Suppose you started a company that prints rubberized logos on T-shirts. The business is growing fast, and you need a better accounting information system. Consider the features of an effective system, as discussed on pages 372374. Which do you regard as most important? Why? Which feature must you consider if your financial resources are limited?

Effective Accounting Information Systems LO1 What is an effective accounting system? Exhibit 7-10 shows examples of business transactions and activities that are completed when using an accounting information system. A lot of data needs to be captured and organized in order to produce information that is useful for decision makers. Exhibit 7-1 Business Transactions and AIS Activities Business Transactions AIS Activities Exhibit 7-1 | Business Transactions and AIS Activities Business Transactions AIS Activities Sell merchandise inventory Purchase of goods or services Receipt of customer order Approval of credit sale Check availability of merchandise inventory Shipment of inventory to customer Processing of sales invoice Receipt of customer payment Request for purchase of goods or services Approval of vendor Receipt of goods or services Processing of vendor invoice Payment for goods or services Approval of new employees Collection of time records Preparation and payment of payroll Preparation and payment of payroll taxes Payroll TIeparacion anu payunL VI pay ou LACS An effective system-whether computerized or manual-provides the following: . Control Compatibility Flexibility Reports that meet users' needs A favourable cost-benefit relationship . Features Control Chapter 81 presents more information about internal controls. om/#/books/9780135243633/cfi/6/2721/4/2/16/4/2/2@0:94.1 Chapter 8 presents more information about internal controls. Owners and managers must control the business and manage risk. Internal controls safeguard assets and eliminate waste. They are the methods and procedures used to authorize transactions, to ensure adherence to management policy, to safeguard assets and records, to prevent and detect error and fraud, to provide security by limiting access to assets and records, and to ensure that information produced is relevant, accurate, and timely. You will see examples of these controls throughout this chapter, such as the use of cheques for all cash payments and the comparison of the general ledger account total to the detailed listing of individual customer, inventory, or payable balances at the end of the month to reconcile any discrepancies. For example, in companies such as Indigo Books and Music Inc., managers control cash payments to avoid theft through unauthorized payments. VISA, MasterCard, and other credit card companies keep accurate records of their accounts receivable to ensure that customers are billed and collections are received on time. 8: C customers are billed and collections are received on time. Compatibility A compatible system is one that works smoothly with the business's operations, personnel, and organizational structure. For example, branches of Scotiabank report how much revenue is generated and how many bank loans are issued from each branch so that the head office can track these numbers in each region. If revenue and loan numbers in Alberta or Nova Scotia are down, the managers can concentrate their collection efforts in those regions. They may relocate some branch offices, open new branches, or hire new personnel to increase their revenues and net income. A compatible accounting information system conforms to the particular needs of the business. Flexibility Organizations evolve. They develop new products, sell off unprofitable operations and acquire new ones, adjust employee pay scales, and decide to "go green." Changes in the business often call for changes in the accounting system. A well-designed system is flexible if it accommodates changes without needing a complete overhaul. Consider Sven's honey business. If he adds products he purchases for resale, such as bee-themed T-shirts, then his accounting sistem must adant to handle nurchase transactions and multinle inventory O acquire new ones, adjust employee pay scales, and decide to go green." Changes in the business often call for changes in the accounting system. A well-designed system is flexible if it accommodates changes without needing a complete overhaul. Consider Sven's honey business. If he adds products he purchases for resale, such as bee-themed T-shirts, then his accounting system must adapt to handle purchase transactions and multiple inventory balances. Sven would not want to get new software every time he evolved his business. Reports that Meet Users' Needs If the accounting system processes the information collected but does not produce reports that are relevant or useful, then the accounting system is lacking. To address this, most accounting packages allow users to program their preferences for financial statement presentation and allow users to create special reports. Favourable Cost-Benefit Relationship Achieving control, compatibility, and flexibility can be expensive. Managers strive for a system that offers maximum benefits at a minimum cost--that is, a system that has a favourable cost-benefit relationship. Most small companies use off-the-shelf computerized accounting packages, such as Sage 50 or QuickBooks. Less-expensive accounting