Study Unit 1: F.1. Information Systems: - Technology and Analytics

Study Unit 1: F.1.
Information Systems CMA Part 1
Section F – Technology and Analytics
Study Unit 1: F.1. Information Systems

Introduction to Technology and Analytics
Section F constitutes 15% of the CMA Part 1 Exam. Section F includes Information Systems, Data Govern-
ance, Technology-enabled Finance Transformation, and Data Analytics.
• The focus of Information Systems is on accounting information systems, inputs to them, and the
use of their outputs.
• Data Governance involves the management of an organization’s data assets and data flows. The
objective of data governance is to enable reliable and consistent data so that management can
properly assess the organization’s performance and make decisions.
• Technology-enabled Finance Transformation covers issues of importance for management account-

ants such as robotic process automation, artificial intelligence, cloud computing, and blockchains.
• Data Analytics also covers current technological and analytical issues that management account-
ants need to be familiar with. Business intelligence, data mining in large datasets, the use of
statistics and regression analysis, and visualization of data by charting are covered.
The Value Chain and the Accounting Information System

The goal of any organization is to provide value to its customers. A firm’s value chain is the set of business
processes it uses to add value to its products and services.
The more value a company creates and provides to its customers, the more its customers will be willing to
pay for its products or services, and the more likely they are to keep buying those products or services. A
business will be profitable if the value it creates for its customers is greater than the cost of producing the
products and services it offers. All the activities in the value chain contain opportunities to increase the
value to the customer or to decrease costs without decreasing the value the customer receives.
The value chain was discussed earlier in this volume. To review, the value chain as envisioned by Michael
Porter looks like the following:
Support Activities
Infrastructure
Human Resources Management

Technological Development
Procurement Value Added

Minus Cost
= Margin
Operations
Marketing
Outbound
and Sales
Logistics
Logistics
Inbound
Service
Primary Activities
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Section F Study Unit 1: F.1. Information Systems
Though various organizations may view their value chains differently depending on their business models,
the preceding graphic encompasses the business processes used by most organizations. The primary activ-
ities include the processes the organization performs in creating, marketing, and delivering products and
services to its customers and supporting the customers with service after the sale. The support activities
make it possible for the organization to perform the primary activities.
An organization’s accounting information system (AIS) interacts with every process in the value chain. The
AIS adds value to the organization by providing accurate and timely information so that all the value chain
activities can be performed efficiently and effectively. For example:
• Just-in-time manufacturing and raw materials inventory management is made possible by an ac-
counting information system that provides up-to-date information about inventories of raw
materials and their locations.
• Sales information can be used to optimize inventory levels at retail locations.
• An online retailer can use sales data to send emails to customers suggesting other items they
might be interested in based on items they have already purchased.
• Allowing customers to access accounting information such as inventory levels and their own sales
orders can reduce costs of interacting with customers and increase customer satisfaction.
• A variance report showing a large unfavorable variance in a cost indicates that investigation and
possibly corrective action by management is needed.
• An AIS can provide other information that improves management decision-making. For instance:
o It can store information about the results of previous decisions that can be used in making
future decisions.
o The information provided can assist management in choosing from among alternative actions.
The Supply Chain and the Accounting Information System

Parts of a company’s value chain are also parts of its supply chain. A company’s supply chain describes
the flow of goods, services, and information from the suppliers of materials and services to the organization
all the way through to delivery of finished products to customers. In contrast to the value chain, the activ-
ities of a company’s supply chain also take in outside organizations.
Nearly every product that reaches an end-user represents the coordinated efforts of several organizations.
Suppliers provide components to manufacturers who in turn convert them into finished products that they
ship to distributors for shipping to retailers for purchase by the consumer. All the organizations involved in
moving a product or service from suppliers to the end-user (the customer) are referred to collectively as
the supply chain.
A well-designed accounting information system can improve the efficiency and effectiveness of a company’s
supply chain, thus enhancing the company’s profitability.
Automated Accounting Information Systems (AIS)

Automated accounting information systems are computer-based systems that transform accounting data
into information using the fundamental elements of paper-based accounting systems, but with electronic
processing.
Elements of Automated Accounting Information Systems

Any financial accounting information system, automated or otherwise, captures transactions or business
events that affect an entity’s financial condition. The transactions are recorded in journals and ledgers.
Journals are used to record accounting transactions. A journal contains a chronological record of the events
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Study Unit 1: F.1. Information Systems CMA Part 1
that have impacted the business’s finances. Journal entries show all the information about a transaction,
including the transaction date, the accounts debited and credited, and a brief description. Journal entries
are then posted to the general ledger.
Note: The general ledger is the foundation of the accounting system. It maintains the record of all the
financial transactions that have taken place. Many transactions are posted to individual sub-ledgers such
as the accounts receivable ledger where records of individual customer accounts are maintained. The
transactions in the sub-ledgers are then summarized to the general ledger. Some transactions, such as
period-end closing transactions, are posted directly to the general ledger. The transaction details in the
general ledger are compiled periodically to produce a trial balance, an income statement, balance sheet,
statement of cash flows, and other financial reports.
The general ledger contains all the transactions entered as journal entries, either directly in the general
ledger or in a sub-ledger. In an automated system, transactions are recorded in one of the modules such
as accounts payable or accounts receivable, and the system creates the journal entry to the general ledger.
The general ledger contains a separate account for each type of transaction. The list of general ledger
accounts used by an organization is called its chart of accounts. In a paper-based accounting system,
only an account name is needed, but in an automated accounting information system, the accounts need
to have numbers so that input is done in a consistent manner.
An automated accounting information system stores information in files. Master files store permanent
information, such as general ledger account numbers and history or customer account numbers and histor-
ical data for each customer. Transaction files are used to update master files, and they store detailed
information about business activities, such as detail about sales transactions or purchase of inventory. For
each general ledger account number, the general ledger master file stores the transactions that have ad-
justed that account’s balance along with some basic information such as date and source. The detail needed
to maintain an audit trail is stored in transaction files. The detail in the transaction files may be needed in
future years if it becomes necessary to adjust or restate prior period financial statements, so it is a good
idea to maintain the transaction files for several years. After the transaction details are no longer needed,
though, the transaction files can be deleted.
In an automated accounting information system, accounts in the general ledger chart of accounts are num-
bered using block codes. Block codes are sequential codes that have specific blocks of numbers reserved
for specific uses. For example, a general ledger account numbering system is used to organize the accounts
according to assets, liabilities, equity, incomes, and expenses. An entity can use any numbering scheme it
wants, but one common method of organizing account numbers uses account numbers beginning with “1”
for assets, “2” for liabilities, “3” for equity, “4” for incomes, and “5” for expenses. Thus, if 4-digit account
numbers are being used, then all asset accounts would be in the 1000 block, all liability accounts in the
2000 block, and so forth. The numbers following the number in the first position subdivide the types of
accounts more finely. For example, in the asset section, current asset accounts might begin with “11” while
noncurrent asset accounts begin with “12.” Within the current asset section, then, cash might be 1110,
accounts receivable might be 1120, and inventory might be 1130.
Special journals are used for specific kinds of transactions, and in a computerized system, the journals are
known as modules. For example, an order entry module may be used to record sales. When a credit sale
is recorded in the order entry module, the order entry module updates the customer’s account in the ac-
counts receivable module (to add the charge to the account); it updates the sales module (to increase the
sales revenue); and it updates the inventory module (to reduce the items on hand by the items sold). It
also updates the general ledger to record the increase to accounts receivable, the increase to sales revenue,
the decrease in the value of inventory by the cost of the items sold, and the equivalent increase in cost of
goods sold expense. If sales tax or value-added tax is invoiced, those items are recorded as well in the
general ledger. When a customer pays, the receipt is recorded in the cash receipts module, which updates
the customer’s account in the accounts receivable module at the same time. The journal transactions update
the general ledger to record the increase to the cash account and the decrease to the accounts receivable
account.
Section F Study Unit 1: F.1. Information Systems
When a transaction is created in a module, the input includes a transaction code that identifies, for ex-
ample, a transaction in the order entry module as a sale transaction. The code causes the data entered with
that transaction code to be recorded in the other modules and in the proper general ledger accounts. The
specific transaction code for a sale may be set as the default code in the transaction code input field within
the order entry module, although the code can be changed if instead, for example, a sales return is being
processed.
Codes, both numeric and alphanumeric, are used elsewhere in an automated AIS, as well. For example,
sequence codes are used to identify customer sales invoices created in the order entry module and may
be used for new customer accounts in the accounts receivable master file. Sequence codes are simply
assigned consecutively by the accounting system. For example, when a new customer account is added to
the accounts receivable master file, the AIS may automatically assign the next consecutive unused account
number to the new account. The number has no other meaning.
In a responsibility accounting system, a code is used to identify the responsibility center that is the source
of the transaction, and that code is part of transactions input to the AIS, as well.
Example: General ledger expense account numbers used for advertising expenses include a code for
the department that initiated the cost. The expense account number identifies the type of advertising
medium, for example television advertising, followed by codes indicating the type of advertising expense
and the product advertised.
Thus, a production expense for a television commercial advertising a specific kitchen appliance such as
a blender is coded to the television advertising account for commercial production for blenders. As the
cost is recorded in the AIS, the cost is directed to the correct responsibility center code and expense
account, as follows:
120 = 5= 16 = 2= 7= 31 =
Advertising Production
Department Expense Advertising Television Costs Blender
120 5 16 2 7 31
Thus, the full expense account number charged is 5162731 in department 120. That account number in
that responsibility center accumulates only expenses for television advertising production costs for
blender advertising that have been committed to by the advertising department.
As a result, the different types of advertising expenses are clearly delineated in the general ledger ac-
cording to responsibility center, type of expense, advertising medium, type of cost, and product
advertised, enabling easier analysis of the data.
Inputs to an Automated Accounting Information System

