Chapter 7

Accounting Information Systems and Business Processes:

Part I
Discussion Questions
7-1.
Answers to this question will vary depending on the type of firm the student intends
to start up. For example, if the student wanted to start up a pet grooming business, there are a
number of possible software choices that might be identified. One is called 123 Pet Software
(http://www.123petsoftware.com/), which includes a large number of features: tracks clients,
pets, inventory, employees, appointments, payroll, networking, and much more. 123Pet dog
grooming and vet software works with cash drawers, bar code scanners, receipt printers, and
other hardware, including touch screens. The software can be used for cats or dogs.
7-2.
Among the uses of accounting codes are the following: (1) to uniquely identify
accounting data (e.g., more than one person or product may have the same name), (2) to
compress data (e.g., written descriptions are generally much longer than a code), (3) to classify
data (e.g., codes facilitate classification either manually or electronically), and (4) to convey
special meanings (e.g., codes can be used to indicate such things as credit ratings, credit limits,
prices, or passwords). Students should be able to find examples of such codes as: employee
identification numbers, chart of account schemes, product numbers, customer or client
identification numbers, and so on.
7-3.
There are many outputs of an AIS. These outputs come in a variety of formats
including hard copy reports, screen displays, audio, images, tape, and diskette. AIS outputs
include: (1) reports to management, investors, and creditors, (2) transaction data files, and (3)
current account information.
Systems analysts need to begin with outputs in designing an AIS. The outputs dictate what data
will be required. Otherwise, analysts will be selecting data sets without justification. This is
likely to result in either too much data or the inability to provide managers with the information
they need. The outputs literally drive the inputs in an AIS.
7-4.
Some criteria that should be considered when designing managerial reports are
usefulness, convenient format, identification, and consistency. These are very broad and
cover most uses. In individual situations, other criteria may be necessary such as adherence
to prescribed format, adherence to a completion deadline, or satisfy the boss. Designers
learn what to include in reports by interviewing the report users, studying business processes,
studying documentation, and studying existing reports.
7-5.
Note to Instructor: Responses will vary by student, type of organization visited, and
documents collected. In general students should find that businesses of all kinds have many
source documents in common. These include purchase requisitions, purchase orders, time
tickets, receiving reports, personnel action forms, sales orders, and invoices.
7-6.
When data entry clerks add a new customer to an AIS, data items to be entered
include customer ID number, customer name, customer shipping address, customer billing
address, terms, credit limit, contact name, phone, fax, and e-mail address. Data items entered
to record a sales order include customer ID number, sales order number, date, date to be

