merchandise, fixed assets, or intangibles such as patents or computer programs. Acquired services included those provided by contractors, catering companies, janitorial companies, consultants, law firms, and accounting firms.
Explanation of cash discount terms
A discount provided to the customer for prompt payment
Identification of modules in revenue process
Sales order processing and accounts receivables
Types of accounts in AIS packages
AIS packages include a comprehensive budgeting module that encompasses sales, production, procurement, and human resources as well as the financial process.
Advantages and disadvantages of a database
Advantages: Data Integration. Data elements can be combined in virtually limitless ways, providing the illusion of files of varying content and format. Different application programs and interactive queries can perceive the same data in different configurations as needed. With a database, it is much easier to bring data together to help in making business decisions (Vignette 12.1). Data integration is the one feature of a database that makes it far superior to conventional files .Program and Data Independence. Application programs are independent of the physical structure of the data they process. As is shown in Exhibit 12.4, application programs communicate with the database management system rather than with the data. The physical storage details are hidden from the programs. Therefore, the physical structure of the data in the database can be changed without necessitating a change in the application programs that access the data. This data independence feature also makes it easy for users to retrieve data. Programming Simplification. When conventional files were used, most of the responsibility for designing data storage and retrieval methods and file-related processes was borne by the application developers. Database management systems, on the other hand, are normally supplied with all storage, retrieval, and similar processes already in place. All that remains for application developers is interfacing their programs with the database management system. Access to data is provided by standardized languages available in the database management system. These statements can easily be embedded in the program code, thereby simplifying the writing of application programs. The database management system, not the application program, contains the description of the data in the database. Data Quality and Efficiency. Each data element is stored only once, and multiple programs can access every data element as needed. Data Security. Security features can be written into a database management system to prevent unauthorized access or inadvertent contamination of data. Users who do not have a legitimate need for specific data are prohibited from accessing that data. Moreover, of the data that can be accessed, only specific operations on the data may be authorized. For example, one program or user may be allowed to view data but not change it. Another program or user may be permitted to add records but not delete them. You will recall "user rights" as an information processing general control discussed in Chapter 7. Regular backup policies and procedures can easily be enforced in a database. Set against these substantial advantages of using a database are some significant disadvantages: Increased Hardware Requirements. A database management system requires more processing power than a system using conventional files because of the greater number of instructions. The software itself may be large, and secondary storage may need to be increased to accommodate access linkages such as index files. Required Technical Skills. The successful implementation and operation of a database management system require that application developers and other information systems personnel have database technical skills. On the other hand, it is relatively easy to implement and operate a personal computer database management system. As a matter of fact, one reason for the proliferation of personal computer database management systems is their ease of use. Novices can learn quickly to use the basic functions of a database management system and can perform more sophisticated functions as their knowledge of the system increases. Difficult Conversion from Conventional Files. Converting existing application programs to work with a database management system requires the modification of program code relating to the storage and structure of the existing files. Moreover, data that formerly resided in independent data files must be restructured for inclusion in the database. Vulnerability to System Failure. Every application depends on the database management system. The failure of any component of the system can bring operations to a standstill. Therefore, elaborate measures have to be taken to protect the data from a system crash or malfunction and to provide for speedy recovery if the database is damaged or destroyed. Potential for Error Contamination. The immediate availability of data to many different users precludes easy isolation and correction of erroneous data. Procedures for careful screening and editing of data before they enter the database are essential
Difference in GL model from other models
All other modules have a very specific business process whereas the GL module is a financial reporting module not directly linked to one specific business process
Methods of accounting for receivables
Balance Forward, Open Item
Kinds of recurring entries in revenue process
Billing for service contract or retainers, write off customer balances, Date entry
Identification of goods and vendor services
Coding for vendor accounts was illustrated in the first column of the Vendor Performance Report in Exhibit 10.9 using a combination of alphabetic and numeric symbols. While some organizations use initials or other abbreviations from the vendor name plus one or more numeric symbols as an identifier, others use numeric identifiers exclusively. An advantage in the use of only numeric identifiers is that if bar codes are in use, a more compact bar code symbiology can be used than if the ID includes alphabetic characters.