In an automated accounting information system, transactions are recorded electronically. They may be
input by employees, but they may just as easily be recorded automatically. For example, a transaction may
be created automatically in the order entry module when a customer places an order over the Internet.
Transactions are recorded by means of input devices. An input device is a piece of hardware that connects
to a device such as a computer to provide input. Some examples of input devices are:
• Keyboards and mice may be used by accounting department personnel to record orders, cus-
tomer payments received, and invoices to be paid.
• Bar code scanners may be used by shipping personnel to record tracking numbers and shipping
documentation for items shipped and by receiving personnel to record items received.
• Point-of-sale systems may be used by sales personnel in retail businesses to record sales.
• Tablet computers with wireless capability may be used by outside salespeople to record orders,
accept credit card payments from customers, and transmit the data to the accounting system.
• Other types of input devices include microphones, web cameras, and various other electronic
devices.
Study Unit 1: F.1. Information Systems CMA Part 1
Note: Source documents should be maintained as backup for all transactions recorded in the account-
ing system. A source document contains the details of a business transaction such as the names of the
parties involved in the transaction, amounts due or paid, the transaction date, and the substance of the
transaction. Source documents are critical for auditors, who use them as evidence that recorded trans-
actions represent actual events that occurred. A source document can be in paper or electronic format.
Output of an Automated Accounting Information System

Output devices include any hardware device used to send data from a computer to another device or to a
user. Most output devices receive processed data from the computer and transform it into physical repro-
ductions, audio, or video.
• Physical reproductions include output from printers and plotters that produce output in the form
of text or graphics.
• Audio output devices include headphones and speakers.
• Video output devices include computer monitors and projectors such as those used for Power-
Point presentations.
The data collected by an AIS is reported on internal reports. Reports from an AIS may be paper reports,
screen reports, or reports in various other forms such as audio reports. They could be regularly scheduled
reports, or they could be produced on demand. The internal reports are used by accountants to prepare
adjusting entries, by management for analysis and decision-making, and by both accountants and man-
agement to produce the external financial reports needed.
An AIS needs to be designed so that it will be able to produce the reports that users will need. In the
preceding example of recording advertising expense, for instance, before the expense codes were devel-
oped, management decided it needed to know not only total advertising expense, but also how much was
spent for advertising in each advertising medium, within each medium how much was spent for advertising
production and how much for media charges, and within those subdivisions, how much was spent to adver-
tise each product.
Good reports should have the following characteristics:
1) The report should include a date or dates. For example, a current customer list should show the
date the report is “as of.” A balance sheet should also show the “as of” date of the report. An
income statement for a period such as the year to date should indicate the period covered by the
report, for example, “January 1 through April 30, 20X9.”
2) The report should be consistent over time so managers can compare information from different
time periods, consistent across segments so management can compare segment performance, and
consistent with generally accepted accounting principles so the report can be understood and used.
3) The report should be in a convenient format and should contain useful information that is easy to
identify. Summary reports should contain financial totals and comparative reports should provide
related numbers such as actual versus budgeted amounts in adjacent columns.
Section F Study Unit 2: F.1. Transaction Cycles
Study Unit 2: F.1. Transaction Cycles

Accounting Information System Cycles
Transaction cycles are grouped business processes for which the transactions are interrelated. They include:
• Revenue to cash cycle.
• Purchasing and expenditures cycle.
• Production cycle.
• Human resources and payroll cycle.
• Financing cycle.
• Fixed asset cycle (property, plant, and equipment).
• General ledger and reporting systems.
Revenue to Cash Cycle

The revenue to cash cycle involves activities related to the sale of goods and services and the collection of
customers’ cash payments. The cycle begins with a customer order and ends with the collection of the cash
from the customer.
To include the collection of customers’ cash payments for sales, the company needs to maintain accurate
records of customers’ outstanding invoices. Thus, the accounts receivable subsidiary ledger is an important
function of the AIS. Customer records also include payment history, assigned credit limit, and credit rating.
The accounting information system is used for:
• Tracking sales of goods and services to customers.
• Recording the fulfilling of customer orders.
• Maintaining customer records.
• Billing for goods and services.
• Recording payments collected for goods and services provided.
• Forecasting sales and cash receipts using the outputs of the AIS.
The process of entering an order and sale into the AIS also updates the inventory module so that items sold
are deducted from on-hand inventory and their costs charged to cost of goods sold.
The AIS should include a means to invoice customers as products are shipped. The production of the invoice
and the production of the packing slip should occur simultaneously, and nothing should be shipped without
a packing slip.
The AIS needs to be able to produce analytical reports of sales orders, sales terms, and payment histories
for customers for use in predictive analytics. Sales orders can be used to predict future sales, and the sale
terms can be used to make cash flow forecasts.
Activities in and inputs to the revenue to cash cycle include:
• Receipt of customer orders and creation of sales orders. The sales order serves as input to the AIS
and contains full customer information, payment method, item or items sold, prices, and terms.
• Inventory is checked to determine whether the item or items ordered are in stock. A process needs
to be in place to track and follow up on backordered items.
• An order confirmation may be emailed to the customer, particularly for orders received on the
Internet.
Study Unit 2: F.1. Transaction Cycles CMA Part 1
• If the order includes a request for credit, the customer’s credit is checked. A process needs to be
in place to screen for fraudulent orders, as well, and much of that can be automated in the AIS.
• If the order is to be paid by credit card, preliminary credit card authorization is obtained for the
amount due.
• Input is created to the AIS for the invoice and the packing slip. (If the order was received over the
Internet, the input to the AIS may be automatically created.)
• Notice is sent to the warehouse to print the packing slip, pick the order, and prepare it for shipping.
For a service, the service is scheduled.
• Shipping information is processed, the package is moved to the shipping dock to be picked up by
the carrier, or the service is provided. For a credit card sale, the credit card charge is released. For
a sale made on credit, the invoice is sent to the customer.
• The accounts receivable module, inventory module, and general ledger are updated, and reports
are processed.
• A process needs to be in place to handle approval and processing of returns. If a return is approved,
the process needs to include making sure the returned item is physically received and, if it can be
resold, that it is physically delivered back to the warehouse and added to inventory on hand in the
inventory module at the correct cost. A credit is created to the customer’s account and an appro-
priate journal entry is made to the general ledger.
• When payment is received for a credit sale, a remittance advice (usually detached from the invoice
and sent back by the customer) should accompany the customer’s payment. The remittance advice
is used to input the information about the payment received to the correct customer account in
the accounts receivable module, including the amount received and the invoice or invoices the
payment is to be applied to. The AIS also updates the cash receipts journal and the general ledger
to record the increase to cash and the decrease to accounts receivable.
Inputs to the revenue cycle can be made by desktop computer, voice inputs, touch-tone telephones, point-
of-sale systems, or tablet computers using wireless capability. Sales made on the Internet may automati-
cally update the subledgers and the general ledger in the AIS. Outside salespeople may use laptops, mobile
devices, portable bar code scanners, and other types of electronic input devices to enter sales orders. Retail
salespeople may use on-site point-of-sale systems.71
Outputs of the revenue to cash cycle include:
• Internal management reports such as sales reports and inventory reports.
• Customer statements summarizing outstanding sales invoices by customer, payments received,

