Accounting Information System PDF

BEE IS EYYY! transaction processing – Process of capturing transaction data, processing it, storing it for later use, A092 – Accounting Information System and producin...

BEE IS EYYY! transaction processing – Process of capturing transaction data, processing it, storing it for later use, A092 – Accounting Information System and producing information output, such as a managerial report or a financial statement. CHAPTER 1: ACCOUNTING INFORMATION SYSTEM: OVERVIEW give-get exchange – Transactions that happen a great many times, such as giving up cash to get inventory from  System is a set of two or more interrelated a supplier and giving employees a paycheck in components that interact to achieve a goal. exchange for their labor.  Goal conflict – When a subsystem’s goals are inconsistent with the goals of another subsystem or business processes or transaction cycles - The the system as a whole. major give-get exchanges that occur frequently in most  Goal congruence – When a subsystem achieves its companies. goals while contributing to the organization’s overall goal. revenue cycle - Activities associated with selling goods  data - Facts that are collected, recorded, stored, and and services in exchange for cash or a future promise to processed by an information system. receive cash  information - Data that have been organized and expenditure cycle - Activities associated with processed to provide meaning and improve decision purchasing inventory for resale or raw materials in making. exchange for cash or a future promise to pay cash. Characteristics of Useful Information production or conversion cycle - Activities associated  Relevant Reduces uncertainty, improves decision with using labor, raw materials, and equipment to making, or confirms or corrects prior expectations. produce finished goods.  Reliable Free from error or bias; accurately human resources/payroll cycle - Activities associated represents organization events or activities. with hiring, training, compensating, evaluating,  Complete Does not omit important aspects of the promoting, and terminating employees. events or activities it measures.  Timely Provided in time for decision makers to make financing cycle - Activities associated with raising decisions. money by selling shares in the company to investors and  Understandable Presented in a useful and borrowing money as well as paying dividends and intelligible format. interest.  Verifiable Two independent, knowledgeable people produce the same information. Accounting Information Systems  Accessible Available to users when they need it and in a format they can use. accounting information system - A system that collects, records, stores, and processes data to produce information overload - Exceeding the amount of information for decision makers. It includes people, information a human mind can absorb and process, procedures and instructions, data, software, information resulting in a decline in decision-making quality and an technology infrastructure, and internal controls and increase in the cost of providing information. security measures. Information technology (IT) - The computers and other There are six components of an AIS: electronic devices used to store, retrieve, transmit, and manipulate data. 1. The people who use the system. 2. The procedures and instructions used to collect, value of information - The benefit provided by process, and store data. information less the cost of producing it. 3. The data about the organization and its business activities. Information Needs and Business Processes 4. The software used to process the data. 5. The information technology infrastructure, including business process - A set of related, coordinated, and the computers, peripheral devices, and network structured activities and tasks, performed by a person, a communications devices used in the AIS computer, or a machine, that help accomplish a specific 6. The internal controls and security measures that organizational goal. safeguard AIS data BUSINESS PROCESSES These six components enable an AIS to fulfill three important business functions: transaction - An agreement between two entities to 1. Collect and store data about organizational exchange goods or services, such as selling inventory in activities, resources, and personnel. Organizations exchange for cash; any other event that can be have a number of business processes, such as measured in economic terms by an organization.  making a sale or purchasing raw materials, which 5. Service activities provide post-sale support to are repeated frequently. customers. Examples include repair and maintenance 2. Transform data into information so management services. can plan, execute, control, and evaluate activities, resources, and personnel. Decision making is Support activities allow the five primary activities to be discussed in detail later in this chapter. performed efficiently and effectively. They are grouped 3. Provide adequate controls to safeguard the into four categories: organization’s assets and data. Control concepts are discussed in detail in Chapters 5–11. 1. Firm infrastructure is the accounting, finance, legal, and general administration activities that allow an HOW AN AIS CAN ADD VALUE TO AN organization to function. The AIS is part of the firm ORGANIZATION infrastructure. A well-designed AIS can add value to an organization by: 2. Human resources activities include recruiting, hiring, 1. Improving the quality and reducing the costs of training, and compensating employees. products or services. 3. Technology activities improve a product or service. 2. Improving efficiency Examples include research and development, 3. Sharing knowledge investments in IT, and product design. 4. Improving the efficiency and effectiveness of its supply chain. 