ACT 3114-ACCOUNTING INFORMATION SYSTEMS

DEPARTMENT OF ACCOUNTANCY

FACULTY OF BUSINESS STUDIES AND FINANCE

WAYAMBA UNIVERSITY OF SRI LANKA

LECTURED BY: HIRANYA DISSANYAKE

UNIT 02- BUSINESS PROCESSES

This unit provided an overview of business processes. It is important for you to
identify and understand the business processes of each organization, key decisions
that must be made, and information needs of external and internal users.

Following identifies the business processes, key decisions, and information needs of
the integrated case relating to certain company. These vary for different
organizations.

Business Processes Key Decisions Information Needs

1. Acquire Capital

2. Acquire building and

equipment

3. Hire and train employees

1|P a g e
 4. acquire Inventory

5. advertising and marketing

6. Sell merchandise

7. collect payment from

customers

8. pay employees

9. pay taxes

10. pay vendors

2|P a g e
How company interacts with external and internal parties (vendors, investors,
creditors, banks, customers, employees, management, and government agencies) in
various give-get exchanges is illustrated by the figure given below.

TRANSACTION AND TRANSACTION PROCESSING

Agreement between two entities to exchange goods or services that can be measured
in economic terms is a transaction.

Transaction processing captures transaction data and ends with an informational

output.

Basic exchanges can be grouped into five major business or transaction cycles as
illustrated by the following table.

3|P a g e
Transaction Cycle Major Activities in the Cycle
1. Revenue

2. Expenditure

4|P a g e
 3. Human
Resource/Payroll

4. Production

5. Financing

5|P a g e
These cycles relate to each other and interface with the general ledger and reporting
system. The figure is given below.

6|P a g e
DATA PROCESSING CYCLE

The operations performed on data to generate meaningful and relevant information

is the data processing cycle.

Four steps:

1) data input,
2) data storage,
3) data processing, and
4) information output

DATA INPUT (ACCURATE, EFFICIENT, COMPLETE, CONTROLLED, AND VERIFIED)

Use source documents to collect data about business activities (purchase

order, check, sales ticket, credit or debit memos, W-4 Form, and time cards).
Turnaround documents, in machine-readable form, can improve data input
accuracy and efficiency.
Source data automation, which capture transaction data in machine-
readable form at the time and place of their origin (ATMs, POS scanners, and
bar code scanners), can also improve data input accuracy and efficiency.
Control is also improved by using
o pre-numbered source documents,
o well-designed paper forms,
o data entry screens, and
o Programming systems to check for information.

DATA STORAGE

Must have ready and easy access to data; knowledge of the organization of data
is important.
o Legers
o Coding techniques

7|P a g e
 o Chart of accounts
o Journals
o Audit trail

LEDGERS

Ledgers are files used to store cumulative information and include general (every
asset, liability, owners equity, revenue and expense) and subsidiary (detailed data
for general ledger account that has many subaccountsAccounts Payable, Accounts
Receivable, Inventory, and Fixed Assets). The general ledger account is the control
account.

CODING TECHNIQUES

Coding techniques are the systematic assignments of numbers or letters to items to

classify and organize data and may include sequence, block, or group codes. These
codes allow for data to be organized in a logical fashion.

1) Sequence codesnumbered consecutively (pre-numbered checks,

invoices, and purchase orders).
2) Block codesblocks of numbers within a numerical sequence are
reserved for categories having meaning to the user (product codes).

Product code Product Type

3) Group codestwo or more subgroups of digits are used to code the items
within a block code.

Digit Position Meaning

Codes should be

consistent with its intended use;

allow for growth;

8|P a g e
 as simple as possible to minimize costs,
facilitate memorization and interpretation, and
ensure employee acceptance; and
consistent with the companys organizational structure and
across the different divisions of an organization.

CHART OF ACCOUNTS

A Chart of Accounts is an example of coding. Each account in the general ledger is

given a specific number. Charts of accounts will differ depending on the business
entity. Each account in subsidiary ledgers should have its own unique number.

