Issues in Accounting and Ratio Analysis
According to Callahan et al (2007), “Accounting is the process of identifying, measuring and communicating economic information to allow judgment and decisions by the users of the information.” The accounting information must be reliable, relevant, complete, and understandable. Accounting as a process contains two major branches which are management and financial accounting. Management accounting provides executives and management with information necessary for decision making. On the other hand, financial accounting provides outsiders and owners such as customers with the information necessary for making decisions. Within a company, there is an expert and independent assessment of the control system operating which enable the auditor to verify whether the proper account books have been kept as well as report whether he views the annual reports as a true representation of the results and position and abide by all statutory requirements and accounting principles accepted in the firm (Callahan et al 2007, p.32).
Ratio analysis
A ratio is an expressed relationship between two entities which can be presented either in proportionate or percentage. For example, men are 25% of the world population or the ratio of men to women in the world is 1:4. Ratios are important as they make it easy to understand figures and allow easier comparison of sizes. However, the quality of the ratio is dependent on the financial statement’s quality, and besides, the ratio provides problems but not the way of solving them. In a business, ration covers several aspects which include; profitability, efficiency, liquidity, financial gearing, and investment (Palmer 1983, p. 61).
Business Terms and Budget
Explanations of terms
Non-current assets
Non-current assets are the assets that cannot be converted to cash or be expected that within a year they will become cash. The advantage of Non-current assets is that they are long term investments which are not significantly affected by economic changes. However, they are difficult to change or convert in cases of technological changes. An income statement is a financial statement that shows how the accompany has performed within one year within a given accounting period. The income statement has an advantage of its capability in showing a company’s profitability at a given period, mostly annually. On the other hand, it has a disadvantage of being based not providing a cash transaction as it is based on accrual accounting. An auditor is a person who can conduct audits and he can be either an internal or external auditor. The advantage of an auditor is that they provide thoroughly analyzed audits which are successful for final publishing. However, if they make a mistake this can lead to a significant problem in a whole firm.
Conversion cost
A conversion cost is the cost incurred when there is a movement of equipment or production from one stage to another. The advantage of conversion cost is that it enables one to enquire about a new form of security, currency, or material needed. However, the tax associated with this expenditure may be high resulting in high expenses of conversion. An annual report is a compiled report of a firm’s activity which it had been involved in for a whole year. Advantages of an annual report include; they provide detailed information and the business record can be kept for a particular period. However, the records are time-consuming in their preparation since this is done in a formal method.
Limited liability
Limited liability is an investment whereby the investor is protected from losing more than they invested amount in the sense that he is not entitled to persona liability of the company’s obligations and debts whenever there is a failure of their fulfillment. The advantages of limited liability there are more employees corporations and trust and the owners of a company are protected from debt and other liability acts among others. The disadvantages are; in limited liability companies, there is the use of many titles such as executive officer, managing director, and the president making it hard in determining who has the authority of operations, and the structure of these companies is complex to understand too many people.
Margin of safety
The margin of safety is the measure of the extent to which sales level drop to the point where the business is considered to have reached its breakeven point. The advantage of the margin of safety is that it protects investors from market downturns and risky decisions. However, it is sometimes associated with inaccuracies which are contributed to hidden assets unnoticed by the market which hinders effective stock trade, thus affecting investors expected profits. According to Premchad, (1984, p. 47), “Overhead is the expenses that are being experienced by operating business. They are the necessary expenses incurred by the continued functioning of a business but not immediately associated with the offered services and products.” the advantage of overhead is that they enhance the ongoing operation of the business. However, they do not directly bring about profits.
Budgeting
A budget is a quantitative statement that shows assets, planned revenues, liabilities, expenses and cash flows over some time. Budget is important in any firm because; it encourages a formal planning process, provides a bias for system control, and promotes forward-thinking which helps in identifying problems in advance. Moreover, a budget may serve as a basis for formal evaluation motivating managers to improve their performance. It also enhances proper communication and coordination between departments and sections in an organization (Premchad 1984, p. 81).
Information Systems
Computer-based information systems are critical to an organization’s survival in the modem competitive environment.
Porter’s competitive forces model and the basic competitive strategies
Computer-based information systems are important in the modern competitive environment in determining the survival of an organization. According to porter’s competitive strategies, it is any firm’s dream to become the lowest-cost producer to retain customers and minimize the threats posed by substitute products. Also, firms’ aims at being able to meet every customer’s requirement through differentiation and offering exceptional quality services, hence reducing customer risks. The firm also focuses on identifying and serving a target segment effectively. To gain competitive advantages firms employ some strategies which include; growth strategy, alliance strategy, innovation strategies, operational effectiveness strategy, customer-oriented strategy, and time strategy among others.
How computer-based information systems can assist support these strategies?
These strategies can be assisted by computed-based technology through the creation of innovative applications, the establishment of competitive weapons, changing and enhancing the production process together with linking different departments and businesses with their partner (Lucey 2004, p. 52).
