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CHAPTER 2
OVERVIEW OF BUSINESS PROCESSES
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
2.1 Table 2-1 lists some of the documents used in the revenue, expenditure, and human
resources cycle. What kinds of input or output documents or forms would you find in
the production (also referred to as the conversion cycle?
Students will not know the names of the documents but they should be able to identify the
tasks about which information needs to be gathered. Here are some of those tasks
• Requests for items to be produced
2.2 With respect to the data processing cycle, explain the phrase “garbage in, garbage
out.” How can you prevent this from happening?
When garbage, defined as errors, and allowed into a system that error is processed and the
resultant data stored. The stored data at some point will become output. Thus, the phrase
Ch. 2: Overview of Business Processes
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2.3 What kinds of documents are most likely to be turnaround documents? Do an
internet search to find the answer and to find example turnaround documents.
Documents that are commonly used as turnaround documents include the following:
• Utility bills
• Meter cards for collecting readings from gas meters, photocopiers, water meters etc
2.4 The data processing cycle in Figure 2-1 is an example of a basic process found
throughout nature. Relate the basic input/process/store/output model to the functions
of the human body.
There are a number of ways to relate the input/process/store/output model to the human
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body. Here are a few of them
• Brain. We read, see, hear, and feel things. We process that input in order to understand
2.5 Some individuals argue that accountants should focus on producing financial
statements and leave the design and production of managerial reports to information
systems specialists. What are the advantages and disadvantages of following this
advice? To what extent should accountants be involved in producing reports that
include more than just financial measures of performance? Why?
There are no advantages to accountants focusing only on financial information. Both the
accountant and the organization would suffer if this occurred. Moreover, it would be very
Ch. 2: Overview of Business Processes
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SUGGESTED ANSWERS TO THE PROBLEMS
2.1 The chart of accounts must be tailored to an organization’s specific needs. Discuss
how the chart of accounts for the following organizations would differ from the one
presented for S&S in Table 2-4.
Some of the changes in the chart of accounts for each type of entity include the following:
a. University
• No equity or summary drawing accounts. Instead, have a fund balances section
for each type of fund.
b. Bank
• Loans to customers would be an asset, some current others noncurrent, depending
upon the length of the loan.
• No inventory
• Customer accounts would be liabilities.
Accounting Information Systems
d. Manufacturing Company
• Several types of inventory accounts (raw materials, work-in-process, and finished
goods).
• Additional digits to code revenues and expenses by products and to code
assets/liabilities by divisions.
Ch. 2: Overview of Business Processes
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2.2 Design a chart of accounts for SDC. Explain how you structured the chart of
accounts to meet the company’s needs and operating characteristics. Keep total
account code length to a minimum, while still satisfying all of Mace’s desires.
(Adapted from the CMA Exam)
A six-digit code (represented by letters ABCDEF) is sufficient to meet SDC’s needs:
A This digit identifies the 4 divisions plus the corporate office
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2.3 An audit trail enables a person to trace a source document to its ultimate effect on the
financial statements or work back from amounts in the financial statements to source
documents. Describe in detail the audit trail for the following:
a. The audit trail for inventory purchases includes linking purchase requisitions, purchase
orders, and receiving reports to vendor invoices for payment. All these documents
would be linked to the check or EFT transaction used to pay for an invoice and
Purchase
Requisition
Purchase
Order Receiving
Report Invoice
Ch. 2: Overview of Business Processes
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b. The audit trail for the sale of inventory links the customer order, sales order, and
shipping document to the sales invoice. These documents are linked to the journal
entry recording the sale of that merchandise. The invoice would also be linked to the
cash received from the customer and to the journal entry to record that receipt.
Customer
Order
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c. The audit trail for employee payroll links records of employee activity (time cards,
time sheets, etc.) to paychecks and to the journal entry to record payment of payroll.
Ch. 2: Overview of Business Processes
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2.4 Your nursery sells various types and sizes of trees, bedding plants, vegetable plants,
and shrubs. It also sells fertilizer and potting soil. Design a coding scheme for your
nursery.
Grading depends upon the instructor’s judgment about the quality of the coding scheme.
