Cycles/Processes - ACC 351: Accounting Information Systems - PDF

CYCLES/PROCESSES ACC 351: Accounting Information Systems Instructor: Dr. M. Walters NOTES OUTLINE Types of Business Processes  Governance Processes  Management Processes  Operations Processes  Information Processes Operations/Information Process Objectives  Operations Process Objectives  Inf...

CYCLES/PROCESSES ACC 351: Accounting Information Systems Instructor: Dr. M. Walters NOTES OUTLINE Types of Business Processes  Governance Processes  Management Processes  Operations Processes  Information Processes Operations/Information Process Objectives  Operations Process Objectives  Information Process Objectives Transaction Processes  Transaction Processing  Transaction Cycles e-Transaction Processing  e-Transaction Processing  e-Payment Processing  Point of Sale (POS) Systems Process Analysis & Improvement  Business Process Analysis  Process Mining Analytics 1 Walters Cycles/Processes Notes TYPES OF BUSINESS PROCESSES A business process is an interrelated series of activities that follow a logical sequence and accomplish a specific business purpose. There are four primary types of business processes: governance, management, operations, and information processes. Note that we will focus on operations and associated information processes. Governance Processes Governance processes address directional aspects of a business and consist of those activities necessary to evaluate, direct, monitor, and control organizational performance. These processes serve the “ruling” function of an organization and are necessary to ensure an organization’s strategic direction and performance align with stakeholder interests/value. Governance processes consist primarily of the following: Evaluating. Assessing current/future stakeholder interests and establishing the strategic direction of the organization. Directing. Establishing strategic objectives, plans, policy, structures, and roles/responsibilities to direct implementation of organizational strategy. Controlling. Establishing processes (e.g., risk management, compliance management, internal control) to ensure strategic objectives are attained. Monitoring. Establishing appropriate monitoring/measurement systems for monitoring organizational performance to ensure compliance with strategic objectives and business requirements. Management Processes Management processes address administrative aspects of the business and consist of those activities necessary to plan, implement, run, control, and monitor business operations (see below). These processes serve the “running” function of an organization and are necessary to ensure operations processes (see below) meet expectations/requirements. Management processes consist primarily of the following: Planning. Defining operational objectives to support organizational strategy/strategic objectives. Implementing. Developing and executing processes to support operational objectives Decision Making. Identifying and selecting courses of action to run the business and support operational objectives. Controlling. Implementing controls (plans, policies, procedures, or practices) to ensure operational objectives are met. Monitoring. Monitoring operational processes and performance Operations Processes Operations processes addresses the operational aspects of a business and consists of activities performed to fulfill the central business function(s) of a business entity. Operations processes perform 2 Walters Cycles/Processes Notes the “work” function of a business entity and are necessary to ensure the organization fulfills its intended purpose. Operations processes consist primarily of the following: Core Operations Processes. Core operations processes are activities that make up an entity’s core business and create primary value for a business entity and/or its stakeholders. Most organizations’ central functions consist of “selling stuff”, “buying stuff”, and, possibly “making stuff” so core operations processes consist primarily of selling, acquisition/purchasing, and production related activities. Selling Goods/Services. Order processing, fulfillment, delivery/distribution, and collections. Acquiring/Procuring Resources. Requirements determination, procuring/purchasing, receiving, storing, and payments. Producing Goods/Services. Product/production design, planning/scheduling, requirements planning, production operations, and storing. Supporting Operations Processes. Supporting operations processes are activities that facilitate the achievement of core operations processes. Accounting/Reporting. Transaction processing, financial reporting, management reporting. Finance. Cash management, financial planning, investments, financing. Human Resources. Employee recruiting, hiring, training, development, compensation. Information Systems. Acquisition, development, implementation, and operation of information systems/processes. Marketing. Market research, identification, strategy, promotion, sales generation, distribution. Service. Installation, parts, repairs, replacements, customer support. Information Processes An information process addresses the informational aspects of a business and consists those activities performed to transform data resulting from operations processes into information (i.e., data processing cycle, capture, processing, maintenance/storage, and distribution/reporting). Information processes perform the “keeping track” function within a business entity and are necessary to track/support operations processes. Recall the steps in the data/information processing cycle as follows, Data Capture. Input activities to get data into the system (i.e., collect, verify, enter). Data Processing. Transforming activities to convert captured data into useful form (i.e., adding/altering, reviewing/verifying, updating/revising, and/or deleting/removing data). Data Maintenance. Storage activities to maintain data so that it may be readily identified and accessed, (i.e., organizing, filing, and retrieving). 