CAA Chap 2.pdf

UDE 2014 – COMPUTER APPLICATION IN ACCOUNTING CHAPTER 2 – Accounting Information System Processing and Introduction to Computer Equipment. Data collection before computer. People used various methods to gather information, record it, and a...

UDE 2014 – COMPUTER APPLICATION IN ACCOUNTING CHAPTER 2 – Accounting Information System Processing and Introduction to Computer Equipment. Data collection before computer. People used various methods to gather information, record it, and analyze it: Data collection before computer. Key points to highlight about data collection before computers: Data collection now. leveraging the power of computers and digital tools. Here are some common ways data is collected now with the availability of computers: Data collection now. Data collected with computers is typically stored in digital formats, making it easy to manage, analyze, and share with stakeholders. The integration of advanced data analysis and visualization tools allows for deeper insights and informed decision-making. However, it's important to address data privacy and security concerns to ensure the responsible use of collected data. With continuous advancements in technology, data collection methods are likely to become even more sophisticated and efficient in the future. Computer. A computer is a machine that can be programmed to carry out sequences of arithmetic or logical operations automatically. Modern digital electronic computers can perform generic sets of operations known as programs. These programs enable computers to perform a wide range of tasks. Here are some other definitions of computer: A device that can be programmed to follow a set of instructions. A machine that can store, process, and retrieve information. A tool that can be used to create, edit, and share information. Computer Computers are used in a wide variety of applications, including: Business: Computers are used for tasks such as word processing, spreadsheets, databases, and email. Education: Computers are used for tasks such as research, presentations, and online learning. Entertainment: Computers are used for tasks such as gaming, watching movies, and listening to music. Science: Computers are used for tasks such as data analysis, simulations, and modeling. Engineering: Computers are used for tasks such as designing products, simulating systems, and controlling machines. Computers have become an essential part of our lives, and they are used in almost every aspect of our society. As technology continues to evolve, computers will become even more powerful and versatile, and they will continue to play an important role in our lives.  Computer components Computer’s components can be storage that allows the CPU to access data quickly while the computer is running. broadly categorized into two 4. Storage Devices: main groups: Hard Disk Drives (HDDs) and Solid State Drives (SSDs) are used for long-term data Hardware Components: storage. Hardware components are the physical parts that make up a 5. Graphics Processing Unit (GPU): computer system. They are tangible and can be seen and The GPU is responsible for rendering images touched. Here are some essential hardware components: and videos, especially in graphics-intensive 1. Central Processing Unit (CPU): tasks like gaming and video editing. The CPU is the core hardware component of the computer. It performs calculations, executes instructions, and manages data processing. 2. Motherboard: The motherboard is a large circuit board that provides a platform for all the other hardware components to connect and communicate with each other. 3. Memory (RAM): Random Access Memory is temporary  Computer components Computer’s components can be 9. Output Devices: Devices like the monitor, speakers, and broadly categorized into two printers display or produce information processed by the computer. main groups: 10.Expansion Cards: Hardware Components: These cards can be added to the Hardware components are the physical parts that make up a motherboard to provide extra functionality, computer system. They are tangible and can be seen and such as sound cards, network cards, or touched. Here are some essential hardware components: graphics cards. 6. Power Supply Unit (PSU): 11.Connectors and Cables: The PSU converts AC power from the Various connectors and cables link the electrical outlet into DC power required by components together and connect external the computer's internal components. devices to the computer. 7. Cooling System: This includes fans, heat sinks, and other cooling solutions to prevent overheating of the CPU, GPU, and other components. 8. Input Devices: Devices like the keyboard, mouse, and other peripherals allow users to input commands and interact with the computer.  Computer components Computer’s components 4. Firmware: Firmware is software embedded into hardware devices, providing low-level control and can be broadly categorized functionality for those components. 5. Programming Languages: These are tools used to into two main groups: write software and instruct the computer on how to perform tasks. Software Components: Software components are intangible programs and instructions that enable the 6. Data: Data refers to all types of information and files computer to perform specific tasks. They are not physical stored on the computer, including documents, images, parts of the computer but essential for its operation. videos, and databases. Here are some software components: 1. Operating System (OS): The operating system is the core software that manages the computer's hardware and software resources, providing an interface for user interaction. 2. System Software: These are essential programs that support the functioning of the computer, such as device drivers, utility software, and system tools. 3. Application Software: These are programs designed to perform specific tasks or applications, such as word processors, web browsers, media players, and games.  