Deficiency in AIS packages in preparing financial statements
Data required for Statement of Cash Flows doesn't easily pull from normal chart of accounts so it can be difficult with normal AIS packages to create this statement. Screen vs. paper format of presentation can sometimes be difficult as people want to present information digitally
What are examples of comparative reports from the Financial Process?
Horizontal Analysis which is an analysis where balances for the current financial statements are presented along with balances of prior periods for comparison. Common-Dollar (vertical) Analysis- a financial statement where each item is shown as percentage of some base amount designated as 100%.
Initiation of bidding process
In a typical bidding situation, a request for quotation (RFQ) or request for proposal (RFP) is prepared and sent to prospective vendors.
Kinds of transaction and processing risks in financial process
Incorrect or unauthorized entries, improper allocation etc.
Source documents for cash receipts
Invoices, POs, deposit slips, etc.
Alternative names for procurement process
It is alternatively referred to as the expenditure, purchasing, or acquisition process.
Kinds of reports generated in revenue process
Marketing, Advertising, Shipping, Billing, Adjustments to customer accounts, Sales Orders, collection reports
Flow of data in procurement process
Ordering goods, receiving, invoicing, and disbursing cash
Physical controls over cash disbursements
Physical controls over inventory, shipping, and cash disbursement functions are necessary to ensure smooth operations for the company. Cash and checks received should be properly safeguarded (e.g., locked in a vault), with deposits of customer receipts made daily (if possible). Access to cash should be limited to a few individuals, with regular surprise audits of cash on hand, and independent verification of proper deposits. Inventory should be carefully controlled with limited access to the inventory control function
Kinds of transaction and processing risks in revenue process
Posting, payment, customer discount, customer credit, bad debt etc.
Processing controls in procurement process
Prenumbered documents are an important control in the procurement process: *Purchase orders, receiving documents, accounts payable vouchers, and checks should be serially prenumbered to ensure all transactions are processed. *All numbers in any series (e.g., purchase orders, receiving documents, vouchers, or checks) should be accounted for as either issued, voided, or unused—gaps in the sequence should be reported in an exception report and investigated promptly. Access to the inventory of prenumbered documents should be carefully controlled if in paper form. For electronic forms, system-generated sequential numbers can provide control over the number series as orders, vouchers, or checks are prepared. In a batch system, the processing of accounts payable vouchers or payroll checks lend themselves well to batch controls, such as record counts, control totals, and hash totals. For example, a control total may be entered in the computer along with the accounts payable vouchers. The application program accumulates the batch total and compares it with the amount entered. When automatic check-signing equipment is used, the meter readings on the machine provide another batch total that should be reconciled with earlier totals. File maintenance activities should be performed by those not involved in posting routine transactions. All file maintenance activities should be logged and reviewed/monitored. Output controls include the preparation of reports such as the cash disbursements report (i.e., check register). The listing of check numbers can be compared to the number of checks issued/printed and the number of vouchers processed. The bank reconciliation should be performed by an individual who is independent of the check printing and signing functions. Procedures should be in place to ensure that all paychecks are properly distributed to employees (or are electronically distributed through direct deposit); all vendor payments should be made by check or electronic transfer.
When procurement is initiated and when completed
Procurement is initiated when a departmental manager authorizes a purchase requisition and forwards it to the procurement department. Before placing the order, the procurement department is normally required to validate the authorization and verify that the requesting manager has budget availability; the procurement department may also be required to review the request for reasonableness. In the event of a problem, the procurement agent may call the manager or return the requisition for clarification. Otherwise, the procurement agent places an order with a vendor for the requested goods or services
Responsible party for overseeing open purchase order file
Procurement personnel are responsible for periodically reviewing the file records and following up on unfilled orders.
