Chapter 1: Accounting information systems: an overview

• A system is a set of two or more interrelated components that interact to achieve a goal.

• Goal conflict occurs when a subsystem is inconsistent with the goals of another subsystem or with the system as a whole.

• Goal congruence occurs when a subsystem achieves its goals while contributing to the organization’s overall goal.

• Data are facts that are collected, recorded, stored, and processed by an information system.

• Information is data that have been organized and processed to provide meaning and improve the decision making process.

• An information overload occurs when those limits are passed, resulting in a decline in decision making quality and an increase in the cost of providing that information.

• The value of information is the benefit produced by the information minus the cost of producing it. Benefits of information are reduced uncertainty, improved decisions, and improved ability to plan and schedule activities.

• A business process is a set of related, coordinated, and structured activities and tasks that are performed by a person or by a computer or a machine, and that help accomplish a specific organizational goal.

• A transaction is an agreement between two entities to exchange goods or services or any other event that can be measured in economic terms by an organization.

• The process that begins with capturing transaction data and ends with informational output, such as the financial statements, is called transaction processing.

• These exchanges can be grouped into five business processes of transaction cycles, the revenue cycle, the expenditure cycle, production cycle, human resource cycle and the financing cycle.

• An accounting information system (AIS) is the intelligence, the information providing vehicle, of that language.

• Accounting is a data identification, collection, and storage process as well as an information development, measurement, and communication process.

• An predictive analysis provides an educated guess of what one may expect to see in the near future allowing companies to make better business decisions and improve their process.

• The value chain consists of five primary activities that directly provide value to customers: inbound logistics, operations, outbound logistics, marketing and sales, and services.

• Support activities allow the five primary activities to be performed efficiently and effectively. There are grouped into four categories, firm infrastructure, human resources, technology and purchasing.

• An organization’s value chain is a part of a larger system, called the supply chain.

Chapter 2: Overview of transaction processing and enterprise resource planning systems

• Data processing cycle: operations performed on data to generate meaningful and relevant information. This process consists of four steps: data input, data storage, data processing and information output.

• Data input. The first step is to capture transaction data and enter them into the system. Most business used paper source documents to collect data about their business activities.

• Turnaround documents are company output sent to an external party, who often adds data to the document, and then are returned to the company as an input document.

• Source data automation devices capture transaction data in machine-readable form at the time and place of their origin.

• Data storage: accounting information is stored in general and subsidiary ledgers.

• A general ledger contains summary-level data for every asset, liability, equity, revenue, and expense account.

• A subsidiary ledger contains detailed data for any general ledger account with many individual subaccounts.

• The general ledger account corresponding to a subsidiary ledger is called a control account.

• Coding is the systematic assignment of numbers or letters to items to classify and organize them. There are sequence codes, block codes, group codes, and mnemonic codes.

• Transaction data are often recorded in a journal before they are entered into a ledger. A journal entry shows the accounts and amounts to be debited and credited.
  A general journal is used to record infrequent or non-routine transactions.
  Specialized journals record large numbers of repetitive transactions.

• An audit trail is a traceable path of a transaction through a data processing system from point of origin to final output, or backwards from final output to the point of origin.

• An entity is something about which information is stored, such as employees, inventory items, and customers.
   

• The fields containing data about entity attributes constitute a record.

• A field within a record is called a data value.

• A file is a group related records.
   

• A master file stores cumulative information about an organization. the inventory and equipment master files store information about important organization resources.

• A transaction file contains records of individual business transactions that occur during a specific time.

• A set of interrelated, centrally coordinated files is referred to as a database.

• Data processing: once business activity data have been entered into the system, they must be processed to keep the databases current.

• Batch processing is cheaper and more efficient, but the data are current and accurate only immediately after processing.

• Most companies update each transaction as it occurs, referred to as online, real-time, processing because it ensures that stored information is always current, thereby increasing its decision making usefulness.