3 Walters Cycles/Processes Notes Data Distribution. Output activities to provide useful information in meaningful form (e.g., documents, reports) to users (i.e., aggregating, preparing, and distributing) The data/information processing steps should be designed to effectively, efficiently, and securely track operations activities in a manner that results in a high level of data/information integrity (accuracy, completeness, and validity). Information processes (keeping track activities) are designed to closely follow operations processes (work activities) and as such, operations and associated information processes will be closely related and sometimes difficult to distinguish. The remainder of the course section focuses on such operations and associated information processes. OPERATIONS/INFORMATION PROCESS OBJECTIVES Business objectives are business goals or requirements designed to establish a basis for both driving and measuring the adequacy of business performance. A business process objective is a goal or requirement for a particular business process; business process objectives may be used to assess how well a business process functions relative to expectations. Operations Process Objectives Operations process objectives are goals or requirements for ensuring operational processes effectiveness, efficiency, and security. As information processes are designed to track operations processes, effectiveness, efficiency, and security of operations processes will directly/indirectly impact the integrity and security of information processes (and vice versa). Operations process objectives fall into three areas, effectiveness, efficiency, and security. Ensure Effective Operations Processes. This objective concerns the effectiveness of a given operational process; operational effectiveness relates to “what” a process does and whether or not the process fulfills its intended purpose or accomplishes its intended function. Information processes support effective operations by capturing, processing, maintaining/storing, and distributing information to facilitate fulfillment of operational activities. For example, an operational effectiveness objective for a client billing process might be “Ensure that clients are appropriately billed”. An operational effectiveness objective for a payroll process might be “Ensure that employees are properly compensated.” Ensure Efficient Operations Processes. This objective concerns the efficiency of a given operational process; operational efficiency (relates to “how” well a process is performed and whether or not resources are employed in a concise, economical, organized/systematic, and timely manner. Information processes support efficient operations by capturing, processing, maintaining/storing, and distributing information to facilitate the productive use of resources in performing operational activities. For example, an operational efficiency objective related to a client billing process might be “Ensure the billing process is cost-effective,” “Ensure the billing process is well organized,” or “Ensure that clients are billed in a timely manner.” An operational efficiency objective for a payroll process might be “Ensure that the payroll process is systematic” or “Ensure employees are compensated in a timely manner.” 4 Walters Cycles/Processes Notes Ensure Security of Operations Resources. This objective concerns the protection (confidentiality, integrity, availability) of operational resources such as cash, inventory, and data. Information processes support control over operational resources by capturing, processing, maintaining/storing, and distributing information to facilitate accountability for operations resources (e.g., information processes may provide source documents and/or an audit trail used to verify resources were used in an authorized manner). For example, an operational security objective related to a client billing process might be “Ensure confidentiality of client information” or “Ensure client payments are protected from theft.” An operational security objective related to a payroll process might be “Ensure confidentiality of employee information” or “Ensure payroll checks or direct deposits are protected from theft.” Information Process Objectives An Information process objective is a goal or requirement related to a particular information process. Information process objectives are designed to ensure the integrity1 of information processing activities (i.e., data capture, processing, maintenance, and distribution) 2 and security of related data/information. As information processes are designed to track operations processes, the integrity and security of information processes will directly/indirectly impact the effectiveness, efficiency, and security of operations activities. Information processing objectives will be tailored to the specifics of a particular system process; however, in general, information processing objectives must address input, processing, and output integrity concerns as well as security concerns. Ensure Input Integrity. Input integrity objectives concern the accuracy, completeness, and validity of data capture (entering/inputting) activities with respect to various input forms (e.g., source documents) and means of capture (e.g., manual, computerized). For example, an input integrity objective for a client billing process might be, “Ensure that billable hours are accurately entered into the system.” An input integrity objective for a payroll process might be, “Ensure that employee hours worked are accurately entered into the system.” Ensure Processing Integrity. Processing integrity objectives concern the accuracy, completeness, and validity of various data processing (transforming) activities with respect to various processing modes (i.e., periodic, immediate) and means of processing (i.e., manual, computerized). For example, a processing integrity objective for a client billing process might be, “Ensure that billing totals are accurately computed” or “Ensure that proper billing codes are used to compute billing totals.” A processing integrity objective for a payroll process might be “Ensure that net employee pay is accurately computed” or “Ensure that up-to-date tax tables are used to compute payroll taxes.” Ensure Output Integrity. Output integrity objectives concern the accuracy, completeness, and validity of data distribution activities with respect to various output forms (e.g., documents, reports) and means of distribution modes (e.g., hard copy, soft copy). For example, an output integrity objective for a client billing process might be, “Ensure billing invoices are accurate” or “Ensure billing invoices are sent to the appropriate client,” An output integrity objective for a payroll process 1 Recall that integrity encompasses goals of accuracy, completeness, and validity. Accuracy (correctness) means that data/information corresponds to actual events or objects and is free from errors or unauthorized modification. Completeness (wholeness) means that the data/information is complete inclusive of all valid events or objects that should be captured by the system. Validity (soundness) refers to the authenticity and legitimacy of data/information and means that the data/information represents actual (not fabricated or falsified) events that have been properly authorized. 