Chapter 1: Accounting Information System 3.

Production/Conversion cycle-raw
Overview materials transformed to finished goods
 System- a set of two or more 4. Expenditure Cycle- purchase inventory
interrelated components that interact for resale in exchange for cash
to achieve a goal 5. Human resources/payroll cycle-
-composed of smaller subsystems employees are hired, trained,
promoted, compensated and
Goal Conflict- when the goal of a subsystem is terminated
inconsistent with the goal of another subsystem
or the system as a whole General ledger and reporting system- used to
Goal Congruence- when achieving a generate information and it is where all
subsystem’s goal contributes in achieving the transaction cycles are interfaced
organization’s goal as a whole
Data- facts that are collected, stored and  Accounting Information System
processed by an information system Accounting- language
Information- data that are organized and Accounting Information System-information-
processed to give meaning and improve the providing vehicle
decision-making process. A system that collects, records, stores and
Better decisions= the quantity and quality of processes data to produce information for
information increase decision makers
-AIS Process
 Characteristics of Useful Information Data- AIS-Information-AIS User-Decision
RARVCUT Six Components of AIS
Relevant- reduces uncertainty, improves 1. People- who use the system
decision making 2. Procedures and Instructions- used to
Accessible- available to users when they need it collect, process and store data
and a format they can use 3. Data
Reliable- free from error or bias 4. Software- used to process the data
Verifiable- two independent persons produce 5. Information technology infrastructure-
the same information computers, devices
Complete- does not omit any aspect 6. Internal controls and security
Understandable- presented in a useful and measures- safeguards AIS data
intelligible format Functions of AIS
Timely- available before the decision makers 1. Collect and store data about
makes decisions organizational activities, resources and
Information Overload- exceeds the capacity personnel
that the human mind can absorb 2. Transform data into information so
Value of Information- the benefit produced by management can plan, execute and
the information minus the cost of producing it control and evaluate activities,
 Business Processes resources and personnel
3. Provide adequate controls to safeguard
Business Processes- set of related, coordinated organization’s asset and data.
and structured activities that are performed to How an AIS can add value to an Organization
achieve a specific organization goal.
Transaction- an agreement between two 1. Improving the quality and reducing the
entities to exchange goods or services that can costs of products and services
be measured in an economic terms by an 2. Improving efficiency
organization 3. Sharing knowledge
Transaction processing- 4. Improving the efficiency and
starts: capturing transaction data effectiveness of its supply chain
ends:information output like financial 5. Improving the internal control
statements structure
Give-get exchange- 6. Improving decision making
 Five major business processes
1. Revenue cycle- goods to cash Three factors that affect the design of an AIS:
2. Financial cycle- sells shares in the 1. Developments in IT
company to investors and borrows 2. Business Strategy
money and investors are paid dividend 3. Organizational Culture
and interest for loans.
The Role of the AIS in the value chain Trading partners- customers and
Five primary activities: suppliers
1. Inbound Logistics-receiving, storing and Stakeholders- interested in the firm like
distributing the materials financial institutions, government,
2. Operations-transforms inputs into final stockholders.
products
3. Outbound Logistics- distribute finished System decomposition:
products to customers Decomposition- process of dividing
4. Marketing and Sales-help customers systems into smaller subsystems
buy the products of the organization System Interdependency:
5. Service-post-sale support to customers, Harmonious interaction of the
ex. Repair and maintenance services subsystems
Support activities- allows the primary activities
to be performed efficiently and effectively Transaction- an event that affects or is
1. Firm Infrastructure- accounting, of interest to the organization and is
finance, legal and general admin processed by its information system as
activities that allow the organization to a unit of work
function Financial Transaction- affects the assets
2. Human Resources- recruiting, hiring, or equities of the organization,
training and compensating employees measured in monetary terms
3. Technology- improve a product or Nonfinancial transaction-
service
4. Purchasing- procure raw mats, AIS subsystems:
inventories, machinery and buildings 1. Transaction processing system-
Supply Chain- includes an organization’s supports daily business operations
value chain as well as its suppliers, with numerous reports, documents
distributors and customers. and messages for users throughout
the organization