• A combination of the two approaches is online batch processing, where transaction data are entered and edited as they occur and stored for later processing.

• Information output: documents, reports or a query response.

• A database query is used to provide the information needed to deal with problems and questions that need rapid actions or answers.

• An enterprise resource planning (ERP) system collects, processes, and stores data and provides the information managers and external parties need to assess the company.

Chapter 3: Systems documentation techniques

• Documentation encompasses the narratives, flowcharts, diagrams, and other written materials that explain how the system works.

• A narrative description of the system: a written step by step explanation of the system components and interactions.

• A data flow diagram (DFD) uses the symbols to represent the four basic elements: data sources, data flows, transformation process, and data stores.

• A data source and data destination are entities that send or receive data that the system uses or produces.

• A data flow is the movement of data among the processes, stores, and destinations. It is the flow of the data into or out of a process represented by curved or straight lines with arrows.

• Processes represent the transformation of data. An transformation process is the process that transform data from inputs to outputs are represented by circles.
   

• A data store is a repository of data.

• A flowchart is an analytical technique used to describe some aspect of an information system in a clear, concise, and logical manner.

• A document flowchart illustrates the flow of documents and information among areas of responsibility within an organization. A document flowchart is particularly useful in analysing internal control procedures.

• System flowcharts depict the relationships among system input, processing and output. They are an important systems analysis, design and evaluation tool.
   

• Program flowcharts illustrate the sequence of logical operations performed by a computer in executing a program. A program flowchart describes the specific logic used to perform a process shown on a system flowchart.

Chapter 5: Computer fraud

• There are four types of threats to accounting information systems, natural and political disasters, software errors and equipment malfunction, unintentional acts and intentional acts.

• A cookie contains data a website stores on your computer to identify the website to your computer so that you do not have to log on each time you visit the site.

• Fraud is gaining an unfair advantage over another person. Fraud perpetrators are often referred to as white-collar criminals.

• Misappropriation of assets: is the theft of company asset. The most significant contributing factor in most misappropriations is the absence of internal controls and/or the failure to enforce existing internal control.

• Fraudulent financial reporting defined as intentional or reckless conduct, whether by act or omission, that results in materially misleading financial statements.

• The Association of Certified Fraud Examiners found that an asset misappropriation is 17 times more likely than fraudulent financial reporting but that the amounts involved are much smaller.

• SAS No. 99 (Statement on Auditing Standards) was adopted to clarify the auditor’s responsibility to detect fraud.

• When researches compared the psychological and demographic characteristics of white-collar criminals, violent criminals, and the public, they found significant differences between violent and white-collar criminals

• Pressure: this is a person’s incentive or motivation for committing fraud, financial, emotional and a person’s lifestyle pressure.

• Opportunities. This is the condition or situation that allows a person or organization to do three things.

• Lapping: a perpetrator steals the cash or checks customer A mails in to pay its accounts receivable.

• Kiting: cash is created using the lag between the time a check is deposited and the time it clears the bank.

• A rationalization allows perpetrators to justify their illegal behavior.

• Computer fraud is any fraud that requires computer technology knowledge to perpetrate, investigate, or prosecute it.

• Computer fraud can be categorized using the data processing model, input fraud, processor fraud, computer instruction fraud, data fraud, output fraud.

Chapter 7: Control and accounting information systems

• Treats to accounting information systems are increasing. Information is available to an unprecedented number of workers. It’s also distributed among many systems and thousands of employees.

• Threat (event): any potential adverse occurrence is called a threat or an event.

• Internal control is the process implemented to provide reasonable assurance that the following control objectives are achieved. Internal control perform three important functions.

• Preventive controls deter problems before they arise.

• Detective controls discover problems that are not prevented.

• Corrective controls identify and correct problems as well as correct and recover from the resulting errors.

• General controls. This type of control makes sure an organization’s control environment is stable and well managed.