2 Note that operations process objectives will overlap with information process objectives, as effective and/or efficient operations will depend on accurate, complete, valid data/information. 5 Walters Cycles/Processes Notes might be “Ensure payroll checks are accurate” or “Ensure payroll checks are direct deposited to the correct employee account.” Ensure Security of IS Resources. Information security objectives concern protection of information systems (IS) components (i.e. people, data/information, processes/procedures, IT components, facilities).3 IS security objectives relate to ensuring confidentiality (ensuring nondisclosure of sensitive information resources to unauthorized parties), integrity (ensuring accuracy, completeness, and validity of information resources),4 and availability (ensuring accessibility and reliability of information resources). For example, an IS security objective for a client billing process might be, “Ensure the confidentiality of sensitive client data” or “Ensure client billing data is protected from corruption or loss.” An IS security objective for a payroll process might be “Ensure confidentiality of sensitive employee data” or “Ensure employee data is protected from corruption or loss.” Process objectives are “goals” and should be stated as such (i.e., “Ensure …” or “To ensure …”) TRANSACTION PROCESSES Transaction Processing Transaction. Refers to a business event that impacts or is of interest to an organization. Transactions are typically classified as financial transactions (events that directly/immediately impact financial position, measured in monetary terms) or nonfinancial transactions (events that do not directly/immediately impact financial position, not measured in monetary terms). Transaction Processing. Refers to the capture, processing, maintenance, and distribution of business transaction information. A transaction process is essentially a business information process (capture, process, maintain, distribute) designed to keep track of operations processes. Transaction Processing System (TPS Refers to an information processing system designed to process business transactions. The purpose of a transaction processing system is capture, process, maintain/store, and distribute business transaction information to users. Transaction Cycle. Refers to a data/information processing cycle (i.e., data capture, processing, maintenance, and distribution) designed to process business transaction data for a particular series of logically related, recurring transaction events. Transaction cycles organize the processing of ongoing business events into common sequences of activity to facilitate effective/efficient information processing. These transaction cycles (or recurring information processing sequences) track key operations processes (e.g., selling, acquiring, producing as discussed above). Three basic transaction cycles are used to account for most of the operational activity/processes of an organization, the revenue cycle, expenditure cycle, and production cycle.5 3 Note compromised IS security can jeopardize other information processing objectives; that is, an organization cannot ensure integrity of information without controlling the IS components used to utilized to capture, process, maintain/store, and distribute information. 4 Note the information security objective, integrity, overlaps with information process objectives relating to input, processing, and output integrity. 5 Note the General Ledger/Reporting Cycle is also a key accounting processing cycle;, it focuses primarily on information functions necessary to maintain/distribute data (as opposed to tracking operations functions as in revenue, expenditure, and production cycles). The general ledger/reporting process includes the following subprocesses: accumulating/validating event data (from revenue, expenditure, production cycles), classifying/posting event data (into general ledger accounts/general ledger master records), determining/recording adjustments, preparing/distributing reports (i.e., general- 6 Walters Cycles/Processes Notes purpose financial statements), and finally closing accounts (end of period) (Gelinas et al. 2018). Note that general ledger/reporting functions are covered in prerequisite financial accounting courses. 7 Walters Cycles/Processes Notes  Revenue Cycle. Designed to process transaction data relating to selling goods/services. Expenditure Cycle. Designed to process transaction data relating to acquiring/procuring resources. Production Cycle. Designed to process transaction data relating to producing goods/services. Transaction cycles (revenue, expenditure, and production) are designed to track data for core operations processes (selling, acquiring, and producing, respectively) and as such, will closely follow the operations activities they are designed to track. As such, operations processes and the transaction cycles designed to track associated data will sometimes be difficult to distinguish. For example, it may be difficult to distinguish operational activities associated with “selling” from informational activities necessary to keep track of such “selling” activities. See below for details re transaction cycles. Subcycle. A meaningful component or part of a cycle; a cycle is referred to as a subcycle when it is viewed relative to the larger cycle of which it is a part. Each of the aforementioned transaction cycles (revenue, expenditure, production) can be broken down into subcycles (see below for details). Transaction Cycles Revenue Cycle. The revenue cycle focuses on processing transaction data related to selling of goods/services to customers and the corollary collection of payments. The revenue cycle generally consists of order entry/sales (OE/S - customer order processing), billing/accounts receivable (B/AR - customer billing/invoicing), and cash receipts (CR - cash collections processing) subcycles. See Table 1 below for a traditional breakdown of revenue cycle subprocesses. Table 1: Revenue Cycle Subcycles Key Revenue Cycle Transaction Subcycles REVENUE: Order Entry/Sales (OE/S)  Billing/Accounts Receivable (B/AR)  Cash Receipts (CR) Breakdown of Key Revenue Cycle Subcycles (e.g., sub-sub-cycles) OE/S: Process Sales Order  Fulfill Order (i.e., pick goods)  Deliver/Ship Order  Update Inventory B/AR: Determine Billing  Prepare Customer Invoice  Send Invoice  Update Customer A/R CR: Receive Payments  Verify Payments  Deposit Receipts  Record Payment/Update Customer A/R Revenue Cycle Subprocesses Documents are manual/electronic forms/instruments used to support data processing steps and/or ensure data processing integrity; documents are used to authorize/initiate, enable/facilitate, or provide evidence of tasks performed. There are several key documents used to facilitate revenue cycle activities; documents traditionally associated with the revenue cycle are listed and described in Table 2 below. Note documents listed may occur in manual or electronic form. 8 Walters Cycles/Processes Notes Table 2: Revenue Cycle Documents Document Name Subcycle Definition/Purpose Definition: A customer request that specifies type and quantity of merchandise desired by the customer; may occur in standardized or non- standardized in form and may be submitted to the organization via mail, Customer Order OE/S telephone, or online. Purpose: The purpose of this document is to communicate a customer’s request for goods/services to the organization. The customer order initiates the sales order/entry subprocess. Definition: A document that specifies critical order data such as customer account information (e.g., name, contact information, and account number), details re items ordered by the customer (e.g., product Sales Order OE/S descriptions, item numbers, quantities, and prices of items ordered), and terms of sale (e.g., taxes, shipping, freight). Purpose: The purpose of this document is to capture/provide critical sales order information in a standardized format. Definition: A document containing sales order information sent to the customer once the order has been accepted for fulfillment. Customer or Order Purpose: The purpose of this document is to notify the customer that the OE/S Acknowledgment order has been accepted and provide an expected shipping date. Also serves as the order verification (i.e., customer can verify order accuracy prior to shipping). Definition: A document indicating the items and quantities to be sent to the customer. Picking Ticket OE/S Purpose: The purpose of this document is to authorize the warehouse to remove (or “pick”) goods from inventory and ship to them to the customer to fulfill the customer order. Also referred to as a “stock release”. Definition: A document sent to the customer with ordered goods describing the contents of the package. Purpose: The purpose of this document is to notify the customer of the Packing Slip OE/S exact quantities of each item contained in the shipped package. The document will also notify customer of any items that were not shipped, and the reasons the items were not shipped. Definition: A contract between the seller and carrier in which the carrier agrees to transport goods for the seller. Bill of Lading OE/S Purpose: The purpose of this document is to create a legal contract between seller and carrier, identify who is liable for damages/losses, and upon delivery/signing, transfer title to the customer. Definition: A document sent to the billing department specifying which goods and quantities were shipped to the customer. Shipping Notice OE/S Purpose: The purpose of this document is to notify the customer and billing department of goods shipped and initiate the billing/accounts receivable subprocess by triggering preparation of a sales invoice. Definition: A document that shows items, quantities, charges to the customer. Also referred to as a customer invoice or a billing invoice. Sales Invoice B/AR Purpose: The purpose of this document is to formally notify the customer (Customer Invoice) of an obligation to pay amounts due to the company (and on what items/quantities/transactions those amounts are based). Remittance Advice (part B/AR Definition: A document attached to a customer invoice, containing the of sales invoice) payment due date, account number, and payment amount. This document is removed from the invoice and sent with payment to the seller. 9 Walters Cycles/Processes Notes  Table 2: Revenue Cycle Documents Document Name Subcycle Definition/Purpose Purpose: The purpose of this document is to provide seller with data to properly record payments (i.e., cash receipts) and update customer accounts (i.e., accounts receivables). Note: The remittance advice is a turnaround document that links the B/AR subprocess to the CR subprocess. Definition: A document prepared to log all received payments and the forms in which they were remitted (e.g., cash, check, etc.). Remittance List CR Purpose: The purpose of this document is to track payments received; this document is used in later subprocesses to facilitate account updates. Definition: A document logging cash/check receipts to be deposited to the bank; this document specifies amounts and categorizes funds deposited Deposit Slip CR (cash, check, etc.). Purpose: The purpose of this document is to total cash/check collections for deposit to the bank. Revenue Cycle Documents See chapters 10 (OE/S) and 11(B/AR) in the course text for additional details re the revenue cycle. Expenditure Cycle. The expenditure cycle focuses on processing transaction data related to acquiring/procuring resources and the corollary distribution of payments. Since organizations acquire/purchase multiple different types of resources, they generally have multiple expenditure cycles. Different types of acquisition/purchasing processes are treated as distinct transaction cycles for processing purposes as they differ markedly with respect processing activities. Key expenditure cycles include inventory purchasing, human resources/payroll, fixed asset acquisition, and operating expenditures. This section focuses on the inventory purchasing expenditure cycle. The inventory purchasing expenditure cycle consists of purchasing/receiving (P/R – purchase order processing and receiving goods), payables/accounts payable (P/AP- verifying/recording payables) and cash disbursements (CD - cash payments processing) subcycles. See Table 3 below for a traditional breakdown of inventory purchasing expenditure cycle subprocesses. Table 3: Expenditure Cycle Subcycles (Inventory Purchasing) Key Expenditure Cycle Transaction Subcycles EXPENDITURE: Purchasing/Receiving (P/R) Payables/Accounts Payable (P/AP) Cash Payments (C/P) Breakdown of Key Expenditure Cycle Subcycles (i.e., sub-sub-cycles P/R: Determine Requirements  Order Goods/Services  Receive Goods/Services* Record/Update Inventory P/AP: Receive Vendor Invoice Validate Invoices/Payables#  Record Payables/Update A/P CP: Prepare Payments  Issue Payments  Record Payments/Update A/P Expenditure Cycle Subprocesses (Inventory Purchasing) *When goods are received, items are counted using a blind purchase order to fill in amounts received, then a receiving report is created listing what was received; the receiving report is then compared to the purchase order (to ensure the company received what was ordered). See below re documents. # Invoices/payables are typically validated by comparing the invoice to the receiving report (to ensure the company has been billed corrected for items received). See below re documents. 