You are on page 1of 308

CHAPTER 10

Accounting Information
Systems:
Presented by:
ARIEL A. CATAPAL
MBA – OLIVAREZ COLLEGE
S.Y. 2009 - 2010
INTRODUCTION
 Questions to be addressed in this chapter
include:
◦ What is the meaning of system, data, and
information?
◦ What is an accounting information system (AIS)?
◦ Why is the AIS an important topic to study?
◦ What is the role of the AIS in the value chain?
◦ How does the AIS provide information for decision
making?
◦ What are the basic strategies and strategic positions an
organization can pursue?
INTRODUCTION
◦ What are the basic business activities in which an
organization engages?
What decisions must be made to undertake these
activities?
What information is required to make those decisions?
◦ What role does the data processing cycle play in
organizing business activities and providing information
to users?
◦ What is the role of the information system and
enterprise resource planning in modern organizations?
INTRODUCTION
◦ What is the purpose of documentation?
◦ Why do accountants need to understand
documentation?
◦ What documentation techniques are used in
accounting systems?
◦ What are data flow diagrams and flowcharts?
How are they alike and different?
How are they prepared?
SYSTEMS, DATA, AND INFORMATION
 A system is:
◦ A set of interrelated components
◦ That interact
◦ To achieve a goal
SYSTEMS, DATA, AND INFORMATION
 Most systems are composed of smaller
subsystems . . .
 . . . And vice versa!
SYSTEMS, DATA, AND INFORMATION
 Every organization has goals.
◦ The subsystems should be designed to
maximize achievement of the organization’s
goals
◦ Even to the detriment of the subsystem itself
◦ EXAMPLE: The production department (a
subsystem) of a company might have to forego
its goal of staying within its budget in order to
meet the organization’s goal of delivering
product on time.
SYSTEMS, DATA, AND INFORMATION
 Goal conflict occurs when the activity of a
subsystem is not consistent with another
subsystem or with the larger system.
 Goal congruence occurs when the
subsystem’s goals are in line with the
organization’s goals.
 The larger and more complicated a system,
the more difficult it is to achieve goal
congruence.
SYSTEMS, DATA, AND INFORMATION
 The systems concept encourages integration
(i.e., minimizing the duplication of recording,
storing, reporting and processing).
 Data are facts that are collected, recorded,
stored, and processed by an information system.
 Organizations collect data about:
◦ Events that occur
◦ Resources that are affected by those events
◦ Agents who participate in the events
SYSTEMS, DATA, AND INFORMATION
 Information is different from data.
 Information is data that have been
organized and processed to provide
meaning to a user.
 Usually, more information and better
information translates into better decisions.
SYSTEMS, DATA, AND INFORMATION
 However, when you get more information
than you can effectively assimilate, you
suffer from information overload.
◦ Example: Final exams week!
 When you’ve reached the overload point,
the quality of decisions declines while the
costs of producing the information
increases.
SYSTEMS, DATA, AND INFORMATION

Benefits of information
- Cost of producing information
Value of information
SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
SYSTEMS, DATA, AND INFORMATION

Benefits of information
- Cost of producing information
Value of information

Costs and benefits of information are often


difficult to quantify, but you need to try
when you’re making decisions about
whether to provide information.
SYSTEMS, DATA, AND INFORMATION
 Characteristics that make information
useful:
◦ Relevance
It reduces uncertainty by helping you predict
what will happen or confirm what already has
happened.
SYSTEMS, DATA, AND INFORMATION
 Characteristics that make information useful:
◦ Relevance
◦ Reliability

It’s dependable, i.e., free from error or bias


and faithfully portrays events and activities.
SYSTEMS, DATA, AND INFORMATION
 Characteristics that make information useful:
◦ Relevance
◦ Reliability
◦ Completeness
It doesn’t leave out anything that’s important.
SYSTEMS, DATA, AND INFORMATION
 Characteristics that make information useful:
◦ Relevance
◦ Reliability
◦ Completeness
◦ Timeliness
You get it in time to make your decision.
SYSTEMS, DATA, AND INFORMATION
 Characteristics that make information useful:
◦ Relevance
◦ Reliability
◦ Completeness
◦ Timeliness
◦ Understandability
It’s presented in a manner you can
comprehend and use.
SYSTEMS, DATA, AND INFORMATION
 Characteristics that make information useful:
◦ Relevance
◦ Reliability
◦ Completeness
◦ Timeliness
◦ Understandability
◦ Verifiability
A consensus notion—the nature of the
information is such that different people
would tend to produce the same result.
SYSTEMS, DATA, AND INFORMATION
 Characteristics that make information useful:
◦ Relevance
◦ Reliability
◦ Completeness
◦ Timeliness
◦ Understandability
◦ Verifiability
◦ Accessibility
You can get to it when you need it and in a
format you can use.
SYSTEMS, DATA, AND INFORMATION
 Information is provided to both:
◦ External users
◦ Internal Users
SYSTEMS, DATA, AND INFORMATION
 Information is provided to both:
◦ External users
◦ Internal Users
SYSTEMS, DATA, AND INFORMATION
 External users primarily use information that is
either:
◦ MANDATORY INFORMATION—Required by a
governmental entity, such as Form 10-K’s
required by the SEC; or
◦ ESSENTIAL INFORMATION—Required to
conduct business with external parties, such as
purchase orders
SYSTEMS, DATA, AND INFORMATION
 Inproviding mandatory or essential
information, the focus should be on:
◦ Minimizing costs
◦ Meeting regulatory requirements
◦ Meeting minimum standards of reliability
and usefulness
SYSTEMS, DATA, AND INFORMATION
 Information is provided to both:
◦ External users
◦ Internal Users
SYSTEMS, DATA, AND INFORMATION
 Internal users primarily use discretionary
information.
 The primary focus in producing this
information is ensuring that benefits
exceed costs, i.e., the information has
positive value.
WHAT IS AN AIS?
 An AIS is a system that collects, records,
stores, and processes data to produce
information for decision makers.
 It can:
◦ Use advanced technology; or
◦ Be a simple paper-and-pencil system; or
◦ Be something in between.
 Technology is simply a tool to create,
maintain, or improve a system
WHAT IS AN AIS?
 The functions of an AIS are to:
◦ Collect and store data about events, resources,
and agents.
◦ Transform that data into information that
management can use to make decisions about
events, resources, and agents.
◦ Provide adequate controls to ensure that the
entity’s resources (including data) are:
Available when needed
Accurate and reliable
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s fundamental to accounting.

• Accounting is an information-providing
activity, so accountants need to
understand:
– How the system that provides that
information is designed, implemented
and used.
– How financial information is reported
– How information is used to make
decisions
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s fundamental to accounting.
• Other accounting courses focus on how
the information is provided and used.
• An AIS course places greater emphasis
on:
– How the data is collected and
transformed
– How the availability, reliability, and
accuracy of the data is ensured
• AIS courses are not number-crunching
courses
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s fundamental to accounting.
 The skills are critical to career success.

• Auditors need to evaluate the accuracy


and reliability of information produced
by the AIS.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s fundamental to accounting.
 The skills are critical to career success.

• Tax accountants must understand the


client’s AIS adequately to be confident
that it is providing complete and
accurate information for tax planning
and compliance work.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s fundamental to accounting.
 The skills are critical to career success.

• In private industry and not-for-profits,


systems work is considered the most
important activity performed by
accountants.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s fundamental to accounting.
 The skills are critical to career success.

• In management consulting, the design,


selection, and implementation of
accounting systems is a rapid growth
area.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s fundamental to accounting.
 The skills are critical to career success.
 The AIS course complements other systems
courses.
• Other systems courses focus on design and
implementation of information systems,
databases, expert systems, and
telecommunications.
• AIS courses focus on accountability and
control.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
 It’s
fundamental to accounting.
 The skills are critical to career success.
 The AIS course complements other
systems courses.
 AIS topics impact corporate strategy
and culture.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?

Occupational
Culture Strategy

AIS design is
affected by
information
AIS
technology, the
organization’s
strategy, and the
organization’s
culture. Information
Technology
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?

Occupational
Culture Strategy

Information technology
affects the company’s AIS
choice of business
strategy. To perform cost-
benefit analyses on IT
changes, you need to
understand business
strategy. Information
Technology
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?

Occupational
Culture Strategy

While culture affects


the design of the AIS,
AIS
it’s also true that the
AIS affects culture by
altering the dispersion
and availability of
information.
Information
Technology
ROLE OF THE AIS IN THE VALUE CHAIN
 The objective of most organizations is to
provide value to their customers.
 What does it mean to deliver value?
 Let’s peek in on a conversation at Joe’s
pharmacy . . .
ROLE OF THE AIS IN THE VALUE CHAIN

Well, Mr. Pharmaceutical


Salesman, your proposal looks
good, but your prices are about
5% higher than your competitors.
ROLE OF THE AIS IN THE VALUE CHAIN

That’s true, but we’re


comfortable with that
because of the value-
added that we bring to
this arrangement.
ROLE OF THE AIS IN THE VALUE CHAIN

What is that “value-added,”


and how do you convert it
into dollars?
ROLE OF THE AIS IN THE VALUE CHAIN

Blah—blah—blah–
customer service–
blah—blah--blah
ROLE OF THE AIS IN THE VALUE
CHAIN
 While “adding value” is a commonly used
buzzword, in its genuine sense, it means making
the value of the finished component greater than
the sum of its parts.
 It may mean:
◦ Making it faster
◦ Making it more reliable
◦ Providing better service or advice
◦ Providing something in limited supply (like O-negative
blood or rare gems)
◦ Providing enhanced features
◦ Customizing it
ROLE OF THE AIS IN THE VALUE CHAIN

 Value is provided by performing a series of


activities referred to as the value chain. These
include:
◦ Primary activities
◦ Support activities
 These activities are sometimes referred to as
“line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
 Value is provided by performing a series of
activities referred to as the value chain.
These include:
◦ Primary activities
◦ Support activities
 These activities are sometimes referred to
as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN

 Primary activities include:


◦ Inbound logistics
Receiving, storing, and distributing the
materials that are inputs to the organization’s
product or service.