• Application controls. This type of control makes sure transactions are processed correctly.

• Belief system. This system describes how the company creates value and helps the employees understand the management’s vision.

• Boundary system. This system helps employees act ethically by setting boundaries on employee behavior.

• Diagnostic control system. This type of system measures, monitors, and compares actual company progress to budgets and performance goals.

• Interactive control system. This system helps managers to focus on key strategic issues and to be more involved in decisions.

• The Foreign Corrupt Practices Act (FCPA) was passes to prevent companies from bribing foreign officials to obtain business.

• COBIT framework. The ISACA developed Control Objectives for Information and Related Technology (COBIT) framework. This framework addresses control from three vantage points.

• The Committee of Sponsoring Organizations (COSO) consist of a few organizations. The COSO issued internal control – integrated framework (IC), which is widely accepted as the authority on internal controls and is incorporated into policies, rules, and regulations used to control business activities.

• COSO developed another control framework to improve the risk management process. It’s called Enterprise Risk Management – Integrated Framework (ERM).

• The internal environment, or company culture, influences how organizations establish strategies and objectives and structure business activities. A weak or deficient internal environment often results in breakdowns in risk management and control.

• Companies have a risk appetite, which is the amount of risk they are willing to accept to achieve their goals.

• An involved board of directors represents shareholders and provides an independent review of management that acts as a check and balance on its actions.

• The audit committee is responsible for financial reporting, regulatory compliance, internal control and hiring and overseeing internal and external auditors.

• The policy and procedures manual explains proper business practices, describes needed knowledge and experience, explains document procedures, explains how to handle transactions, and lists the resources provide to carry out specific duties.

• A thorough background check includes talking to references, checking for a criminal record, examining credit records, and verifying educating and work experience.

• The two greatest ERM components are the honesty of the employees and objective setting.

• Inherent risks exists before management takes any steps to control the likelihood or impact of an event.

• The residual risk is what remains after management implements internal controls or some other response to risk.

• One way to estimate the value of the internal controls involves the expected loss, the mathematical product of impact and likelihood.

• Control activities are policies and procedures that provide reasonable assurance that control objectives are met and risk responses are carried out.

• Authorization is an important control procedure. Authorization are often documented by signing, initializing, or entering an authorization code on a document.

• Computer systems can record a digital signature, a means of signing a document with data that cannot be forged.

• Good internal control requires that no single employee be given too much responsibility over business transactions and processes.
  Segregation of duties is discussed in two separate sections: segregation of accounting duties and segregation of system duties.

• Important system development controls are the following: steering committee, a strategic masterplan, project development plan, data processing schedule, system performance measurements and a post-implementation review.

• Some companies hire a systems integrator to manage a systems development effort involving its own personnel, its client, and other vendors.

• An audit trail allows transactions to be traced back and forth between their origination and de financial statements.

• Accounting systems generally consists of seven subsystems, each designed to process a particular type of transaction using the same sequence of procedures, called accounting circles.

• ERM processes must be continuously monitored and modified as needed, and deficiencies must be reported to management.

Chapter 8: Information systems controls for system reliability - part 1

• Every organization relies on information technology. Management wants assurance that the information produced by its accounting system is reliable.

• The COBIT framework: shows the business and governance objectives. The information for the management has several requirements: effectiveness, efficiency, confidentially, integrity, availability, compliance and reliability.

• COBIT specifies 210 detailed control objectives for these 34 processes to enable effective management of an organization’s information resources. It also describes specific audit procedures for assessing the effectiveness of those controls and suggest metrics that management can use to evaluate performance.
   

• The ‘Trust Service Framework’ classifies information systems controls into five categories that most directly pertain to systems reliability: security, confidentiality, privacy, processing integrity and availability.

• The objective of time-based model of security can be expressed in a formula that uses the following three variables.

• If P > D + C, then the organization’s security procedures are effective.

