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Chapter 2: Elements of Information Systems Accounting Information Systems: A

Chapter 2: Elements of Information Systems Accounting Information Systems: A

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Chapter 2: Elements of Information Systems1 of 33
ACCOUNTING INFORMATION SYSTEMS: A DATABASE APPROACH
 by: Uday S. Murthy, Ph.D., ACA and S. Michael Groomer, Ph.D., CPA, CISA
Elements of Information Systems
 
Learning Objectives
 
After studying this chapter you should be able to:
 
 
distinguish between data and information
 
 
 
explain various types of files
 
discuss the steps in the data processing cycle
 
 
 
discuss the relative merits and drawbacks of batch versus online processing
 
describe and discuss the systems approach
In the previous chapter, we presented the database approach to accounting andcontrasted it with conventional information systems representing the first wave ofcomputerization of accounting information systems. However, regardless of their designand architectural differences, all computer-based information systems share somecommon elements. In this chapter, we will discuss the basic elements of computerizedinformation systems. First, we will distinguish between data and information. We willthen discuss how data are organized in computer systems at the most basic level. Youwill become familiar with alternative field formats and record keys. Thereafter, thehierarchy of data from bytes to a database will be presented. Files and the various typesof files will also be discussed. We will conclude the chapter with a discussion of the"systems approach" and an explanation of what that entails.
 
Data versus information
 
As we saw in the previous chapter, the purpose of an information system is to convertdata into information. Accounting information systems convert input transactions intofinancial reports and other types of informational outputs.
Data 
represents raw,unprocessed facts that are useless without further processing.
Information 
is data mademeaningful. The information system
processes 
data to render useless facts into usefulinformation. For example, if you walk from door to door to every residence in your cityand record the names and phone numbers of all residents in the order of your visit, youwould have an extensive collection of data. However, these data are essentially useless
 
Chapter 2: Elements of Information Systems2 of 33since it would be very difficult to locate the phone number based on a resident's lastname. What converts these data into useful information, namely a phone directory, isthe process of alphabetizing the data. That is, if names and phone numbers are sortedin order of the last name of residents, then the data become useful. The sorted list isuseful since it is now possible to locate the phone number of any resident so long asyou know the last name of the resident. Information alone is only a means to an end.The right information delivered at the right time and interpreted in the right manner canlead to knowledge. Knowledge in turn can lead to wisdom and/or power. An excellentexample of information versus knowledge, wisdom, and power is the Internet. There aretrillions of megabytes of information on countless home pages on the Web, but only fewof us obtain knowledge about a particular topic from the Internet. Fewer still can convertthat knowledge into wisdom or power. The data-to-power value chain, also referred tosimply as the
information value chain
, is shown in the following figure.
 
For information to be truly useful and meaningful to a user, it must meet certainqualities. It must be
relevant 
and
reliable 
. The relevance of information pertains to itsability to assist a user in making a decision. For information to be relevant, it must bereceived in a timely manner and must have the capacity to change the user's decision. Itmust be made available soon enough to make a difference and must make the userbetter off relative to his or her situation prior to receipt of that information. Reliability ofinformation has to do with its accuracy and freedom from errors. Information replete witherrors is unreliable and can potentially lead the user to an incorrect decision. Controlmechanisms must be placed within the information system to prevent intentional andunintentional errors in data input, processing, and information output. A concept closelyrelated to reliability is reproducibility. Using the same data as input, and applying thesame processing methods, another information system should generate identicalinformation. In summary, data represents raw facts, whereas information is data mademeaningful. Information must be both relevant and reliable to really be useful to adecision maker. Having discussed the difference between data and information, let usnow explore how data are stored in computer-based information systems.
 
Hierarchy of data
 
At the lowest level, all computer systems store data in the form of
bits
. A bit is a binarydigit and can take a value of either 0 (turned off) or 1 (turned on). In essence, a bit isturned on by a tiny electrical impulse and is turned off when the impulse is discharged.A group of bits forms a
byte
. In most computer systems, eight bits form a byte. A byte is
 
Chapter 2: Elements of Information Systems3 of 33roughly equivalent to a
character
, such as the letter “a” or the number “3,” which is thelowest element understandable by humans. A group of related bytes forms a
field
.Thus, the group of bytes that forms the word 'Jones' makes up a 'name' field. A group ofrelated fields makes up a
record
. Tom Jones, Marketing, Sales Associate, 8/1/2008,$2,500 are a group of fields which make up an employee record showing theemployee's name, department, grade, date hired, and monthly salary. A group of logicalrecords constitutes a
file
. All employee records taken together would make up theemployee file. A collection of sales invoices for July 2008 would form the sales file forJuly. Finally, a collection of logically related files is a
database
. All files relating toDivision A's operations would constitute the 'Division A database.' As shown in thefigure below, the hierarchy of data starts with bits at the lowest level and ends with adatabase at the highest level.In creating an information system, a number of design decisions must be made relatingto fields, records, and files. Let us now explore the various options relative to field,record, and file design.
 
Field formats
 
The format designated for a field is one design decision that you might be involved in.Although the field format decision is usually not irreversible, giving some forethought tothe kind of data that might be stored in each field is time well spent. Back in the late1990s, a lot was made of theYear 2000 problem,” referred to in computer speak as the

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