and balance owed.
• Customer aging reports, showing the total accounts receivable outstanding balance broken down
according to ranges of time outstanding, such as amounts outstanding for 0 to 30 days, 31 to 60
days, and so forth.
• Collection reports, showing specific accounts that need follow-up for overdue balances.
• Information from sales reports, receivables aging reports, and receipts reports is used as input to
a forecast of cash receipts.
• Various outputs are used in preparing closing entries and producing external financial statements.
For example, the aging report and other information is used in estimating credit loss expense for
the period.
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A point-of-sale system may be a simple cash register. But increasingly, point-of-sale systems integrate with the
accounting system and credit card payment processors.
Purchasing and Expenditures Cycle

The purchasing and expenditures process involves obtaining items and services in a timely manner at the
lowest price consistent with the quality required, managing the inventory, and seeing that payment is made
for items purchased and services received. The responsibilities of the purchasing function include:
• Locating and approving reputable vendors who offer quality goods and services at reasonable
prices. Vendor shipping and billing policies, discount terms, and reliability are important concerns
in approving vendors.
• Maintaining relationships with suppliers and other partners in the company’s supply chain.
The purchasing and expenditures cycle begins with a request for goods or services and ends with payment
to the vendor for the goods or to the provider of the service.
• Tracking purchases of goods or services.
• Tracking amounts owed and making timely and accurate vendor payments.
• Maintaining vendor records and a list of authorized vendors.
• Managing inventory to ensure that all goods purchased are received, properly recorded in the AIS,
and properly dispensed from inventory.
• Forecasting purchasing needs and cash outflows.
The inventory control function in the AIS interfaces with production departments, purchasing, vendors, and
the receiving department.
Activities and inputs to the purchasing and expenditures cycle include:
• An internal purchase requisition is prepared by the requesting manager or department. Requests

for raw materials may be automated in the AIS when inventories fall below pre-determined levels,
or employees may key in the requests.
• The request is transmitted electronically to the purchasing department.
• The purchasing department selects the vendor, prepares input to the AIS for a purchase order,
and transmits the purchase order to the vendor.
• The purchasing department also transmits the information from the purchase order to the com-
pany’s receiving department so it will have the record of the order when the order is delivered.
However, as a control, the information to which the receiving department has access should not
include the quantities ordered of each item. Thus, the receiving clerk must physically count and
record the items received rather than simply assuming the quantities ordered were the quantities
received and marking them as such.
• When items are received, the receiving department creates an electronic receiving report. The
receiving report may be integrated in the AIS with the purchase order input if the receiving per-
sonnel cannot access the quantities ordered. In other words, the receiving clerk may create the
receiving report by accessing each item on the purchase order electronically and inputting the
quantity counted that was received, but the receiving clerk should not be able to see the quantity
ordered.
• Recording the receipt of the items electronically in the AIS updates the inventory on hand in the
inventory module, increases inventory in the general ledger by the amount of the cost, and creates
a record in the accounts payable module and in the general ledger.
Note: Items shipped FOB shipping point belong to the purchaser as soon as they are shipped.
Items shipped FOB shipping point that have been shipped but not yet received as of a financial
statement date should be accrued as payables and the items should be included in ending in-
ventory. The AIS should have a means of properly handling those transactions.
• The invoice received from the vendor is compared with the purchase order and the receiving report.
A packing slip and a bill of lading from the freight carrier may also be received and they should be
included in the review.
• A process should be in place to investigate any differences in the items, quantity, and prices be-
tween and among the purchase order, receiving report, invoice, packing slip, and bill of lading.
• The invoice information is input into the accounts payable module to complete the information that
was added to the accounts payable module by the receiving report.
• The AIS should include controls that limit the potential for duplicate invoices to be paid. For exam-
ple, if an invoice is input that matches one from the same vendor with the same invoice number
or amount that has already been paid, it should be flagged for investigation before payment.
• If the item “received” was a service, approval should be received from a manager above the level
of the requesting manager before payment is prepared and sent. The higher-level approval is a
control to limit the opportunity for a manager to create a fictitious company, give fictitious service
business to that company, and approve payment to be sent to that company—payment that is sent
to him- or herself.
• If everything on the purchase order was received and if the items, quantities, and prices on the
invoice match the items, quantities, and prices on the purchase order, payment is prepared in the
AIS and sent. The payment may be sent as a paper check printed by the AIS. However, payments
are increasingly being sent by electronic funds transfer (EFT) through the automated clearing house
(ACH) whereby the funds are deducted from the purchaser’s bank account and sent electronically
to the vendor.
• The accounts payable module and the general ledger are updated, and reports are processed.
• Petty cash or procurement cards may be used for smaller purchases.
Inputs to the purchasing and expenditures cycle can be made with desktop computers, bar code scanners,
radio or video signals, magnetic ink characters on checks, scanned images, or entered on a tablet computer
and transmitted wirelessly.
Outputs of the purchasing and expenditures cycle include:
• The check (if a paper check is used) or payment advice (for an ACH 72 transfer) and the payment
register.
• A forecast of cash requirements.
• Discrepancy reports that note differences in items, quantities, or amounts on the purchase order,
the receiving report, and the vendor’s invoice or duplicate invoice numbers or duplicate amounts
to a vendor.
As noted previously, the discrepancy report is needed to prevent authorization of payment to a vendor until
any differences between or among the items, quantities, or prices on the purchase order, the receiving
report, and the purchase invoice or any potential duplicate invoices have been investigated and resolved.
72
“ACH” stands for automated clearing house. An automated clearing house is a computer-based electronic network
for processing transactions, usually domestic low value payments, between participating financial institutions. The ACH
system is designed to process batches of payments containing numerous transactions and charges fees low enough to
encourage its use for low value payments.
Using unpaid vendor invoices, outstanding purchase orders, and reports of items received for which the
invoices have not yet been received, the AIS can predict future cash payments that will be needed and the
dates they will be needed.
Production Cycle
The production cycle involves conversion of raw materials into finished goods and the goal is to do that as
efficiently as possible. Computer-assisted design technology and robotics are often used.
The production process begins with a request for raw materials for the production process. It ends with the
completion of manufacturing and the transfer of finished goods inventory to warehouses.
• Tracking purchases of raw materials.
• Monitoring and controlling manufacturing costs.
• Managing and controlling inventories.
• Controlling and coordinating the production process.
• Providing input for budgets.
• Collecting cost accounting data for operational managers to use in making decisions.
• Providing information for manufacturing variance reports, usually using job costing, process cost-
ing, or activity-based costing systems.
Activities of and inputs to the production cycle include:
• Production managers issue materials requisition forms when they need to acquire raw material
from the storeroom.
• Physical inventory is taken periodically and reconciled to inventory records. The number of items
physically counted is input to the raw materials inventory module for reconciliation, and the ac-
counting records are updated.
• If the level of raw materials inventory in the storeroom falls below a predetermined level, a pur-
chase requisition is issued to the purchasing department. The issuance of the purchase requisition
may be automated in the accounting information system so that it occurs automatically when the
inventory reaches the reorder point.
• A bill of materials for each product is used to show the components needed and the quantities
of each needed to manufacture a single unit of product.
• The master production schedule shows the quantities of goods needed to meet anticipated sales
and when the quantities need to be produced to fulfill projected sales and maintain desired inven-
tory levels.
• Labor time needs to be tracked for costing purposes. Job timecards may be used to capture the
distribution of labor to specific orders.
• Enterprise Resource Planning systems are used in most large- and medium-sized firms to collect,
store, manage, and interpret data across the organization. ERP systems can help a manufacturer
to track, monitor, and manage production planning, raw materials purchasing, and inventory man-
agement, and are also integrated with tracking of sales and customer service.
Data entry is accomplished with automated technology such as bar code scanners, RFID (radio frequency
identification systems), GPS locators, and other input technologies that can reduce input errors and support
fast and accurate data collection for production.
RFID can be used to track components to products and the products themselves along the production
process and the supply chain. Tags containing electronically stored information are attached to components
and products.
Example: An RFID tag attached to an automobile can track its progress through the assembly line, and
RFID tags attached to individual components of the automobile can be used to make sure everything is
assembled properly.
Outputs of the production cycle include:
• Materials price lists showing prices paid for raw materials, kept up to date by the purchasing de-
partment and used by cost accountants to determine actual and standard costs for production.
• Usage reports showing usage of raw materials by various production departments, used by cost
accountants and managers to detect waste by comparing actual raw material usage to standard
raw material usage for the actual production.
• Inventory reconciliations comparing physical inventories with book balances.
• Inventory status reports that enable purchasing and production managers to monitor inventory
levels.
• Production cost reports detailing actual costs for cost elements, production processes, or jobs.
These reports are used by cost accountants to calculate variances for materials, labor, and over-
head.
• Manufacturing status reports, providing managers with information about the status of specific
processes or jobs.
• Reports output from the production process are used in developing financial statements.
Human Resources and Payroll Cycle

