Accounting Information System

Chapter 1:
Overview of AIS
Chapter Outline
What is the difference between data and
information?
What is an accounting information system?
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?
Data vs Information
Data
Data
Data
Data
Processing
Relevant
Reliable
Complete
Timely
Understandable
Verifiable
Information
data
processed
to be
meaningful and
useful to others
cost
and
benefits of
information
The Information System
Data
data
collection
Processing
Information
data
management
data
processing
information
generation
data control
Accounting Information System
a unified structure that employ

physical resources and components
to transform economic data into
accounting information for external
and internal users
WHY STUDY ACCOUNTING INFORMATION

SYSTEMS?
Its 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

SYSTEMS?

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

SYSTEMS?

The skills are critical to career success.
Auditors need to evaluate the
accuracy and reliability of
information produced by the AIS.

SYSTEMS?

Tax accountants must understand the
clients AIS adequately to be
confident that it is providing complete
and accurate information for tax
planning and compliance work.

SYSTEMS?

In management consulting, the
design, selection, and implementation
of accounting systems is a rapid
growth area.

SYSTEMS?

In private industry and not-for-profits,
systems work is considered the most
important activity performed by
accountants.

SYSTEMS?
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.

SYSTEMS?

The AIS course complements other
systems courses.
AIS topics are tested on the new CPA
exam.
Makes up about 25% of the Business
Environment & Concepts section of
the CPA exam.

SYSTEMS?

The AIS course complements other
systems courses.
AIS topics are tested on the new CPA
exam.
AIS topics impact corporate strategy and
culture.
6 Components of an AIS
people
X!
security
procedure
AIS
Information
technology
software
data
Business Functions of an AIS

Collect and store data about organizational
activities, resources and personnel
Transform data into information that is
useful for making decisions
Provide adequate controls to safeguard the
organizations asset, to ensure that the assets
and data are available when needed and the
data are accurate and reliable
Value Chain
Infrastructure
sequence
of
business
activities
Human resource management
by
which,
in
the
perspective
of
Technology
the end user, value is added to
Purchasing
products and services

produced by an organization
ROLE OF THE AIS IN THE VALUE CHAIN

Supplier
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
For example, the inbound logistics of a

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

Supplier
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
And the outbound logistics of a

business, links to the inbound logistics
of its customers.
Business
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Decision Structure and Scope

Unstructured
decision
Semi-structured
decision
Structured
decision
Strategic
planning
Management
control
Operational
control
THE AIS AND CORPORATE STRATEGY
Corporations have:
Unlimited opportunities to invest in
technology
Limited resources to invest in technology
Must identify the improvements likely to
yield the highest return.
This decision requires an understanding of
the entitys overall business strategy.
Basic Business Strategies
Product differentiation strategy

- Adding features or services to
charge customer a premium price
Low-cost strategy
- Striving to be the most efficient
producer of a product and service
Chapter Summary
What is the difference between data and
information?
What is an accounting information system?
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?
Chapter 2:
Business Processes
Chapter Outline
What are the basic business activities in

which an organization engages?
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?
INFORMATION NEEDS AND BUSINESS

ACTIVITIES
Businesses engage in a variety of activities, including:
Acquiring capital
Buying buildings and equipment
Hiring and training employees
Purchasing inventory
Doing advertising and marketing
Selling goods or services
Collecting payment from customers
Paying employees
Paying taxes
Paying vendors
Each activity
requires
different types
of decisions!
Each decision
requires
different types
of information.
INFORMATION NEEDS AND BUSINESS

ACTIVITIES
Businesses engage in a variety of activities, including:
Acquiring capital
An
effective
AIS
Each
activity
Buying buildings and equipment
needsrequires
to be able to
Hiring and training employees
integrate
different
types
Purchasing inventory
information
of
Doing advertising and marketing
of decisions!
different types
Selling goods or services
or nonCollecting payment from customers (financial
Each decision
Paying employees
financial)
requiresand
Paying taxes
from different
different types
Paying vendors
sources (internal
of information.
or external)
INTERACTION WITH EXTERNAL AND