For a pharmaceutical company, this activity


might involve handling incoming chemicals and
elements that will be used to make their drugs.
ROLE OF THE AIS IN THE VALUE CHAIN

 Primary activities include:


◦ Inbound logistics
◦ Operations

Transforming those inputs into products or


services.

For the pharmaceutical company, this step


involves combining the raw chemicals and
elements with the work of people and equipment to
produce the finished drug product that will be sold
to customers.
ROLE OF THE AIS IN THE VALUE CHAIN

 Primary activities include:


◦ Inbound logistics
◦ Operations
◦ Outbound logistics

Distributing products or services to customers.

For the pharmaceutical company, this step involves


packaging and shipping the goods to drug stores,
doctors, and hospitals.
ROLE OF THE AIS IN THE VALUE CHAIN

 Primary activities include:


◦ Inbound logistics
Helping customers
◦ Operations to buy the
◦ Outbound logistics organization’s
◦ Marketing and sales products or
services.

A pharmacy rep
may visit with drug
stores, doctors,
etc. to inform them
about their
ROLE OF THE AIS IN THE VALUE CHAIN

 Primary activities include:


Post-sale support provided to
◦ Inbound logistics
customers such as repair and
◦ Operations maintenance function.
◦ Outbound logistics
A pharmaceutical firm will
◦ Marketing andtypically
sales not be repairing it’s
◦ Service product (though the product may
be periodically reformulated).
The pharmaceutical company is
more likely to be providing
advisory services to pharmacists,
etc.
ROLE OF THE AIS IN THE VALUE CHAIN
 Value is provided by performing a series of
activities referred to as the value chain.
These include:
◦ Primary activities
◦ Support activities
 These activities are sometimes referred to
as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
 Support activities include:
◦ Firm infrastructure
Accountants, lawyers, and administration.
Includes the company’s accounting
information system.
ROLE OF THE AIS IN THE VALUE CHAIN
 Support activities include:
◦ Firm infrastructure
◦ Human resources

Involves recruiting and hiring new


employees, training employees, paying
employees, and handling employee benefits.
ROLE OF THE AIS IN THE VALUE CHAIN
 Support activities include:
◦ Firm infrastructure
◦ Human resources
◦ Technology

Activities to improve the products or services


(e.g., R&D, website development).

For the pharmaceutical company, these activities


would include research and development to
create new drugs and modify existing ones.
ROLE OF THE AIS IN THE VALUE CHAIN
 Support activitiesBuying
include:
the resources (e.g.,
◦ Firm infrastructure
materials, inventory, fixed
◦ Human resources assets) needed to carry out the
entity’s primary activities.
◦ Technology
◦ Purchasing In the pharmaceutical company,
the purchasing folks are trying
to get the best combination of
cost and quality in buying
chemicals, supplies, and other
assets the company needs to
run its operations.
ROLE OF THE AIS IN THE VALUE CHAIN
 Information technology can significantly
impact the efficiency and effectiveness with
which the preceding activities are carried
out.
 An organization’s value chain can be
connected with the value chains of its
customers, suppliers, and distributors.
ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co. For example, the inbound logistics of


Inbound Logistics Pharmaceuticals, Inc., links to the
Operations outbound logistics of its suppliers.
Outbound Logistics
Marketing & Sales Pharmaceuticals, Inc.
Service Inbound Logistics
Operations
Outbound Logistics Customer Pharmacy
Marketing & Sales Inbound Logistics
Service Operations
Outbound Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co. The linking of these separate value chains


Inbound Logistics creates a larger system known as a supply
Operations chain.
Outbound Logistics
Marketing & Sales Pharmaceuticals, Inc.
Service Inbound Logistics
Operations
Outbound Logistics Customer Pharmacy
Marketing & Sales Inbound Logistics
Service Operations
Outbound Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co. The linking of these separate value chains


Inbound Logistics creates a larger system known as a supply
Operations chain.
Outbound Logistics Pharmaceuticals,
Marketing & Sales Inc.
Service Inbound Logistics
Operations
Outbound Logistics Customer Pharmacy
Information technology Marketing & Sales
can facilitate synergistic Inbound Logistics
Service
linkages that improve Operations
the performance of Outbound Logistics
each company’s value Marketing & Sales
chain.
Service
ROLE OF THE AIS IN THE VALUE CHAIN
 Thereis variation in the degree of structure
used to make decisions:
◦ Structured decisions
• Repetitive and routine
• Can be delegated to lower-level employees
• EXAMPLE: Deciding whether to write an
auto insurance policy for a customer with a
clean driving history.
ROLE OF THE AIS IN THE VALUE CHAIN
 Thereis variation in the degree of structure
used to make decisions:
◦ Structured decisions
◦ Semistructured decisions

• Incomplete rules
• Require subjective assessments
• EXAMPLE: Deciding whether to sell auto
insurance to a customer with a tainted
driving history.
ROLE OF THE AIS IN THE VALUE CHAIN
 Thereis variation in the degree of structure
used to make decisions:
◦ Structured decisions
◦ Semistructured decisions
◦ Structured decisions

• Non-recurring and non-routine


• Require a great deal of subjective
assessment
• EXAMPLE: Deciding whether to begin
selling a new type of insurance policy
ROLE OF THE AIS IN THE VALUE CHAIN
 There is also variation in the scope of a
decision’s effect:
◦ Occupational control decisions
• Relate to performance of specific tasks
• Often of a day-to-day nature
• EXAMPLE: Deciding whether to order
inventory
ROLE OF THE AIS IN THE VALUE CHAIN
 There is also variation in the scope of a
decision’s effect:
◦ Occupational control decisions
◦ Management control decisions

• Relate to utilizing resources to accomplish


organizational objectives
• EXAMPLE: Budgeting
ROLE OF THE AIS IN THE VALUE CHAIN
 There is also variation in the scope of a
decision’s effect:
◦ Occupational control decisions
◦ Management control decisions
◦ Strategic planning decisions

• The “what do we want to be when we grow


up” types of questions
• Involves establishing
– Organizational objectives
– Policies to achieve those objectives
• EXAMPLE: Deciding whether to diversify the
company into other product lines
ROLE OF THE AIS IN THE VALUE CHAIN
 In
general, the higher a manager is in the
organization, the more likely he/she is to be
engaging in:
◦ Less structured decisions
◦ Broader scope (i.e., strategic planning)
decisions
THE AIS AND CORPORATE STRATEGY
 Corporations have:
◦ Unlimited opportunities to invest in technology
◦ Limited resources to invest in technology
 Consequently, they must identify the
improvements likely to yield the highest
return.
 This decision requires an understanding of
the entity’s overall business strategy.
THE AIS AND CORPORATE STRATEGY
 MichaelPorter suggests that there are two
basic business strategies companies can
follow:
◦ Product-differentiation strategy
◦ Low-cost strategy
THE AIS AND CORPORATE STRATEGY
 MichaelPorter suggests that there are two
basic business strategies companies can
follow:
◦ Product-differentiation strategy
◦ Low-cost strategy
THE AIS AND CORPORATE STRATEGY
Aproduct differentiation strategy involves
setting your product apart from those of
your competitors, i.e., building a “better”
mousetrap by offering one that’s faster, has
enhanced features, etc.
THE AIS AND CORPORATE STRATEGY
 MichaelPorter suggests that there are two
basic business strategies companies can
follow:
◦ Product-differentiation strategy
◦ Low-cost strategy
THE AIS AND CORPORATE STRATEGY
Alow-cost strategy involves offering a
cheaper mousetrap than your competitors.
The low cost is made possible by operating
more efficiently.
THE AIS AND CORPORATE STRATEGY
 Sometimes a company can do both, but
they normally have to choose.
THE AIS AND CORPORATE STRATEGY
 Porter
also argues that companies must
choose a strategic position among three
choices:
◦ Variety-based strategic position
• Offer a subset of the industry’s
products or services.
• EXAMPLE: An insurance company
that only offers life insurance as
opposed to life, health, property-
casualty, etc.
THE AIS AND CORPORATE STRATEGY
 Porter
also argues that companies must
choose a strategic position among three
choices:
◦ Variety-based strategic position
◦ Needs-based strategic position