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delivered, authorized signatures, detailed information about items ordered including quantity,
price, description, and salesperson number.
7-7.
Data flow diagrams are logical descriptions of a system whereas systems flowcharts
capture a physical view of the system. The data flow diagram would show processes, similarly
to a systems flowchart. The systems flowchart, however, is likely to show whether the
processes are performed by computer, manually, or by another device. Flow lines in the data
flow diagram would show input and output items. These would either go to a data source or
destination or a data store. The flowchart would show inputs and outputs apart from flow lines.
They might be depicted in manual files, disk files, tape files, documents, etc. Both flowcharts
and data flow diagrams may be designed to show increasing levels of detail. For instance, a
context data flow diagram corresponds to a high level systems flowchart and each usually
shows only one overall process for the revenue cycle.
7-8.
Both restaurants and car manufacturers are manufacturing organizations. They take
raw materials, process them, and produce finished goods. However, the car manufacturer will
deliver the product to a car dealer or intermediary, rather than to the customer. The restaurant
does not only deliver the product to the customer; the process doesn't really end until the
product is consumed! Insofar as inputs to the purchasing cycle are concerned, both car
manufacturers and restaurants are buying raw materials, as mentioned. Therefore, inputs are
likely to be similar. They would consist primarily of purchase requisitions and purchase orders.
One difference worth mentioning is that a car manufacturer is likely to be closely linked to
suppliers - via electronic data interchange (EDI). Therefore, the car manufacturer may make use
of electronic requests for inventory items. A restaurant may not be large enough or closely
linked to specific suppliers for EDI to be effective.
7-9.
Business-without-boundaries is the term given to an organization that has
outsourced one or several business functions. The organization may have outsourced the
function to another company in the US or perhaps to a company that is outside the US (called
offshoring). This trend is changing the nature of organizations in a variety of ways. As with
national and multi-national firms, employees may be located anywhere in the US or the world.
Typically, communication and coordination of business processes are very important so that the
customer experiences seamless service from the firm. As an example, Amazon.com
(headquartered in Seattle, WA) outsourced (offshored) some of their customer service functions
to a company in India. When customers have problems, it is likely that an e-mail response will
originate in India. However, the customer e-mails Amazon.com not the company in India
where the response is generated. Amazon.com has customers worldwide and believes that the
customer service function should respond to customer concerns 24/7. By offshoring this
function to various companies in the world, as well as outsourcing to some companies in the
US, Amazon.com is able to respond to customers very quickly.
As a result of improved technology, networks and improved communications capabilities,
companies can interact with each other in new and different ways to provide better, more
efficient service to customers, while cutting the cost of doing business. Of course, this also
presents new risks and challenges to companies that outsource business processes, because
they are no longer able to directly monitor and control the quality of service that is provided to
their customers.
7-10.
This means that companies have outsourced one or more business functions
(processes) to companies that are not located in the US. According to a recent META Group
report (www.metagroup.com, Worldwide IT Benchmark Report, 2004), India continues to be the
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preferred offshore country with more than 500,000 knowledge workers. Other countries
compete with India for this offshore business such as Russia, the Philippines, Ireland, Israel,
and China.
7-11. Students might strongly agree or disagree with these claims regarding the availability of
qualified IT personnel. However, the responses they give should be based on their research
(number of IT graduates at your university or other statistics that might support their view).
Encourage students to base their opinions on data that they might find on the Internet or data
that might be available in their university library (either reference books or digital media), rather
than their feelings. This topic can lead to a very lively classroom discussion if half of the
students are required to support the claims and the other half of the students must find support
to refute the claims. A mock debate can be used to bring out both sides of this issue. In this
case, 2-3 students from each group would present their findings (perhaps using PowerPoint
slides) in front of the class and present their respective points of view. After both presentations,
the students in the front of the class could act as facilitators to encourage the rest of the class to
give their opinions.
A web site that discusses IT Offshoring and the impact on employees is:
http://www.mckinsey.com/mgi/rp/offshoring/
7.12.

One interesting new use of RFID tags is for passports. The US Government believes that the
benefits outweigh the costs (http://news.cnet.com/RFID-passports-take-off/2100-7348_36130016.html). Another interesting use is that they are implanting in people as an in thing
(http://www.prisonplanet.com/articles/april2004/040704bajabeachclub.htm) to be considered a
VIP at a beach club in Spain.

7.13.

For a list of the Top 15 Weirdest, Funniest, and Scariest Uses of RFID, visit the following
website: http://www.rfidgazette.org/2007/04/top_15_weirdest.html

7.14.

Students opinions of this technology will likely differ based on how they interpret the privacy
issues surrounding RFID tags.
Advantages:
ability to track people (e.g., patients and babies in hospitals)
ability to track items of all types, such as inventory in warehouses, office buildings,
university buildings
convenience (like the smart passes for cars to pass quickly through toll gates)
Disadvantages:
for individuals, the primary concern surrounds the perception that personal privacy could
be violated
from a manufacturing perspective, the primary concern is the cost of the tags

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Problems
7-14.
a) sequence code such as a social security number
b) block code or group code
c) block code or group code
d) block code or group code
e) sequence code (by one's)
f) sequence code (by one's)
g) sequence code (by one's)
h) group code
i) mnemonic code
j) block code
k) sequence code (by one's)
l) sequence code (by one's)
m)sequence code (by one's)
n) group code
o) sequence code or group code
p) sequence code or group code
q) block code
r) block code
s) block code
t) alphabetic code or mnemonic code
u) sequence code (by ones)
v) sequence code or group code
7-15.