• Preventive controls

• Training: piggybacking. People who don’t have access, still get in the system.

• User access controls: authentication controls restrict who can access the organization’s information system. Authentication is the process of verifying the identity of the person or device attempting to access the system.

• Physical access controls: are very essential to information resources, because a skilled attacker needs only a few minutes of unsupervised direct physical access in order to bypass existing information security controls.

• Network access controls: a border router connects an organization’s information system to the internet. The firewall is either a special-purposed hardware device or software running on a general-purpose computer. The demilitarized zone (DMZ) is a separate network that permits controlled access from the internet to selected resources.

• Device and software hardening controls: endpoint configuration, user account management and software design.

• Detective controls

• Log Analysis: is the process of examining logs to identify evidence of possible attacks.

• Intrusion detection systems(IDSs): consist of a set of sensors and a central monitoring unit that create logs of network traffic that was permitted to pass the firewall and then analyse those logs for signs of attempted or successful intrusions.

• Managerial Reports: it is really important that the management monitors and evaluates both system performance and controls.

• Security Testing: a penetration test is an authorized attempt by either an internal audit team or an external security consulting firm to break into the organization’s information system.

• Corrective controls

• Computer incident response team (CIRT): is a team that is responsible for dealing with major incidents.

• Chief Information Security Officer (CISO): is responsible for information security. This person should be independent of other information systems functions and should report to either the chief operating officer (COO) or the (CEO).

• Patch Management: a patch is code released by software developers that fixes a particular vulnerability. Patch management is the process for regularly applying patches and updates to all software used by the organization.

• Virtualization takes advantage of the power and speed of modern computers to run multiple systems simultaneously on one physical computer.

• Cloud computing takes advantage of the high bandwidth of the modern global telecommunication network to enable employees to use a browser to remotely access software, data storage devices, hardware and entire application environments.

Chapter 9: Information systems controls for system reliability - part 2

• Two important principles of reliable systems in the thrust services framework: preserving the confidentiality of an organization’s intellectual property and protecting the privacy of personal information it collects from customers.

• Prevention actions are: identification and classification of the information to be protected, encryption of sensitive information, controlling access to sensitive information and training of employees.

• The ‘Trust Services Framework’ privacy is closely related to the confidentiality principle.

• There are data masking programs: replace customers’ personal information with fake values before sending that data to the program development and testing system.

• Spam is unsolicited e-mail that contains either advertising or offensive content.

• Identity theft is the unauthorized use of someone’s personal information for the perpetrator’s benefit.

• The Generally Accepted Privacy Principles (GAPP) identifies and defines the following ten internationally recognized best practices for protecting the privacy of customer’s personal information: management, notice, choice and consent, collection, use and retention, access, disclosure to third parties, security, quality and monitoring and enforcement.

• Encryption is the process of transforming normal content, called plain text, into unreadable gibberish, called cipher text.

• Decryption reverses this process, transforming cipher text into plaintext. Both involve use of a key and an algorithm.

• The key is also a string of binary digits of a fixed length.

• The algorithm is a formula for combining the key and the text.

• Three important factors determine the strength of any encryption system: key length, encryption algorithm and policies for managing cryptographic keys.

• Symmetric encryption systems: use the same key both to the encrypt and decrypt.

• Asymmetric encryption system: this system uses two keys. The public key, which is widely distributed and available to everyone. And the private key, which is kept secret and known only to the owner of that pair of keys.

• Hashing is a process that takes plaintext of any length and transforms it into a shirt code, called a hash.

• Nonrepudiation: how to create legally binding agreements that cannot be unilaterally repudiated by either party. The answer is to use both hashing and asymmetric encryption to create a digital signature.

• A certificate authority is a trusted independent party, like the government, that issue the passports and driving licences and contain the certificate authority’s digital signature to prove that they are genuine.

• Encrypting information while it traverses the internet creates a virtual private network (VPN).