• Serve most or all of the needs of a particular


group of customers in a target market.
• EXAMPLE: The original Farm Bureau-based
insurance companies provided a portfolio of
insurance and financial services tailored to the
specific needs of farmers.
THE AIS AND CORPORATE STRATEGY
 Porter also
• Serve argues
a subset that companies
of customers who differmust
from
choose
othersa instrategic position
terms of factors among
such three
as geographic
location or size..
choices:
• EXAMPLE: Satellite Internet services are
◦ Variety-based strategic
intended primarily position in rural areas
for customers
◦ Needs-based strategic
who cannot get DSL orposition
cable services.
◦ Access-based strategic position
THE AIS AND CORPORATE STRATEGY
 Porter
also argues that companies must
choose a strategic position among three
choices:
◦ Variety-based strategic position
◦ Needs-based strategic position
◦ Access-based strategic position
 These strategic positions are not mutually
exclusive and can overlap.
THE AIS AND CORPORATE STRATEGY
 Choosing a strategic position is important
because it helps a company focus its efforts as
opposed to trying to be everything to everybody.
◦ EXAMPLE: A radio station that tries to play all types of
music will probably fail.
 It’s critical to design the organization’s activities
so they reinforce one another in achieving the
selected strategic position. The result is synergy,
which is difficult for competitors to imitate.
THE AIS AND CORPORATE STRATEGY
 The growth of the Internet has profoundly
affected the way value chain activities are
performed:
◦ Inbound and outbound logistics can be streamlined for
products that can be digitized, like books and music.
◦ The Internet allows companies to cut costs, which
impacts strategy and strategic position.
◦ Because the Internet is available to everyone, intense
price competition can result. The outcome may be that
many companies shift from low-cost to product-
differentiation strategies.
◦ The Internet may impede access-based strategic
positions.
THE AIS AND CORPORATE STRATEGY
 TheAIS should help a company adopt and
maintain its strategic position.
◦ Requires that data be collected about each
activity.
◦ Requires the collection and integration of both
financial and nonfinancial data.
INFORMATION NEEDS AND
BUSINESS ACTIVITIES
 Businesses engage in a variety of activities,
including:
◦ Acquiring capital
◦ Buying buildings and equipment
◦ Hiring and training employees Each activity
◦ Purchasing inventory requires different
◦ Doing advertising and marketing types of
decisions!
◦ Selling goods or services
◦ Collecting payment from customers
◦ Paying employees
◦ Paying taxes
◦ Paying vendors
INFORMATION NEEDS AND
BUSINESS ACTIVITIES
 Businesses engage in a variety of activities,
including:
◦ Acquiring capital
◦ Buying buildings and equipment
◦ Hiring and training employees Each decision
◦ Purchasing inventory requires different
◦ Doing advertising and marketing types of
information.
◦ Selling goods or services
◦ Collecting payment from customers
◦ Paying employees
◦ Paying taxes
◦ Paying vendors
INFORMATION NEEDS AND
BUSINESS ACTIVITIES
 Types of information needed for decisions:
◦ Some is financial
◦ Some is nonfinancial
◦ Some comes from internal sources
◦ Some comes from external sources
 An effective AIS needs to be able to integrate
information of different types and from different
sources.
INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES

External
AIS Parties

 The AIS interacts with external parties, such as


customers, vendors, creditors, and
governmental agencies.
INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES

Internal External
Parties AIS Parties

 The AIS also interacts with internal parties such


as employees and management.
INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES

Internal External
Parties AIS Parties

 The interaction is typically two-way, in that the


AIS sends information to and receives
information from these parties.
BUSINESS CYCLES
 A transaction is:
◦ An agreement between two entities to
exchange goods or services; OR
◦ Any other event that can be measured in
economic terms by an organization.
 EXAMPLES:

◦ Sell goods to customers


◦ Depreciate equipment
BUSINESS CYCLES
 The transaction cycle is a process:
◦ Begins with capturing data about a transaction
◦ Ends with an information output, such as
financial statements
BUSINESS CYCLES
 Many business activities are paired in give-get
exchanges
 The basic exchanges can be grouped into five
major transaction cycles.
◦ Revenue cycle
◦ Expenditure cycle
◦ Production cycle
◦ Human resources/payroll cycle
◦ Financing cycle
BUSINESS CYCLES
 Many business activities are paired in give-get
exchanges
 The basic exchanges can be grouped into five
major transaction cycles.
◦ Revenue cycle
◦ Expenditure cycle
◦ Production cycle
◦ Human resources/payroll cycle
◦ Financing cycle
REVENUE CYCLE
 The revenue cycle involves interactions with
your customers.
 You sell goods or services and get cash.

Give Get
Goods Cash
BUSINESS CYCLES
 Many business activities are paired in give-get
exchanges
 The basic exchanges can be grouped into five
major transaction cycles.
◦ Revenue cycle
◦ Expenditure cycle
◦ Production cycle
◦ Human resources/payroll cycle
◦ Financing cycle
EXPENDITURE CYCLE
 The expenditure cycle involves interactions with
your suppliers.
 You buy goods or services and pay cash.

Give Get
Cash Goods
BUSINESS CYCLES
 Many business activities are paired in give-get
exchanges
 The basic exchanges can be grouped into five
major transaction cycles.
◦ Revenue cycle
◦ Expenditure cycle
◦ Production cycle
◦ Human resources/payroll cycle
◦ Financing cycle
PRODUCTION CYCLE
 In the production cycle, raw materials and labor
are transformed into finished goods.

Give Raw Get


Materials & Finished
Labor Goods
BUSINESS CYCLES
 Many business activities are paired in give-get
exchanges
 The basic exchanges can be grouped into five
major transaction cycles.
◦ Revenue cycle
◦ Expenditure cycle
◦ Production cycle
◦ Human resources/payroll cycle
◦ Financing cycle
HUMAN RESOURCES/
PAYROLL CYCLE
 The human resources cycle involves
interactions with your employees.
 Employees are hired, trained, paid, evaluated,
promoted, and terminated.

Give Get
Cash Labor
BUSINESS CYCLES
 Many business activities are paired in give-get
exchanges
 The basic exchanges can be grouped into five
major transaction cycles.
◦ Revenue cycle
◦ Expenditure cycle
◦ Production cycle
◦ Human resources/payroll cycle
◦ Financing cycle
FINANCING CYCLE
 The financing cycle involves interactions with
investors and creditors.
 You raise capital (through stock or debt), repay
the capital, and pay a return on it (interest or
dividends).

Give Get
Cash cash
BUSINESS CYCLES
 Thousands of transactions can occur within any
of these cycles.
 But there are relatively few types of transactions
in a cycle.
BUSINESS CYCLES
 EXAMPLE: In the revenue cycle, the basic give-
get transaction is:
◦ Give goods
◦ Get cash
BUSINESS CYCLES
 Other transactions in the revenue cycle include:
• Handle customer inquiries • Update sales and Accts Rec.
• Take customer orders for sales
• Approve credit sales • Receive customer payments
• Check inventory availability • Update Accts Rec. for
• Initiate back orders collections
• Pick and pack orders • Handle sales returns,
• Ship goods discounts, & bad debts
• Bill customers • Prepare management
reports
• Send info to other cycles

Note that the last activity in any


cycle is to send information to other
cycles.
BUSINESS CYCLES
 Transactions in the expenditure cycle:
MAJOR GIVE-GET: • Update accounts payable for
• Give cash; get goods or purchase
services • Approve invoices for payment
OTHER TRANSACTIONS • Pay vendors
• Requisition goods and • Update accounts payable for
services payment
• Process purchase orders to • Handle purchase returns,
vendors discounts, and allowances
• Receive goods and services • Prepare management reports
• Store goods • Send info to other cycles
• Receive vendor invoices
BUSINESS CYCLES
 Transactions in the HR/payroll cycle:
MAJOR GIVE-GET: • Pay employees
• Give cash; get labor – Process timecard and
OTHER TRANSACTIONS commission data
• Recruit, hire, and train – Prepare and distribute
employees payroll
• Evaluate and promote • Calculate and disburse tax
employees and benefit payments
• Discharge employees • Prepare management reports
• Update payroll records • Send info to other cycles
BUSINESS CYCLES
 Transactions in the production cycle:
MAJOR GIVE-GET: • Store finished goods
• Give labor and raw materials; • Accumulate costs for
Get finished goods
OTHER TRANSACTIONS
products
• Design products • Prepare management
• Forecast, plan, and schedule reports
production • Send info to other cycles
• Requisition raw materials
• Manufacture products
BUSINESS CYCLES
 Transactions in the financing cycle:
MAJOR GIVE-GET: • Pay dividends to investors
• Give cash; get cash and interest to lenders
OTHER TRANSACTIONS • Retire debt
• Forecast cash needs • Prepare management
• Sell securities to investors reports
• Borrow money from • Send info to other cycles
lenders
BUSINESS CYCLES
 Every transaction cycle:
◦ Relates to other cycles
◦ Interfaces with the general ledger and
reporting system, which generates
information for management and external
parties.
Finished Goods

Revenue Expenditure Production


Cycle Cycle Cycle

Da
ta
Fu

General Ledger
nd
s

and Reporting  The revenue cycle


System
◦ Gets finished goods
from the production
cycle
◦ Provides funds to
the financing cycle
◦ Provides data to the
Human Res./ Financing General Ledger and
Payroll Cycle Cycle Reporting System
Raw
Mats.
Revenue Expenditure Production
Cycle Cycle Cycle