A group code of the following format is recommended for Novelty Gadgets:

Product code = L SSS NNNN A DD PP C R

where:
L
SSS
NNNN
A
DD
PP
C
R

=
=
=
=
=
=
=
=

product line (1=toys and games, 2=party and magic tricks, 3=gifts)
subproduct code (numeric)
product number (numeric)
geographic area (mnemonic)
sales district (numeric)
salesperson (numeric)
customer type (mnemonic)
credit rating (numeric)

Note that this is a transaction code, not a product code. The product line, subproduct code and
product number may be used as a product number. The remaining code is not known until a
sales transaction takes place.
7-16.
The figure in this problem is a document flowchart for the preparation of purchase
orders for the P. Miesing and Company. Three source documents are involved in the data
processing: (1) new vendor authorization forms, (2) new product authorization forms, and (3)
authorized purchase requisitions.

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When a new vendor is approved, the vendor information from the new vendor form is keyed
online through a computer edit program which creates a new vendor record on the vendor
master file. Similarly, when a new product is approved, the information from the new product
authorization form is keyed on line though a computer edit program which creates a new
product record on the product master file.
When corporate purchasing agents (or other approved personnel) receive authorization to make
a purchase, an authorized purchase requisition form is obtained. The information on this form is
keyed into an online terminal which in turn connects to a CPU using a Prepare Purchase
Orders program. This program (1) creates a computer record on the purchase orders pending
file, (2) creates a multiple copy purchase order (at least one copy of which is sent to the
vendor), and (3) creates a purchase order summary report.
7-17.
The events in SSR-Saves sales process are:
i. Customer selects goods
ii. Customer and sales clerk participate in sale
iii. Customer pays
a. The sales process in an online environment is similar, with one main exception. The most
important difference is that the store must ship the goods to the customer. This is an
additional event. Attributes of the other events change to some degree. The customer still
selects the goods, but does so without physical inspection. The customer interacts with
software rather than a human sales clerk. As for payment, the customer will always use a
credit card if that is the payment option allowed in the online store.
b. In the retail store, the sales clerk may collect some data about the customer at the point of
sale. However, if the sale is for cash, it is possible that the store never collects data about
the customer. In the online store, the system can collect data about the customer at any
point. For instance, when the customer first opens the site, there could be a registration
screen.
c. Some stores ask customers for their zip code and/or phone number. They do this to track
demographic data about customers and sales. Online stores can collect a lot of data about
customers easily. If you buy online, you need to supply address and, frequently, credit card
information. You may need to provide other data as well. To improve customer satisfaction,
you could post an optional satisfaction survey at the web site. You can also use the data you
collect about the sale to improve customer satisfaction. For example, you could use data
about products most frequently sold online to organize your product offerings online. You
can also use data about the pages customers most frequently open to organize your site. In
addition, the data collected about customer purchases could be used to suggest similar
types of products (cross-selling) the next time the customer visited the website (like
Amazon.com).
d. Public accounting firms sell services instead of goods. There are many differences between
selling goods and selling services. For example, services are intangible and are
experienced. The way a public accounting firm gets its customers is different from a retail
store. The firm may have to bid on jobs and the sales process takes place over time as work
is performed. Public accounting firms will definitely be interested in customer satisfaction.
They can collect the data through surveys and by asking for suggestions from clients on

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ways to improve their service. One way to collect data to improve service in a public
accounting firm or any professional service firm is to create a knowledge management
system. These systems may contain data about client Best Practices that professionals can
use to better service new and existing clients. Some public accounting firms are creating
customer portals where they interact with their clients, providing them updates, for example,
on new accounting standards.

Case Analyses
7-18.