software may have limited flexibility and limited capabilities. Large companies, such as the yoga-wear 440) If the accounting system processes the information collected but does not produce reports that are relevant or useful, then the accounting system is lacking. To address this, most accounting packages allow users to program their preferences for financial statement presentation and allow users to create special reports. Favourable Cost-Benefit Relationship Achieving control, compatibility, and flexibility can be expensive. Managers strive for a system that offers maximum benefits at a minimum cost-that is, a system that has a favourable cost-benefit relationship. Most small companies use off-the-shelf computerized accounting packages, such as Sage 50 or QuickBooks. Less-expensive accounting software may have limited flexibility and limited capabilities. Large companies, such as the yoga-wear company lululemon athletica, have specialized needs for information. For them, customized programming is a must because the benefits-in terms of information tailored to the company's needs-far outweigh the cost of the system. The result? Better decisions. All these features are needed whether the accounting information system is computerized or manual. Let's begin with a computerized system. Components of a Computerized Accounting Information System A computerized accounting information system has two basic components (hardware and software) in addition to the personnel and procedures to operate it. Hardware is the electronic equipment and the network that connects them. Most systems require a network to link computers. In a networked system, a server stores the program and the data. Software is the set of programs that drives the computer. Accounting software reads, edits, and stores transaction data. It also generates the reports you can use to run the business. Access to computer information must be strictly controlled. At a TELUS store, it would be improper for all employees to gain access to customer accounts. An unauthorized employee could change a customer's Access to computer information must be strictly controlled. At a TELUS store, it would be improper for all employees to gain access to customer accounts. An unauthorized employee could change a customer's account balance or learn confidential information about the customer. Hence, access codes limit access to certain information. Source documents should support all sensitive changes to computer files. Many companies are now moving their data "into the cloud" to save money. A business using cloud computing pays a third party to store the business's information on a third- party server instead of at the business. Employees access the software and data via the Internet. For large enterprises, such as the Molson Coors Brewing Company or the Royal Bank of Canada, the accounting software is integrated into the company database, or computerized storehouse of information. Many business databases, or management information systems, include both accounting and non-accounting data. For example, VIA Dal Consta in negotiating a union contract, often needs to examine the relationship OB! G HT For large enterprises, such as the Molson Coors Brewing Company or the Royal Bank of Canada, the accounting software is integrated into the company database, or computerized storehouse of information. Many business databases, or management information systems, include both accounting and non-accounting data. For example, VIA Rail Canada, in negotiating a union contract, often needs to examine the relationship between the employment history and salary levels of company employees. VIA's database provides the data that managers need to negotiate effectively with their labour unions. During negotiations, both parties carry laptops so that they can access the database and analyze data on the spot. Personnel who operate the system must be properly trained. In addition, management of a computerized accounting information system requires careful consideration of data security and screening of the people in the organization who will have access to the data. Security is usually achieved with passwords, codes that restrict access to computerized records. Try it! 1. Every business needs an accounting information system (AIS). Which of the following is the reason why? a. It is mandatory to set up a company bank account. Try it! 1. Every business needs an accounting information system (AIS). Which of the following is the reason why? a. It is mandatory to set up a company bank account. b. The Canada Revenue Agency requires every business to have an AIS. c. Owners and managers of businesses must make decisions, and they need information to run the organization. d. The provincial corporation of finance may audit your business. 2. Suppose you are the controller for a small industrial ventilation company that wants to change its accounting information system. The new system you are considering will not accept the current alpha characters in the job-order numbers. Each job is assigned a number and then, as extras are added to the job, an alpha character is added to the job order number, for example, job 1645a. Which feature of a good accounting information system is being compromised, and what could you do to solve this dilemma? Solutions appear at the end of this chapter and on MyLab Accounting