Data
d s
u n
F

General Ledger
and Reporting  The expenditure
System
cycle
◦ Gets funds from the
financing cycle
◦ Provides raw
materials to the
production cycle
Human Res./ Financing
Payroll Cycle ◦ Provides data to the
Cycle General Ledger and
Reporting System
Finished Goods

Raw
Mats.
Revenue Expenditure Production
Cycle Cycle Cycle

ta
Da

General Ledger
and Reporting The production cycle:
r


bo

System ◦ Gets raw materials


La

from the expenditure


cycle
◦ Gets labor from the
HR/payroll cycle
◦ Provides finished
Human Res./ goods to the revenue
Financing cycle
Payroll Cycle Cycle ◦ Provides data to the
General Ledger and
Reporting System
Revenue Expenditure Production
Cycle Cycle Cycle

General Ledger
and Reporting
The HR/payroll
r


bo

System
cycle:
La

◦ Gets funds from the


ta financing cycle
Da ◦ Provides labor to
the production cycle
Human Res./ Funds ◦ Provides data to the
Financing General Ledger and
Payroll Cycle Cycle Reporting System
Revenue Expenditure Production
Cycle Cycle Cycle

Fu
nd
s
Fu

General Ledger
nd

The Financing
s

and Reporting 
System cycle:
◦ Gets funds from the
revenue cycle
◦ Provides funds to

Data
the expenditure and
HR/payroll cycles
Human Res./ Funds Financing ◦ Provides data to the
Payroll Cycle General Ledger and
Cycle Reporting System
Revenue Expenditure Production
Cycle Cycle Cycle

Data
ta

D
Da

at
a Information for
General Ledger Internal & External Users
and Reporting
System

a ta
D The General Ledger
Data

and Reporting
System:
Human Res./ Financing ◦ Gets data from all of
Payroll Cycle the cycles
Cycle
◦ Provides information
for internal and
external users
BUSINESS CYCLES

 Many accounting software packages implement


the different transaction cycles as separate
modules.
◦ Not every module is needed in every
organization, e.g., retail companies don’t have
a production cycle.
◦ Some companies may need extra modules.
◦ The implementation of each transaction cycle
can differ significantly across companies.
BUSINESS CYCLES

 However the cycles are implemented, it is


critical that the AIS be able to:
◦ Accommodate the information needs of managers
◦ Integrate financial and nonfinancial data.
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
 Accountants play an important role in data
processing. They answer questions such as:
◦ What data should be entered and stored?
◦ Who should be able to access the data?
◦ How should the data be organized, updated, stored,
accessed, and retrieved?
◦ How can scheduled and unanticipated information
needs be met.
 To answer these questions, they must
understand data processing concepts.
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
 An important function of the AIS is to efficiently
and effectively process the data about a
company’s transactions.
◦ In manual systems, data is entered into paper
journals and ledgers.
◦ In computer-based systems, the series of
operations performed on data is referred to as
the data processing cycle.
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
 The data processing cycle consists of four
steps:
◦ Data input
◦ Data storage
◦ Data processing
◦ Information output
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
 The data processing cycle consists of four
steps:
◦ Data input
◦ Data storage
◦ Data processing
◦ Information output
DATA INPUT

 The first step in data processing is to capture


the data.
 Usually triggered by a business activity.
 Data is captured about:

◦ The event that occurred


◦ The resources affected by the event
◦ The agents who participated
DATA INPUT

Anumber of actions can be taken to


improve the accuracy and efficiency of
data input:
◦ Turnaround documents
• EXAMPLE: The stub on your telephone bill that you tear off and
return with your check when you pay the bill.
• The customer account number is coded on the document, usually
in machine-readable form, which reduces the probability of human
error in applying the check to the correct account.
DATA INPUT

Anumber of actions can be taken to


improve the accuracy and efficiency of
data input:
◦ Turnaround documents
◦ Source data automation
• Capture data with minimal human intervention.
• EXAMPLES:
– ATMs for banking
– Point-of-sale (POS) scanners in retail stores
– Automated gas pumps that accept your credit card
DATA INPUT

Anumber of actions can be taken to


improve the accuracy and efficiency of
data input:
◦ Turnaround documents
◦ Source data automation
◦ Well-designed source documents and
data entry screens
• How do these improve the accuracy and efficiency of
data input?
DATA INPUT

Anumber of actions can be taken to


improve the accuracy and efficiency of
data input:
◦ Turnaround documents
◦ Source data automation
◦ Well-designed source documents and data
entry• screens
What does it mean if a document number is missing in the
sequence?
◦ Using pre-numbered documents or having
the system automatically assign sequential
numbers to transactions
DATA INPUT

Anumber of actions can be taken to


improve the accuracy and efficiency of
data input:
◦ Turnaround documents
◦ Source data automation
◦ Well-designed source documents and data
entry• screens
What does it mean if there are duplicate document
numbers?
◦ Using pre-numbered documents or having
the system automatically assign sequential
numbers to transactions
DATA INPUT

 A number of actions can be taken to improve the


accuracy and efficiency of data input:
◦ Turnaround documents
◦ Source data automation
◦ Well-designed source documents and data
entry screens
◦ Using pre-numbered documents or having the
system automatically assign sequential
numbers to transactions
• EXAMPLE: Check for inventory availability before
completing an online sales transaction.
◦ Verify transactions
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
 The data processing cycle consists of four
steps:
◦ Data input
◦ Data storage
◦ Data processing
◦ Information output
DATA STORAGE

 Data needs to be organized for easy and


efficient access.
 Let’s start with some vocabulary terms
with respect to data storage.
DATA STORAGE

 Ledger

A ledgeris a file used to store cumulative


information about resources and agents. We
typically use the word ledgerto describe the set
of t-accounts. The t-account is where we keep
track of the beginning balance, increases,
decreases, and ending balance for each asset,
liability, owners’ equity, revenue, expense, gain,
loss, and dividend account.
DATA STORAGE

 Ledger
◦ Following is an example of a ledger account
for accounts receivable:
DATA STORAGE

 Ledger
 General ledger

The general ledger is the summary level


information for all accounts. Detail information is
not kept in this account.
DATA STORAGE

 Ledger
 General ledger
Example: Suppose XYZ Co. has three
customers. Anthony Adams owes XYZ P100.
Bill Brown owes P200. And Cory Campbell owes
XYZ P300. The balance in accounts receivable
in the general ledger will be P600, but you will not
be able to tell how much individual customers
owe by looking at that account. The detail isn’t
there.
DATA STORAGE

 Ledger
 Generalledger
 Subsidiary ledger

The subsidiary ledgers contain the detail


accounts associated with the related general
ledger account. The accounts receivable
subsidiary ledger will contain three separate t-
accounts—one for Anthony Adams, one for Bill
Brown, and one for Cory Campbell.
DATA STORAGE

 Ledger
 Generalledger
 Subsidiary ledger

The related general ledger account is often


called a “control” account.

The sum of the subsidiary account balances


should equal the balance in the control
account.
DATA STORAGE

 Ledger
 General ledger
 Subsidiary ledger
 Coding techniques

• Coding is a method of systematically assigning numbers or letters to


data items to help classify and organize them. There are many types
of codes including:
– Sequence codes
– Block codes
– Group codes
DATA STORAGE

 Ledger
 General ledger
 Subsidiary ledger
 Coding techniques

• With sequence codes, items (such as checks or invoices) are


numbered consecutively to ensure no gaps in the sequence. The
numbering helps ensure that:
– All items are accounted for
– There are no duplicated numbers, which would suggest errors or
fraud
DATA STORAGE

 Ledger
 General ledger
 Subsidiary ledger
 Coding techniques

• When block codes are used, blocks of numbers within a numerical


sequence are reserved for a particular category.
• EXAMPLE: The first three digits of a Social Security number make
up a block code that indicates the state in which the Social Security
number was issued:
– 001-003 New Hampshire
– 004-007 Maine
– 008-009 Vermont
DATA STORAGE

 Ledger
 General ledger
 Subsidiary ledger
 Coding techniques

• When group codes are used, two or more subgroups of digits are
used to code an item.
• EXAMPLE: The code in the upper, right-hand corner of many
checks is a group code organized as follows:
– Digits 1-2 Bank number
– Digit 3 Federal Reserve District
– Digits 4-7 Branch office of Federal Reserve
– Digits 8-9 State
DATA STORAGE

 Ledger
 General ledger
• Group coding schemes are often used in assigning general ledger
account numbers. The following guidelines should be observed:
 Subsidiary ledger
– The code should be consistent with its intended use, so make
sure you know what users need.
 Coding techniques
– Provide enough digits to allow room for growth.
– Keep it simple in order to:
• Minimize costs
• Facilitate memorization
• Ensure employee acceptance
– Make sure it’s consistent with:
• The company’s organization structure
• Other divisions of the organization
• The chart of accounts is a list of all general ledger accounts an organization
uses.
• Group coding is often used for these numbers, e.g.:
– The first section identifies the major account categories, such as asset,
liability, revenue, etc.
– The second section identifies the primary sub-account, such as current
Ledger
asset or long-term investment.
– The third section identifies the specific account, such as accounts
General ledger
receivable or inventory.
– The fourth section identifies the subsidiary account, e.g., the specific


Subsidiary ledger
customer code for an account receivable.
The structure of this chart is an important AIS issue, as it must contain
 Coding techniques
sufficient detail to meet the organization’s needs.