Account Code Account Name Account Code Account Name

100-199 Current Assets 400-499 Equity Accounts

500-599 Revenues

200-299 Non-Current Assets 600-799 Expenses

300-399 Liabilities

900-999 Summary Accounts

9|P a g e
 JOURNALS

Books of original entry and may include the general journal, sales journal, purchases
journal, cash receipts journal, and cash payments journal.

Transactions are typically recorded in journals before being transferred or posted to

accounts in the general ledger and subsidiary ledgers.

AUDIT TRAIL

This is revealed by the posting references and document numbers; provides a means
for checking accuracy and validity of ledger postings.

COMPUTER-BASED STORAGE CONCEPTS

Entitysomething about which information is stored (employees, customers,

inventory items)
Attributescharacteristics of interest (pay rate, customer address
Fielddata values stored in physical space
Recordset of fields containing attributes of the same entity
Filegroup of related records
o Master file (general ledger); permanent
o Transaction file (journal); temporary
Databaseset of interrelated files

10 | P a g e
DATA PROCESSING (CRUD)

To keep the data stored in files or databases current, there are four different types of
data processing:

1) creating,
2) reading,
3) updating, and
4) deleting.

Following figure demonstrates the differences in batch; online, batch; and online,
real-time.

Batch Processing

Online Batch Processing

online Real-time Processing

11 | P a g e
INFORMATION OUTPUT

Final step in the data processing cycle and includes

1) documents,
2) reports, and
3) Response to a query.

DOCUMENTS

Documents are records of transactions or other company data.

Ex:..

Documents generated at the end of the transaction processing activities are

known as operational documents (as opposed to source documents).They can be
printed or stored as electronic images

REPORTS

Reports are used by employees to control operational activities and by

managers to make decisions and design strategies.

They may be produced:

o On a regular basis

o On an exception basis

o On demand

Organizations should periodically reassess whether each report is needed.

QUERIES

Queries are user requests for specific pieces of information.They may be

requested:
1) Periodically
2) One time
They can be displayed:
o On the monitor, called soft copy.
o On the screen, called hard copy.

12 | P a g e
THE PURPOSES OF OUTPUT

Financial statements can be provided to both external and internal parties.

Some outputs are specifically for internal use:

For planning purposes

Ex:..
For management day to day operations
Ex:.
For Control Purposes
Ex;

For evaluation purposes

Ex;

ROLE OF THE AIS

The traditional AIS captured financial data.

Non-financial data was captured in other, sometimes-redundant systems

Enterprise resource planning (ERP) systems are designed to integrate all aspects
of a companys operations (including both financial and non-financial
information) with the traditional functions of an AIS.

REAL WORLD APPLICATIONS

1) Toyota
2) FedEx
3) Eli Lilly,
4) Bell Telephone and
5) Wal-Mart.

13 | P a g e
CASE STUDY- WAL-MART STORES INC

Wal-Mart focuses on speed, innovation with

SAPs HANA technology

MAY 6, 2015 | BY DAN BERTHIAUME

Wal-Mart Stores Inc. has a vast and complicated corporate infrastructure, but that
doesnt stop the worlds largest retailer from pursuing fast, fact-based decisions
based on technology innovation. During a keynote address at the SAP SAPPHIRE
conference in Orlando, Florida, Wal-Mart CIO Karenann Terrell described Wal-
Marts approach to decisions and data.

Any technology company not focused on speed will be disrupted from its
position, said Terrell. Wal-Mart as a technology company and innovator will be a
tale told on speed.

Wal-Mart, which has been using SAP technology in its back office operations since
2007, now uses the SAP HANA business intelligence platform to perform tasks such
as processing the companys half a trillion transaction records.

With 250 million customers a week, 11,000 global locations, a burgeoning e-

commerce channel, and 2.2 million employees, Wal-Mart uses HANAs in-memory
data processing capabilities to assemble data from different parts of the enterprise
and visualize it, in real time. The retailer is also deploying the recently launched SAP
S/4 HANA business suite.

Data runs from the back office to the front office, said Terrell. HANA is floating
on our ERP system. Innovation doesnt rest in the back office.

