Page 263 - Accounting Information Systems

234 PART II Transaction Cycles and Business Processes

Computer-Based Purchases and Cash

Disbursements Applications

Now that we have covered the fundamental operational tasks and controls that constitute the expenditure
cycle, let’s examine the role of computers. In Chapter 4 we presented a technology continuum with auto-
mation at the low end and reengineering at the high end. Recall that automation involves using technol-
ogy to improve the efficiency and effectiveness of a task, while the objective of reengineering is to
eliminate nonvalue–added tasks. Reengineering involves replacing traditional procedures with innovative
procedures that are often very different from those previously in place. In this section we see how both
automation and reengineering techniques apply in purchases and cash disbursement systems.

AUTOMATING PURCHASES PROCEDURES USING
BATCH PROCESSING TECHNOLOGY
The automated batch system presented in Figure 5-14 has many manual procedures similar to those pre-
sented in Figure 5-12. The principal difference is that accounting (bookkeeping) tasks are now automated.
The following section describes the sequence of events as they occur in this system.
Data Processing Department: Step 1
The purchasing process begins in the data processing department, where the inventory control function is
performed. When inventories are reduced by sales to customers or usage in production, the system deter-
4
mines if the affected items in the inventory subsidiary file have fallen to their reorder points. If so, a re-
cord is created in the open purchase requisition file. Each record in the requisition file defines a separate
inventory item to be replenished. The record contains the inventory item number, a description of the
item, the quantity to be ordered, the standard unit price, and the vendor number of the primary supplier.
The information needed to create the requisition record is selected from the inventory subsidiary record,
which is then flagged ‘‘On Order’’ to prevent the item from being ordered again before the current order
arrives. Figure 5-15 shows the record structures for the files used in this system.
At the end of the day, the system sorts the open purchase requisition file by vendor number and con-
solidates multiple items from the same vendor onto a single requisition. Next, vendor mailing information
is retrieved from the valid vendor file to produce hard copy purchase requisition documents, which go to
the purchasing department.

Purchasing Department
Upon receipt of the purchase requisition, the purchasing department prepares a multipart PO. Copies are
sent to the vendor, AP, receiving, data processing, and the purchasing department’s file.
The system in Figure 5-14 employs manual procedures as a control over the ordering process. A com-
puter program identifies inventory requirements and prepares traditional purchase requisitions, but the
purchasing agent reviews the requisitions before placing the order. Some firms do this to reduce the
risk of placing unnecessary orders with vendors because of a computer error. Such manual interven-
tion, however, does create a bottleneck and delays the ordering process. If sufficient computer controls
are in place to prevent or detect purchasing errors, then more efficient ordering procedures can be
implemented.
Before continuing with our example, we need to discuss alternative approaches for authorizing and
ordering inventories. Figure 5-16 illustrates three common methods.
In alternative one, the system takes the procedures shown in Figure 5-14 one step further. This system
automatically prepares the PO documents and sends them to the purchasing department for review and

4 This may be batch or real time, depending on the revenue and conversion cycle systems that interface with the expenditure cycle.
The raw materials and finished goods inventory files link these three transaction cycles together. The design of one system
influences the others. For example, if sales processing (revenue cycle) reduces inventories in real time, the system will naturally
identify inventory requirements in real time also. This is true even if the purchases system is batch oriented.