 Chart of accounts
• In manual systems and some accounting packages, the first
place that transactions are entered is the journal.
– A general journal is used to record:
• Non-routine transactions, such as loan payments
• Summaries of routine transactions
 Ledger • Adjusting entries
• Closing entries

 General
most commonledger
– A special journal is used to record routine transactions.
special journals are:
The

 Subsidiary ledger
• Cash receipts
• Cash disbursements
• Credit sales
 Coding techniques
• Credit purchases

 Chart of accounts
 Journals
DATA STORAGE

• An audit trail exists when there is sufficient


 Ledger
documentation to allow the tracing of a
transaction from beginning to end or from the
 General ledger
end back to the beginning.
 Subsidiary ledger
• The inclusion of posting references and
document numbers enable the tracing of
 Coding techniques
transactions through the journals and ledgers
 Chart
andof accounts
therefore facilitate the audit trail.
 Journals
 Audit trail
DATA STORAGE

 Now that we’ve learned some storage


terminology, let’s return to the data
storage process.
 When transaction data is captured on a
source document, the next step is to
record the data in a journal.
 A journal entry is made for each
transaction showing the accounts and
amounts to be credited.
DATA STORAGE

 If you took a principles of financial accounting, you


probably worked with journals that looked something like
this:
DATA STORAGE

 You may not have gotten much experience with


special journals, but in most real-world
situations, journal entries really work like this.
◦ Entries are originally made in the general journal only
for
Non-routine transactions.
Summaries of routine transactions
◦ Routine transactions are originally entered in special
journals. The most common special journals are:
Credit sales
Cash receipts
Credit purchases
Cash disbursements
DATA STORAGE

 Let’s
work through an example with a
special journal. In this case we’ll use the
sales journal.
DATA STORAGE

 OnDec. 1, a sale is made to Lee Co. for


$800. Lee Co. was sent Invoice No. 201.
DATA STORAGE

 The general ledger account number for accounts


receivable is No. 120. Lee Co. was about the 122nd
customer, so their subsidiary account number is 120-
122.
DATA STORAGE

 The next sale on Dec. 1 was made to May


Co. for $700.
DATA STORAGE

 The
third and final sale on Dec. 1 was
made to DLK Co. for $900.
DATA STORAGE

 Suppose the company making these sales posts


transactions at the end of each day. Consequently, at
day’s end, they will post each individual transaction to
the accounts receivable subsidiary ledger:
◦ An $800 increase in accounts receivable (debit) will be
posted to Lee Co.’s subsidiary account (120-122).
◦ A $700 debit will be posted to May Co.’s subsidiary
account (120-033).
◦ A $900 debit will be posted to DLK Co.’s subsidiary
account (120-111).
DATA STORAGE

 Then a summary journal entry must be made to


the general journal. The sales for the period are
totaled. In this case, they add up to $2,400.
DATA STORAGE

 The “120/502” that appears beneath the total indicates


that a summary journal entry is made in the general
journal with a debit to accounts receivable (120) and a
credit to sales (502).
DATA STORAGE

 The entries in the general journal are periodically (or


automatically) posted to the general ledger. The $2,400
debit to accounts receivable will be posted to the
accounts receivable control account, and the $2,400
credit will be posted to the general ledger account for
sales.
DATA STORAGE

 From time to time, the subsidiary account


balances will be added up, and this sum
will be compared to the balance of the
control account.
 What does it mean if they aren’t equal?
DATA STORAGE

 Review so far:
◦ When routine transactions occur, they are recorded in
special journals.
◦ When non-routine transactions occur, they are recorded in
the general journal.
◦ Periodically, the transactions in the special journal are totaled,
and a summary entry is made in the general journal.
◦ The individual line items in the special journal are posted to the
subsidiary ledger accounts.
◦ The items in the general journal are posted to the general
ledger.
◦ Periodically, the balances in the general ledger control
accounts are compared to the sums of the balances in the
related subsidiary accounts.
COMPUTER-BASED STORAGE
CONCEPTS
 Now let’s moving on to discussing some
computer-based storage concepts, including:
◦ Entity
◦ Attribute
◦ Record
◦ Data Value
◦ Field
◦ File
◦ Master File
◦ Transaction File
◦ Database
COMPUTER-BASED STORAGE
CONCEPTS
 An entity is something about which information
is stored.
 In your university’s student information system,
one entity is the student. The student
information system stores information about
students.
 What are some other entities in your student
information system?
COMPUTER-BASED STORAGE
CONCEPTS
 Attributes are characteristics of interest with
respect to the entity.
 Some attributes that a student information
system typically stores about the student entity
are:
◦ Student ID number
◦ Phone number
◦ Address
 What are some other attributes about students
that a university might store?
COMPUTER-BASED STORAGE
CONCEPTS
 A field is the physical space where an attribute is
stored.
 The space where the student ID number is
stored is the student ID field.
COMPUTER-BASED STORAGE
CONCEPTS
 A record is the set of attributes stored for a
particular instance of an entity.
 The combination of attributes stored for Barry
Andrews is Barry’s record.
COMPUTER-BASED STORAGE
CONCEPTS
 A data value is the intersection of the row and
column.
 The data value for Barry Andrews’ phone
number is 405-744-0236.
COMPUTER-BASED STORAGE
CONCEPTS
 A file is a group of related records.
 The collection of records about all students at
the university might be called the student file. If
there were only three students and four
attributes stored for each student, the file might
appear as shown below:
COMPUTER-BASED STORAGE
CONCEPTS

A master file is a file that stores


cumulative information about an
organization’s entities.
 It is conceptually similar to a ledger in a
manual AIS in that:
◦ The file is permanent
◦ The file exists across fiscal periods
◦ Changes are made to the file to reflect the
effects of new transactions.
COMPUTER-BASED STORAGE
CONCEPTS

A transaction file is a file that contains


records of individual transactions (events)
that occur during a fiscal period.
 It is conceptually similar to a journal in a
manual AIS in that:
◦ The files are temporary
◦ The files are usually maintained for one fiscal
period
COMPUTER-BASED STORAGE
CONCEPTS
 A database is a set of interrelated, centrally-
coordinated files.
 When files about students are integrated with
files about classes and files about instructors,
we have a database.

Student Class
File File

Instructor
File
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
 Thedata processing cycle consists of four
steps:
◦ Data input
◦ Data storage
◦ Data processing
◦ Information output
DATA PROCESSING

 Once data about a business activity has


been collected and entered into a system,
it must be processed.
DATA PROCESSING

 There are four different types of file processing:


◦ Updating data to record the occurrence of an
event, the resources affected by the event, and
the agents who participated, e.g., recording a
sale to a customer.
◦ Changing data, e.g., a customer address
◦ Adding data, e.g., a new customer.
◦ Deleting data, e.g., removing an old customer
that has not purchased anything in 5 years.
DATA PROCESSING

 Updating can be done through several


approaches:
◦ Batch processing
DATA PROCESSING

 Batch processing:
◦ Source documents are grouped into batches,
and control totals are calculated.
◦ Periodically, the batches are entered into the
computer system, edited, sorted, and stored in
a temporary file.
◦ The temporary transaction file is run against
the master file to update the master file.
◦ Output is printed or displayed, along with error
reports, transaction reports, and control totals.
DATA PROCESSING

 Updating
can be done through several
approaches:
◦ Batch processing
◦ On-line Batch Processing
DATA PROCESSING

 On-line batch processing:


◦ Transactions are entered into a
computer system as they occur and
stored in a temporary file.
◦ Periodically, the temporary
transaction file is run against the
master file to update the master file.
◦ The output is printed or displayed.
DATA PROCESSING

 Updating can be done through several


approaches:
◦ Batch processing
◦ On-line Batch Processing
◦ On-line, Real-time Processing
DATA PROCESSING

 On-line, Real-time Processing


◦ Transactions are entered into a computer
system as they occur.
◦ The master file is immediately updated with
the data from the transaction.
◦ Output is printed or displayed.
DATA PROCESSING

 Updating can be done through several


approaches:
◦ Batch processing
◦ On-line Batch Processing
◦ On-line, Real-time Processing
 If you’re going through enrollment, which of
these approaches would you prefer that your
university was using?
 Why?
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
 Thedata processing cycle consists of four
steps:
◦ Data input
◦ Data storage
◦ Data processing
◦ Information output
INFORMATION OUTPUT

 The final step in the information process is


information output.
 This output can be in the form of:

◦ Documents other company data.