4. Purchasing activities procure raw materials, supplies, 5. Improving the internal control structure. machinery, and the buildings used to carry out the 6. Improving decision making. primary activities. THE AIS AND CORPORATE STRATEGY support activities - Value chain activities such as firm predictive analysis - The use of data warehouses infrastructure, technology, purchasing, and human and complex algorithms to forecast future events, resources that enable primary activities to be performed based on historical trends and calculated efficiently and effectively. probabilities. supply chain - An extended system that includes an THE ROLE OF THE AIS IN THE VALUE CHAIN organization’s value chain as well as its suppliers, value chain - Linking together of all the primary and distributors, and customers. support activities in a business. Value is added as product passes through the chain. CHAPTER 2: Overview of Transaction Processing primary activities - Value chain activities that and Enterprise Resource Planning Systems produce, market, and deliver products and services to customers and provide post-delivery service and data processing cycle - The four operations (data support. input, data storage, data processing, and information output) performed on data to generate meaningful and The Value Chain relevant information. 1. Inbound logistics consists of receiving, storing, and DATA INPUT distributing the materials an organization uses to create the services and products it sells. For example, an The first step in processing input is to capture automobile manufacturer receives, handles, and stores transaction data and enter them into the system. steel, glass, and rubber. The data capture process is usually triggered by a 2. Operations activities transform inputs into final business activity. Data must be collected about three products or services. For example, assembly line facets of each business activity: activities convert raw materials into a finished car and 1. Each activity of interest retailers remove goods from packing boxes and place the individual items on shelves for customers to 2. The resource(s) affected by each activity purchase. 3. The people who participate in each activity 3. Outbound logistics activities distribute finished products or services to customers. An example is source documents – Documents used to capture shipping automobiles to car dealers. transaction data at its source – when the transaction takes place. Examples include sales orders, purchase 4. Marketing and sales activities help customers buy orders, and employee time cards. the organization’s products or services. Advertising is an example of a marketing and sales activity. turnaround documents – Records of company data sent to an external party and then returned to the system as input. Turnaround documents are in machine- group codes - Two or more subgroups of digits that are readable form to facilitate their subsequent processing used to code an item. A group code is often used in as input records. An example is a utility bill. 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. The following guidelines result in a better coding system. The code should:  Be consistent with its intended use, which requires that the code designer determine desired system outputs prior to selecting the code.  Allow for growth. For example, don’t use a three-digit employee code for a fast-growing company with 950 employees.  Be as simple as possible to minimize costs, facilitate memorization and interpretation, and ensure employee acceptance.  Be consistent with the company’s source data automation – The collection of transaction organizational structure and across the data in machine-readable form at the time and place of company’s divisions. origin. Examples are point-of-sale terminals and ATMs. chart of accounts - A listing of all the numbers DATA STORAGE assigned to balance sheet and income statement accounts. The account numbers allow transaction This section explains basic data storage concepts and data to be coded, classified, and entered into the definitions. proper accounts. They also facilitate financial statement and report preparation. general ledger - A ledger that contains summary-level data for every asset, liability, equity, revenue, and JOURNALS Transaction data are often recorded in expense account of the organization. a journal before they are entered into a ledger. A journal entry shows the accounts and amounts to be subsidiary ledger - A ledger used to record detailed debited and credited. data for a general ledger account with many individual subaccounts, such as accounts receivable, inventory,  general journal - A journal used to record and accounts payable. infrequent or nonroutine transactions, such as loan payments and end-of-period control account - A title given to a general ledger adjusting and closing entries. account that summarizes the total amounts recorded in a  specialized journal - A journal used to subsidiary ledger. For example, the accounts receivable record a large number of repetitive control account in the general ledger represents the total transactions such as credit sales, cash amount owed by all customers. The balances in the receipts, purchases, and cash accounts receivable subsidiary ledger indicate the disbursements. amount owed by each specific customer. audit trail - A path that allows a transaction to be coding - The systematic assignment of numbers or traced through a data processing system from point letters to items to classify and organize them. of origin to output or backwards from output to point sequence codes - Items are numbered consecutively of origin. It is used to check the accuracy and validity so that gaps in the sequence code indicate missing of ledger postings and to trace changes in general items that should be investigated. Examples include ledger accounts from their beginning balance to their prenumbered checks, invoices, and purchase orders. ending balance. block code - Blocks of numbers that are reserved for entity - The item about which information is stored in specific categories of data, thereby helping to organize a record. Examples include an employee, an the data. An example is a chart of accounts. 