Accounting transactions Before the advent of computers, accounting transactions were primarily processed manually using paper-based systems. The process of recording, analyzing, and reporting financial transactions involved various manual methods and ledgers. Here are some key aspects of accounting transactions before computers: Aspect Before Computers After Computers Record Keeping Manual ledger books, paper-based systems. Computerized accounting software, digital databases. Journal Entries Recorded manually in journals. Entered and stored electronically in accounting software. Calculations Manual calculations using calculators or mentally. Automated calculations performed by accounting software. Financial Documents Paper invoices, receipts, physical documents. Digital invoices, scanned documents, electronic receipts. Posting to Ledgers Manual transfer of entries to ledger accounts. Automatic posting from journals to ledger accounts. Trial Balance Manually compiled by adding up account balances. Automatically generated by accounting software. Financial Statements Prepared manually by compiling ledger information. Generated automatically by accounting software. Auditing Manual examination of physical records and documents. Computerized auditing software, digital data analysis. Storage Physical filing cabinets or storage systems. Digital storage, cloud-based solutions. Speed and Efficiency Time-consuming and dependent on manual processes. Faster, automated processes for quick results. Data Accessibility Limited access to physical records. Easy access to digital data for authorized personnel. Financial transaction an economic event that affects the assets and equities of the firm, is reflected in its accounts, and is measured in monetary terms. similar types of transactions are grouped together into three transaction cycles: the expenditure cycle the conversion cycle the revenue cycle Relationship between Transaction Cycles Each Cycle has Two Primary Subsystems Expenditure Cycle: time lag between the two due to credit relations with suppliers physical component (acquisition of goods) financial component (cash disbursements to the supplier) Conversion Cycle: the production system (planning, scheduling, and control of the physical product through the manufacturing process) the cost accounting system (monitors the flow of cost information related to production) Revenue Cycle: time lag between the two due to credit relations with customers physical component (sales order processing) financial component (cash receipts) Manual System Accounting Records Source Documents - used to capture and formalize transaction data needed for transaction processing The most common documents are Checks, Invoices, Receipts, Deposit slip, Purchase orders. Product Documents - the result of transaction processing Rather than the triggering mechanism for the process it is a product of a system. For example, a payroll check to an employee is a product document of the payroll system. customer's bill is a product document of the sales system Turnaround Documents - a product document of one system that becomes a source document for another system For example, an invoice is sent to a customer with a detachable section that the customer is supposed to fill in with the amount of his payment and then return along with the payment. This detachable section identifies the customer, thereby making it easier for the company’s data entry staff to log the cash receipt against the correct customer Manual System Accounting Records Journals - a record of chronological entry special journals - specific classes of transactions that occur in high frequency The four main special journals are the sales journal, purchases journal, cash disbursements journal, and cash receipts journal general journal - nonrecurring, infrequent, and dissimilar transactions Examples of transactions recorded in the general journal are asset sales, depreciation, interest income and interest expense, and stock sales Ledger - a book of financial accounts general ledger - shows activity for each account listed on the chart of accounts transactional data is organized into assets, liabilities, revenues, expenses, and owner's equity. subsidiary ledger - shows activity by detail for each account type Two common subsidiary ledgers are: The accounts receivable (or customers') subsidiary ledger, which collects transaction data of individual customers. The accounts payable (or creditors') subsidiary ledger, which collects transaction data of individual creditors. Flow of Information from Economic Event Into the General Ledger Accounting Records in a Digital System EXPLANATION OF STEPS IN FIGURE: 1. Compare the AR balance in the balance sheet with the master file AR control account balance. 2. Reconcile the AR control figure with the AR subsidiary account total. 3. Select a sample of update entries made to accounts in the AR subsidiary ledger and trace these to transactions in the sales journal (archive file). 4. From these journal entries, identify source documents that can be pulled from their files and verified. If necessary, confirm these source documents by contacting the customers. Computer-Based Systems The audit trail is less observable in computer-based systems than traditional manual systems. The data entry and computer programs are the physical trail. The data are stored in magnetic files.  Audit Trail Source General Financial Journal Statements Document Ledger Tracing Financial General Source Statements Journal Document Ledger Vouching Accountants should be able to trace in both directions. Sampling and confirmation are two common techniques.  