Accounting Information Systems Chapter

Revenue cycle

a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales.

Revenue cycle primary objective

to provide the right product in the right place at the right time for the right price.

4 Basic Revenue cycle Activities

1. Sales order entry 2. Shipping 3. Billing 4. Cash collections

1st general threat to revenue cycle

inaccurate or invalid master file

2nd general threat to revenue cycle

unauthorized disclosure of senstitive information

3rd general threat to revenue cycle

loss or destruction of master data

Revenue Margin

a metric to evaluate overall performance of revenue cycle activities.

3 steps to sales order entry process

1. taking the customer's order 2. checking and approving customer credit 3. checking inventory availability.

sales order document

an electronic form displayed on a computer monitor screen.

Electronic data interchang (EDI)

the use of computerized communications and a standard coding scheme to submit business documents electronically in a format that can be automatically processed by the recipient's information system.

Basic threat for sales order entry

important data about the order is either missing or inaccurate.

2nd threat for sales order entry

the legtimacy of orders.

credit limit

the maximum allowable account balance that management wises to allow for a customer based on the customer's past credit history and ability to pay.

Accounts receivable aging report

a roport listing customer account balances by length of time outstanding.

back order

a document authorizing te purchase or production of items that is created when there is insufficient inventory to meet customer orders.

picking ticket

document that athorized removal of merchandise from inventory.

3rd threat for sales order entry

uncollectible accounts

4th threat to sales order entry

stockouts or excess inventory

5th threat to sales order entry

loss of customers

Customer relationship management systems (CRM)

a system that contains customer-related data organized in a manner to facilitate custoer service, sales, and retention.

1st threat to shipping

picking the wrong items or the wrong quantity

2nd threat to shipping

theft of inventory

3rd threat to shipping

shipping errors (delay, or failue to ship)

2 steps to shipping

1. picking and packing the order 2. shipping the order

packing slip

list the quantity and description of each item included in the shipment.

bill of lading

document used to establish responsibility for shipping goods via a third party.

1st threat of billing

failure to bill

2nd threat to billing

billing errors

3rd threat to billing

posting errors in accounts receivables

4th threat to billing

inaccurate or invalid credit memos

sales invoice

a document that notifies customers of the amount to be paid and where to send payment.

2 ways to maintain accounts receivables

1. open-invoice method 2. balance-forward method

open-invoice method

method of maintaining customer accounts that generates paments for each individual sales transaction.

remittance advice

a turnaround document returned by the customers with payment.

balance-forward method

method of maintaining accounts receivable in which customers typically pay according to the amount shown on a monthly statement, rather than by individual invoices.

monthly statements

a document summerizing all transactions that occurred during the past month and informing customers of their current account balance.

cycle billing

producing monthly statements for subsets of customers at different times.

credit memo

a document used to authorized reducing the balance in a customer account.

1st threat of cash collections

theft of cash

2nd threat of cash collections

cash flow problems

remittance list

a document listing all checks received by mail.

lockbox

post office box to which customers send payments

electronic funds transfer (EFT)

the transfer of funds between two or more organizations or individuals using computers and other automated technology.

financial electronic data interchange (FEDI)

a system theat integrates EFT and EDI information.

cash flow budget

a budget that shows projected cash inflows and outflows for a specified period so that an organization can anticipate the need for short-term borrowing.

Expenditure cycle

a recurring set of business activities and related information processing operations associated with the purchase of and payment for goods and services.

Primary objective of expenditure cycle

minimize the total cost of acquiring and maintaining inventories, supplies, and th various services the organization needs to function.