• Documents are records of transactions or

• EXAMPLE: Employee paychecks or


purchase orders for merchandise
• Documents generated at the end of the
transaction processing activities are
known as operational documents (as
opposed to source documents).
• They can be printed or stored as
electronic images.
INFORMATION OUTPUT

 The final step in the information process is


information output.
 This output can •be in the
Reports form
are used of:
by employees to control
operational activities and by managers to
◦ Documents • make decisions and design strategies.
They may be produced:
◦ Reports – On a regular basis
– On an exception basis
– On demand
• Organizations should periodically
reassess whether each report is needed.
INFORMATION OUTPUT

 The final step in the information process is


information output.
 This output can be in the form of:

◦ Documents • Queries are user requests for specific


◦ Reports pieces of information.
• They may be requested:
◦ Queries – Periodically
– One time
• They can be displayed:
– On the monitor, called soft copy
– On the screen, called hard copy
INFORMATION OUTPUT

 Output can serve a variety of purposes:


◦ Financial statements can be provided to both
external and internal parties.
◦ Some outputs are specifically for internal use:
For planning purposes

• Examples of outputs for planning


purposes include:
– Budgets
• Budgets are an entity’s formal expression of
goals in financial terms
– Sales forecasts
INFORMATION OUTPUT

 Output can serve a variety of purposes:


◦ Financial statements can be provided to both
external and internal parties.
◦ Some outputs are specifically for internal use:
For planning purposes
For management of day-to-day operations

• Example: delivery schedules


INFORMATION OUTPUT
• Performance reports are outputs that are
used for control purposes.
 Output can• These reports compare an organization’s
serveoraexpected
standard varietyperformance
of purposes: with its
◦ Financial statements can be provided to both
actual outcomes.
external• and internal parties.
Management by exception is an approach to
utilizing performance reports that focuses on
◦ Some outputs are specifically
investigating and actingfor internal
on only thoseuse:
For planning purposes
variances that are significant.
For management of day-to-day operations
For control purposes
INFORMATION OUTPUT

 Output can serve a variety of purposes:


◦ Financial statements can be provided to both
external and internal parties.
◦ Some outputs are specifically for internal use:
For planning purposes
For management of day-to-day operations
For control purposes
For evaluation purposes

• These outputs might include:


– Surveys of customer satisfaction
– Reports on employee error rates
INFORMATION OUTPUT

 Behavioral implications of managerial reports:


◦ YOU GET WHAT YOU MEASURE!
ROLE OF THE AIS

 The traditional AIS captured financial data.


◦ Non-financial data was captured in other,
sometimes-redundant systems
 Enterprise resource planning (ERP) systems
are designed to integrate all aspects of a
company’s operations (including both
financial and non-financial information) with
the traditional functions of an AIS.
DATA FLOW DIAGRAMS

A data flow diagram (DFD) graphically


describes the flow of data within an
organization. It is used to:
◦ Document existing systems
◦ Plan and design new systems
 Thereis no black-and-white approach to
developing a DFD.
DATA FLOW DIAGRAMS

• Example of a data
flow diagram of the
customer payment Accounts
Receivable
process

Customer Remittance Receivables


Custom payment 1.0 data
2.0 Information
Process Update Credit
er Manager
Payment A/R

Deposit

Bank
DATA FLOW DIAGRAMS

 A data flow diagram consists of four basic


elements:
◦ Data sources and destinations
◦ Data flows
◦ Transformation processes
◦ Data stores
DATA FLOW DIAGRAMS

 A data flow diagram consists of four basic


elements:
◦ Data sources and destinations
◦ Data flows
◦ Transformation processes
◦ Data stores
DATA FLOW DIAGRAMS

 Data sources and destinations


◦ Appear as squares
◦ Represent organizations or individuals that send or
receive data used or produced by the system
 An item can be both a source and a destination
DATA FLOW DIAGRAMS

• Data sources and


destinations are marked
in red. Accounts
• Can you tell which are Receivable
sources and which are
destinations?

Customer Remittance Receivable


Custom payment 1.0 data
2.0 s
Process Update Credit
er Information
Payment A/R Manager

Deposit

Bank
DATA FLOW DIAGRAMS

 A data flow diagram consists of four basic


elements:
◦ Data sources and destinations
◦ Data flows
◦ Transformation processes
◦ Data stores
DATA FLOW DIAGRAMS

 Data flows
◦ Appear as arrows
◦ Represent the flow of data between sources and
destinations, processes, and data stores
DATA FLOW DIAGRAMS
• Data flows are shown in red.
• Does it appear that a data
flow can be two-way? Accounts
• If so, how is it handled? Receivable

Customer Remittance Receivable


Custom payment 1.0 data
2.0 s
Process Update Credit
er Information
Payment A/R Manager

Deposit

Bank
DATA FLOW DIAGRAMS
• Data flows should always be
labeled.
• The exception is a data flow Accounts
moving into or out of a data Receivable
store.
• What symbol is the data store?

Customer Remittance Receivable


Custom payment 1.0 data
2.0 s
Process Update Credit
er Information
Payment A/R Manager

Deposit

Bank
DATA FLOW DIAGRAMS

 As you probably surmised from the previous


slides, if a data flow is two-way, use a bi-
directional arrow.

Update
Genera
Receiv-
l
ables
Ledger
DATA FLOW DIAGRAMS

 If two data elements flow together, then the use


of one data flow line is appropriate.

Cash Rec’t & Remittance Slip Process


Customer
Payment
DATA FLOW DIAGRAMS

 If the data elements do not always flow together,


then multiple lines will be needed.

Customer Inquiry
Process
Customer Payment
Customer Payment
DATA FLOW DIAGRAMS

Adata flow diagram consists of four basic


elements:
◦ Data sources and destinations
◦ Data flows
◦ Transformation processes
◦ Data stores
DATA FLOW DIAGRAMS

 Processes
◦ Appear as circles
◦ Represent the transformation of data
DATA FLOW DIAGRAMS
• The transformation processes are
shown in red.
• Every process must have at least
one data inflow and at least one Accounts
data outflow. Why? Receivable
• What do you notice about how the
processes are labeled?

Customer Remittance Receivables


Custom payment 1.0 data
2.0 Information
Process Update Credit
er Manager
Payment A/R
Deposit

Bank
DATA FLOW DIAGRAMS

 Data stores
◦ Appear as two horizontal lines
◦ Represent a temporary or permanent
repository of data
DATA FLOW DIAGRAMS
• The data store is shown in red.
• Notice that the inflows and
outflows to the data store are Accounts
not labeled. Receivable

Customer Remittance Receivable


Custom payment 1.0 data
2.0 s
Process Update Credit
er Information
Payment A/R Manager

Deposit

Bank
DATA FLOW DIAGRAMS

 Data dictionary:
◦ Data flows and data stores are typically
collections of data elements.
◦ EXAMPLE: A data flow labeled student
information might contain elements such as
student name, date of birth, ID number,
address, phone number, and major.
◦ The data dictionary contains a description of all
data elements, data stores, and data flows in a
system.
DATA FLOW DIAGRAMS

 Subdividing the DFD:


◦ Few systems can be fully diagrammed on one
sheet of paper, and users have needs for
differing levels of detail.
◦ Consequently, DFDs are subdivided into
successively lower levels to provide increasing
amounts of detail.
DATA FLOW DIAGRAMS

 Thehighest level of DFD is called a


context diagram.
◦ It provides a summary-level view of the
system.
◦ It depicts a data processing system and the
external entities that are:
Sources of its input
Destinations of its output
DATA FLOW DIAGRAMS

Govt.
t
Depart- en Agencies
ym
ments Tim pa
&
ec o rt
ard
s x rep
Ta

Employee checks Employee


Payroll
s
Processing
m System
or Pay
ef roll
lo ye m che
mp for ck
e ge
Ne
w h an Pa
Human ye ec yr
o Bank
plo ll
Resource re
Em po
r
s t

• This is the context diagram for


Manage-
the S&S payroll processing ment
system
DATA FLOW DIAGRAMS

Govt.
t
Depart- en Agencies
ym
ments Tim pa
&
ec o rt
ard
s x rep
Ta

Employee checks Employee


Payroll
s
Processing
m System
or Pay
ef roll
lo ye m che
mp for ck
e ge
Ne
w h an Pa
Human ye ec yr
o Bank
plo ll
Resource re
Em po
r
s t

• What information comes into this Manage-


process, and from where? ment
DATA FLOW DIAGRAMS

Govt.
t
Depart- en Agencies
ym
ments Tim pa
&
ec o rt
ard
s x rep
Ta

Employee checks Employee


Payroll
s
Processing
m System
or Pay
ef roll
lo ye m che
mp for ck
e ge
Ne
w h an Pa
Human ye ec yr
o Bank
plo ll
Resource re
Em po
r
s t

• What information is produced by this Manage-


process, and where does it go? ment
DATA FLOW DIAGRAMS

 We’re going to go into a partial example of how


the first level of detail was created.
 But before we do, let’s step through some
guidelines on how to create a DFD.
DATA FLOW DIAGRAMS

 RULE 1: Understand the system. Observe the


flow of information and interview people involved
to gain that understanding.
 RULE 2: Ignore control processes and control
actions (e.g., error corrections). Only very
critical error paths should be included.
 RULE 3: Determine the system boundaries—
where it starts and stops. If you’re not sure
about a process, include it for the time being.
DATA FLOW DIAGRAMS

 RULE 4: Draw the context diagram first, and


then draw successively greater levels of detail.
 RULE 5: Identify and label all data flows. The
only ones that do not have to be labeled are
those that go into or come out of data stores.
 RULE 6: Data flows that always flow together
should be grouped together. Those that do not
flow together should be shown on separate
lines.
DATA FLOW DIAGRAMS