10 Walters Cycles/Processes Notes  There are several key documents used to facilitate/support inventory purchasing expenditure cycle activities; documents traditionally associated with the purchasing expenditure cycle are listed and described in Table 4 below. Note documents listed may occur in manual or electronic form. Table 4: Expenditure Cycle Documents (Inventory Purchasing) Document Name Subcycles Definition/Purpose Definition: An internal request for authorization to purchase goods or services; specifies requesting individual, items requested (e.g., descriptions, numbers, quantities, and prices), vendor, and reason for the Purchase Requisition P/R request. Purpose: The purpose of this document is to request authorization to purchase goods/services and as such, to ensure that orders are properly authorized before orders are placed. Definition: A document that specifies critical purchase order data such as the vendor, items ordered (e.g., product descriptions, item numbers, quantities, and prices of items ordered), and expected terms of sale (e.g., Purchase Order P/R delivery dates, shipping terms, and other conditions). Purpose: The purpose of this document is a request purchase of goods/services from a vendor. “Open” purchase orders show existing orders that have not yet been filled. Definition: A document that accompanies the purchased inventory from the vendor identifying the items included in the shipment. Vendor Packing Slip P/R Purpose: The purpose of this document is to trigger the receiving process; goods received are inspected and counted and then matched against the packing slip for verification. Definition: A copy of the purchase order document that purposely blanks out quantity data to insure receiving personnel are not influenced by an expected quantity when they are counting goods received to Purchase Order P/R prepare the receiving report. Price data may also be blanked out because (Blind Copy) it is not necessary for receiving personnel to perform their tasks. Purpose: The purpose of this document is to support the receiving process and the preparation of the receiving report. Definition: The primary document in the receiving subprocess used to record goods received from vendors (along with quantities received, product quality, etc.). Consists of a a formal list of items received from Receiving Report P/R the vendor. Purpose: The purpose of this document is to verify items received from the vendor as a basis for authorizing payment of the vendor invoice. Definition: A document that specifies items purchased and total amounts owed to the vendor. Also referred to as the vendor invoice. Purpose: The purpose of this document is to notify the purchaser of an obligation to pay for goods/services received and initiate the Purchase Invoice P/AP payables/accounts payable subprocess process by triggering the creation (Vendor Invoice) of a vendor payable. Note: The purchase order (items ordered), receiving report (items received), and vendor invoice (amounts billed) are compared to ensure consistency between items ordered, items received, and items billed; this provides a basis for authorizing the creation of a vendor payable. Expenditure Cycle Documents (Inventory Purchasing) 11 Walters Cycles/Processes Notes  See chapters 12 (P/R) and 13 (P/AP, CP) in the course text for additional details re the purchasing expenditure cycle. Production Cycle. The production cycle (A.K.A. conversion cycle) focuses on processing transaction data related to the conversion of resources (i.e., materials, labor, overhead) into a finished product/service. The production cycle consists of product/production design (P/PD), production planning/scheduling (PP/S), materials requirements planning (MRP), production events/operations (PE/O), management reporting (MR) subcycles. Primary data/information processing activities for the production cycle are traditionally associated with management accounting functions as follows: Product/Production Design (P/PD). Facilitate effective/efficient design, estimate product lifecycle costs, support cost reduction strategies. Generate parts master, bill of materials, routing master. Production Planning/Scheduling (PP/S). Plan, schedule, budget for production needs. Generate the master production schedule and production orders for specific products Materials Requirements Planning (MRP). Determine, plan, acquire/procure, and manage inventory (raw materials/parts/subassembly) and other resource needs.6 Production Events/Operations (PE/O). Cost/record production events/operations from raw materials to work in progress to finished goods to cost of goods sold. Use raw materials requisitions, job tickets, move tickets to control/facilitate production processes. See Table 5 for a traditional breakdown of production events/operations processes. Management Reporting (MR). Prepare costing reports, production reports, performance reports, etc. Table 5: Production Cycle Subcycles Key Production Cycle Transaction Subcycles PRODUCTION: P/PD  PP/S  MRP  PE/O  MR Breakdown of Production Event/Operations Subcycle (i.e., sub-sub-cycles) PE/O: Raw Materials TO  Work in Progress TO  Finished Goods TO  Cost of Goods Sold Production Cycle Subprocesses Links to Revenue/Expenditure Cycle: The production cycle is connected to/from both revenue cycle and expenditure cycle via sales order and purchasing activities, respectively. Specifically, Production Cycle to Revenue Cycle. Production Cycle PP/S  Revenue Cycle OE/S. The production planning/scheduling (PP/S) subprocess is linked to the revenue cycle order entry/sales (OE/S) subprocess (i.e., Process Sales Order  Fulfill Order  Deliver Order  6 Material requirements planning (MRP). MRP is an inventory management system (typically software-based) designed to improve purchasing efficiency, enable timely production processes, and reduce required inventory (and thereby, reduce inventory costs) (Romney et al. 2021). MRP systems utilize information from the bill of materials and master production schedule (see Table 5) to determine requirements and establish purchasing schedules for raw materials, component parts, and subassemblies needed to make finished products (Whatis n.d.). MRP systems are used to decide what is needed, how much is needed, and when it is needed. 