INTERNAL PARTIES
External
Parties
AIS
Internal
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

give-get exchanges
Revenue cycle
Expenditure cycle
Production cycle
Financing cycle
REVENUE CYCLE
The revenue cycle involves interactions

with your customers.
You sell goods or services and get cash.
Give
Goods
Get
Cash
BUSINESS CYCLES

give-get exchanges
Revenue cycle
Expenditure cycle
Production cycle
Financing cycle
EXPENDITURE CYCLE
The expenditure cycle involves

interactions with your suppliers.
You buy goods or services and pay
cash.
Give
Cash
Get
Goods
BUSINESS CYCLES

give-get exchanges
Revenue cycle
Expenditure cycle
Production cycle
Financing cycle
PRODUCTION CYCLE
In the production cycle, raw

materials and labor are
transformed into finished goods.
Give Raw
Materials &
Labor
Get
Finished
Goods
BUSINESS CYCLES

give-get exchanges
Revenue cycle
Expenditure cycle
Production 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
Cash
Get
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
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
Cash
Get
cash
THE DATA PROCESSING
An important function of the AIS is to

efficiently and effectively process the
data about a companys 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.
THE DATA PROCESSING
The data processing cycle

consists of four steps:
Data input
Data storage
Data processing
Information output
THE DATA PROCESSING
Process
Input
Manipulate the input

(data) to produce
output (information)
Any data or instructions

you enter into a
computer
Output
Storage
Area in a computer
that can hold data and
information for future
use
44
Data that has been

processed into
information
THE DATA PROCESSING
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
A number 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

data input:
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

improve the accuracy and efficiency
of data input:
Well-designed source documents and
data entry screens
DATA INPUT

data input:
Well-designed source documents and data
entry screens
Using pre-numbered documents or having
the system automatically assign
sequential numbers to transactions
THE DATA PROCESSING
Data input
Data storage
Data processing
Information output
DATA STORAGE
Data needs to be organized

for easy and efficient access.
Lets start with some
vocabulary terms with respect
to data storage.
DATA STORAGE
Ledger
A ledger is a file used to store cumulative

information about resources and agents. We
typically use the word ledger to 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:
GENERAL LEDGER
ACCOUNT: Accounts Receivable
Date
Description
01/01/05
01/03/05 Sales
01/13/05 Cash collections
01/23/05 Sales
Post Ref
S03
CR09
S04
Account Number: 120

Debit
Credit
1,300.00
4,600.00
5,600.00
Balance
42,069.00
43,369.00
38,769.00
44,369.00
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 $100. Bill Brown
owes $200. And Cory Campbell owes XYZ $300.
The balance in accounts receivable in the general
ledger will be $600, but you will not be able to tell
how much individual customers owe by looking at
that account. The detail isnt there.
DATA STORAGE
Ledger
General ledger
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-accountsone for
Anthony Adams, one for Bill Brown, and one for
Cory Campbell.
DATA STORAGE
Ledger
General ledger
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 code, block codes, and
group codes.
DATA STORAGE
Ledger
General ledger
Subsidiary ledger
Coding techniques
Group coding schemes are often used

in assigning general ledger account
numbers.
DATA STORAGE
Ledger The chart of accounts is a list of all general
General ledger
ledger accounts an organization uses.
Subsidiary ledger
The structure of this chart is an important AIS
Coding techniques
Chart of issue,
accountsas it must contain sufficient detail to meet
the organizations needs.
DATA STORAGE
Journals
In manual systems and some

accounting packages, the first place
that transactions are entered is the
journal.
DATA STORAGE
Audit trail
An audit trail exists when there is sufficient

documentation to allow the tracing of a
transaction from beginning to end or from the
end back to the beginning.
The inclusion of posting references and
document numbers enable the tracing of
transactions through the journals and ledgers
and therefore facilitate the audit trail.
DATA STORAGE
Now that weve learned some storage
terminology, lets 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
class, you probably worked with journals that
looked something like this:
01/15/10 Accounts receivable
Sales revenue
2,200
2,200
01/18/10 Cash
1,800
Accounts receivable
01/21/10 Salaries expense
Cash
1,800
900
900
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
Lets work through an example

with a special journal. In this case
well use the sales journal.
DATA STORAGE
On December 1, a sale is made to Avatar
Company for P800. Avatar Company was
sent Invoice No. 201.
Page 5
Sales Journal
Invoice Account Account