The human resources management and payroll cycle involves hiring, training, paying, and terminating em-
ployees.
• Recording the hiring and training of employees.
• Processes associated with employee terminations.
• Maintaining employee earnings records.
• Complying with regulatory reporting requirements, including payroll tax withholdings.
• Reporting on payroll benefit deductions such as for pensions or medical insurance.
• Making timely and accurate payroll payments to employees, payments for benefits such as pen-
sions and medical insurance, and payroll tax payments to taxing authorities.
Inputs to the human resource management and payroll cycle include forms sent by the human re-
sources department to payroll processing:
• Personnel action forms documenting hiring of employees and changes in employee pay rates and
employee status.
• Timesheets or timecards that record hours worked.
• Payroll deduction authorization forms.
• Tax withholding forms.
Outputs of the human resource management and payroll cycle include:
• Employee listings showing current employees and information about them such as home ad-
dresses.
• Payroll payment registers listing gross pay, deductions, and net pay for each employee, used to
make journal entries to the general ledger. The journal entries may be automated in the AIS.
• Preparing paychecks or, for direct deposits to employees’ bank accounts, electronic funds transfers.
• Deduction reports containing company-wide or individual segment employee deduction infor-

mation.
• Payroll summaries used by managers to analyze payroll expenses.
• Tax reports, used for remitting payroll taxes to the taxing authorities, both amounts withheld from
employees’ pay and employer taxes.
• Reporting to employees the information on their income and taxes paid that they need for their
personal tax reporting.
The payroll process is outsourced by many companies.
Financing Cycle
The financing process is responsible for acquiring financial resources by borrowing cash or selling stock and
for investing financial resources. It involves managing cash effectively, minimizing the cost of capital,73
investing in a manner that balances risk and reward, and making cash flow projections to be able to make
any adjustments necessary to have cash on hand when it is needed for operations, investing, and repaying
debt.
Minimizing the cost of capital requires determining how much capital should be in the form of debt and how
much in the form of equity. Financial planning models are often used by management to help them
determine the optimum strategies for acquiring and investing financial resources.
Managing cash effectively includes collecting cash as quickly as possible, and many firms use lockbox ar-
rangements to reduce the collection time for payments received.74 Managing cash effectively also means
paying invoices as they are due and taking advantage of discounts for prompt payment when the discounts
offered are favorable. Electronic funds transfer through the automated clearing house is often used to pay
accounts payable and to pay employees by depositing the funds directly to the payees’ bank accounts. Use
of electronic funds transfer enables a business to closely control the timing of funds being deducted from
its operating and payroll accounts.
Projecting cash flows involves using a cash receipts forecast—developed from an output of the revenue
cycle—and cash disbursements forecasts—developed from outputs of the purchasing and expenditures and
the human resources and payroll cycles.
73
“Capital” as used in the context of the “cost of capital” is the term used for the long-term funding used by firms that
is supplied by its lenders or bondholders and its owners (its shareholders). A company’s capital consists of its long-term
debt and its equity. A company’s cost of capital is the return expected by investors on a portfolio consisting of all the
company’s outstanding long-term debt and its equity securities. The cost of capital is tested on the CMA Part 2 exam and
is covered in more depth in the study materials for that exam.
74
With a lockbox system, a company maintains special post office boxes, called lockboxes, in different locations. Invoices
sent to customers contain the address of the lockbox nearest to each customer as that customer’s remittance address,
so customers send their payments to the closest lockbox. The company then authorizes local banks with which it main-
tains deposit relationships to check these post office boxes as often as is reasonable, given the number of receipts
expected. Because the banks are making the collections, the funds that have been received are immediately deposited
into the company’s accounts without first having to be processed by the company’s accounting system, thereby speeding
up cash collection. Cash management and the use of lockboxes are tested on the CMA Part 2 exam and are covered in
more depth in the study materials for that exam.
Although the finance department utilizes the accounting information system, finance responsibilities should
be segregated from accounting responsibilities. A common approach is to have a controller who manages
the accounting function and a treasurer or CFO who manages the finance function.
• The AIS can provide information about how quickly customers are paying their bills and can show
trends in cash collections for use in managing the collection of cash.
• An AIS with EFT capability can be used to make payments by electronic funds transfer through the
automated clearing house, or a separate EFT application that interfaces with the AIS can be used.
• Estimates of interest and dividend payments and receipts are used to develop cash flow forecasts.
Activities of and inputs to the financing cycle mostly originate outside the organization, as follows:
• Paper checks and remittance advices returned by customers with their payments are used to apply
the payments to customers’ accounts.
• Deposit receipts issued by the bank are used to document bank deposits.
• Bank statements are used to reconcile the cash balance according to the company’s ledger with
the cash balance in the bank account.
• Economic and market data, interest rate data and forecasts, and financial institution data are used
in planning for financing.
Outputs of the financing cycle
The production of periodic financial statements draws on general ledger information about the financing
processes, as follows:
• Interest revenue and expense.
• Dividend revenue and dividends paid.
• Summaries of cash collections and disbursements.
• Balances in investment accounts and in debt and equity.
• Cash budget showing projected cash flows.
Reports about investments and borrowings produced by the AIS for the financing cycle include:
• Changes in investments for a period.
• Dividends paid.
• Interest earned.
• New debt and retired debt for the period, including payments of principal and interest made for
the period and information about lending institutions and interest rates.
• Significant ratios such as return on investment for the organization as a whole and for individual
segments of it can be calculated by a financial planning model to help management make decisions
regarding investing and borrowing.
Property, Plant, and Equipment (Fixed Asset) System