Example of Tracing an Audit Trail Verifying Accounts Receivable Accounts Receivable Control Account-General Ledger Accounts Receivable Subsidiary Ledger (sum of all customers’ receivables) Physical Financial Sales Journal Cash Receipts Journal Sales Order Deposit Slip Shipping Notice Remittance Advice Data storage Flat file model is a database model that stores data in a single table. Each row in the table represents a single record, and each column represents a single field. The data in a flat file model is typically stored in a plain text format Here are some of the benefits of using a flat file model: Simple: Flat file models are simple and easy to understand. This makes them a good choice for applications where data complexity is not a major concern. Portable: Flat file models are portable, which means that they can be easily moved from one system to another. This makes them a good choice for applications where data needs to be moved frequently. Efficient: Flat file models can be efficient for small datasets. This is because each record in a flat file model is stored as a separate row, which can take up less space than storing data in a more complex database model. Here are some of the drawbacks of using a flat file model: Inefficient: Flat file models can be inefficient for large datasets. This is because each record in a flat file model is stored as a separate row, which can take up a lot of space. Limited functionality: Flat file models do not support relationships between records. This can make it difficult to analyze data. Not scalable: Flat file models are not scalable, which means that they cannot easily handle large amounts of data. Flat file model-Data Redundancy Problems Data Storage excessive storage costs of paper documents and/or magnetic form Data Updating changes or additions must be performed multiple times Currency of Information potential problem of failing to update all affected files Task-Data Dependency user’s inability to obtain additional information as needs change Data Integration separate files are difficult to integrate across multiple users Data storage Database model is a logical way of organizing data in a database. It is a blueprint for how the data will be stored and accessed. There are many different database models, each with its own strengths and weaknesses. Relational model: The relational model is the most popular database model. It is based on the concept of relations, which are tables that store data in rows and columns. Relational databases are efficient for storing and retrieving data, and they are easy to understand and query. Hierarchical model: The hierarchical model is a type of database model that organizes data in a tree-like structure. Each node in the tree can have one or more child nodes, and each child node can have one or more child nodes, and so on. Hierarchical databases are efficient for storing data that has a natural hierarchical structure, such as an organization chart or a family tree. Network model: The network model is a type of database model that organizes data in a network of nodes. Each node in the network can be connected to one or more other nodes, and each connection can have a different type of relationship. Network databases are efficient for storing data that has a complex network of relationships, such as a social network or a transportation network. Database management system Computer Files Master File - generally contains account data (e.g., general ledger and subsidiary file) Transaction File - a temporary file containing transactions since the last update Reference File - contains relatively constant information used in processing (e.g., tax tables, customer addresses) Archive File - contains past transactions for reference purposes Documentation Techniques Before computers, documentation techniques in various fields, including business, science, and engineering, heavily relied on manual and paper-based methods. The lack of digital technology meant that everything had to be recorded, stored, and communicated using physical documents and hand-written records. Here are some common documentation techniques used before the widespread adoption of computers: Handwritten Notes Paper Documents Typewriters Filing Cabinets Photocopying Drawing and Sketching Manual Calculations Photographs and Film Documentation Techniques The introduction of computers revolutionized documentation. Computer- based documentation techniques are more efficient and accurate than manual documentation techniques. They also allow businesses to store and access data more easily. Some of the most common computer-based documentation techniques include: Databases Spreadsheets Word processing document Presentation software Focus on some of unique document technique: Entity Relationship Diagram Data Flow Diagrams Document Flowcharts System Flowcharts Program Flowcharts Documentation Techniques Documentation in a digital environment is necessary for many reasons. Accuracy: Computer-based documentation is less prone to errors than manual documentation. This is because computers can be programmed to follow specific rules, which helps to ensure that the data is entered correctly. Efficiency: Computer-based documentation is more efficient than manual documentation. This is because computers can store and retrieve data much faster than humans can. Scalability: Computer-based documentation is scalable. This means that it can be easily adapted to accommodate changes in the business. For example, if a business grows and needs to track more data, the computer-based documentation system can be easily expanded. Accessibility: Computer-based documentation is more accessible than manual documentation. This is because computer-based documentation can be stored and accessed electronically, which makes it easier for people to share and collaborate on documents. Security: Computer-based documentation can be more secure than manual documentation. This is because computers can be password-protected, which helps to prevent unauthorized access to sensitive data. Entity Relationship Diagram An entity relationship diagram (ERD) is a type of graphical diagram that represents the entities and relationships between entities in a database. ERDs are used to model the data in a database and to communicate the design of the database to database designers and users. ERDs are made up of two main components: entities and relationships. Entities are the objects that are stored in the database, such as customers, products, and orders. Relationships are the connections between entities, such as one-to-one, one-to-many, and many-to-many relationships. Entities are represented in ERDs as boxes. The name of the entity is written inside the box. The attributes of the entity are written below the box. Attributes are the