lOMoARcPSD|7749849

Chapter 2 - Summary Accounting Information Systems

Accounting Information Systems (Bryant University)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by ALDWIN CALAMBA (aldwin.r.calamba@gmail.com)
 lOMoARcPSD|7749849

Chapter 2 Accounting Information Systems Notes

Transaction Processing: The Data Processing Cycle
 One Important AIS function to process company transactions efficiently and effectively.
 Data is entered into computers and stored in files and databases
 Data Processing Cycle- The four operations (Data Input, Data Storage, Data Processing, and
Information Output) performed on data to generate meaningful and relevant information.
Data Input
 The first step in processing input is to capture transaction data and enter them into the
system.
 Usually triggered by business activity.
 Data must be collected about three facets of each business activity.
a. Each activity of interest
b.The resource(s) affected by each activity
c. The people who participate in each activity
 The most frequent revenue cycle transaction is a sale, either for cash or credit.
 Historically, most businesses use source documents to collect data about business activities.
 Source Documents- Documents used to capture transaction data at its source when the
transaction takes place. E.g. sales order, purchase order, and employee time cards.
 They later transfer data into computer
 Turnaround documents- Records of company data sent to an external party and then
returned to the system as input. Turnaround documents are in machine-readable form to
facilitate their subsequent processing as input records. As an example is a utility bill that is
sent to the customer, returned with the customer's payment, and read by a special scanning
device when returned.
 Source data automation- The collection of transaction data in machine-readable form at the
time and place of origin. Examples are point-of-sale terminals and ATMs.
 The second step in processing input is to make sure captured data are accurate and complete
 One way to do this is to use source data automation or turnaround documents and data entry
screens.
 Well designed documents and screens improve accuracy and completeness by providing
instruction and prompts for grouping.
 Users can improve control either by using prenumbered source documents or by having the
system automatically assign a sequential number to each new transaction.
 This simplifies verifying that all transaction have been recorded and nothing misplaced.
 The Third Step in processing input it to make sure company policies are followed, such as
approving or verifying a transaction.
 E.g. A company would not sell goods to a customer who was not paying bills or to sell an
item for immediate delivery that is out of stock.
 These problems can be prevented by programming the system to check for customer credit
limit and payment history, as well as inventory status, before a customer sale.
Data Storage
 A company's data are one of its most important resources.
 To function properly, an organization must have ready and easy access to its data.
 Accountants need to under how data is organized in an AIS and how they can be accessed.
 Information in an AIS is organized for easy and efficient access.
Ledgers
 Cumulative accounting information is stored in general and subsidiary ledgers.

Downloaded by ALDWIN CALAMBA (aldwin.r.calamba@gmail.com)

 lOMoARcPSD|7749849

 General Ledger- A ledger that contains summary level data for every asset, liability, equity,
revenue, and expense account of the organization.
 Subsidiary ledger- A ledger used to record detailed data for a general ledger account with
many individual subaccounts, such as accounts receivable, inventory and accounts payable.
 E.g. the general ledger has an account receivable account that summarizes the total amount
owed to the company by all customers. The subsidiary account receivable ledger has a
separate record for each individual customer, with detailed information.
 Control account- A title given to a general ledger account that summarizes the total amounts
recorded in a subsidiary ledger. For example, the accounts receivable control account in the
general ledger represents the total amount owed by all customers. The balances in the
accounts receivable subsidiary ledger indicate the amount owed by each specific customer.
 The relationship between the general ledger control account and the total of individual
subsidiary ledger account balance helps maintain accuracy of AIS data.
 Subsidiary ledgers should sum to General ledger, if discrepancy a recording error occurred.
Coding Techniques
 Data in ledgers is organized logically using coding techniques.
 Coding- The systematic assignment of numbers or letters to items to classify and organize
them.
 Sequence Codes- Items are numbered consecutively so that gaps in the sequence code
indicate missing items that should be investigated. Examples include prenumbered checks,
invoices, and purchase orders.
 Block Code- Blocks of numbers that are reserved for specific categories of data, thereby
helping to organize the data. An example is a chart of accounts.
 Group Codes- two or more subgroups of digits that are used to code an item. A group code
is often used in conjunction with a block code.
 Mnemonic code- Letters and numbers that are interspersed to identify an item. The
mnemonic code is derived from the description of the item and is usually easy to memorize.
Chart of Accounts
 Chart of accounts- A listing of all the numbers assigned to balance sheet and income
statement accounts. The account numbers allow transaction data to be coded, classified, and
entered into proper accounts. They also facilitate financial statement and report preparation.
 Data stored in summary accounts cannot be easily analyzed and reported in more detail.
 Consequently, its important that the chart of accounts contain sufficient detail to meet an
organization's information needs.
 A chart of accounts is tailored to the nature and purpose of an organization.
Journals
 Transaction data are often recorded in a journal before they are entered into a ledger.
 A journal entry shows the accounts and amounts to be debited and credited.
 General Journal- A journal used to record infrequent or nonroutine transactions, such as
loan payments and end-of-period adjusting and closing entries.
 Specialized journal- A journal used to record a large number of repetitive transactions such
as credit sales, cash receipts, purchases, and cash disbursements.
 Periodically, the total of all sales journal entries is posted to the general ledger.
 Audit Trail
 Audit trail- A path allows a transaction to be traced through a data processing
system from point of origin to output or backwards from output to point of origin. It
is used to check the accuracy and validity of ledger postings and to trace changes in
general ledger accounts from their beginning balance to their ending balance.
 Computer-Based Storage Concepts