12 Walters Cycles/Processes Notes  Update Inventory). The order entry/sales (OE/S) subprocess within the revenue cycle handles customer/sales order processing, which flows into the production planning and scheduling subprocesses within the production cycle. In addition, the completed order (once produced) flows back into the fulfill order subprocess within the Revenue Cycle. Production Cycle to Expenditure Cycle. Production Cycle MRP  Expenditure Cycle PR. The MRP subprocess is linked to the expenditure cycle inventory purchasing/receiving (P/R) subprocess (i.e., Determine Requirements  Order Goods/Services  Receive Orders  Record/Update Inventory). The inventory purchasing/receiving (P/R) subprocesses within the expenditure cycle handles raw materials inventory purchasing/receiving for the production cycle, which flows from/to the materials requirements planning subprocess within the production cycle. There are several key documents used to facilitate production cycle activities; documents traditionally associated with the production cycle are listed and described in Table 6 below. Note documents listed may occur in manual or electronic form. Table 6: Production Cycle Documents Document Name Subcycles Definition/Purpose Definition: A document listing types and quantities of raw materials, component parts, and subassemblies needed to produce a single finished Bill of materials product. P/PD (BOM) Purpose: The purpose of this document is to list materials requirements for products to facilitate materials requirements planning and ordering to support production. Definition: A record listing detailed specifications for each raw material Parts Master P/PD or part used in product design. Purpose: The purpose of this list is to facilitate inventory management. Definition: A document that specifies the operations, Routing Master equipment/workstations, sequences, and times allowed for each task (A.K.A. Operations P/PD necessary to complete a particular product. List) Purpose: The purpose of this document is to provide detailed production instructions for products to facilitate efficient production processes. Definition: A planning document specifying products to be manufactured, quantities to be produced, production instructions, and Master Production PP/S production timetable for starting and completing production. Schedule (MPS) Purpose: The purpose of this document is to provide a formal plan and schedule for production in the factory. Definition: A document ordering the production of a particular product; Production Order it lists production requirements necessary to complete a production run. PP/S (A.K.A Work Order) Purpose: The purpose of this document is to authorize and initiate the production process for a particular product. Definition: A document that identifies types and quantities of raw Raw Materials materials to be removed from the storeroom and placed into production. PE/O Requisition Purpose: The purpose of this document is to authorize the release of raw materials from the storeroom for use in production. Definition: A document used to record resources (i.e., direct materials, Job Ticket direct labor, overhead) utilized in the production of a product/job. (Job Order Costing PE/O Purpose: To determine the amount of resources assigned to each Only) product/job; used for costing purposes. 13 Walters Cycles/Processes Notes Table 6: Production Cycle Documents Document Name Subcycles Definition/Purpose Definition: A document that accompanies transfers of materials, parts, and/or products throughout the factory; contains information for tracking work completion/location (e.g., specification of materials/parts/products Move Ticket PE/O being moved, to/from locations, time of transfer, etc.). Purpose: The purpose of this document is to authorize and record movement of materials, parts, and/or products from location to location. Production Cycle Documents See chapters 15 (IPP) in the course text for additional details re the production cycle. E-TRANSACTION PROCESSING e-Transaction Processing e-Transaction processing refers to the use of use of communications, network, and/or Internet technologies to facilitate transaction processing (i.e., processing transactions online). e-Transaction processing encompasses a number of concepts including online transaction entry (OLTE), online batch processing (OLBP), online real-time processing (OLRT), and online transaction processing (OLTP) systems. Online Transaction Entry (OLTE). Refers to the use of electronic data entry devices (e.g., bar code readers, card readers, scanners, RFID readers) to enter data directly into the information system at the time of the transaction event. This eliminates the need to capture data on a source document before entering the transaction event into a computer system. Use of automated data entry devices (e.g., bar code readers, card readers, scanners, RFID readers) also reduces errors associated with manual data entry (although errors related to reader/scanners can occur). Note: OLTE does NOT eliminate the use of periodic mode/batch processing; transactions entered directly into a system may still rely on periodic mode/batch processing to update master files (i.e., transaction data may be accumulated in temporary files for later processing to update master records). That is, OLTE may be associated with online batch processing (OLBP) or online real-time processing (OLRT) (see below). Online Batch Processing (OLBP). Refers to the use of periodic mode/batch processing to update master records subsequent to the entry of a transaction event into a system. In OLBP, transaction data is entered at the time of the transaction event, then accumulated in temporary files (i.e., records representing pending transactions), which are then later processed in batches to update master files within the system. OLBP is generally more efficient, less costly, and less resource intensive than OLRT. Online Real Time Processing (OLRT). Refers to the use of immediate mode/real-time processing to update master records immediately after entry of a transaction event into a system. In OLRT, transaction data/records are entered directly into the system (using OLTE) at the time of transaction event, master files are immediately updated based on transaction records entered, and up-to-date balances/reports are immediately available. That is, all steps in the data processing cycle are completed in “real-time”. OLRT systems depend on a continuous state of connectivity to a network (possibly the Internet if the server housing master data is remotely maintained or cloud-based) to enable such “real- time” processing. OLRT is generally faster and affords access to continuously updated information. OLRT systems are very fast but generally costly to implement and processing intensive to operate. 