The fixed asset management system manages the purchase, valuation, maintenance, and disposal of the
firm’s fixed assets, also called property, plant, and equipment.
• Recording newly purchased fixed assets in the fixed asset module and the general ledger.
• Maintaining depreciation schedules and recording depreciation to calculate the book values of fixed
assets.
• Maintaining deferred tax records by tracking differences between depreciation as calculated for
book purposes and depreciation as calculated for tax purposes.
• Maintaining records of the physical locations of fixed assets, as some of them may be moved
frequently.
• Tracking repair costs and distinguishing between repair costs that are expensed and repair costs
that are capitalized.
• Recording impairment of fixed assets.
• Tracking disposal of fixed assets and calculating the amount of gain or loss on the sale.
Activities and inputs to the fixed asset management system include:
• A request for a fixed asset purchase. The individual making the request uses a purchase requisition
form, usually input electronically. The request usually requires approval by one or more higher-
level managers.
• The purchasing department usually gets involved in vendor selection and issues a purchase order,
as is done for other purchases. Receiving reports and supplier invoices are handled the way they
are for other purchases.
• If the company builds the fixed asset rather than acquiring it, a work order is used that details the
costs of the construction.
• Repair and maintenance records need to be maintained for each fixed asset or for categories of
fixed assets. Activities should be recorded on a repair and maintenance form so either the asset
account can be updated, or an expense account can be debited, as appropriate, for the cost.
• When an existing fixed asset is moved from one location to another, those responsible should
complete a fixed asset change form so that its location can be tracked.
• A fixed asset change form should also be used to record the sale, trade, or retirement of fixed
assets.
Outputs of the fixed asset management system include:
• A list of all fixed assets acquired during a particular period.
• A fixed asset register listing the assigned identification numbers of each fixed asset held and each
asset’s location as of the register date.
• A depreciation register showing depreciation expense and accumulated depreciation for each fixed
asset owned.
• Repair and maintenance reports showing the current period’s repair and maintenance expenses
and each fixed asset’s repair and maintenance history.
• A report on retired assets showing the disposition of fixed assets during the current period.
All the reports are used in developing information for the external financial statements.
The General Ledger and Reporting Systems

The general ledger contains accounts for all the assets, liabilities, equity, revenues, and expenses. The
individual modules (or journals) support the general ledger and provide the detail behind the activity rec-
orded in the general ledger.
In a responsibility accounting system, a journal such as accounts receivable can be subdivided according to
responsibility center using responsibility center codes. Subsidiary ledgers are maintained for each respon-
sibility center containing only the accounts used by that responsibility center.
In an automated accounting information system, most day-to-day transactions are initially recorded in the
individual modules such as the accounts receivable or accounts payable module. Recording transactions in
one module updates that module and possibly other modules and automatically creates transactions to the
general ledger. Thus, the general ledger obtains data from the other cycles and processes it so that financial
reports may be prepared. To be in accordance with generally accepted accounting principles, however,
many valuation entries and adjusting entries are also required.
Financial Reporting Systems

The primary purpose of the financial reporting system is to produce external financial statements for the
company’s stakeholders and other external users such as analysts. The reports include the statement of
financial position (balance sheet), income statement, statement of cash flows, statement of comprehensive
income, and statement of changes in stockholders’ equity.
Various internal reports are used by accountants who are reviewing data and making adjusting entries to
produce the external financial statements. Two of them are:
• A trial balance is a columnar report that lists each account in the general ledger in the first
column, followed by its balance as of a certain date and time in either the second or the third
columns from the left. Debit balances are shown in the second column from the left and credit
balances are shown in the third column from the left. All the debits and all the credits are totaled,
and the total debits and total credits on the trial balance must balance. A trial balance is used to
check preliminary balances before adjusting entries are made. It is printed after the adjustments
are recorded to confirm that the adjusted balances are correct.
• A general ledger report is a report covering a specific range of dates that shows either all the
individual general ledger accounts and the transactions that adjusted them during that period, or
it may be printed for only one or for only a few accounts. A general ledger report is used to analyze
transactions posted to a specific account.
Management Reporting Systems

The information in the external financial statements is not what managers need to know for their decision
making. Managers need the detailed internal statements produced by the AIS.
Cost accounting systems collect labor, material, and overhead costs that are used to determine the
inventory costs of manufactured goods. Their output is used to determine the value of the inventories
reported on the balance sheet. Cost accounting systems are also used to report variances from anticipated
costs that production managers need to control production, as described in Section C, Performance Man-
agement, in Volume 1 of this textbook.
Profitability reporting systems and responsibility reporting systems involve comparisons between
actual and planned amounts and variances. They are usually prepared according to responsibility center.
Responsibility reporting traces events to the responsibility of a particular responsibility center or a particular
manager. Each significant variance should be explained by the manager who has knowledge of what caused
the variance. A variance may be a favorable variance, and an explanation of how it occurred may be useful
information for other responsibility centers in the organization. If a variance is unfavorable, knowing how
it occurred can be the first step to taking corrective action.
Section F Study Unit 3: F.1. Databases
Study Unit 3: F.1. Databases

A database is a collection of related data files, combined in one location to eliminate redundancy, that can
be used by different application programs and accessed by multiple users.
Basic Data Structure

