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Chapter 12
Accounting Information Systems 9th Edition Marshall B. Romney Paul John Steinbart
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Learning Objectives
1.
2.
3.
Describe the basic business activities and related data processing operations performed in the expenditure cycle. Discuss the key decisions that need to be made in the expenditure cycle, and identify the information needed to make those decisions. Document your understanding of expenditure cycle activities.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Learning Objectives
4.
5.
Identify major threats in the expenditure cycle, and evaluate the adequacy of various control procedures for dealing with them. Read and understand a data model (REA diagram) of the expenditure cycle.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Introduction
Linda Spurgeon, Alpha Omega Electronics (AOE) president, asked Elizabeth Venko, the controller, to address the following issues:
What must be done to ensure that AOEs inventory records are current and accurate? What can be done to ensure timely delivery of quality components?
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Introduction
Is it possible to reduce AOEs investment in materials inventories? What must be done to ensure that available discounts are taken? How could the information system provide better information to guide planning and production? How could IT be used to reengineer expenditure cycle activities?
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Learning Objective 1
Describe the basic business activities and related data processing operations performed in the expenditure cycle.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services necessary for the organization to function.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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What is the optimal level of inventory and supplies to carry? Which suppliers provide the best quality and service at the best prices? Where should inventories and supplies be held? How can the organization consolidate purchases across units to obtain optimal prices?
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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How can information technology be used to improve both the efficiency and accuracy of the inbound logistics function? Is sufficient cash available to take advantage of any discounts suppliers offer? How can payments to vendors be managed to maximize cash flow?
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Requesting the purchase of needed goods Ordering goods to be purchased Receiving ordered goods Approving vendor invoices for payment Paying for goods purchased
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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The first major business activity in the expenditure cycle involves the request to purchase inventory or supplies. The traditional inventory control method (often called economic order quantity [EOQ]):
This approach is based on calculating an optimal order size so as to minimize the sum of ordering, carrying, and stockout costs.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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What is a major difference between MRP and JIT? MRP systems schedule production to meet estimated sales need, thereby creating a stock of finished goods inventory. JIT systems schedule production to meet customer demands, thereby virtually eliminating finished goods inventory.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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requisitioner and item number specifies the delivery location and date needed specifies descriptions, quantity, and price of each item requested may suggest a vendor
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Order Goods
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Order Goods
Documents and procedures: The purchase order is a document that formally requests a vendor to sell and deliver specified products at designated prices. It is also a promise to pay and becomes a contract once it is accepted by the vendor. Frequently, several purchase orders are generated to fill one purchase requisition.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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The third activity entails approving vendor invoices for payments. Key decisions and information needs: The objective of accounts payable is to authorize payment only for goods and services that were ordered and actually received. This requires internally generated information from both the purchasing and receiving function.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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The system uses the voucher file to update the accounts payable, open invoice, and the general ledger files.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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What are some opportunities of using information technology for requesting goods (Activity 1)?
online data entry instead of paper documents bar-code technology that facilitates the maintenance of accurate perpetual inventory records
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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What are some opportunities of using information technology to receive and store goods (Activity 2)?
vendor requirement to bar-code all of their products passive radio frequency identification satellite technology
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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What are some opportunities of using information technology to approve vendor invoices (Activity 3)?
electronic data interchange (EDI) elimination of vendor invoices entirely image processing and optical character recognition (OCR) corporate credit cards
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Learning Objective 2
Discuss the key decisions that need to be made in the expenditure cycle, and identify the information needed to make those decisions.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Information Needs
The third function of the AIS is to provide information useful for decision making. Usefulness in the expenditure cycle means that the AIS must provide the operational information needed to perform the following functions: Determine when and how much additional inventory to order.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Information Needs
Select the appropriate vendors from whom to order. Verify the accuracy of vendor invoices. Decide whether purchase discounts should be taken. Monitor cash flow needs to pay outstanding obligations.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Information Needs
efficiency and effectiveness of the purchasing department analyses of vendor performance such as ontime delivery, quality, etc. time taken to move goods from the receiving dock into production percentage of purchase discounts taken
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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Learning Objective 4
Identify major threats in the expenditure cycle, and evaluate the adequacy of various control procedures for dealing with them.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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The second function of a well-designed AIS is to provide adequate controls to ensure that the following objectives are met: Transactions are properly authorized. Recorded transactions are valid. Valid, authorized transactions are recorded. Transactions are recorded accurately.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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stockouts purchasing too many or unnecessary goods purchasing goods at inflated prices purchasing goods of inferior quality purchasing from unauthorized vendors kickbacks
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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receiving unordered goods errors in counting goods theft of inventory failure to take available purchasing discounts errors in recording and posting purchases and payments loss of data
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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production delays and lost sales increased inventory costs cost overruns inferior quality of purchased goods inflated prices violation of laws or import quotas payment for items not received
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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inaccurate inventory records loss of assets cash flow problems overstated expenses incorrect data for decision making
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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inventory control system vendor performance analysis approved purchase requisitions restricted access to blank purchase requisitions price list consultation budgetary controls
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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use of approved vendor lists approval of purchase orders prenumbered purchase orders prohibition of gifts from vendors incentives to count all deliveries physical access control recheck of invoice accuracy cancellation of voucher package
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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End of Chapter 12
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart
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