14 Walters Cycles/Processes Notes Online Transaction Processing Systems (OLTP). Refers to a type of system that enables online transaction-oriented applications. Essentially, an OLTP system is a transactional system designed to process simple, interactive transactions for numerous concurrent users with extremely fast response times. Key characteristics of OLTP systems are as follows (Netlingo n.d., OLTP n.d., WhatIs.Com n.d.): Speed. OLTP systems process short, simple, interactive tasks/transactions for which users expect a negligible response time. OLTP systems respond instantaneously to user requests w/ response times of less than one second. Concurrency. OLTP systems allow numerous users (possibly thousands) to conduct transactions simultaneously (by affording users concurrent access to large-scale secure databases). High Volume. OLTP systems are characterized by extremely high volumes of data, transactions, and users. Continuous Availability. OLTP require continuous availability and minimal recovery points/times in case of a disruption. Examples of OLTP systems include automated teller machine (ATM) systems, online banking/bill payment systems, and online airline/travel reservation systems. OLTP systems are capable of processing enormous volumes of transactions for thousands of users simultaneously very, very quickly. However, such systems can be costly to implement and maintain, and disruptive incidents (resulting in downtime and/or data loss) can be catastrophic for an organization (OLTP n.d.). e-Payment Processing Electronic Payment (e-Payment) Processing. Refers to the utilization of communications, network, and/or Internet (i.e., online) technology to process payments for goods/services (as opposed to using cash or manually writing a check) (Gelinas et al. 2018, Rainer & Price 2023). Electronic Funds Transfer (EFT). Refers to the direct, digital transfer of money from one account to another via a network (usually the Internet). Transfers may be inter-institutional (across different institutions) or intra-institutional (within a single institution). Note that most (but not all, see virtual currency below) electronic payment methods/systems rely on traditional EFT. Electronic Payment (e-Payment) Methods. Refers to online payment methods (generally enabled by EFT) that allow consumers to pay for goods/services electronically. Examples include (Netlingo n.d., Rainer & Price 2023, Simkin et al. 2018, Whatis.com n.d., Webopedia n.d., Wikipedia n.d.): Payment Cards. Use of credit cards or debit cards to make an electronic payment. Some credit card companies offer single-use credit card numbers (i.e., a one-time use random credit card number linked a customer account). e-Checks. Refers to the use of check routing number and account number data to process an electronic payment directly from a checking account (as opposed to manually writing/depositing a check). 15 Walters Cycles/Processes Notes  e-Money. Refers to monetary value maintained on a “stored-value card” that may be used to make an electronic payment. Examples include prepaid cards (s/a gift cards) or smart cards (like a gift card but can be run as a credit/debit card essentially combining prepaid, credit card, and debit card payment capabilities). e-Wallets (Digital Wallets). Refers to a payment application/system that stores encrypted user payment information to enable a user to make electronic payments (often via mobile device, see below). Digital wallets are also used to manage other digital resources such as boarding passes, concert/movie tickets, coupons, and loyalty cards. Google Wallet and Apple Passbook are examples. Mobile Payments (m-Payments). Refers to use of a mobile device (e.g., smart phone) to make electronic payments (ISACA 2011a). Mobile payments generally involve the wireless exchange of user payment information between a mobile device and a contactless payment terminal (or point-of-sale system, see below) to allow a user to make secure payments. A prime example of a mobile payment application/system is Apple Pay. Virtual Currency (Virtual Money). Refers to an unregulated digital payment currency (or medium of exchange) accepted by members of a virtual community as representing value and utilized as a substitute for regulated currencies. A primary example of a virtual currency is Bitcoin, a decentralized, peer-to-peer based, crypto-currency (i.e., virtual currency utilizing cryptography to secure transactions) payment system (Netlingo, n.d., TechTerms n.d., Whatis.com n.d.). For additional information on Bitcoin, visit the Bitcoin Project website (https://bitcoin.org/en/). Note that virtual currencies such as Bitcoin do not rely on traditional EFT. e-Payment Service (EPS). Refers to an online system that facilitates e-payments for online or face-to- face transactions. Such systems typically charge processing fees per transaction (usually a percentage) and may process billions of transactions per year. A prime example of a commercial online e-payment system is Paypal (Rainer & Price 2023, Simkin et al. 2018, Webopedia n.d.). A prime example of a commercial face-to-face e-payment system is Square (see https://squareup.com/). Point of Sale (POS) Systems Point of Sale (POS). Refers to the time/place (usually physical location) at which payment is made for goods/services. POS processes generally consists of capturing transaction data, computing the amount owed by the customer, accepting/entering the method of payment, completing the transaction, updating associated master/transaction records, and issuing a receipt for payment to the customer. Point of Sale (POS) System. Refers to a POS computer/device and associated applications, peripheral devices (input/output devices), and network connectivity. A point-of-sale (POS) system is essentially a computerized cash register albeit much more complex with more inclusive functionality. A POS system can record customer orders, track order fulfillment, process different payment options (e.g., credit cards, debit cards, e-checks, gift/loyalty cards, m-payments), update master records in real-time, manage inventory, process returns, and connect to other networked systems. POS system components are often customized to suit the requirements of the particular organization. For instance, a grocery store POS typically includes weighing scales, hand-held and/or mounted scanners, and electronic cash registers. A restaurant may have fixed and/or mobile touch screen devices and proprietary software (containing all food drink items and associated prices) for processing customer orders and payments. 