properties of an entity, such as the name, address, and phone number of a customer. Relationships are represented in ERDs as lines. The relationship name is written above the line. The cardinality of the relationship is written below the line. Cardinality indicates the number of entities that can be related to each other. For example, a one-to-one relationship means that one entity can be related to only one other entity. A one-to-many relationship means that one entity can be related to many other entities, but each of the other entities can only be related to one of the first entity. A many-to-many relationship means that one entity can be related to many other entities, and each of the other entities can be related to many of the first entities. ERDs are a useful tool for designing and communicating the design of a database. They can help to ensure that the database is well-structured and that the data is stored in a way that is easy to understand and use. Entity Relationship Diagram Here are some of the benefits of using ERDs: They help to visualize the data in a database. ERDs can help to visualize the data in a database, which can make it easier to understand how the data is related. They help to communicate the design of a database. ERDs can be used to communicate the design of a database to database designers and users. This can help to ensure that everyone involved in the project has a shared understanding of the database. They help to identify potential problems in the design of a database. ERDs can help to identify potential problems in the design of a database, such as malformed relationships or missing attributes. If you are working on a project that involves a database, then ERDs are a valuable tool that can help you to design and communicate the design of the database.  Cardinalities Refers to the number of entities that can be related to Entity Relationship Entity each other in a relationship. There are three main types of 1 Car cardinality: one-to-one, one- Sales- Assigned 1 person Type to-many, and many-to-many. 1 M Customer Places Order M M Vendor Supply Inventory Data Flow Diagrams A data flow diagram (DFD) is a graphical Entity Data Store representation of the flow of data through Name Name an information system. DFDs are used to model the logical flow of data, and they can be used to communicate the design of an information system to stakeholders. DFDs are made up of four basic symbols: 1. Entities are represented by squares as the source or destination of data. N 2. Processes are represented by rectangles with rounded corners. Process Description 3. Data Flows are referred to by arrows Direction of to denote the physical or electronic flow of data. data flow 4.Data Stores are physical or electronic-like XML files denoted by open-ended rectangles. ERD vs DFD  Document Flowcharts Document flowcharts show the flow of documents and information among departments or units within an organization. The symbols used are similar to those used for system flowchart. System Flowcharts System flowcharts are used by systems professionals in the design and maintenance of IT systems. They show the overall sequence of processes and the media used for processing and storage. Processing and storage are shown as manual or computerized. Program Flowcharts Program flowcharts are used to visualize the flow of control in a computer program. They are typically used by programmers to plan, document, and debug their code. Program vs System vs Document flowchart More on flowchart https://www.conceptdraw.com/How-To-Guide/flowchart-symbols Advantages and disadvantages of diagram documentations. Advantage Disadvantage It can be used to communicate complex information in It can be difficult to create. a clear and concise way. It can help to improve communication between It can be difficult to maintain. different stakeholders. It can help to identify potential problems in the system. It can be difficult to understand. It is visual. It can be outdated quickly. It is concise. It can be difficult to use for non-technical users. It is easy to share. It can be time-consuming to create. Codes Concisely represent large amounts of complex information that would otherwise be unmanageable Provide a means of accountability over the completeness of the transactions processed Identify unique transactions and accounts within a file Support the audit function by providing an effective audit trail Sequential Codes Represent items in sequential order Used to prenumber source documents Track each transaction processed Identify any out-of-sequence documents Block Codes Represent whole classes by assigning each class a specific range within the coding scheme Used for chart of accounts The basis of the general ledger Allows for the easy insertion of new codes within a block Don’t have to reorganize the coding structure  Group Codes Represent complex items or events involving two or more pieces of data using fields with specific meaning For example, a coding scheme for tracking sales might be 04- 09-476214-99, meaning: Store Number Dept. Number Item Number Salesperson 04 09 476214 99 Alphabetic Codes Used for many of the same purposes as numeric codes Can be assigned sequentially or used in block and group coding techniques May be used to represent large numbers of items Can represents up to 26 variations per field Mnemonic Codes Alphabetic characters used as abbreviations, acronyms, and other types of combinations Do not require users to memorize the meaning since the code itself is informative – and not arbitrary NY = New York Transaction Processing Models Transaction Processing Models Examples of batch processing: Generating reports Updating databases Sending out emails Examples of real-time transaction processing: Processing credit card transactions Updating inventory levels Monitoring sensor data The best type of processing to use depends on the specific needs of the application. If the application does not require immediate processing, then batch processing may be a good option. If the application requires immediate processing, then real-time transaction processing may be a better option.