 Information Environment -converting economic events into
Information flows (pyramid) financial transactions, recording in
Business operations (base of the pyramid)- the accounting records
product-oriented work of the organization, -transaction cycles: Revenue cycle,
such as manufacturing, sales and expenditure cycle, conversion cycle
distribution 2. General Ledger/Financial Reporting
System-produces the traditional
Three management tiers: financial statements
1. Operations management- day to day -GLS: summaries of transaction
operations cycle
2. Middle Management- short-term -FRS: reports on the status of the
planning and coordination of activities financial resources, communicates
3. Top Management- long-term planning, information to external users
setting organizational objectives -nondiscretionary reporting: no
Information flows choices in the information it
1. Horizontal flow- supports provides
operational-level task with highly -Example: financial statements, tax
detailed information about the returns
business transactions affecting the 3. Management Reporting System-
firm provides the internal management
2. Vertical Flow- with special purpose financial
Downward- senior managers to reports needed for decision making
operations personnel in the form of such as budgets, variance reports
instructions, quotas and budgets and responsibility reports
Upward- operations personnel to -discretionary reporting: choose
managers, summarized info what info to report
3. From external users in the Management information system (MIS)
environment- -processes nonfinancial transaction that are not
Two groups: trading partners and normally processed by the AIS
stakeholders Functions:
Finance- portfolio management system, capital Centralized Data Processing- data are
budgeting system consolidated and managed as a shared
Marketing- market analysis, new product organization resource
development -Database administration headed by the
Distribution- warehouse organization and database administrator- responsible for the
scheduling integrity and security of the database
Personnel- human resource management -Data Processing- manages the computer
system resources, consist of the ff. functions: data
General Model for AIS control, data conversion, computer operations
End Users- and data library.
External: creditors, stockholders, investors, -Data control- receives the transaction
regulatory agencies, suppliers and customers, documents and distributes back the output.
institutional users (banks, SEC) -Data conversion-transcribes transaction data
Internal- Managements and operations from paper documents to digital media
personnel -Data Library- storage for offline files
Distributed Data Processing-reorganizing the IT
Information-processed data, caused the user to functions into small information processing
take an action units.
Data-facts, may or may not be processed Disadvantages of DDP
1. Data Collection- first operational stage 1. Mismanagement of organization-wide
in the information system resources
- Objective: to ensure that data entering 2. Hardware and software incompatibility
the system are valid, free from error 3. Redundant task
and complete. 4. Consolidating incompatible activities
- Two rules; relevance and efficiency 5. Hiring qualified professionals
2. Data Processing 6. Lack of standards
3. Database Management- physical Advantages of DDP
repository of financial and nonfinancial 1. Cost reduction
data 2. Improved Cost Control Responsibility
Hierarchy of Data 3. Improved User satisfaction
1. Attribute- characteristic of an 4.Backup
entity
2. Record-complete set of Evolution of Information System Models
attributes for a single 1.Manual Process Model- physical task of
occurrence within an entity record keeping
class 2.Flat-file model- individual files are not related
3. Files- complete set of records of to other files, not shared with others
an identical class -Three problems:
1. Data Storage-multiple collection and storage
Database Management Tasks: Storage, 2. Data Updating- changes must be made to all
retrieval, deletion files
Information System Objectives 3. Currency of Information-failing to update all
1. To support the stewardship function of the files
management. 4.Task-data dependency-inability to obtain
Stewardship- to properly manage the resources additional information when needed
of the firm 5. Limits data integration
2. To support management decision 3. Database Model- pooling of information into
making. a common database that users share
3. To support the firm’s day to day
operations Flat-file and early database models= traditional
system.
 Business Segments Traditional- programs function independently of
- Functional units or segments each other
1. Geographic Location Relational database model-supporting the
2. Product Line needs of information of multiple users from one
3. Business functions (functional database
segmentation)  Role of the Accountant
1. Users
2. System Designers-accounting function is
responsible for the conceptual system and the Audit Trail- is a traceable path of a transaction
IT function for the physical system. through data processing system from point of