16 Walters Cycles/Processes Notes Mobile Point of Sale (mPOS). Refers to a wireless mobile device and associated peripherals (e.g., card/chip readers) that serve as a POS system. A prime example is use of a Square mobile contactless chip reader or magnetic stripe reader with a smart phone to process customer credit card payments. PROCESS ANALYSIS & IMPROVEMENT Business Process Analysis Business Process analysis is the process of systematically analyzing internal business processes as a basis for determining appropriate improvement strategies. In the simplest sense, business process analysis is used to better understand a process and improve its effectiveness/efficiency. Business process analysis is used primarily to increase customer satisfaction, improve effectiveness/efficiency, enhance quality/value, and/or reduce costs (“How Process Analysis Contributes” 2021). Business process analysis is a multiple step procedure and may vary somewhat based on the goal of analysis and analytics tools utilized. However, process analysis generally includes the following (“Business Process Analysis” 2023, Lortz 2023). Goal Specification. Identify the goal of process analysis (what you wish to accomplish—e.g., better understanding, improved effectiveness/efficiency, incorporate automation, competitive redesign). Process Identification. Identify the process (what process you want to analyze) and process expectations/objectives (how you expect the process to work). Process Data Collection. Collect process data (how the process works, areas of underperformance, other issues/problems). Process Mapping. Map the process (create a visual representation of the process as is—e.g., data flow diagrams, flowcharts, process mining maps, or workflow process maps). Process Analysis. Analyze/assess the current process to identify issues/problems (e.g., bottlenecks, delays, errors, etc.). Opportunity Identification. Identify opportunities for improvement (multiple methods exist—e.g., activity analysis, gap analysis, root cause analysis, SWOT analysis, value-added analysis, etc.). Plan Improvements. plan improvements (identify specific strategies to improve the process—e.g., eliminate/merge activities, change order/progression of steps, reassign responsibilities, etc.). Implement/Monitor. Implement improvements (phase out the old process and introduce the changed process) and monitor the new process to ensure it meets expectations. Process Mining Analytics Process mining is an analytics technique used to analyze and track processes based on data event logs extracted from a business information system. Process mining tools are automated software applications designed to work with a business information system to discover, track, and model processes, and then construct useful analytics to enable process analysis improvement/management. 17 Walters Cycles/Processes Notes Process mining tools extract business process event data captured by an information system. The tool converts this data into event logs (including time stamps, case IDs, and activities), then uses the event logs to create process maps and other visualizations detailing the process (including activities skipped, bottlenecks, deviations, exceptions, excessive throughput times or slowed throughput times, and overburdened resources—all of which essentially represent process inefficiencies) (Kaelble 2022, UiPath n.d., “What is process mining?” n.d.a, “What is process mining?” n.d.b). Process mining analytics and visualizations are then used to focus in on key problem areas and identify constructive improvement opportunities. For instance, analytics might help a business identify opportunities for automation, optimization, standardization, or streamlining (“What is process mining?” n.d.b, “How Does Process Mining Work?” n.d.) See UiPath “What is Process Mining” for a quick overview of the methodology and illustrations of process maps (https://www.uipath.com/rpa/what-is-process-mining). REFERENCES Business Process Analysis: Benefits, Steps and Tools (2023, February 3). Indeed. https://www.indeed.com/career-advice/career-development/business-process-analysis Kaelble, S. (2022). Process Mining for Dummies. Celonis. https://www.celonis.com/ebook/process- mining-for-dummies/ Gelinas, U. J., Dull, R. B., Wheeler, P.R., & Hill, M. C. (2018). Accounting Information Systems, 11e. Southwestern-Cengage Learning. Hall, J. (2019). Accounting Information Systems, 10e. Southwestern-Cengage Learning. How Does Process Mining Work? (n.d.a) Celonis https://www.celonis.com/process-mining/how-does- process-mining-work/ How Process Analysis Contributes to Business Success (2012, May 20). Monday Blog. https://monday.com/blog/project-management/process-analysis/ Lortz, J. (2023, May 30). How to Perform a Business Process Analysis. ProcessMaker. https://www.processmaker.com/blog/how-to-perform-a-business-process-analysis/# Romney, M. B. & Steinbart, P. J., Summers, S. L., and Wood, D. A. (2024). Accounting Information Systems, Sixteenth Edition. Pearson. Simkin, M. G., Norman, C. S., & Rose, J. M. (2018) Core Concepts of Accounting Information Systems, 14the Edition. Wiley. UiPath (n.d.). Practical Guide to Process Mining. Celonis. https://www.uipath.com/rpa/what-is- process-mining WhatIs.Com. (n.d.). Definitions. http://whatis.techtarget.com/ 18 Walters Cycles/Processes Notes What is Process Mining? (n.d.a) Celonis. https://www.celonis.com/process-mining/what-is-process- mining/ What is Process Mining? (n.d.b) UiPath. https://www.uipath.com/rpa/what-is-process-mining 19 Walters Cycles/Processes Notes