2.5 Match the following terms with their definitions
a. 10
b. 23
c. 7
d. 16
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2.6 For each of the following scenarios identify which data processing method (batch or
online, real-time) would be the most appropriate.
Some students will respond that all can and ought to be done with online-real time
processing. While all can certainly be done that way, batch processing does have its
advantages (cheaper, more efficient, etc.). In making the decision between batch and
2.7 After viewing the Web sites, and based on your reading of the chapter, write a 2 page
paper that describes how an ERP can connect and integrate the revenue, expenditure,
human resources/payroll, and financing cycles of a business.
Student solutions will vary depending on the demonstrations they observe. However, the
2.8 Identify whether the following transactions belong in a master file or a transaction
file.
a. Update customer address change – Master file
b. Update unit pricing information – Master file
c. Record daily sales – Transaction file
Ch. 2: Overview of Business Processes
2.9 You were hired to assist Ashton Fleming in designing an accounting system for S&S.
Ashton has developed a list of the journals, ledgers, reports, and documents that he
thinks S&S needs (see Table 2-6). He asks you to complete the following tasks:
a. Specify what data you think should be collected on each of the following four
documents: sales invoice, purchase order, receiving report, employee time card
b. Design a report to manage inventory.
c. Design a report to assist in managing credit sales and cash collections.
d. Visit a local office supply store and identify what types of journals, ledgers,
and blank forms for various documents (sales invoices, purchase orders, etc.)
are available. Describe how easily they could be adapted to meet S&S’s needs.
a. A sample invoice is presented in the Revenue Cycle chapter. A sample purchase
order is presented in the Expenditure Cycle chapter. A sample receiving report also
appears in the Expenditure Cycle chapter. Although student designs will vary, each
document should contain the following data items:
Purchase Order
Ship to address Item numbers ordered
Bill to address Payment terms
Purchasing agent number Shipping instructions
Quantity of parts ordered Supplier name or number
Prices of parts ordered Date of purchase
Taxes, if any Total amount of purchase
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Inspected by
b. The report to manage inventory should contain the following information:
• Preferred vendor
• Product number
c. The report to manage credit sales and cash collections should include:
• Credit sales per period
• Cash collections per period
Ch. 2: Overview of Business Processes
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SUGGESTED ANSWERS TO THE CASES
2.1 Bar Harbor Blueberry Farm
Data from Case
Date
Supplier
Invoice
Supplier Name
Supplier
Address
Amount
March 7
AJ34
Bud’s Soil Prep, Inc.
PO Box 34
$2,067.85
March 11
14568
Osto Farmers Supply
45 Main
$ 67.50
March 14
893V
Whalers Fertilizer, Inc.
Route 34
$5,000.00
Purchases Journal
Page 1
Date
Supplier
Supplier
Invoice
Account
Number
Post
Ref
Amount
March 7
Bud’s Soil Prep, Inc.
AJ34
23
√
$2,067.85
March 11
Osto Farmers Supply
14568
24
√
$ 67.50
March 14
Whalers Fertilizer, Inc.
893V
36
√
$5,000.00
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General Ledger
Accounts Payable Account Number:
300
Date
Description
Post Ref
Debit
Credit
Balance
March 1
Balance
Forward
$18,735.55
Purchases Account Number: 605
Date
Description
Post Ref
Debit
Credit
Balance
March 1
Balance
Forward
$54,688.49
Ch. 2: Overview of Business Processes
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Account Payable Subsidiary Ledger
Account No: 23
Bud’s Soil Prep, Inc.
PO Box 34
Terms: 2/10,
Net 30
Date
Description
Debit
Credit
Balance
March
1
Balance Forward
0.00
Account No: 24
Osto Farmers Supply
45 Main
Terms: 2/10,
Net 30
Date
Description
Debit
Credit
Balance
March
Balance Forward
0.00
Account No: 36
Whalers Fertilizer,
Inc.
Route 34
Terms: 2/10,
Net 30
Date
Description
Debit
Credit
Balance
March
Balance Forward
0.00
Account No: 38
IFM Package
Wholesale
587 Longview
Terms: 2/10,
Net 30
Date
Description
Debit
Credit
Balance
March
1
Balance Forward
0.00