 RULE 7: Show a process (circle) wherever a data flow


is converted from one form to another. Likewise, every
process should have at least one incoming data flow and
at least one outgoing data flow.
 RULE 8: Transformation processes that are logically
related or occur simultaneously can be grouped in one
bubble.
 RULE 9: Number each process sequentially. A process
labeled 5.0 would be exploded at the next level into
processes numbered 5.1, 5.2, etc. A process labeled 5.2
would be exploded into 5.21, 5.22, etc.
DATA FLOW DIAGRAMS

 RULE 10: Process names should include action


verbs, such as update, prepare, etc.
 RULE 11: Identify and label all data stores,
whether temporary or permanent.
 RULE 12: Identify and label all sources and
destinations. An entity can be both a source
and destination. You may wish to include such
items twice on the diagram, if needed, to avoid
excessive or crossing lines.
DATA FLOW DIAGRAMS

 RULE 13: As much as possible, organize the


flow from top to bottom and left to right.
 RULE 14: You’re not likely to get it beautiful the
first time, so plan to go through several
iterations of refinements.
 RULE 15: On the final copy, lines should not
cross. On each page, include:
◦ The name of the DFD
◦ The date prepared
◦ The preparer’s name
DATA FLOW DIAGRAMS

 Now that we’ve been through the guidelines for


developing DFDs, let’s go back to the chapter
example and see if we can re-create a part of it.
 You may wish to create a table with the following
headings to organize your information:
◦ Data Inputs
◦ Processes
◦ Data Outputs
DATA FLOW DIAGRAMS
DATA FLOW DIAGRAMS

 The first paragraph of the narrative for the


payroll process reads as follows:
◦ When employees are hired, they complete a new employee form.
When a change to an employee’s payroll status occurs, such as a
raise or a change in the number of exemptions, human resources
completes an employee change form. A copy of these forms is
sent to payroll. These forms are used to create or update the
records in the employee/payroll file and are then stored in the file.
Employee records are stored alphabetically.
DATA FLOW DIAGRAMS

 The first paragraph of the narrative for the payroll


process reads as follows:
◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status
occurs, such as a raise or a change in the number of
exemptions, human resources completes an employee
change form. A copy of these forms is sent to payroll. These
forms are used to create or update the records in the
employee/payroll file and are then stored in the file.
Employee records are stored alphabetically.

The portion marked in red relates to activities that go on


outside the boundaries of the payroll system. Consequently,
these activities will not be included on the DFD.
DATA FLOW DIAGRAMS

 The first paragraph of the narrative for the payroll


process reads as follows:
◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status
occurs, such as a raise or a change in the number of
exemptions, human resources completes an employee
change form. A copy of these forms is sent to payroll.
These forms are used to create or update the records in the
employee/payroll file and are then stored in the file.
Employee records are stored alphabetically.

The portion marked in red suggests two data flows coming into
the payroll process (new employee forms and employee
change forms). The source of the inflows is the human
resources department.
DATA FLOW DIAGRAMS
DATA FLOW DIAGRAMS

 The first paragraph of the narrative for the payroll


process reads as follows:
◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status
occurs, such as a raise or a change in the number of
exemptions, human resources completes an employee
change form. A copy of these forms is sent to payroll. These
forms are used to create or update the records in the
employee/payroll file and are then stored in the file.
Employee records are stored alphabetically.

The sentence marked in red suggests a process (update


employee records) with the data outflow going to a data store
(the employee/payroll file).
DATA FLOW DIAGRAMS
DATA FLOW DIAGRAMS

 The first paragraph of the narrative for the payroll


process reads as follows:
◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status
occurs, such as a raise or a change in the number of
exemptions, human resources completes an employee
change form. A copy of these forms is sent to payroll. These
forms are used to create or update the records in the
employee/payroll file and are then stored in the file.
Employee records are stored alphabetically.

The final sentence in this paragraph provides information


about the physical storage of the data. Physical information is
utilized in flowcharts but not in data flow diagrams.
DATA FLOW DIAGRAMS

We will not do the entire DFD, however, you could finish this
table by reading the remainder of the narrative in Table 3-1 in
your textbook. The portion of the table completed so far
allows us to draw the segment of the DFD that is highlighted
on the following slide.
DATA FLOW DIAGRAMS
Depart-
Employ
ments
ees
Employee
New Time paycheck
Human
employee card s
Resourc
es form 1.0 s
Update 2.0
Employe Payroll
empl. Pay
e check
Payroll Employ- Bank
Change
file ees
form
Payroll
Disburse-
3.0 ment 5.0
Prepare Employee/ data Update
reports Payroll file
Gen.
Ledger
Payroll tax
Payroll disb.
report voucher
4.0 General
Pay Ledger
taxes Tax report
Manage- & Govt.
ment payment Agencie
s
DATA FLOW DIAGRAMS

 Keep the following in mind as you develop your


DFD:
◦ Remember to ignore control activities, such as error
correction processes.
◦ Some data inputs and outputs will not appear on the
first level of the DFD but appear as the processes are
exploded into greater levels of detail.
DATA FLOW DIAGRAMS

 The data flow diagram focuses on the logical


flow of data.
 Next, we will discuss flowcharts, which place
greater emphasis on physical details.
FLOWCHARTS
 A flowchart is an analytical technique that
describes some aspect of an information system
in a clear, concise, and logical manner.
 Flowcharts use a set of standard symbols to
depict processing procedures and the flow of
data.
FLOWCHARTS
 Every shape on a flowchart depicts a unique
operation, input, processing activity, or storage
medium.
 In the days of yore, flowcharts were commonly
drawn with templates.
 Now, it is more common to use a software
program such as Visio.
◦ Microsoft and Power Point are also used
◦ The software uses pre-drawn shapes, and the
developer drags the shapes into the drawing.
FLOWCHARTS

 There
are four types of flowcharting
symbols:
◦ Input/output symbols
Input/output symbols indicate the
type of device or media that provides
input to or records output from a
process.
FLOWCHARTS

 There
are four types of flowcharting
symbols:
◦ Input/output symbols
◦ Processing symbols
Processing symbols indicate the type
of device used to process the data or
whether the data is processed
manually.
FLOWCHARTS

 There
are four types of flowcharting
symbols:
◦ Input/output symbols
◦ Processing symbols
◦ Storage symbols
Storage symbols indicate the type of
device used to store data while the
system is not using it.
FLOWCHARTS
 There
are four types of flowcharting
symbols: • Flow and miscellaneous symbols may indicate:
– The flow of data and goods
◦Input/output –symbols
The beginning or end of the flowchart
◦Processing symbols
– The location of a decision
◦Storage symbols
– An explanatory note

◦ Flow and miscellaneous symbols


INPUT/OUTPUT SYMBOLS

 Document Symbol
◦ Represents a document or report that is prepared by
hand or printed by a computer.
INPUT/OUTPUT SYMBOLS

3
2
1

 Multiple Copies of One Document


◦ Indicates multiple copies of a paper document or report.
◦ The document copies should be numbered in the upper,
right-hand corner.
INPUT/OUTPUT SYMBOLS

 Input/Output; Journal/Ledger
◦ Can represent any input or output on a program
flowchart.
◦ Also represents accounting journals or ledgers in a
document flowchart.
INPUT/OUTPUT SYMBOLS

 Display
◦ Represents information displayed by an online
output device such as a terminal, monitor, or
screen.
INPUT/OUTPUT SYMBOLS

 Online Keying
◦ Represents data entry by an online device
such as a terminal or personal computer.
INPUT/OUTPUT SYMBOLS

 Terminal or Personal Computer


◦ Combines the display and online keying
symbols to represent terminals and personal
computers.
INPUT/OUTPUT SYMBOLS

 Transmittal Tape
◦ Represents manually prepared control totals
which are to be compared to computer totals
for control purposes.
PROCESSING SYMBOLS

 Computer Processing
◦ Represents a process performed by a computer, which
usually results in a change in data or information.
PROCESSING SYMBOLS

 Manual Operation
◦ Represents a processing operation that is
performed manually.
PROCESSING SYMBOLS

 Auxiliary Operation
◦ Represents a processing operation carried out
by a device other than a computer, e.g., an
optical character scanner.
PROCESSING SYMBOLS

 Off-line Keying Operation


◦ Represents an operation that uses an off-
line keying device, such as a cash
register or keying to a disk.
STORAGE SYMBOLS

 Magnetic disk
◦ Represents data stored permanently on a
magnetic disk.
◦ Frequently used to represent master files and
databases.
STORAGE SYMBOLS

 Magnetic Tape
◦ Represents data stored on a magnetic tape.
◦ Sometimes represents transaction files.
STORAGE SYMBOLS

 Diskette
◦ Represents data stored on a floppy disk or zip
disk.
STORAGE SYMBOLS

 Online Storage
◦ Represents data stored in a temporary online
file in a direct-access medium such as a
magnetic disk.
STORAGE SYMBOLS

 File
◦ Represents a file of documents that are manually
stored and retrieved.
◦ Letter indicates the ordering sequence:
A = Alphabetic order
D = Date order
N = Numeric order
FLOW AND MISCELLANEOUS
SYMBOLS

 Document or Processing Flow


◦ Represents the direction of processing or
document flow.
◦ Normal flow is top to bottom and left to right.
FLOW AND MISCELLANEOUS
SYMBOLS

 Data/Information Flow
◦ Represents the direction of data/information
flow.
◦ Often used to show data being copied from
one document to another.
FLOW AND MISCELLANEOUS
SYMBOLS