Using an agile development methodology, Wal-Mart applies HANA to obtain data

and insights at a scale and speed that were previously unavailable.

Our merchants want to know the impact of the cost of bananas in Phoenix on the
business, said Terrell. They want to simultaneously know the response of
customers in China and India. At the execution level, its underpinned by
technology. Wal-Marts business craves it.

14 | P a g e
CASE STUDY-LILY
Lilly Brings Process Consistency to a Diversified, Global
Organization
by Dave Hannon | insiderPROFILES
April 1, 2011
In recent years, pharmaceutical giant Eli Lilly and Company has made cost
reduction a top priority. In September of 2009, the company announced a goal to
reduce annual operating expenses by $1 billion and headcount by 5,500 by the end of
2011. For the financial component and a large portion of IT, this strategy hinges on
moving to a shared services model in which common processes are centralized at a
regional level or outsourced completely to eliminate redundancies and cut
costs. From an IT perspective, retiring dozens of disparate local and regional IT
solutions is paramount to achieving a lower operating cost.
And the only way to make all of that happen is with a common IT platform, says
David Lane, Global IT Design Lead at Lilly.
With over 20,000 employees approximately half of the companys total workforce
stationed outside of the US and spread throughout the 73 countries in which the
business operates, moving to a unified system and centralized process model makes
financial, logistical, and technological sense. To that end, the business is expanding
its use of the existing SAP footprint to its global sales, manufacturing, and research
facilities, replacing its legacy financial, order-to-cash, purchase-to-pay, accounting,
and inventory management systems and creating a single IT platform that regional
shared services organizations can manage. By early 2011, Lilly has already extended
its single global SAP instance to 18 of its largest countries, and has 40 more countries
to go.
As Lane explains, this move to a single ERP system has been the enabler for the
business to adopt a shared services model. In a legacy environment, business
processes in one country dont have to match those in another because the IT
systems are customized to fit local process deviations that have arisen over time. But
standardizing on a single IT platform brings process discipline, consistency, and
efficiency along with common data definition and usage to a diverse, global
organization like Lilly.
For example, if 40 different local controllers are coordinating and executing the
month-end closing process on 40 different systems or system variations with
different data standards, there are inherent redundancies and inefficiencies, Lane
says. With regional shared service centers performing this activity in a
centralized, coordinated fashion with fewer resources you get process efficiency,
commonality, and predictability, which is good with respect to quality reporting
results and knowing exactly what went into each account on a given financial
statement.

15 | P a g e
Streamlining the Migration to SAP ERP
With so much legacy-to-ERP migration taking place, Lillys IT organization saw both
a challenge and an opportunity. After moving 18 countries onto SAP ERP, the IT
team realized its process for migrating the data was time-consuming and, in Lanes
words, high-touch. And with the clock running on its savings goal deadline, there
wasnt any time to waste.
Historically, in our classic high-touch manner, quite often we had our data
stewards write a functional specification, which was then handed over to the
technical development team to write a custom program to load the data because
standard tools did not fully meet our needs, Lane explains. That customized
process involved a lot of people and a lot of steps. With 40 more countries still to roll
out, Lane set out to find a faster way to migrate the data. The result was a two-part
strategy.
The strategys first part focused on the process and roles for migrating data. Sending
a single team to each of the 40 countries one or more times just wasnt practical.
Instead, the project team opted to delegate some of the migration work including
the data cleansing to the local affiliates, since it could be done in multiple regions
simultaneously.
We told our affiliates that they would need to handle the data cleansing, such as
removing duplicate and inactive vendors and customers from their legacy master
data lists, says Lane. The centralized team would then drive other parts, such as
data mapping, transformations, and loading.
The second part of the strategy involved tasking and enabling the global data team
to operate from the global headquarters and be self-serving throughout the data-
loading process, which is the most time-consuming part of the testing preparation
process and a primary focus of the business cutover to production. For that solution,
Lane turned to an SAP partner Lilly was familiar with: Winshuttle.