Food Court Inc. (Sales Process)

Customer enters
credit card details
& amount

System verifies
credit card
details

Card # Valid?
No

Error Message

Yes
Encrypt data &
send to UB
computer
Accountant
retrieves
transactions

Accountant charges
card and gets
validation

Accountant enters
validation #

Database
Print receipt
and update
database

Receipt

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1. The answer depends on the volume of business. The costs are the $400 software charge
and the increase in credit card rate. If annual sales are $100,000, the extra .5% amounts to
$500. Weighed against the costs are the benefits. The benefit here will be saved labor (it
would take less of the accountants time). There may be a benefit of fewer errors because
the accountant does not need to key in a number. However, there could also be more errors
because there are fewer chances for error with swiped cards.
2. See flowchart.
3. There are not too many risks associated with the sales process itself. There is the risk that
a credit card or card number is stolen although the credit card company is likely to bear
that risk. There is the risk that the customer will input an incorrect dollar amount for the sale.
There is the risk that the online system could go down. There is the risk that the accountant
could forget to enter a transaction. The accountant could record the wrong validation
number.
7-19. Larkin State University (Purchasing Process)
1. The events are: Purchase Requisition; Purchase Order; Receipt of Goods/Services; and
Cash Payment
2. Employees could complete Purchase Requisition forms on the companys intranet. The
completed requisitions could be forwarded to the appropriate authorities for approval.
Approvals could be online and then the purchase order would be routed to the purchasing
department. The accounting or enterprise software could check for approval and forward
the requisition to the appropriate purchasing agent. The agent could match the order to an
appropriate supplier and enter the data needed to complete a purchase order. Copies of the
purchase order can be routed through the Intranet to receiving and accounts payable
departments. Receiving clerks can complete receipt information and forward that via e-mail
to the appropriate accounts/payable clerk based on vendor name. The accounting or
enterprise software can check all documentation for discrepancies. The software can also
perform checks of vendor names, payment dates, invoice numbers, and invoice amounts as
an internal control against duplicate payments. The software could also print out a
discrepancy report when the vendor invoice, receiving report and purchase order amounts
do not agree.
7-20.

The Caribbean Club (Customer Relationship Management)

1. The students might have a lot of different ideas from their own point of view, but what we
want them to do in this case is to consider the business advantages and disadvantages from
an accounting perspective. The possible advantages could include those that are discussed
in the chapter:
more accurate data in AIS (avoid human error in entering sales data)
perhaps increased sales (VIP status in club)
servers more attentive to customers (dont have to spend time getting bill, delivering to
table, collecting money)

SM 7.7

 perhaps avoid fraud (no cash, debit or credit cards in use)

SM 7.8

Possible disadvantages might include:

initial cost of RFID readers
malfunction of RFID readers would need alternate means of collecting money for food
and drinks
some patrons might object to this sort of technology due to privacy concerns
2. In a retail environment such as this, the following information might be useful:
gender and perhaps age of patron
types of drinks that are most popular
types of entertainment that is preferred by patrons
types of music patrons like to listen to while visiting/talking with friends
peak times for patrons to visit
There are a number of CRMs available that students might select. This would be a good time for
students to have group discussions in class and then report to their classmates which
CRM they selected for Ross and why they selected that choice. Some web sites of CRMs
for restaurants and bars include:
http://www.opentable.com/info/newspage.aspx?id=127
http://www.destinationcrm.com/Articles/Editorial/Magazine-Features/CRM-Where-YouLeast-Expect-It-42800.aspx (discussion of how IHOP uses their CRM)
http://www.netsuite.com
The instructor might also want to lead a discussion of the pros/cons of a hosted CRM solution
vs. an on-premise CRM (i.e., cost, upgrades, training, support, etc.)
3. From a patrons point of view, there might be several advantages:
no need to carry an ID, credit card, or debit card
some patrons appreciate being known by the owners/servers who would be able to bring
them their favorite beverages without being asked for their order
the status of having access to a VIP area of the club
Perhaps the biggest disadvantage is again linked to the concern for personal privacy, although
there are many places these days where patrons sacrifice privacy for convenience.
4. This is an interesting question, which the students might enjoy discussing. The point here is
this would having the chip implanted be worth it for just the duration of the vacation? Or,
might the person be able to take advantage of this technology in his or her home
environment? This would probably be a key question. However, some individuals would
have the chip implanted strictly for the novelty even if it were useful only on vacation.

SM 7.9