AFM 341 Textbook Summary [Full Course] File contains concise, easy-to-read summaries of assigned textbook readings. Readings arranged chronologically by when they were assigned for ease of use; organized by chapter for increased readability.

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Accounting & Financial Management
AFM 341
Jee Hae- Lim

Chapter 1 Business Process: A set of related activities associated with providing goods and services to customers Transaction Cycles: Groups of related events that typically occur in a particular sequence Events: Activities that happen at a particular point in time E.g. Customer places an order, goods are shipped, and a sales report is printed There are three main transaction cycles: Acquisition (purchasing) cycle; the process of purchasing and paying for goods or services Conversion cycle; the process of transforming resources acquired into goods Revenue cycle; the process of providing goods or services to customers and collecting cash Management Information System (MIS): A system that captures data about an organization, stores and maintains the data, and provides meaningful information for management Accounting Information System (AIS): A subsystem of a management information system (MIS) that provides accounting and financial information as well as other information obtained in the routine processing of accounting transactions Three components of AIS: People Process Technology Enterprise Resource Planning (ERP): An information system that spans functional boundaries and integrates the information flow of the entire organization What an AIS does: Produces external reports Supports routine activities E.g. Taking customer orders, delivering goods and services, billing customers, and collecting cash Decision support E.g. Knowing which products are selling well and which customers are doing the most buying Planning and Control E.g. Analysis of revenues and expenses can be done at the individual product level Implementing Internal Control Internal Control: Includes policies, procedures, and information systems used to protect a companys assets from loss or embezzlement and to maintain accurate financial data Applications: Computer programs that are used to serve a particular purpose. Work processing, electronic spreadsheet, and accounting software are examples of applications Interaction between an accounting information and a user consists primarily of: Recording events, often using on-screen forms Entering information about suppliers, customers, employees, and products Printing documents, such as purchase orders and sales invoices Printing reports, such as financial statements and sales analysis Conducting ad hoc inquiries Off-the-shelf Software: Commercial software that is ready-made and available for sale to the general public Five roles in which accountants use technology: User Manager Consultant Accounting consultants have responded to rising challenges in the field by: Specializing in certain industries Specializing in the accounting software of only one or two suppliers Devoting themselves or their staff to full-time consulting Evaluator Internal auditor External auditor Assurance Services: Services provided by independent professionals who assess the reliability of information needed by external decision makers Provider of accounting and tax services Chapter 2 In order to evaluate an AIS, accountants need to: Know what information to look for Know where to get information Develop a plan to obtain information Organize the information in meaningful ways The revenue cycles of different organizations are similar and include some or all of the following operations: Respond to customer inquiries Develop agreements with customers to provide goods and services in the future Provide services or ship goods to the customer Bill customer Collect cash Deposit cash in the bank Prepare reports As with the revenue cycle, the acquisition cycles of different types of organizations are similar since most include some or all of the following operations: Consult with suppliers Process requisitions Develop agreements with suppliers to purchase goods or services in the future Receive goods or services from the supplier Recognize claim for goods and services received Select invoices for payment Write checks Guidelines for Recognizing Events: Recognize the first event in a process when a person or department within an organization becomes responsible for an activity Ignore activities that do not require participation by an internal agent Internal Agent: People or departments within an organizational unit who are responsible for various events in a business process. Examples: salespeople, shipping employees, and order takers Recognize a new event when responsibility is transferred from one internal agent to another Recognize a new event when a process has been interrupted and resumed later by the same internal agent. After the interruption, someone outside the organization or the process may restart the process. Alternatively, the process may continue at a scheduled time Use an event name and description that reflects the broad nature of the event Subsidiary Ledger: A paper file or printout that provides details supporting a balance in the general ledger. Example: accounts receivable subsidiary ledger provides information about each customer, with a list of unpaid invoices for each customer. The total amount in the accounts receivable subsidiary ledger should equal the balance in the accounts receivable account. Other types of subsidiary ledgers include account payable, inventory, payroll, and fixed assets Entity: An entity is some subject about which information is stored (e.g., customers, employees, and sales orders) Field: A single piece of data about an entity (e.g., Employee Name and Customer Name) Record: A set of related fields about a single entity. As an example, a record in an employee file could contain fields such as Last_Name, First_Name, and Pay_Rate File: A set of related records. For example, an employee file contains a record for each employee in the organization Transaction File: Transaction files store information about events. For example, a transaction file might contain information such as the date of the order, the customer who placed the order, and the dollar amount of the sale Transaction files have the following characteristics: They store data about events such as Orders, Shipments, Cash Collections They usually include a field for the date of the transaction They usually include quantity (e.g. quantity ordered) and price information A status field to show the sequence of events that follow an initial event Master File: Master files contain information about entities other than events. Master files contain two types of information: reference data and
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