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AFM341 Study Guide - Subledger, General Ledger, External Auditor


Department
Accounting & Financial Management
Course Code
AFM341
Professor
Jee Hae- Lim

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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

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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 company’s 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

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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
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