3. System Auditors-degree of compliance with origin to final output or backward.
prescribed standards Check:
Complete: start to end
Chapter 2 Existence: end to start
Data Processing Cycle- performed to generate
meaningful and relevant information Entity- something about which information is
-Data Input, Data Storage, Data Processing and stored
Information Output Attributes- characteristics of interest
 Data Input Field- where the data value for a particular
1. Capture transaction data and enter them attribute is stored
into the system- triggered by a business Record- set of fields whose data values
activity describes specific attributes of an entity
1. each activity of interest Data Value- actual value stored in a field
2. the resources affected by each activity File- set of logically related records
3. the people who participate in each activity Master file- stores cumulative information
about an organization; like a ledger; are
Source Data Automation- captures data in permanent
machine-readable form at the time and place of -examples: keywords like update, change
origin. Transaction file- records of individual business
Ex.: ATM, bar code scanners in warehouse transactions that occur during a specific time;
2. Make sure captured data are accurate and like a journal
complete -examples: keywords like record
3. Make sure company policies are followed Reference file- data that are used as standards for
such as verifying and approving a transaction processing transactions
Data Storage Example: price lists used for preparing customer
invoices, lists of authorized suppliers, employee
1. Ledgers-
rosters, and customer credit files for approving credit
General Ledgers- summary-level data sales, tax table
Subsidiary Ledger-detailed data for any general Archive File- records of past transactions that are
ledger account, often used for AR, Inventory, retained for future reference
fixed assets, AP. Database- set of interrelated and centrally
Control account-general ledger account coordinated files
corresponding to a subsidiary ledger  Data Processing
Coding Techniques CRUD
Coding- systematic assignment of numbers and 1. Creating new data records
letters to items to classify and organize them 2. Reading, retrieving or viewing existing data
 Sequence codes- items are numbers 3. Updating previously stored data
consecutively 4. Deleting data
Example: prenumbered checks, invoices
 Block code- blocks of numbers reserved Batch Processing- updating done periodically;
for a specific category of data done for accounts that do not need frequent
Example: ledger account numbers, updating; time-log is greater; error can’t be
employee numbers, chart of accounts detected; lesser cost
 Group codes- two or more subgroup of Online, real-time processing- data input errors
digits used to code items can be corrected in real time
 Mnemonic codes- letters and numbers -Creates operational inefficiency when they
are interspersed to identify an item, handle large volume of transactions
derived from a description of an item Online batch processing- entered and edited as
Chart of Accounts- list of number assigned to they occur and stored for later processing
each general ledger account  Information Output
2. Journals- -Document: records of transaction or other
-General Journal- record infrequent and company data; provides evidence of an economic
nonroutine transactions event
-Specialized Journal- records large numbers of Types:
repetitive transactions such as sales, cash 1. Source Documents- documents being created at the
beginning (the source) of the transaction; used to
receipts and cash disbursements
capture transaction data at its source
2. Product Documents-are the result of transaction 5. Business Process Model and Notation (BPMN)
processing  Event
3. Turnaround Documents- company output sent -triggers, interrupts, or ends a process.
-represented by circles
to an external party and is returned to the ■ Start-Green
company as an input document ■ Intermediate-Yell ow
■ End-Red
-Report: used by employees to control
 Activities
operational activities and by managers to make - actions performed
decisions -represented by a rectangle
-starts with a verb
-Query: provide the info needed to deal with
 Gateway
problems that need rapid actions or answers. - represent decisions or possible outcomes to an activity
-represented by a diamond
 Data
Chapter 3 (Hall) -Data flow: shows how data enters a system, how it moves
Documentation Techniques through a system from process to process, where it is stored,
1. Data Flow Diagrams-flow of data and how it exits the system.
-Data object: can be a document or data record; represented by
-highest level:context diagram a rectangle with one comer folded over
-Data store: where data is stored; represented by a cylinder
typically used to represent databases
 Swimlanes and pools
-Pools: major participants in the process
-Swimlanes: organize based on functions or roles

2. Entity Relationship Diagrams-a documentation

3. Systems Flowchart- shows only the flow of

1. Identify the departments involved.

2. Transcribe the facts into visual format.

4. Program Flowchart