The most commonly used type of database is a relational database, which is a group of related tables.
When the database is developed, specific data fields and records are defined. The data must be organized
into a logical structure so it can be accessed and used. Data is stored according to a data hierarchy, and
the data is structured in levels.
A data field is the first level in the data hierarchy. A field is information that describes one attribute of an
item, or entity, in the database such as a person or an object. In an employee file, for example, one data
field would be one employee’s last name. Another field would be the same employee’s first name. A field
may also be called an “attribute,” or a “column.”
A database record is the second level of data. A database record contains all the information about one
item, or entity, in the database. For example, a single database record would contain information about
one employee. Each item of information, such as the employee’s Employee ID number, last name, first
name, address, department code, pay rate, and date of hire, is in a separate field within the employee’s
record. The data fields contained in each record are part of the record structure. The number of fields in
each record and the size of each field is specified for each record.
A file, also called a table, is the third level of the data hierarchy. A table is a set of common records, such
as records for all employees.
A complete database is the highest level. Several related files or tables make up a database. For example,
in an accounting information system, the collection of tables will contain all the information needed for an
accounting application.
Database
File or Table
Record
Field
Example: Consider the example of worker at a company who, over time, will have received numerous
monthly paychecks. The relational database will contain at least two database files, or tables, for
employees. The first table, the “Employees” table, contains all the records of the individual employees’
IDs and their names. The second table, the “Paychecks” table, contains data on all the paychecks that
have been issued and, for each paycheck, the Employee ID of the employee to whom it was issued.
A database management system can be used to locate all the paychecks issued for one particular
employee by using the employee ID attached to the person’s name in that employee’s record in the
Employees table and locating all of the individual paycheck records for that same employee ID in the
Paychecks table.
The Employee ID ties the information in the Paychecks table to the information in the Employees table.
Study Unit 3: F.1. Databases CMA Part 1
Database Keys
The primary key is a data field in a record that distinguishes one record from another in the table. Every
record in a database has a primary key, and each primary key is unique. The primary key is used to find a
specific record, such as the record for a specific employee. A primary key may consist of one data field or
more than one data field. For example, in an “Employees” table, each employee record contains an Em-
ployee ID. The Employee ID is the primary key in the Employees table.
Every record will have a primary key, and some records will also have foreign keys. Foreign keys connect
the information in a record to one or more records in other tables.
Example: Using the example of employees, the first table, the “Employees” table, contains all the rec-
ords of the individual employees’ IDs and their names. The second table, the “Paychecks” table, contains
records of all the paychecks that have been issued and, for each paycheck, the Employee ID of the
employee to whom it was issued. In the Employees table, the Employee ID in each employee record
serves as the primary key. In the Paychecks table, the Employee ID in each paycheck record is a
foreign key. The employee ID in the Paychecks table connects the paycheck information to the em-
ployee’s name in the Employees table.
Entity-Relationship Modeling
Database administrators use the Entity-Relationship Model to plan and analyze relational database files and
records. An entity-relationship diagram utilizes symbols to represent the relationships between and
among the different entities in the database. The three most important relationship types are one-to-one,
one-to-many, and many-to-many. These relationship types are known as database cardinalities and
show the nature of the relationship between the entities in the different files or tables within the data-
base.
Example: Using the example of employees again, the connection between each employee (one person)
and each employee’s paychecks (which are many) is an example of a one-to-many relationship.
Database Management System (DBMS)

A database management system is a software package that serves as an interface between users and the
database. A database management system manages a set of interrelated, centrally coordinated data files
by standardizing the storage, manipulation, and retrieval of data. It is used to create the database, maintain
it, safeguard the data, and make the data available for applications and inquiries. Because of its standard-
ized format, a database can be accessed and updated by multiple applications.
Database management systems perform four primary functions:
1) Database development. Database administrators use database management systems to develop

databases and create database records.
2) Database maintenance. Database maintenance includes record deletion, alteration, and reor-
ganization.
3) Database interrogation. Users can retrieve data from a database using the database manage-
ment system and a query language to select subsets of records for extracting information.
4) Application development. Application development involves developing custom applications, in-
cluding the queries, forms, reports, and labels for the custom applications, and allowing many
different custom applications to easily access a single database.
Note: A database management system is not a database but rather a set of separate computer programs
that enables the database administrator to create, modify, and utilize database information; it also en-
ables applications and users to query the database.
Section F Study Unit 3: F.1. Databases
A database management system provides languages for database development, database maintenance,
and database interrogation, and it provides programming languages to be used for application development.
The languages use statements, which is another word for commands. For example, a database adminis-
trator uses statements to create a database. A database administrator uses the DBMS not only to create a
database, but also sometimes to create applications that will access the data in the database.
Database Development
When a relational database is developed, the data fields and records to be used in the database must be
structured. The database administrator uses a database management system and a Data Definition
Language (DDL) to create a description of the logical and physical structure or organization of the database
and to structure the database by specifying and defining data fields, records, and files or tables. The data-
base administrator also specifies how data is recorded, how fields relate to each other, and how data is
viewed or reported.
The structure of the database includes the database’s schema, subschemas, and record structures.
• The schema is a map or plan of the entire database—its logical structure. It specifies the names
of the data elements contained in the database and their relationships to the other data elements.
• A particular application or user may be limited to accessing only a subset of the information in the
database. The limited access for an application or a user is called a subschema or a view. One
common use of views is to provide read-only access to data that anyone can query, but only some
users can update. Subschemas are important in the design of a database because they determine
what data each user has access to while protecting sensitive data from unauthorized access.
Note: The schema describes the design of the database, while the subschemas describe the
uses of the database. The database schema should be flexible enough to permit creation of all
the subschemas required by the users.
• In defining the record structure for each table, the database administrator gives each field a
name and a description, determines how many characters the field will have, and what type of
data each field will contain (for example, text, integer, decimal, date), and may specify other
requirements such as how much disk space is needed.
The database administrator also defines the format of the input (for example, a U.S. telephone number
will be formatted as [XXX] XXX-XXXX).
The input mask for a data field creates the appearance of the input screen a user will use to enter data
into the table so that the user will see a blank field or fields in the style of the format. For example, a date
field will appear as __ __ /__ __ / __ __ __ __. The input mask helps ensure input accuracy.
Once the record structure of the database table is in place, the records can be created.
Database Maintenance
A data manipulation language (DML) is used to maintain a database and consists of “insert,” “delete,”
and “update” statements (commands). Databases are usually updated by means of transaction processing
programs that utilize the data manipulation language. As a result, users do not need to know the specific
format of the data manipulation commands.
Database Interrogation
Users can retrieve data from a database by using a query language. Structured Query Language (SQL)
is a query language, and it is also a data definition language and a data manipulation language. SQL has
been adopted as a standard language by the American National Standards Institute (ANSI). All relational
databases in use today allow the user to query the database directly using SQL commands. SQL uses the
Study Unit 4: F.1. Enterprise Resource Management CMA Part 1
“select” command to query a database. However, business application programs usually provide a graph-
ical user interface (GUI) that creates the SQL commands to query the database for the user, so users do
not need to know the specific format of SQL commands.
Application Development
Database management systems usually include one or more programming languages that can be used
to develop custom applications by writing programs that contain statements calling on the DBMS to perform
the necessary data handling functions. When writing a program that uses a database that is accessed with
a DBMS, the programmer needs only the name of the data item, and the DBMS locates the data item in
the storage media.
Note: One of the key characteristics of a database management system is that the applications that
access the database are programmed to be independent of the data itself, meaning the programs
do not refer to a specific number or item, but rather to the name of the data item.
Application independence is like changing a number in a spreadsheet cell that is referenced in a formula
in another cell elsewhere in the spreadsheet. It is not necessary to change the formula because the
formula relates to the cell and not to the number itself. Whatever number appears in that cell will be
used in the formula in the other cell.
Study Unit 4: F.1. Enterprise Resource Management