 Communication Link
◦ Represents the transmission of data from one
location to another via communication lines.
FLOW AND MISCELLANEOUS
SYMBOLS

 On-page connector
◦ Connects processing from one location to
another on the same page.
◦ Used to avoid crisscrossing lines.
FLOW AND MISCELLANEOUS
SYMBOLS

 Off-page connector
◦ Connects the processing flow between two
different pages.
◦ Signals the exit from one page and the
corresponding entrance on another page.
FLOW AND MISCELLANEOUS
SYMBOLS

 Terminal
◦ Represents the beginning, end, or a point of
interruption in a process or program.
◦ Also used to indicate an external party.
FLOW AND MISCELLANEOUS
SYMBOLS

 Decision
◦ Represents a decision-making step.
◦ Used in a program flowchart to show
branching to alternate paths.
FLOW AND MISCELLANEOUS
SYMBOLS

 Annotation
◦ Provides for the addition of descriptive comments or
explanatory notes as clarification.
DOCUMENT FLOWCHARTS

 A document flowchart shows the flow of


documents and information among areas of
responsibility in an organization.
 These flowcharts trace a document from cradle
to grave and show:
◦ Where a document comes from
◦ Where it’s distributed
◦ How it’s used
◦ It’s ultimate disposition
◦ Everything that happens as it flows through the system
DOCUMENT FLOWCHARTS

 Internal control flowcharts are document


flowcharts used to evaluate the adequacy of
internal controls, such as segregation of duties or
internal checks.
 They can reveal weaknesses or inefficiences such
as:
◦ Inadequate communication flows
◦ Unnecessarily complex document flows
◦ Procedures that cause wasteful delays
 Document flowcharts are also prepared in the
system design process.
This is part of the
document flowchart
GUIDELINES FOR PREPARING
FLOWCHARTS
 Let’s step through some guidelines for preparing
flowcharts:
◦ As with DFDs, you can’t effectively prepare a flowchart if
you don’t understand the system, so:
Interview users, developers, auditors, and
management.
Administer questionnaires.
Read through narratives.
Walk through systems transactions
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Identify:
Entities to be flowcharted, e.g., departments,
functions, external parties (the parties who “do”
things in the story)
Documents or information flows
Processes
◦ As you read through a narrative, you may
want to mark the preceding items with
different shapes (e.g., drawing a rectangle
around entities, circling documents, etc.).
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Use separate columns for the activity of
each entity.
Example: If there are three different
departments or functions that “do” things in
the narrative, there would be three columns
on the flowchart.
What are the
entities in this
flowchart?
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Flowchart the normal course of operations,
and identify exceptions with annotations.
◦ As much as possible, the flow should go from
top to bottom and left to right.
◦ Use standard flowcharting symbols, and draw
with a template or computer.
◦ Clearly label all symbols. Use annotations if
necessary to provide adequate explanation.
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Give the flowchart a clear beginning and
ending.
Show where each document originated and
its final disposition.
◦ One approach you can use is to read through
the narrative and for each step define:
What was (were) the input(s)
What process was carried out
What was (were) the output(s)
◦ Note on the next slide that the flow sequence
is input -- process – output.
Identifies where input is coming from
Inputs
Process
Input for
next
process
Process
Output
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Every manual process should have at least
one input and at least one output.
◦ Show all data entered into or retrieved from a
computer file as passing through a process
first.
◦ Do not show process symbols for:
Forwarding a document to another entity
Filing a document
Forwarding
a document
Filing
a document
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Do not connect two documents except
when forwarding to another column.
When a document is forwarded, show it in
both locations.
Show forwarded
document in both
locations
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ When using multiple copies of a
document, place document numbers in
the upper, right-hand corner.
What happens to
the document
numbers as the
documents move
to other
locations?
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Show on-page connectors and label
them clearly to avoid excess flow lines.
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ Use off-page connectors if the flow
goes to another page.
Are there other
off-page
connectors on
this flowchart?
GUIDELINES FOR PREPARING
FLOWCHARTS
◦ If a flowchart takes more than one page, label the pages
as 1 of 5, 2 of 5, 3 of 5, etc.
◦ Show documents or reports first in the column where
they are created.
◦ Start with a rough draft; then redesign to avoid clutter
and crossed lines.
◦ Verify the accuracy of your flowchart by reviewing it with
users, etc.
◦ Place the flowchart name, the date, and the preparer’s
name on each page of the final copy.
SYSTEM FLOWCHARTS

 Now that we’ve looked at document


flowcharts and guidelines for creating
flowcharts, let’s take a brief look at system
flowcharts.
SYSTEM FLOWCHARTS

 A system flowchart depicts the relationship


among the inputs, processes, and outputs of an
AIS.
◦ The system flowchart begins by identifying
the inputs to the system.

• These inputs can be:


– New data
– Data stored for future use
– Both
SYSTEM FLOWCHARTS

 A system flowchart depicts the relationship


among the inputs, processes, and outputs of an
AIS.
◦ The system flowchart begins by identifying the
inputs to the system.
◦ Each input is followed by a process, i.e.,
the steps performed on the data.
• If the process is performed by a
computer, the logic of the computer
program would be depicted in a program
flowchart.
SYSTEM FLOWCHARTS

A system flowchart depicts the relationship


among the inputs, processes, and outputs
of an AIS.
• The output may be:
◦ The system flowchart begins by
– Stored for later use
identifying the inputs to the system.
– Displayed on a screen
◦ Each input is followed by aonprocess,
– Printed paper i.e.,
– An input to the next process
the steps performed on the data.
◦ The process is followed by outputs—
the resulting new information.
SYSTEM FLOWCHARTS

 A system flowchart depicts the relationship


among the inputs, processes, and outputs of an
AIS.
◦ The system flowchart begins by identifying the
inputs to the system.
◦ Each input is followed by a process, i.e., the
steps performed on the data.
◦ The process is followed by outputs—the
resulting new information.
◦ In other words, it’s the same basic input –
process – output pattern that we saw in the
document flowchart.
 System
Flowchart
Shown
 Can you spot
the input –
process – output
pattern?
PROGRAM FLOWCHARTS

 Program flowcharts illustrate the


sequence of logical operations performed
by a computer in executing a program.
 They also follow an input – process –
output pattern.
• The program flowchart
shown on the right.
• Note that the program flowchart
details the logic of processes
performed by the computer.
• This flowchart becomes the
programmer’s blueprint for writing
the actual computer program.
FLOWCHARTS VS. DFDs

 Now that we’ve examined both flowcharts and


DFDs, it may be useful to discuss the
differences again.
 DFDs place a heavy emphasis on the logical
aspects of a system.
 Flowcharts place more emphasis on the
physical characteristics of the system.
 An example may be useful.
FLOWCHARTS VS. DFDs

 EXAMPLE: The registrar’s office of a small


college receives paper enrollment forms from
students. They sort these records alphabetically
and then update the student record file to show
the new classes. They also prepare class lists
from the same data. The sorted enrollment
forms are forwarded to the bursar’s office for
billing purposes. Class lists are mailed to faculty
members.
Here’s a DFD
Student that goes
s with the
story.
Enrollment
Forms

1.0
Update Studen
Student t
Records Record
Enrollment
Forms

2.0
Prepare Bursar
Enrollment
Class Lists Forms

Class
Lists

Faculty
Registrar’s Office

Student Students Enrollment Sort


s Forms Forms

Enrollment
Forms

Update Sorted
1.0 A Enrollment
Update Studen Student
Forms
Records
Student t
Records Record
Enrollment Sorted
Forms Prepare
Enrollment Class
Forms Lists
2.0
Prepare Bursar Here’s a
Enrollment
Class Lists Forms flowchart
Sorted
that goes Class
Enrollment
Class Lists
Lists with the Forms
story
Faculty Faculty Bursar
FLOWCHARTS VS. DFDs

 Now let’s change the story so that students


enter enrollment data online. The registrar’s
office sends a tape file of the enrollment data to
the bursar’s office and continues to send paper
class lists to faculty.
Here’s the
Original
revised DFD.
Student DFD Student How has it
s s
changed?
Enrollment Enrollment
Forms Data

1.0 1.0
Update Studen Update Studen
Student t Student t
Records Record Records Record
Enrollment Enrollment
Forms Data

2.0 2.0
Prepare Bursar Prepare Bursar
Enrollment Enrollment
Class Lists Forms Class Lists Data

Class Class
Lists Lists

Faculty Faculty
Registrar’s Office Registrar’s Office

Student Enrollment Sort Students Enrollment


s Forms Forms Data

Update Sorted Update


A Enrollment Enrollment
Student Student
Forms Data
Records Records

Sorted Prepare
Enrollment Bursar
Class Prepare
Forms Lists Student Class
Records Lists

Sorted
Class
Lists
Enrollment Here’s the revised Class
Forms
flowchart. How has it Lists
changed?
Faculty Bursar
Faculty
Original
Flowchart
FLOWCHARTS VS. DFDs

 Moral of the Story: Changes in the physical


characteristics of the process do affect the
flowchart but have little or no impact on the
DFD.
 The DFD focuses more on the logic.
 When deciding which tool to employ, consider
the information needs of those who will view it.
THANK YOU!