4 basic expenditure cycle activities

1. Ordering materials, supplies, and services 2. Receiving materials, supplies, and services 3. Approving supplier invoices 4. Cash disbursements.

general threat for expenditure cycle

inaccurate or invalid master data

general threat for expenditure cycle

unauthorized disclosure of sensitive information

general threat for expenditure cycle

loss or destruction of data

general threat for expenditure cycle

poor performance

threat to ordering

inaccurate inventory records

threat to ordering

purchasing items not needed

threat to ordering

purchasing at inflated prices

threat to ordering

purchasing goods of inferior quality

threat to ordering

unreliable suppliers

threat to ordering

purchasing from unauthorized suppliers

threat to ordering

kickbacks

When ordering one must....

identify what, when, and how much to purchase

Economic order quantity (EOQ)

the optimal order size to minimize the sum of ordering, carrying, and stockout costs.

Ordering cost

all expenses associated with processing purchase transactions

Carrying cost

cost associated with holding inventory

Stockout cost

cost that result from inventory shortages, such as lost sales or production delays

Reorder point

specifies when to order

Materials requirements planning (MRP)

an approach to inventory management that seeks to reduce required inventory levels by improving the accuracy of forecasting techniques to better schedule purchases to satisfy production needs.

Just-in-time (JIT) inventory system

a system that minimizes or vitually eliminates manufacturing inventories by scheduling inventory deliveries at the precise times and locations needed.

Difference between MRP and JIT

production scheduling

Purchase requisition

a document or electronic form that identifies the requistioner; specifies the delivery location and date needed; identifies the item numbers, descriptions, quantity, and price of each item requested; and may suggest a vendor.

Factors in selecting suppliers

1. price 2. quality of material 3. dependability in making deliveries

purchase order

a document or electronic form tat formally requests a supplier to sell and deliver specified products at designated prices.

blanket purchase order

a commitment to purchase specified items at designated prices from particular supplier for a set time period, often one year.

vendor-managed inventory

practice in which manufacturers and distributors manage a retail customer's inventory using EDI.

reverse auctions

suppliers compete with one another to meet demand at the lowest price

pre-award audit

used for large purchases that involve formal bids by suppliers

threat to receiving

accepting unordered items

threat to receiving

mistakes in counting

threat to receiving

verifying receipt of services

threat to receiving

theft of inventory

receiving report

document details about each delivery, includig the date received, shipper, supplier, and purchase order number.

debit memo

a document used to record a reduction to the balance due to a vendor.

threat to approving

errors in supplier invoices

threat to approving

mistakes in posting to accounts payable

voucher package

the set of documents used to authorized paymebt to a vendor. it consists of a purchase order, receivng report, and vendor invoice.

nonvoucher system

a method for processing accounts payable in which each approved invoice is posted to individual vendor records in the accounts payable file and is then stored in an open invoice file.

voucher system

a method for processing accounts payable in which a disbursement voucher is prepared instead of posting invoices directly to vendor records in the accounts payable subsidiary ledger.

disbursement voucher

a document that identifies the vendor, list the outstanding invoices, and indicates the net amount to be paid after deducting any applicable discounts and allowances.

advantages of voucher system

1. reduce the number of checks that need to be written. 2. prenumbered to simplify tracking all payables 3. provides an explicit record that a vendor invoice has been approved for payment.

evaluated receipt settlement (ERS)

an invoiceless appproach to accounts paable tat replaces the three-way matching process with a two-way math of te pruchase order and receiving report.

procurement card

a corporate credit card that employees can use only at disgnated suppliers to purchase specific kinds of items.

threat to cash disbursements

failure to take advantage of discounts for prompt payment

threat to cash disbursements

paying for items not received

threat to cash disbursements

duplicate payments

threat to cash disbursements

theft of cash

threat to cash disbursements

check alteration

threat to cash disbursements

cash flow problems

imprest fund

a cash account with two characteristics: 1. it is set at a fixed amount 2. vouchers are required for every disbursement.

Production cycle

a recurring set of business activities and related information processing operations associated with the manufacture of products.

4 basic activities of the production cycle

1. product design 2. planning and scheduling, production operations 4.cost accounting

General threats to production cycle

1. inaccurate or invalid master data 2. unaurhorized disclosure of sensitive information. 3. Loss or destruction of data