Downloaded by ALDWIN CALAMBA (aldwin.r.calamba@gmail.com)

 lOMoARcPSD|7749849

 Entity- The item about which information is stored in a record. Examples include an
employee, an inventory item, and a customer.
 Attributes- The properties, identifying numbers, and characteristics of interest of an
entity that is stored in a database. Examples are employee numbers, pay rate, name, and
address.
 Field- The portion of a data record where the data value for a particular attribute is
stored. For example, in a spreadsheet each row might represent a customer and each column
is an attribute of the customer. Each cell in a spreadsheet is a field.
 Record- A set of fields whose data values describe specific attributes of an entity, such as
all payroll data relating to single employee. An example is a row in a spreadsheet.
 Data value- The actual value stored in a field. It describes specific attributes of an entity.
For example, the customer name field would contain "ZYX Company" if the company was a
customer.
 File- A set of logically related records, such as the payroll records of all employees.
 Master File- A permanent file of records that stores cumulative data about an
organization. As transactions take place, individual records within a master file are updated to
keep them current.
 Transaction File- A file that contains the individual business transactions that occur
during a specific fiscal period. A transaction file is conceptually similar to a journal in a
manual AIS.
 Database- A set of interrelated centrally controlled data files that are stored with as little
data redundancy as possible. A database consolidates records previously stored in separate
files into a common pool and serves a variety of users and data processing applications.
Data Processing
 Four Types of Data Processing known as CRUD
a. Creating new data records, such as adding a newly hired employee to the payroll
database.
b.Reading, retrieving or viewing existing data.
c. Updating previously stored data
d.Deleting data, such as purging the vendor master file of all vendors the company no
longer does business with.
 Batch Processing- Accumulating transaction records into groups or batches for processing at
a regular interval such as daily or weekly. The records are usually sorted into some sequence
(such as numerically or alphabetically) before processing.
 Although batch processing is cheaper and more efficient, the data are current and accurate
only immediately after processing.
 Batch processing is only used for applications like payroll where updates aren't frequent.
 Online, real-time processing- The computer system processes data immediately after
capture and provides updated information to users on a timely basis.
 It ensures that stored information is always current, thereby increasing decision making.
 It is also more accurate because data input errors can be corrected in real time.
Information Output
 The Final step in the data processing cycle
 Document- A record of a transaction or other company data. Examples include checks,
invoices, receiving reports, and purchase requisitions.
 Reports- System output, organized in a meaningful fashion, that is used by employees to
control operational activities, by managers to make decisions and design strategies, and by
investors and creditors to understand a company's business activities.

Downloaded by ALDWIN CALAMBA (aldwin.r.calamba@gmail.com)

 lOMoARcPSD|7749849

 The need for reports should be periodically assessed, because they are often prepared long
after they are needed, wasting time, money, and resources.
 Query- A request or the database to provide the information needed to deal with a problem
or answer a question. The information is retrieved, displayed or printed, and/or analyzed as
requested.
 Repetitive queries are developed by information system specialists.
 One-time queries are often developed by users.
Enterprise Resource Planning (ERP) Systems
 The AIS has been referred to as a transaction processing system because it only concern was
financial data and accounting transaction.
 Enterprise resource planning system- A system that integrates all aspects of an
organizations activities such as accounting, finance, marketing, human resources,
manufacturing, inventory management into one system. An ERP system us modularized;
companies can purchase the individual modules that meet their specific needs. An ERP
facilitates information flow among the company's various business functions and manages
communications with outside stakeholders.
 The ERP system collects, processes, and stores data and provides the information mangers
and external parties need to assess the company.
 A properly configured ERP system uses a centralized database to share information across the
business processes and coordinate activities.
 This is important because an activity that is part of one business process often triggers a
complex of series of activities throughout many different part of the organization.
 Well-designed ERP systems provide management with easy access to up-to-date information
about all of these activities in order to plan, control, and evaluate, the organization's business
processes more effectively.
 Advantages vs Disadvantages see Page 36 to 37

Downloaded by ALDWIN CALAMBA (aldwin.r.calamba@gmail.com)