Documentation for receipt of goods
Receiving report is a report that documents the receipt of goods that were purchased. The receipt of goods should be verified by a receiving clerk, with the quantities received verified against the original order. The goods received should also be compared to the vendor's shipping document. The clerk can verify this information through the open purchase order file
Purposes of Revenue Process
Reporting but also facilitation and control of certain business activities of the organization
Appropriate use of retainages in procurement process
Retainages are commonly required for construction contractors. The purpose of retainages is to provide additional assurance the contractor will complete the agreed-upon task to the satisfaction of the school district. For the first three payments, the retainage is deducted. When the contract is complete and the building is accepted, then the final payment is due plus the earlier amounts retained.
Difference in hard and soft closings
Soft closings are usually interim accounting periods where entries can still be made after closing (Monthly)Hard closings are annual periods that cant be edited after closing.
Major source of errors in procurement process
Some of the typical risks one might find in the procurement process include: Procurement of Goods and Vendor/Employee Services Risks: *Risks related to improper purchases: for example, purchases made for individual (as opposed to organizational) use, purchases of supplies not needed, purchases recorded incorrectly (or not at all), purchases made to unauthorized vendors, or purchases made with unfavorable payment terms. *Risks related to the payment of wages: for example, wages paid for unauthorized or incomplete work, wages paid to fictitious employees, wages paid based on erroneous wage rates or total hours, incorrect classification of payroll expenses/ taxes, or incorrect deductions/withholding Disbursement of Cash/Payment Risks: *Payment risks: for example, payment made for goods/services that are not authorized or have not been received, discounts lost because of late payments, misappropriation of discounts taken, duplicate payments, forged signatures/endorsements, or alterations to the vendor invoice or payee on a disbursement. *Recording risks: for example, disbursements incorrectly recorded/not recorded at all, gaps in the sequence of prenumbered checks, checks issued without proper backup documentation, disbursement and distribution of checks in different accounting periods, or manipulation of the bank reconciliation
Advantages of cycle billing
Spreading out customer billing to allow billing and account receivables to catch up
Data entry efficiency features in financial process
Summary reporting, recurring entries, auto distribution entires,
Data entry efficiency features in financial process
Summary reporting, recurring entries, auto distribution entries,
common deficiency in audit trail in procurement process
The most common deficiency in audit trails is in postings from the purchases transaction file.
Advantage of real time for procurement process
This procedure increases the required accounting somewhat but permits merchandise to be placed in inventory immediately upon receipt and updates the inventory records so sales orders can be filled. The purchase order function in Exhibit 10.7 assumes that inventory receipts are recorded in this module and posted on a real-time basis to the inventory module. The GL inventory control account and the unbilled payables are updated at the end of each month. It should be recognized that some AISs do not have this feature, and that others may place the receiving function in the vendor (accounts payable) module. At month-end, some POs are unfilled, and some are partially unfilled. The inventory module will contain data on items on order. The system should compare the unfilled POs with these inventory records and print an exception report so any differences can be resolved
Purposes of sales analysis reporting
To see specific gains/losses with customers or areas that could be important to management
Requirements of audit trail in revenue process
Trace source documents to sales and cash receipts, from transaction files to customer accounts, inventory accounts to invoice records, data transferred at month end to GL
Kinds of events that are captured in revenue process
Transactions with customers
Type of data stored in various files in procurement process
a vendor performance report, PO cash requirements re-port, AP cash budget, and a discounts lost report. In addi-tion, hard copies (printed output) of all transaction files (journals) and master files (ledgers) should be available. The AIS should be able to produce all reports required to manage the procurement process of the organization.
Advantages and disadvantages of out-of-balance entries
adv.:It allows you to complete the entry over multiple days, if you don't know both sides of the entry you can still complete half of it. Dis: It can put your accounts/journals out of balance
Usefulness of provisional posting
allows you to see the effect of these entries on your accounts before actually committing it permanently.
automatic distribution entries
feature that automates the distribution of the amount of a transaction to several accounts -also know as "allocation entries" -method to allocate that one amount to other accounts
Definition of database management system
is a collection of software specially designed to manage the data in a database in response to instructions issued by application pro-grams or requests made by users.
Kinds of events that are captured in the procurement process
purchasing, expenditure, or acquisition process. A business process that encompasses activities related to the acquisition of goods and services and the disbursement of money in exchange for these goods and services.