Chapter 10: Information systems controls for system reliability - part 3

• Input Controls: forms designs, cancellation and storage of source documents, and automated data entry controls are needed to verify the validity of input data.

• Sequentially prenumbering source documents: prenumbering improves control by making it possible to verify that no documents are missing.

• Turnaround documents: a record of company data sent to an external party and the returned by the external party to the system as input.

• Source documents should be scanned for reasonableness and propriety before being entered into the system: field checks, sign checks, limit checks, range check tests, size checks, validity checks, reasonableness test and check digit.

• A sequence check tests whether a batch of input data is in the proper numerical or alphabetical sequence.

• Batch totals summarize important values for a batch of input records.

• Prompting, in which the system requests each input data item and waits for an acceptable response, ensures that all necessary data are entered.

• Closed-loop verification checks the accuracy of input data by using it to retrieve and display other related information.

• A transaction log includes a detailed record of all transactions, including a unique transaction identifier, the date and time of entry, and who entered the transaction.

• Processing controls

• Data matching. Two or more items of data must be matched.
  File labels. They need to be checked to ensure that the correct and most current files are being updated.

• Recalculation of batch totals. Batch totals should be recomputed as each transaction record is processed, and the total for the batch should then be compared to the values in the trailer record.

• Cross-footing and zero-balances tests. Often totals can be calculated in multiple ways. A cross-footing test compares the results produced by each method to verify accuracy. Write-protection mechanisms. These protect against overwriting or erasing of data files stored on magnetic media.

• Concurrent update controls. This controls prevent errors by locking out one user until the system has finished processing the transaction entered by the other.

• Output controls

• User review of output.

• Reconciliation procedures. All transactions and other system updates should be reconciled to control reports, file status/update reports, or other control mechanisms.

• External data reconciliation. Database totals should periodically be reconciled with data maintained outside the system.

• Data transmission controls. Organizations also need to implement controls designed to minimize the risk of data transmission errors.

• Availability

• Interruptions to business processes due to the unavailability of systems or information can cause significant financial losses.

• The recovery point objective (RPO) represents the maximum amount of data that the organization is willing to potentially lose.

• The recovery time objective (RTO) represents the length of time that the organization is willing to attempt to function without its information system.

• Real-time mirroring involves maintaining two copies of the database at two separate data centers at all times and updating both copies in real-time as each transaction occurs.

• An incremental backup involves copying only the data items that have changed since the last partial backup.

• A differential backup copies all changes made since the last full back up.

• Change control is the formal process used to ensure that modifications to hardware, software, or processes do not reduce system reliability.

Chapter 12: The Revenue Cycle: sales to cash collections

• The revenue cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales.

• Sales process: the process starts when an organization receives customer orders via the internet from various retail websites.

• There is a database with all information about customers.

• There are a few threats: inaccurate or invalid master data, unauthorized disclosure of sensitive information and the loss or destruction of master data.

• Sales order entry process: receiving customer orders, check and approve customer credits, check the current stock.

• Sales order: the sales data for example numbers, quantity, prices and sales conditions.

• Customers can use electronic data interchange (EDI) to submit the order electronically in a format compatible with the company’s sales order processing system.

• There are also a few threats: important data about the order will be either missing or inaccurate and the legitimacy of orders.

• A credit limit is the maximum allowable account balance that management wishes to allow for a customer based on that customer’s past credit history and ability to pay.

• Careful monitoring of accounts receivable is very important, because some customers will and up not paying off their accounts. A useful report for doing this is an account receivable aging report, which lists customer account balances by length of time outstanding.

• The picking ticket authorizes the inventory control function to release merchandise to the shipping department.

• Accurate inventory records are important to prevent both stock outs and excess inventory.

• Customer relationship management systems help organize detailed information about customers to facilitate more efficient and more personalized service.

• Filling customer orders and shipping desired merchandise.
  Problems: wrong items, wrong quantity and theft of inventory.