Internal activities of the company
A value chain is a useful tool for explaining the internal activities of a company. It involves inbound logistics – Operations – Outbound logistics – Marketing & sales – Services. In inbound logistics expediting materials are received and stored to a point where goods and services are produced. The operation involves altering inputs to finished products. Outbound logistics entails storing processed goods and distributing them to customers. Marketing & Sales involves advertising, promoting, and selling the finished products. Service includes repair and installation to ensure good maintenance.
Types of application software acquisition
Various types of application software acquisition include Bespoke in-house which has a good quality fit for business, but poor in time delivery and cost. The other acquisition includes end-user development which is quick in delivery but expensive. Tailored-off- the shelf has advantages of fastness, cheap and good bugs’ quality but low business quality.
Approaches to information systems development
Approaches to information system development include; Bespoke development, which is an IS developed by professionals to suit business requirement application. Its benefits include; it an agreement to business requirement and it facilitates competitive advantage. Its problems involve, it is costly, time-consuming with low quality. The second acquisition is an off-the-shelf purchase, which involves purchasing off a prewritten application used by other companies. Its benefits include; fastness, cheap and high quality. Its limitation includes; it may lack some features and it requires changes to function (Lucey 2004, p. 142).
What types of changes and benefits can be introduced to a company through e-business?
Through the introduction of e-business to a company, all the information systems which are electronically based change both within the organization and outside which improves the business process range. The company enjoys the benefits of connectivity and it can facilitate the accessibility of computing platforms, simplified functions and operations within the company reduced the cost related to the distribution of information, created an environment which enhances responsiveness and rich information within the company, and the possibility of scaling large and small computing platforms.
Business information system
According to UKAIS, “Business information system is the process by which a firm gathers, store use and disseminate information, as well as utilizing information technologies.”
Categories of computer-based information systems
There are several computer based-information systems which include; Transaction Processing System (TPS). This system serves the operational level of the organization involving transactions and events. Its function involves updating, listing, sorting, and merging information. The second one is the Management Information System (MIS) which provides reports and facilitates access to company data. Its function involves the processing of simple models, routine reports, and low-level analysis. The third system is the executive Support System, which facilitates the computing and communication environment that revolves around the organization’s strategic level. It processes simulation, graphics, and interaction.
How computer-based information systems can support managers at each level and function/department of an organization?
The Transaction Processing System (TPS) helps supervisors and operational personnel to access detailed reports, lists, and summaries. Management Information System (MIS) is suitable for middle managers who benefit from summary and exception reports of this system. Lastly, the executive Support System is useful in producing projections responses to queries needed by senior managers.
Bespoke development
Bespoke development is an IS developed by professionals to suit business requirement applications. Its benefits include; it an agreement to business requirement and it facilitates competitive advantage. Its problems involve, it is costly, time-consuming with low quality.
End-user computing
End-user computing involves applications composed of non-IS professionals such as business users. Its benefits include fastness and focused on the needs of end-users while problems include low quality and the inability of achieving wider business objectives
Off-the-shelf package
The off-the-shelf purchase involves purchasing off a prewritten application used by other companies. Its benefits include; fastness, cheap and high quality. Its limitation includes; it may lack some features and it requires changes to function (Lucey 2004, p. 28).
Bespoke development project
The lifecycle of bespoke development involves an initial phase which enables a recognition of problem within the current system. A feasibility study tests whether the project is practicable and designs a project plan. System analysis evaluates the requirements of business and user. The system design phase shows how effective the system will function. System implementation involves employing the system into the business by first testing the system versions. System maintenance dictates how the system is managed once it is installed. At this point, the organizations will evaluate the whole project, and deduce learned points from it. The initial phase may is relevant to off-the-shelf systems where other companies experienced problems might be considered.
Difinerentiate between the terms “Data” “Information” and “Knowledge“
Data is a series of verifiable facts which represent occurrences in an organization. Information is a processed meaningful data. Knowledge is the experience concept and insight which provide ground suitable for evaluating, creating, and using information.
Characteristics of decisions taken at different levels in an organization
Decision making is assisted by operational, tactical, and strategic systems. In an operational system, decisions are short-term based including production schedules, stock, and facilities. In a tactical system, the decisions are medium-term based with an example of capital investment decisions. In a strategic system, decisions are long term including large scale investment decisions.
Enterprise resource planning application
Enterprise resource planning application provides an organization with a single information system in its coordination and integration as a key business process. It enhances efficiency in business operation and enables customer-driven business processes. However, it is characterized by the high cost of application (Lucey 2004, p. 152).
Organizational Computer-Based Information Systems Threats
Security threats
Organizational computer-based information systems are faced with security threats which include theft of the computers, access to the information by unauthorized people, vandalism of the system, and destruction of information by computer viruses.