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 number, pay batch processing - Accumulating transaction records rate, name, and address. into groups or batches for processing at a regular interval such as daily or weekly. The records are usually field - The portion of a data record where the data sorted into some sequence (such as numerically or value for a particular attribute is stored. For example, alphabetically) before processing. in a spreadsheet each row might represent a customer and each column is an attribute of the online, real-time processing - The computer system customer. Each cell in a spreadsheet is a field. processes data immediately after capture and provides updated information to users on a timely basis. record - A set of fields whose data values describe specific attributes of an entity, such as all payroll INFORMATION OUTPUT data relating to a single employee. An example is a row in a spreadsheet. The final step in the data processing cycle is information output. When displayed on a monitor, output data value - The actual value stored in a field. It is referred to as “soft copy.” When printed on paper, it is describes a particular attribute of an entity. For referred to as “hardcopy.” Information is usually example, the customer’s name field would contain presented in one of three forms: a document, a report, or “ZYX Company” if that company was a customer. a query response. file - A set of logically related records, such as the document - A record of a transaction or other company payroll records of all employees. data. Examples include checks, invoices, receiving reports, and purchase requisitions. master file - A permanent file of records that stores cumulative data about an organization. As reports - System output, organized in a meaningful transactions take place, individual records within a fashion, that is used by employees to control operational master file are updated to keep them current. activities, by managers to make decisions and design strategies, and by investors and creditors to understand transaction file - A file that contains the individual a company’s business activities. business transactions that occur during a specific fiscal period. A transact tion file is conceptually query - A request for the database to provide the similar to a journal in a manual AIS. information needed to deal with a problem or answer a question. The information is retrieved, displayed or database - A set of interrelated, centrally controlled printed, and/or analyzed as requested. data files that are stored with as little data redundancy as possible. A database consolidates Enterprise Resource Planning (ERP) Systems records previously stored in separate files into a common pool and serves a variety of users and data enterprise resource planning (ERP) system - A processing applications. system that integrates all aspects of an organization’s activities—such as accounting, finance, marketing, DATA PROCESSING human resources, manufacturing, inventory management—into one system. An ERP system is Once business activity data have been entered into modularized; companies can purchase the individual the system, they must be processed to keep the modules that meet their specific needs. An ERP databases current. The four different types of data facilitates information flow among the company’s various processing activities, referred to as CRUD, are as business functions and manages communications with follows: outside stakeholders. 1. Creating new data records, such as adding a newly An ERP system, with its centralized database, hired employee to the payroll database. provides significant advantages: 2. Reading, retrieving, or viewing existing data. 3. Updating previously stored data. Figure 2-4 depicts  An ERP provides an integrated, enterprise-wide, the steps required to update an accounts receivable single view of the organization’s data and financial record with a sales transaction. The two records are situation. Storing all corporate information in a matched using the account number. The sale single database breakdown barrier between amount ($360) is added to the account balance departments and streamlines the flow of ($1,500) to get a new current balance ($1,860). information. 4. Deleting data, such as purging the vendor master  Data input is captured or keyed once, rather than file of all vendors the company no longer does multiple times, as it is entered into different business with. systems. Downloading data from one system to another is no longer needed.  Management gains greater visibility into every area boundaries, can cause problems with employee of the enterprise and greater monitoring morale, accountability, and lines of responsibility. capabilities. Employees are more productive and efficient because they can quickly gather data from both inside and outside their own department. CHAPTER 3: Systems Documentation Techniques  The organization gains better access control. An ERP can consolidate multiple permissions and documentation - Narratives, flowcharts, diagrams, and security models into a single data access structure. other written materials that explain how a system works.  Procedures and reports are standardized across narrative description - Written, step-by-step business units. This standardization can be explanation of system components and how ­ they especially valuable with mergers and acquisitions interact. because an ERP system can replace the different systems with a single, unified system. Documentation tools are important on the following  Customer service improves because employees levels: can quickly access orders, available inventory, shipping information, and past customer transaction 1. At a minimum, you must be able to read details. documentation to determine how a system works.  Manufacturing plants receive new orders in real 2. You may need to evaluate documentation to identify time, and the automation of manufacturing internal control strengths and weaknesses and processes leads to increased productivity. recommend improvements as well as to determine if a proposed system meets the company’s needs. ERP systems also have significant disadvantages: 3. More skill is needed to prepare documentation that shows how an existing or proposed system  Cost. ERP hardware, software, and consulting operates. costs range from $50 to $500 million for a Fortune 500 company and upgrades can cost $50 million to This chapter discusses the following documentation $100 million. Midsized companies spend between tools: $10 and $20 million.  