Discovering a Seamless Solution for Data Migration

Winshuttle provides a suite of applications that let non-technical business users
work with SAP solutions directly from a familiar desktop application. Using
Winshuttle, users create templates that record the steps taken to complete any SAP
transaction and then map the relevant SAP fields securely to a Microsoft Excel
spreadsheet. And because no programming is required, developers can turn their
focus to areas where technical development is required, such as output forms and
electronic data interchange (EDI) transactions with logistics service providers.
Lilly had been using a Winshuttle application for several years to load HR data and
perform some configuration tasks that require data entry to many lines in a table.
The 50% improvement in output and the simultaneous headcount reduction seen in
the HR area led Lane to see if Winshuttle could automate the legacy data migration
to SAP ERP. After viewing a demo of its latest products at an SAP-focused

16 | P a g e
conference and talking with HR colleagues, he saw that the solution could, in fact,
automate Lillys legacy-to-ERP migration work and dramatically reduce the time
required to upload data.
Winshuttle is very intuitive, so if youre familiar with SAP and Microsoft Excel, you
could sit down and record a basic Winshuttle script after half a days work, says
Lane. In a 40-country ERP expansion project, were dealing with a high number of
disparate legacy systems that contain data in many different formats. But now, its a
matter of recording a Winshuttle script and using Microsoft Excel to convert the data
into the correct format before its loaded into SAP ERP.
Lane says developing a standard and partially automated process for migration
allows a data steward or power user in the centralized team to become self-serving
with respect to data transformation and data-loading tasks without the involvement
of IT staff. It is a tremendous enabler that empowers our centralized data team.
Now, rather than working with the data in a spreadsheet file and then moving it
somewhere else to upload the information, the process is seamless, according to
Lane. You can easily transform data fields to calculate percentage increases or
decreases for threshold values or customer credit limits, he says. Winshuttle uses
the power of Microsoft Excel to make some of those activities easier and self-
contained. And the answer is right there in front of you. You simply push a button,
and the data loads into the SAP system along with providing a verification and
rejection file. Winshuttle also uses standard SAP security to verify maintenance
authorization.
Shared Services + Automation = Efficiency Gains
As more of its global operations standardize on SAP ERP, Lilly can centralize more
of its processes at regional shared service centers, which have a common goal of
standardizing processes, sharing best practices and efficiencies, and reducing
redundancies enterprise-wide. Currently, the business has the North American
center up and running, with the next series of go-lives in Europe scheduled to begin
in April of 2011.
The benefits of a shared services model are already emerging at Lilly. For example,
using a Winshuttle script, the North American shared service center has automated
the process for entering requests for samples of its diabetes products, rather than
having customer service representatives key in the orders. The result has been an
80% improvement in productivity. Similar, manual order-entry processes are
occurring all across Lilly, so its an early return on investment that will soon be
replicated in the other shared service centers.
With a single global instance and the same order types across the globe, this is a
ready-made opportunity, Lane says. If our customer service staff spends less time
entering samples orders, they have more time to address situations where a
distributor, pharmacy, or medical facility needs assistance that requires

17 | P a g e
interpersonal interaction. This automation allows us to have more responsive and
streamlined operations, which is our end goal.
Going Forward, Looking Back
With some early wins already registered, Lilly continues to strive toward its cost-
reduction goal. The company has many more countries to check off its ERP
expansion list, but with well-defined processes and the right data migration solution,
each migration gets a bit more efficient.
At times, its difficult to see a link between what we do in IT and the benefits to the
business processes, but in this overall project and the samples ordering situation, the
benefits we bring are easy to see, says Lane.
Looking back, Lane says that if he had to do it over again, he would change only one
thing. I wish we had the current Winshuttle product for the first 18
implementations, he says. We would have saved hundreds of thousands of dollars
by now.

Here are countless horror stories about ERP implementations turning into runaway
expensive, longer than expected projects. This fear of the unknown is a major reason
many companies prolong changing their ERP system. After all, change and the fear
of the unknown are very scary propositions for most human beings. Over the years,
we have worked with small to mid-sized business enterprises in a number of
different industries to help them with a smooth transition into their new ERP
system. If your current business is struggling with outdated systems and its time
for a change, lets see what can be learned from a successful business like Toyota to
ensure your ERP implementation success.