Basic approaches to controlling computer-based information systems
Several approaches that can be used in controlling these threats include the establishment of a surveillance system that will ensure all activities are monitored. However, this approach is expensive. The other approach involves the use of software security code in accessing information to block out unauthorized persons from accessing information. This approach may have a problem if the systems are affected by a virus which will either change the code or make the systems not to recognize it. Another approach entails the employment of anti-virus software to deal with viruses. Nevertheless, this is an expensive approach.
How a formal security policy can help to protect an organization’s computer-based information systems?
Employment of formal security to protect the system from theft and vandalism by ensuring that only an authorized person is allowed to access the system site. This, however, may not be 100% effective as it covers specific points such as entry and at the same time it is time-consuming.
Customer relationship management (CRM)
In an organization, Customer Relationship Management (CRM) is used to enhance customer-facing applications which include sales force automation. Also, it is used in supporting customer services and call centers together with marketing. For example, it is used in campaign management, telemarketing, and field sales among others. CRM operation analyses customer data to provide the information needed to improve the performance of the business. For example, in the development of customer profile and customer segmentation strategies, it analyses customer or product profitability, analyzes conversion rates, and leads generated, and identifies trends in the sales length cycle. As a result, it brings about benefits which include; more effective marketing and reduced direct marketing cost enhance customer’s satisfaction, and result in low customer revenue cost since the most profitable customers and segments for marketing are identified (Lucey 2004, p. 211).
Enterprise resource planning system (ERP)
According to Lucey (2004, p. 222), “an enterprise resource planning (ERP) system is a system that provides a single information system for organization-wide coordination and integration of the key business process.” Besides, the system focuses on Customer Relationship Management, Product Development, Supply Chain Management, and Sales Force Automation among others. Its advantages include; it provides management firm-wide knowledge-based management processes, enhances technology as a unified platform, and provides more efficient operations and customer-driven business processes. On the other hand, it has disadvantages; it is difficult to implement as it requires fundamental changes in the way the business operates, it is an expensive system as the setting costs are higher, and it is time-consuming because it takes longer to be fully implemented as long as several years.
What types of controls can be used to protect a computer-based information system against vandalism, thefi, and unauthorized access?
To protect a computer-based information system against vandalism, theft, and unauthorized access, controls such as physical security, surveillance as well as software security codes employment is necessary.
Definition of the term ‘computer virus’
Computer viruses represent a significant threat to the security of organizational computer-based information systems.
A computer virus is a program capable of duplicating itself and infects a computer.
How computer viruses can be transmitted?
A computer virus can be transmitted from one computer to another through the internet or network, or be carried by removable discs such as floppy discs and USB drives.
How organizations can protect against computer viruses?
Installation of antivirus software in an organization’s computer system, scanning of removable discs before use, and avoiding networks with unauthorized systems are ways in which an organization can protect its computers from viruses. The advantage of these ways is that they ensure safety in information storage. However, they are sometimes accompanied by high costs in their employment (Lucey 2004, p. 179).
E-business and E-commerce
Distinguish between the terms ‘e-business’ and ‘e-commerce’
E-business involves using digital technology and the internet to conduct key business processes in the enterprise. It involves the use of internet technology in conducting major business processes transformation. E-business incorporates e-commerce in its operations though it goes beyond this to cover other operations which include product development, inventory management, and knowledge and risk management among others. E-business also focuses on internal operations which aim at reducing production costs and increasing production efficiency. Dell computer is a good example of this business which has created a supply-company-customer integrated chain from it wed enabling it to experience a non-stop supply of material and finished products.
The company, for instance, has recorded an average sale of $ 15m worth of computers every day through the website. On the other hand, e-commerce entails trading of goods over the internet. It has its focus on outward operations dealing with order taking, purchasing of raw materials, sales and marketing, and delivery among others. E-commerce comprises of several sites which include; Transactional e-commerce site, which provides the customer with information regarding products on sale and enabling them to purchase online; portal or media site, which gives information on the range of topics; services-oriented relationship-building web site, which provide information to stimulate more purchasing online; and Brand building site, which gives more information on brand
Types of business models associated with e-business
Several types of business models associated with e-business include; pure-play models, clicks-and-mortar models, and internet business models.
How intranets can support such business activities?
An intranet is capable of supporting these businesses through facilitating Finance and accounting in general ledger reporting, budgeting, project costing, and annual report designing. It also assists in production and manufacturing through quality measures, design specifications, and order tracking among others. Also, it facilitates sales and marketing through price updating, sales presentations, and competition analysis among others (Lucey 2004, p. 222).
Reference list
Callahan, K. R., Stetz, G. S. & Brooks, L. M. 2007. Project Management accounting: budget, tracking, and reporting costs and profitability. Chichester: John Willey and Sons.
Lucey, T. 2004. Management information systems, 9th end. Boston: Cengage Learning.
Palmer, J. E. 1983. Financial Ratio Analysis. NY: American Institute of Certified Public Accountants.
Premchad, A. 1984. Government budgeting and Expenditure Controls: Theory and Practice. NY: International Monetary Fund Press.