• The packing slip lists the quantity and description of each item included in the shipment.

• The bill of lading is a legal contract that defines responsibility for the goods in transit. It identifies the carrier, source, destination, and any special shipping instructions.

• Billing customers: it is about invoicing and updating accounts receivable.

• The sales invoice: it notifies customers of the amount to be paid and where to send the payment.

• The accounts receivable function performs two tasks: it uses the information on the sales invoice to debit customer accounts and subsequently credit those accounts when payments are received.

• Open invoice method: customers typically pay according each invoice.
  Balance forward method: customers typically pay according the amount shown on a monthly statement, rather than by individual invoices.

• Collecting and processing payments from customers.

• Remittance advice: mailing the customer two copies of the invoice and requesting that one be returned with the payment.

• Remittance list: this document contains the name and amount of money of all transactions. This remittance advice is then routed to accounts receivable.

• A lockbox is a postal address to which customer send their remittances.

• With electronic funds transfer (EFT) customers send their remittances electronically to the company’s bank and thus eliminate the delay associated with the time the payment is in the mail system.

• Financial electronic data interchange (FEDI) solves problems by integrating the exchange of funds (EFT) with the exchange of remittance data (EDI). FEDI completes the automation of both the billing and the cash collection process.

• Segregation of duties is the most effective control procedure for reducing the risk of theft.

• A cash flow budget: provides estimates of cash inflows and outflows. A cash flow budget can alert an organization to a pending short term cash, thereby enabling it to plan ahead to secure short-term loans at the best possible rates.

Chapter 13: The expenditure cycle: purchasing to cash disbursements

• The expenditure cycle: a recurring set of business activities and related information processing operations associated with the purchase of and payment for goods and services.

• The four basic expenditure cycle activities are ordering materials, supplies, and services, receiving materials, supplies, and services, approving supplier invoices and cash disbursements

• Economic order quantity (EOQ): an approach to managing inventory is to maintain sufficient stock so that production can continue without interruption even if inventory use is greater than expected or if suppliers are late in making deliveries.

• The reorder point specifies when to order. Companies typically set the reorder point based on delivery time and desired levels of safety stock to handle unexpected fluctuations in demand.

• Materials requirements planning (MRP) seeks to reduce required inventory levels by improving the accuracy of forecasting techniques to better schedule purchases to satisfy production needs.

• Just in time (JIT) inventory system: attempts to minimize finished foods inventory by purchasing and producing goods only in response to actual sales.

• The requisitioner specifies the delivery location and date needed. It identifies the item numbers, descriptions, quantity, and price of each item requested.

• Purchase order: this is a document or electronic form that formally requests a supplier to sell and deliver specified products at designated prices.

• Blanket purchase order: a commitment to purchase specified items at designated prices from a particular supplier for a set time period, often one year.

• A vendor-managed inventory program essentially outsources much of the inventory control and purchasing function.

• Kickbacks: this is a threat and kickbacks are gifts from suppliers to purchasing agents for the purpose of influencing their choice of suppliers.

• The receiving report documents about each delivery, including the date received, shipper, supplier, and purchase order number.

• Debit memo: this document is prepared after the supplier agrees to take back the goods or to grant a price reduction. The debit memo records the adjustment being requested.

• Approving supplier invoices for payment: the accounts payable department approves supplier invoices for payments.
  Voucher package: the combination of the suppliers invoice and associated supporting documentation.

• Non-voucher system: each approved invoice is posted to individual supplier records in the accounts payable file and is then stored in an open invoice file. When a check is written to pay for an invoice, the voucher package is removed from the open-invoice file to the paid-invoice file.

• Voucher system: an additional document (disbursement voucher) is also created when a supplier invoice is approved for payment. The disbursement voucher identifies suppliers, lists the outstanding invoices, and indicates the net amount to be paid after deducting any applicable discounts and allowances.