In our experience we have been trying to make the point with our clients that
everyone in the businessfrom the production floor all the way down to the CEO
should be involved in a new ERP selection with a thorough needs analysis. This
removes much of the risk of unexpected delays and costs once you get started with
the ERP implementation process. If you empower your staff as stakeholders in the
process and put them in a role of business strategist, this will increase your ERP
implementation success and adoption of your new ERP system.

Lets look at Toyota and how they accomplished success to illustrate how
empowering your employees in the role of the business strategist will help with a
successful ERP project. Hopefully, you will find ways like Toyota to help your own
company make more money tomorrow than its making today with a successful ERP
implementation!

Every business who makes a decision to invest in a new ERP system and undergo an
ERP implementation is anxious to realize the return on investment (R.O.I.). This is
what most smart business owners and investors are after, we think. ERP systems are

18 | P a g e
supposed to make your business more efficient and profitable after all. Lets do more
than just hope your ERP implementation goes smoothly so you start to see those
profits sooner than later.

Few enterprises anywhere in the world have been more consistent or more
successful at producing profits in good times and not-so-good times than Toyota.
They have achieved success that dwarfs the Big Three automakers in the U.S.

Since sometime in the 1980s, Toyotas market capitalization has been more than the
sum of the market capitalization of the U.S. Big Three combined. Furthermore, for
more than three decades, Toyota has produced profits with consistency while the Big
Three in the U.S. have had extremely unstable profits and eroding capital over the
same period of time.

CASE STUDY TOYOTA

ERP Implementation Lessons from Toyota: MAKING

EVERYONE A BUSINESS STRATEGIST

Richard-cushing(2014)

How has Toyota achieved this stability and success?

Your ERP Implementation Needs Assessment Includes All Key Stakeholders: As

with most things, there are many factors involved in Toyotas success. Toyota places
high value on the input managers and executives received from their production-
line workers. Workers are encouraged to innovate and find ways to slash away at
any work effort that does not add value to the product being delivered to the
customer.

Toyota managers and executives firmly believe that no one knows more about the
machineany machine or any systemthan the one who runs the machine.
Workers in the Toyota Production Systems (TPS), whether implemented in Japan or
in the U.S. plants, are encouraged to stop production and call for immediate review
by managers and team members any time they identify something unusualnot
fitting the standardaffecting the flow or work. (It is a fiction that such stoppages
halt the work throughout the plant. Typically such stoppages only affect a small
portion of the whole plant, unless the stoppage lasts more than a few minutes or, in
some cases, up to several hours.)

The goal, in the TPS meeting that occurs when a worker halts production is not
firefighting to get things running againas it is in most U.S. facilities. Instead, the
focus is two essential matters: 1) identifying as quickly as possible what went wrong

19 | P a g e
at the root of the problem, and 2) figuring out what steps should be taken to
prevent such an occurrence ever again.

This calls for the quickly assembled team of managers and production workers to
become business strategists in the very best sense of the term. They must think,
not tactically about how to put the fire out, but strategically about what steps
should be takenor, at least, initiatedto assure that quality remains undiminished
and the flow of product to their customers is not stopped (or even slowed) by such
occurrences.

What is the ultimate focus of every worker or manager participating in the team that
assembles to see what went wrong?

Throughput.

The continuous flow of product from raw materials to finished product through
many value-added steps with as little waste as possible through non-value-added
activity.

THE RESULT

What is the result for Toyota?

Toyota is able to produce a greater variety of products with higher quality and at
lower cost than its competitors. It is able to bring new models from the drawing
board to production in far shorter time than any of its U.S. or European competitors.
And the workers on the line have a better sense of who their customers are and what
their customers desire in product and experience of ownership than any of the line
workers at the Big Three here in the U.S.
This demonstrates clearly, in my mind, how the Toyota Way makes every employee
a business strategist, and how doing so produces better and more consistent
productsnot just year after year, but decade after decade. Most U.S. companies can
only dream of such stability and success.

20 | P a g e