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PRELIMINARY : ANFOSY
Chapter 1: The Information System: An Accountant’s Perspective
Internal & External Information Flows
Internal Information Flows Horizontal flows of information used primarily at the operations level to capture transaction and operations data Vertical flows of information a) downward flows — instructions, quotas, and budgets b) upward flows — aggregated transaction and operations data
A. Information Requirements Each user group has unique information requirements. The higher the level of the organization, the greater the need for more aggregated information and less need for detail.
B. Information in Business Information is a business resource that: needs to be appropriately managed is vital to the survival of contemporary businesses
What is a System? A group of interrelated multiple components or subsystems that serve a common purpose System or subsystem? A system is called a subsystem when it is viewed as a component of a larger system. A subsystem is considered a system when it is the focus of attention.
System Decomposition vs. System Interdependency System Decomposition the process of dividing the system into smaller subsystem parts System Interdependency distinct parts are not self-contained they are reliant upon the functioning of the other parts of the system all distinct parts must be functioning or the system will fail
What is an Information System? An information system is the set of formal procedures by which data are collected, processed into information, and distributed to users.
Transactions is a business event. a) Financial transactions economic events that affect the assets and equities of the organization a) e.g., purchase of an airline ticket b) Nonfinancial transactions all other events processed by the organization’s information system a) e.g., an airline reservation — no commitment by the customer
Transactions
What is Accounting Information Systems? Accounting is an information system. It identifies, collects, processes, and communicates economic information about a firm using a wide variety of technologies. It captures and records the financial effects of the firm’s transactions. It distributes transaction information to operations personnel to coordinate many key tasks.
AIS vs. MIS Accounting Information Systems (AIS) process financial transactions; e.g., sale of goods and nonfinancial transactions that directly affect the processing of financial transactions; e.g., addition of newly approved vendors Management Information Systems (MIS) process - nonfinancial transactions that are not normally processed by traditional AIS; e.g., tracking customer complaints
AIS Subsystems Transaction processing system (TPS) supports daily business operations General Ledger/ Financial Reporting System (GL/FRS) produces financial statements and reports Management Reporting System (MRS ) produces special-purpose reports for internal use
The General AIS Model
Data Sources Data sources are financial transactions that enter the information system from internal and external sources. External financial transactions are the most common source of data for most organizations. E.g., sale of goods and services, purchase of inventory, receipt of cash, and disbursement of cash (including payroll).
Internal financial transactions involve the exchange or movement of resources within the organization. E.g., movement of raw materials into work-in-process (WIP), application of labor and overhead to WIP, transfer of WIP into finished goods inventory, and depreciation of equipment.
Transforming the Data into Information Functions for transforming data into information according to the general AIS model:
1. Data Collection a) Capturing transaction data b) Recording data onto forms c) Validating and editing the data 2. Data Processing a) Classifying b) Transcribing c) Sorting d) Batching e) Classifying f) Transcribing g) Sorting h) Batching 3. Data Management a) Storing b) Retrieving c) Deleting 4. Information Generation a) Compiling b) Arranging c) Formatting d) Presenting
Characteristics of Useful Information: (RTACS) Regardless of physical form or technology, useful information has the following characteristics: a) Relevance: serves a purpose b) Timeliness: no older than the time period of the action it supports c) Accuracy : free from material errors d) Completeness: all information essential to a decision or task is present e) Summarization: aggregated in accordance with the user’s needs
Information System Objectives in a Business Context The goal of an information system is to support the stewardship function of management decision making the firm’s day-to-day operations
Organizational Structure The structure of an organization helps to allocate responsibility authority accountability Segmenting by business function is a very common method of organizing.
Functional Areas:
- Inventory/Materials Management
- purchasing, receiving and stores
- Production
- production planning, quality control, and maintenance
- Marketing
- Distribution
- Personnel
- Finance
- Accounting
- Computer Services
Accounting Independence Information reliability requires accounting independence. Accounting activities must be separate and independent of the functional areas maintaining resources.
Accounting supports these functions with information but does not actively participate. Decisions makers in these functions require that such vital information be supplied by an independent source to ensure its integrity.
The Computer Services Function
Organization of Computer Services Function in a Centralized System
Organizational Structure for a Distributed Processing System
Potential Advantages of DDP: a) Cost reductions in hardware and data entry tasks b) Improved cost control responsibility c) Improved user satisfaction since control is closer to the user level d) Backup of data can be improved through the use of multiple data storage sites
Chapter 2: Introduction to Transaction Processing
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 3 transaction cycles: the expenditure cycle, the conversion cycle, and the revenue cycle.
Relationship between Transaction Cycles
Each Cycle has Two 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 Product Documents - the result of transaction processing Turnaround Documents - a product document of one system that becomes a source document for another system Journals - a record of chronological entry special journals - specific classes of transactions that occur in high frequency general journal - nonrecurring, infrequent, and dissimilar transactions Ledger - a book of financial accounts general ledger - shows activity for each account listed on the chart of accounts subsidiary ledger - shows activity by detail for each account type
Flow of Economic Events Into the General Ledger
Accounting Records in a Computer-Based System
EXPLANATION OF STEPS IN FIGURE:
- Compare the AR balance in the balance sheet with the master file AR control account balance.
- Reconcile the AR control figure with the AR subsidiary account total.
- 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).
- 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.
Audit Trail
Example of Tracing an Audit Trail Verifying Accounts Receivable
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.
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 Documentation in a CB environment is necessary for many reasons.
Five common documentation techniques:
- Entity Relationship Diagram
- Data Flow Diagrams
- Document Flowcharts
- System Flowcharts
- Program Flowcharts
Entity Relationship Diagram (ERD) is a documentation technique to represent the relationship between entities in a system. The REA model version of ERD is widely used in AIS. REA uses 3 types of entities: resources (cash, raw materials) events (release of raw materials into the production process) agents (inventory control clerk, vendor, production worker)
Cardinalities represents the numerical mapping between entities: one-to-one one-to-many many-to-many
A. Data Flow Diagrams (DFD) use symbols to represent the processes, data sources, data flows, and entities in a system represent the logical elements of the system do not represent the physical system
Data Flow Diagram Symbols
B. Documents Flowcharts illustrate the relationship among processes and the documents that flow between them contain more details than data flow diagrams clearly depict the separation of functions in a system
Symbol Set for Document Flowcharts
C. System Flowcharts are used to represent the relationship between the key elements--input sources, programs, and output products--of computer systems depict the type of media being used (paper, magnetic tape, magnetic disks, and terminals) in practice, not much difference between document and system flowcharts
Systems Flowchart Symbols
D. Program Flowcharts illustrate the logic used in programs
Program Flowchart Symbols