Amount of time required. It can take years to 1. Data flow diagram (DFD), a graphical description of select and fully implement an ERP system, data sources, data flows, transformation processes, depending on business size, number of modules to data storage, and data destinations be implemented, degree of customization, the 2. Flowchart, which is a graphical description of a scope of the change, and how well the customer system. There are several types of flow charts, takes ownership of the project. As a result, ERP including: implementations have a very high risk of project a. Document flowchart, which shows the flow of failure. documents and information between  Changes to business processes. Unless a departments or areas of responsibility company wants to spend time and money b. System flowchart, which shows the relationship customizing modules, they must adapt to among the input, processing, and output in an standardized business processes as opposed to information system adapting the ERP package to existing company c. Program flowchart, which shows the sequence processes. The failure to map current business of logical operations a computer performs as it processes to existing ERP software is a main cause executes a program. of ERP project failures. 3. Business Process diagrams, which are graphical  Complexity. This comes from integrating many descriptions of the business processes used by a different business activities and systems, each company having different processes, business rules, data semantics, authorization hierarchies, and decision Data Flow Diagrams centers.  Resistance. Organizations that have multiple  data flow diagram (DFD) – A graphical departments with separate resources, missions, description of the flow of data within an profit and loss, and chains of command may organization, including data believe that a single system has few benefits. It sources/destinations, data flows, also takes considerable training and experience to transformation processes, and data storage. use an ERP system effectively, and employee  data source - The entity that produces or resistance is a major reason why many ERP sends the data that is entered into a system. implementations do not succeed. It is not easy to  data destination - The entity that receives convince employees to change how they do their data produced by a system jobs, train them in new procedures, master the new system, and persuade them to share sensitive in- formation. Resistance, and the blurring of company Data Flow Diagram Symbols. 3. Determine system boundaries. Determine what to include and exclude. Include all relevant data elements, because excluded items will not be considered during system development. 4. Develop a context diagram. A context diagram depicts system boundaries. In the diagram’s center is a circle with the name of the system. Outside entities the system interacts with directly are in boxes on either side, connected by data flows depicting the data passed between them. DFDs in successively more detail depict data flows inside the system. 5. Identify data flows. Identify all data flows (significant movement of data) entering or leaving the system, including where the data originate and their final destination. All data flows come from and go to a data flow - The movement of data among processes, transformation process, a data store (file), or a source or stores, sources, and destinations. destination. Data flows can move in two directions, shown as a line with arrows on both ends (see G in process - The action that transforms data into other data Figure 3-3). or information. 6. Group data flows. A data flow can consist of one or data store - The place or medium where system data is more pieces of datum. Data elements that always flow stored. together should be grouped together and shown as one data flow until they are separated. If the data do not context diagram - Highest-level DFD; a summary-level always flow together, show them as separate data flows. view of a system, showing the data processing system, its input(s) and output(s), and their sources and 7. Identify transformation processes. Place a circle destinations. wherever work is required to transform one data flow into another. All transformation processes should have one or more incoming and outgoing data flows. 8. Group transformation processes. Transformation processes that are logically related or occur at the same time and place should be grouped together. Do not combine unrelated items into a single transformation process. If data are not processed together, or are sometimes processed differently, separate them. 9. Identify all files or data stores. Identify each temporary or permanent data repository, and identify each data flow into and out of it. 10. Identify all data sources and destinations. Include them on the DFD. Guidelines for Drawing a DFD 11. Name all DFD elements. Except for data flows into 1. Understand the system. Develop this understanding or out of data stores (the data store name is usually by observing organization data flows, observing and sufficient to identify the data flow), data elements should interviewing those who use and process the data or be given unique and descriptive names representing having them complete a questionnaire; by reading a what is known about them. Naming data flows first narrative description of the system; or by walking forces you to concentrate on the all-important data flows, through system transactions. rather than on the processes or stores. Processes and data stores typically take their names from the data 2. Ignore certain aspects of the system. A DFD is a inflows or outflows. Choose active and descriptive diagram of the origins, flow, transformation, storage, and names, such as “update inventory” and “validate destinations of data. Only very important error paths are transaction,” rather than “input data” or “update process.” included; unimportant error paths are ignored. Process names should include action verbs such as Determining how the system starts and stops is not update, edit, prepare, reconcile, and record. shown. 12. Subdivide the DFD. A cluttered DFD is hard to read and understand. If you have more than five to seven processes on a page, decompose the context diagram into high-level processes. Explode these high-level processes into successively lower-level processes. 13. Give each process a sequential number. Giving each process a sequential number (lower to higher) helps readers navigate among the DFD levels. 