• Evaluated receipt settlement (ERS): replaces the traditional three-way (vendor invoice, receiving report, and purchase order) matching process with a two-way match of the purchase order and receiving report.

• A procurement card: a corporate credit card that employees can use only at designated suppliers to purchase specific kinds of items.

• Paying suppliers: payments are made when accounts payable sends the cashier a voucher package.

• An imprest fund: it is set at a fixed amount and it requires vouchers for every disbursement. The sum of the cash plus vouchers should equal the preset fund balance.

Chapter 14: The Production Cycle

• The production cycle: a recurring set of business activities and related information processing operations associated with the manufacture of products.

• The production cycle contains four basic activities: product design, planning and scheduling, production operations, and cost accounting.

• Product design: to create a product that meets customer requirements in terms of quality, durability, and functionality while simultaneously minimizing production costs.

• Bill of materials: specifies the part number, description, and quantity of each component used in a finished product.

• Operation list: specifies the sequence of steps to follow in making the product, which equipment to use, and how long each step should take.

• Planning and scheduling: develop a production plan efficient enough to meet existing orders and anticipated short-term demand while minimizing inventories of both raw materials and finished goods.

• Manufacturing resource planning (MRP-II): is an extension of materials resource planning that seeks to balance existing production capacity and raw materials need to meet forecasted sales demand.

• Lean manufacturing: extends the principles of just-in-time inventory systems to the entire production process.

• A master production schedule (MPS): specifies how much of each product is to be produced during the planning period and when that production should occur.

• A production order authorizes the manufacture of a specified quantity of a particular product.

• A materials requisition authorizes the removal of the necessary quantity of raw materials from the storeroom to the factory location where they will be used.

• Actual manufacture of products.

• Computer-integrated manufacturing (CIM): can significantly reduce production costs. CIM requires redesign of inventory management systems and work flows to facilitate quick changes in production.

• Request for proposal (RFP): a document that specifies the desired properties of the asset, is send to each prospective supplier.

• Cost accounting.

• Job order costing: assigns costs to specific production batches, or jobs, and is used when the product or service being sold consists of discretely identifiable items.

• Process costing: assigns costs to each process, or work center, in the production cycle and then calculates the average cost for all units produced.
   

• A job-time ticket: a paper document to collect data about labor activity. This document recorded the amount of time a worker spent on each specific job task.

• Manufacturing overhead cost: this are manufacturing costs that are not economically feasible to trace directly to specific jobs or processes.

• Activity based costing: can refine and improve cost allocations under both job-order and process cost systems.

• It distinguish three separate categories of overhead: batch-related overhead, product-related overhead and companywide overhead.

• Throughput: the number of goods units produced in a given period of time.

• Throughput: (total units produced/processing time) x (processing time/total time) x (goods units/total units)

• Quality control costs can be divided into four areas: prevention cost, inspection cost, internal failure cost and external failure costs.

Chapter 15: The human resources management and payroll cycle

• Human resources management (HRM)/ payroll cycle: a recurring set of business activities and related data processing operations associated with effectively managing the employee workforce.

• The HRM/payroll master database provide descriptive information.

• Knowledge management systems: capturing and storing knowledge so that it can be shared and used by others.

• Checks: the payroll system’s principal output. Employees receive individual pay checks in compensation for their services.

• There are five important functions of the HRM cycle: update and change the payroll master database, validate time and attendance data, prepare payroll, the spread of the pay checks and managing the payroll bank account.

• Every employee receives a few documents: payroll register, deduction register, earnings statement, disburse payroll, and calculate and disburse employer-paid benefit taxes and voluntary employees deductions.

• A payroll service bureau: maintains the payroll master data for each of its clients and process payroll for them.

• A professional employer organization (PEO) not only processes payroll, but also provides HRM services.

• Payroll service bureaus are generally less expensive than PEO’s, because they provide a narrower range of services.