An accounting information system utilizes a database specific to the accounting, finance, and budgeting
functions. Information systems are used throughout organizations for much more than financial applica-
tions, though, and they all require their own databases. For example, materials requirements planning
systems are used to determine what raw materials to order for production, when to order them, and how
much to order. Personnel resource systems are used to determine personnel needs and to track other
personnel data.
However, problems arise when an organization’s various systems do not “talk” to one another. For instance:
• Production is budgeted based on expected sales, and raw materials need to be ordered to support
the budgeted production. If the materials requirements planning system cannot access the financial
and budgeting system, someone needs to manually input the planned production of every product
into the materials requirements planning system after the sales have been budgeted and the budg-
eted production has been set.
• A salesperson takes an order. If the items ordered are in stock, the salesperson submits the order
to an order entry clerk, who prepares the invoice and shipping documents. The documents are
delivered manually to the shipping department, and the shipping department prepares the ship-
ment and ships the order. After shipping, the sale is recorded in the accounting information system
and the customer’s account is updated with the receivable due. The order information is entered
separately into the database used by the customer relations management system, so that if the
customer calls about the order, the customer service personnel will be able to locate the order
information, because the customer service agents do not have access to the accounting records.
Inputting what is basically the same information multiple times is duplication of effort. Not only does it
waste time, but the multiple input tasks cause delays in making the information available to those who
need it. Furthermore, each time information is input manually into a separate system, the opportunity for
input errors increases. Thus, when the information finally is available, it may not even be accurate.
Enterprise Resource Planning (ERP) can help to overcome the challenges of separate systems because it
integrates all aspects of an organization’s activities—operational as well as financial—into a single system
that utilizes a single database.
Section F Study Unit 4: F.1. Enterprise Resource Management
ERP systems consist of the following components:
• Production planning, including determining what raw materials to order for production, when to
order them, and how much to order.
• Logistics, both inbound (materials management) and outbound (distribution).
• Accounting and finance.
• Human resources.
• Sales, distribution, and order management.
Features of ERP systems include:
1) Integration. The ERP software integrates the accounting, customer relations management, busi-
ness services, human resources, and supply chain management so that the data needed by all
areas of the organization will be available for planning, manufacturing, order fulfillment, and other
uses. The system tracks all the firm’s resources, including cash, raw materials, inventory, fixed
assets, and human resources, forecasts their requirements, and tracks shipping, invoicing, and the
status of commitments such as orders, purchase orders, and payroll.
2) Centralized database. The data from the separate areas of the organization flow into a secure
and centralized database rather than several separate databases in different locations. All users
use the same data derived through common processes.
3) Usually require business process reengineering. An ERP system usually forces organizations
to reengineer or redesign their business processes to use the system. Because ERP software is
“off-the-shelf” software, customization is usually either impossible or prohibitively expensive. Thus,
business processes used must accommodate the needs of the system and many may need to be
redesigned.
When budgeted production is set, the information will immediately be available to determine what raw
materials should be ordered, how much, and when. When a salesperson enters a customer’s order into the
system (or when it is automatically entered by an online order), inventory availability can be immediately
checked. If the order is a credit order, the customer’s credit limit and payment history is checked. If eve-
rything is OK, the warehouse is notified to ship, the accounting information system is automatically updated,
and if the order is a credit card order, the customer’s credit card is charged. Information on the order and
its status is immediately visible to customer service personnel so they can answer questions about the order
if they receive an inquiry from the customer.
Information about exceptions is also immediately available and can be addressed automatically. For exam-
ple:
• If the customer’s credit card charge is declined, shipment of the order can be automatically held
until an investigation can be performed and the order possibly cancelled.
• If the item ordered is not in stock, a backorder report is automatically generated for follow-up with
the customer, and the ERP system can trigger the production system to manufacture more product.
The production system can revise the production schedules accordingly, and human resources may
be involved if additional employees will be required.
Study Unit 4: F.1. Enterprise Resource Management CMA Part 1
Extended ERP Systems

Extended enterprise resource planning systems, sometimes called ERP II and ERP III, include cus-
tomers, suppliers, and other business partners.
ERP II systems interface with suppliers through supply chain management applications that give partners
along the supply chain access to internal information of their suppliers and customers. Suppliers can access
the company’s internal information such as inventory levels and sales orders, enabling the company to
reduce its cycle time for procuring raw materials for manufacturing or goods for sale. Customers can also
view their supplier’s information about their pending orders.
ERP II systems can also extend to collaboration with vendors in engineering design and development.
Vendors can provide engineering staff augmentation to their customers, and the collaborative engineering
and design can lead to higher-quality and lower-cost products and services.
ERP systems can be further extended beyond the supply chain. ERP III can extend the system’s capabilities
to collaboration with customers and the marketplace. It can lead to dialogue among customers, the ERP
organization, and its extended supply chain. The exchange of information can produce innovation leading
to better products and services.
Extended ERP components focus on e-commerce, customer relationship management, supply chain man-
agement, logistics, and even business intelligence and data mining.
Advantages of ERP Systems
• Integrated back-office systems result in better customer service and production and distribution
efficiencies.
• Centralizing computing resources and IT staff reduces IT costs versus every department maintain-
ing its own systems and IT staff.
• Centralization of data provides a secure location for all data that has been derived through common
processes, and all users are using the same data.
• Day-to-day operations are facilitated. All employees can easily gain access to real-time information
they need to do their jobs. Cross-functional information is quickly available to managers regarding
business processes and performance, significantly improving their ability to make business deci-
sions and control the factors of production. As a result, the business can adapt more easily to
change and quickly take advantage of new business opportunities.
• Business processes can be monitored in new and different ways, such as with dashboards.
• Communication and coordination are improved across departments, leading to greater efficiencies
in production, planning, and decision-making that can lead to lower production costs, lower mar-
keting expenses, and other efficiencies.
• Data duplication is reduced, and labor required to create inputs and distribute and use system
outputs is reduced. Potential errors caused by inputting the same data multiple times are reduced.
• Expenses can be better managed and controlled.
• Inventory management is facilitated. Detailed inventory records are available, simplifying inventory
transactions. Inventories can be managed more effectively to keep them at optimal levels.
• Trends can be more easily identified.
• The efficiency of financial reporting can be increased.
• Resource planning as a part of strategic planning is simplified. Senior management has access to
the information it needs to do strategic planning.
Section F Study Unit 5: F.1. Data Warehouse, Data Mart, Data Lake
Disadvantages of ERP Systems
• Business re-engineering (developing business-wide integrated processes for the new ERP system)
is usually required to implement an ERP system and it is time-consuming and requires careful
planning.
• Converting data from existing systems into the new ERP system can be time-consuming and costly
and, if done incorrectly, can result in an ERP system that contains inaccurate information.
• Training employees to use the new system disrupts existing workflows and requires employees to
learn new processes.
• An unsuccessful ERP transition can result in system-wide failures that disrupt production, inventory
management, and sales, leading to huge financial losses. Customers who are inconvenienced by
the implementation may leave. Because the entire business relies on the new ERP system, it is
critical that it be completely functional and completely understood by all employees before it “goes
live.” No opportunities are available to “work out the bugs” or “learn the ropes” when the entire
business relies on the one system.
• Ongoing costs after implementation include hardware costs, system maintenance costs, and up-
grade costs.
Study Unit 5: F.1. Data Warehouse, Data Mart, Data Lake