14. Refine the DFD. Work through data flows several times. Each subsequent pass helps refine the diagram and identify the fine points. Organize the DFD to flow from top to bottom and from left to right. 15. Prepare a final copy. Do not allow data flow lines to cross each other; if necessary, repeat a data store or destination. Place the name of the DFD, the date pre- pared, and the preparer’s name on each page. flowchart - An analytical technique that uses a standardset of symbols to describe pictorially some aspect of an IS in a clear, concise, and logical manner. Flowcharting symbols are divided into four categories,as shown in Figure 3-8: 1. Input/output symbols show input to or output from a system. 2. Processing symbols show data processing, either electronically or by hand. 3. Storage symbols show where data is stored. 4. Flow and miscellaneous symbols indicate the flow of data, where flowcharts begin or end, where decisions are made, and how to add explanatory notes to flowcharts. TYPES OF FLOWCHARTS document flowchart – Illustrates the flow of documents internal control flowchart – Used to describe, analyze, and data among areas of responsibility within an and evaluate internal controls, including identifying organization. system strengths, weaknesses, and inefficiencies. FIGURE 3-8 Common Flowcharting Symbols system flowchart - Depicts the relationships among system input, processing, storage, and output. FOCUS 3-2 Guidelines for Preparing Flowcharts 1. Understand the system. Develop this understanding by interviewing users, developers, and management or having them complete a questionnaire; by reading a narrative description of the system; or by walking through system transactions. 2. Identify the entities to be flowcharted. Identify departments, job functions, and external parties. Identify business processes, documents, data flows, and data processing procedures. 3. Organize flowchart. Design the flowchart so that data flows from top to bottom and from left to right. Where appropriate, ensure that all procedures and processes are in proper order. Show where documents or processes originate, where data is processed, and FOCUS 3-3 Guidelines for Preparing Business where data is stored and sent. Show the final disposition Process Diagrams of all documents to prevent loose ends that leave the reader dangling. Show data entered into or retrieved 1. Identify and understand the business processes. from a database as passing through a processing Develop this understanding by observing organization operation (a computer program) first. In document business processes and data flows, observing and flowcharts, divide the flowchart into columns with labels. interviewing those involved in the business process, reading a narrative description of the system, or walking 4. Clearly label all symbols. Write a description of the through system transactions. Identify departments, job source, input, process, output, or destination inside the functions, and external parties. Identify business symbol. Use arrowheads on all flow lines. processes, documents, data flows, and data processing procedures. 5. Page connectors. If a flowchart cannot fit on a single page, clearly number the pages and use off-page 2. Ignore certain items. Like DFDs, BPDs depict what connectors to move from one page to another. Where happens, but do not specify how (i.e., by means of what desired, on-page connectors can be used to avoid technology) a process activity occurs. Therefore, BPDs excess flow lines and to produce a neat-looking page. do not need to be revised every time the technology Clearly label all connectors to avoid confusion. used to accomplish the activity is changed. Unlike flowcharts, you do not need to show the documents as 6. Draw a rough sketch of the flowchart. Be more they flow through the system or show where they are concerned with capturing content than with making a stored. perfect drawing. Few systems can be flowcharted in a single draft. Review it with the people familiar with the 3. Decide how much detail to include. Like a DFD, system. Make sure all uses of flowcharting conventions varying levels of detail can be shown. A BPD can show are consistent. only higher-level activities or those higher-level activitiescan be broken up into sub activities that show 7. Draw a final copy of the flowchart. Place the more details. If the BPD is drawn in sufficient detail, it is flowchart name, date, and preparer’s name on each easy to evaluate whether duties are properly segregated page. by examining the duties performed in every row. program flowchart – Illustrates the sequence of logical 4. Organize diagram. BPDs usually consist of two operations performed by a computer in executing a columns and as many rows as needed to explain the program. process. The first column shows the different employees or departments involved in the business process. The business process diagram – A visual way to describe second column shows the activities performed by the the different steps or activities in a business process. employee shown in the first column. Each row, referred to as a “swim lane,” contains the activities performed by FIGURE 3-12 Business Process Diagram Symbols the indicated employee or department. BPDs depict the major steps in a process sequentially, reading from left to right and top to bottom. 5. Enter each business process on the diagram. Show where each business process begins and ends. Show each activity in the business process in the order it takes place and in the appropriate row, using the ap- propriate symbols. Write an appropriate description inside each symbol; most activity descriptions will start with an action verb (take order, ship goods, etc.). Add annotation information as appropriate to make the diagram more understandable. Use arrowheads on all data flow lines to show the direction of the flow. 6. Draw a rough sketch of the BPD. Be more concerned with capturing content than with making a perfect drawing. Few systems can be diagramed in a single draft. Review it with the people familiar with the system. Refine the BPD as needed until the business process is depicted accurately and the diagram is easily understood. 7. Draw a final copy of the BPD. Place the BPD name, date, and preparer’s name on each page.