Data Warehouse, Data Mart, and Data Lake
Data Warehouse
A copy of all the historical data for the entire organization can be stored in a single location known as a
data warehouse, or an enterprise data warehouse. A data warehouse is separate from an ERP system
because a data warehouse is not used for everyday transaction processing. By having all the company’s
information from different departments in one location for analysis, the company can more efficiently man-
age and access the information for data mining to discover patterns in the data for use in making decisions.
For example, the marketing department can access production data and be better able to inform customers
about the future availability of products.
Managers can use business intelligence tools to extract information from the data warehouse. For in-
stance, a company can determine which of its customers are most profitable or can analyze buying trends.
Note: Business intelligence is the use of software and services to collect, store, and analyze data pro-
duced by a firm’s business activities. Business intelligence tools are used to access and analyze data
generated by a business and present easy-to-understand reports, summaries, dashboards, graphs, and
charts containing performance measures and trends that provide users with detailed information about
the business that can be used to make strategic and tactical management decisions. Business intelligence
is covered in more detail later in this section.
To be useful, data stored in a data warehouse should:
1) Be free of errors.
2) Be uniformly defined.
3) Cover a longer time span than the company’s transactions systems to enable historical research.
4) Allow users to write queries that can draw information from several different areas of the database.
Study Unit 5: F.1. Data Warehouse, Data Mart, Data Lake CMA Part 1
Note: The data in a data warehouse is a copy of historical data, and therefore is not complete with the
latest real-time data. Furthermore, information in a data warehouse is read-only, meaning users cannot
change the data in the warehouse.
Because the data stored in a data warehouse exists in different formats in the various sources from which
it is copied, all differences need to be resolved to make the data available in a unified format for analysis.
The process of making the data available in the data warehouse involves the following.
1) Periodically, data is uploaded from the various data sources, usually to a staging server before
going to the data warehouse. The data upload may occur daily, weekly, or with any other estab-
lished frequency.
2) The datasets from the various sources are transformed to be compatible with one another by
adjusting formats and resolving conflicts. The transformation that must take place before the data
can be loaded into a data warehouse is known as Schema-on-Write because the schema is ap-
plied before the data is loaded into the data warehouse.75
3) The transformed data is loaded into the data warehouse to be used for research, analysis, and
other business intelligence functions.
Data Mart
A data mart is a subsection of a data warehouse that provides users with analytical capabilities for a
restricted set of data. For example, a data mart can provide users in a department such as accounts re-
ceivable access to only the data that is relevant to them so that the accounts receivable staff do not need
to sift through unneeded data to find what they need.
A data mart can provide security for sensitive data because it isolates the data certain people are authorized
to use and prevents them from seeing data that needs to be kept confidential. Furthermore, because each
data mart is used only by one department, the demands on the data servers can be distributed; one de-
partment’s usage does not affect other departments’ workloads.
Data marts can be of three different types:
1) A dependent data mart draws on an existing data warehouse. It is constructed using a top-down
approach and withdraws a defined portion of the data in the data warehouse when it is needed for
analysis. Several dependent data marts, used by different areas of the organization, can draw on
a single data warehouse.
2) An independent data mart is created without the use of a data warehouse through a bottom-up
approach. The data for just one data mart for a single business function is uploaded, transformed,
and then loaded directly into the data mart. If an organization needs several data marts for differ-
ent areas of the organization, each one would need to be created and updated separately, which
is not optimal. Furthermore, the idea of independent data marts is antithetical to the motivation
for developing a data warehouse.
3) A hybrid data mart combines elements of dependent and independent data marts, drawing some
data from an existing data warehouse and some data from transactional systems. Only a hybrid
data mart allows analysis of data from a data warehouse with data from other sources.
75
A database’s schema is a map or plan of the entire database, that is, the database’s logical structure. The schema
specifies the names of the data elements contained in the database and their relationships to the other data elements.
For more information about relational databases, please see the topic Databases in this volume in Section F.1. – Infor-
mation Systems in this volume.
Section F Study Unit 5: F.1. Data Warehouse, Data Mart, Data Lake
Data Lake
Much of the data captured by businesses is unstructured, such as social media data, videos, emails, chat
logs, and images of invoices, checks, and other items. Such data cannot be stored in a data warehouse
because the types of data are so disparate and unpredictable that the data cannot be transformed to be
compatible with the data in a data warehouse. A data lake is used for unstructured data.
A data lake is a massive body of information fed by multiple sources for which the content has not been
processed. Unlike data warehouses and data marts, data lakes are not “user friendly.” Data lakes have
important capabilities for data mining and generating insights, but usually only a data scientist has the
analytical skills needed to make sense of the raw information and access their capabilities.
A data lake utilizes a non-relational database management system, called NoSQL, which stands for “Not
only SQL.” A NoSQL database management system can be used to analyze high volume and disparate data,
including unstructured and unpredictable data types. Unlike relational databases, NoSQL databases do not
require the use of a Structured Query Language (SQL) to analyze the data, and most do not use a schema
and thus they are more flexible than a relational database system. Transformation of the data and applica-
tion of a schema, called Schema-on-Read, take place when specific analysis is performed. A NoSQL
database management system can be used with a data lake that contains both structured and unstructured
data.
Note: SQL can be used as a query language with a NoSQL database management system, but SQL is
not the main query language used because its usage is limited to structured data.
Enterprise Performance Management

Enterprise Performance Management (EPM), also known as Corporate Performance Management (CPM) or
Business Performance Management (BPM), is a method of monitoring and managing the performance of an
organization in reaching its performance goals. It aids in the process of linking strategies to plans and
execution.
The organization’s strategic goals and objectives must be clearly communicated to managers and be incor-
porated into their budgets and plans. Then, periodically the performance of the organization is reviewed
with respect to its progress in attaining the strategic goals and objectives. Key Performance Indicators
(KPIs), Balanced Scorecards, and Strategy Maps are frequently used and are monitored and managed. If
the organization or a segment of it is not performing as planned, adjustments are made, either in the
strategy or in the operations.
Enterprise Performance Management software is available that integrates with an organization’s accounting
information system, ERP system, customer relations management system, data warehouse, and other sys-
tems. It is designed to gather data from multiple sources and consolidate it to support performance
management by automating the collection and management of the data needed to monitor the organiza-
tion’s performance in relation to its strategy. Users can create reports and monitor performance using the
data captured and generated in the other systems. Some examples of an EPM’s capabilities include:
• Reports comparing actual performance to goals.
• Reports on attainment of KPIs by department.
• Balanced scorecards, strategy maps, and other management tools.
• Creating and revising forecasts and performing modeling.
• Generating dashboards presenting current information customized to the needs of individual users.
EPM software can also automate budgeting and consolidations. Tasks that in the past may have required
days or weeks can now be completed very quickly.
Note: EPM software can be on premises, or it can be deployed as Software as a Service (SaaS), otherwise
known as “the cloud.” Cloud computing is covered in Technology-enabled Finance Transformation.

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Study Unit 1: F.1.

Information Systems CMA Part 1

Section F – Technology and Analytics

Study Unit 1: F.1. Information Systems

• Technology-enabled Finance Transformation covers issues of importance for management account-

The Value Chain and the Accounting Information System

Human Resources Management

Procurement Value Added

• Sales information can be used to optimize inventory levels at retail locations.

The Supply Chain and the Accounting Information System

Automated Accounting Information Systems (AIS)

Elements of Automated Accounting Information Systems

Inputs to an Automated Accounting Information System

Output of an Automated Accounting Information System

• Audio output devices include headphones and speakers.

Good reports should have the following characteristics:

Study Unit 2: F.1. Transaction Cycles

• Revenue to cash cycle.

• Purchasing and expenditures cycle.

• Human resources and payroll cycle.

• Fixed asset cycle (property, plant, and equipment).

• General ledger and reporting systems.

Revenue to Cash Cycle

The accounting information system is used for:

• Tracking sales of goods and services to customers.

• Recording the fulfilling of customer orders.

• Maintaining customer records.

• Billing for goods and services.

• Recording payments collected for goods and services provided.

Activities in and inputs to the revenue to cash cycle include:

Outputs of the revenue to cash cycle include:

• Internal management reports such as sales reports and inventory reports.

• Customer statements summarizing outstanding sales invoices by customer, payments received,

Purchasing and Expenditures Cycle

The accounting information system is used for:

• Tracking purchases of goods or services.

• Maintaining vendor records and a list of authorized vendors.

• Forecasting purchasing needs and cash outflows.

Activities and inputs to the purchasing and expenditures cycle include:

• An internal purchase requisition is prepared by the requesting manager or department. Requests

• The request is transmitted electronically to the purchasing department.

• Petty cash or procurement cards may be used for smaller purchases.

Outputs of the purchasing and expenditures cycle include:

• A forecast of cash requirements.

The accounting information system is used for:

• Tracking purchases of raw materials.

• Monitoring and controlling manufacturing costs.

• Managing and controlling inventories.

• Controlling and coordinating the production process.

• Providing input for budgets.

Activities of and inputs to the production cycle include:

Outputs of the production cycle include:

• Inventory reconciliations comparing physical inventories with book balances.

Human Resources and Payroll Cycle

The accounting information system is used for:

• Recording the hiring and training of employees.

• Processes associated with employee terminations.

• Maintaining employee earnings records.