Date
Number Debited Number Post Ref.
12/01/04
201 Lee Co. 120-122
Amount
800.00
DATA STORAGE
The general ledger account number for accounts
receivable is No. 120. Avatar Company was about
the 122nd customer, so their subsidiary account
number is 120-122.
Page 5
Sales Journal
Invoice Account Account

Date
Number Debited Number Post Ref.
12/01/10
201 Avatar
120-122
Amount
800.00
DATA STORAGE
The next sale on December 1 was made to ToyStor Co. for P700.
Page 5
Invoice
Date
Number
12/01/10
201
12/01/10
202
Sales Journal
Account Account
Debited Number Post Ref.
Avatar
120-122
ToyStor 120-033
Amount
800.00
700.00
DATA STORAGE
The third and final sale on December 1 was made to Karate Co. for
P900.
Page 5
Invoice
Date
Number
12/01/10
201
12/01/10
202
12/01/10
203
Sales Journal
Account
Debited
Avatar
ToyStor
Karate
Account
Number Post Ref.
120-122
120-033
120-111
Amount
800.00
700.00
900.00
DATA STORAGE
Suppose the company making these sales posts
transactions at the end of each day.
Consequently, at days end, they will post each
individual transaction to the accounts receivable
subsidiary ledger:
An P800 increase in accounts receivable (debit) will be
posted to Avatars subsidiary account (120-122).
A P700 debit will be posted to ToyStors subsidiary
account (120-033).
A P900 debit will be posted to Karates 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 P2,400.
Page 5
Invoice
Date
Number
12/01/10
201
12/01/10
202
12/01/10
203
Sales Journal
Account
Debited
Avatar
ToyStor
Karate
Account
Number Post Ref.
120-122
120-033
120-111
TOTAL
Amount
800.00
700.00
900.00
2,400.00
120/502
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).
Page 5
Invoice
Date
Number
12/01/10
201
12/01/10
202
12/01/10
203
Sales Journal
Account
Debited
Avatar
ToyStor
Karate
Account
Number Post Ref.
120-122
120-033
120-111
TOTAL
Amount
800.00
700.00
900.00
2,400.00
120/502
DATA STORAGE
The entries in the general journal are periodically (or
automatically) posted to the general ledger. The
P2,400 debit to accounts receivable will be posted to
the accounts receivable control account, and the
P2,400 credit will be posted to the general ledger
account for sales.
12/01/10 Accounts receivable
Sales revenue
2,400
2,400
12/01/10 Cash
1,800
Accounts receivable
12/01/10 Salaries expense
Cash
1,800
900
900
DATA STORAGE
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

Entity
Attribute
Record
Data Value
Field
File
Master File
Transaction File
Database

An entity is something about which
information is stored.
In your universitys 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?

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?

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.
Col. 1-9
328469993
328500732
529036409
Col. 10-30
SIMPSON
ANDREWS
FLANDERS
Col. 31-40
ALICE
BARRY
CARLA
Col. 41-50
4053721111
4057440236
4057475863

A record is the set of attributes stored for a
particular instance of an entity.
The combination of attributes stored for
Barry Andrews is Barrys record.
Col. 1-9
Col. 10-30
Col. 31-40
Col. 41-50
328469993
328500732
SIMPSON
ANDREWS
ALICE
BARRY
4053721111
4057440236
529036409
FLANDERS
CARLA
4057475863

A data value is the intersection of the row and
column.
The data value for Barry Andrews phone number
is 405-744-0236.
Col. 1-9
328469993
328500732
529036409
Col. 10-30
SIMPSON
ANDREWS
FLANDERS
Col. 31-40
ALICE
BARRY
CARLA
Col. 41-50
4053721111
4057440236
4057475863

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:
Col. 1-9
Col. 10-30
Col. 31-40
Col. 41-50
328469993
SIMPSON
ALICE
4053721111
328500732
529036409
ANDREWS
FLANDERS
BARRY
CARLA
4057440236
4057475863

A master file is a file that stores cumulative
information about an organizations 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.

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

A database is a set of interrelated, centrallycoordinated files.
When files about students are integrated
with files about classes and files about
instructors, we have a database.
Student
File
Class
File
Instructor
File
THE DATA PROCESSING
Data input
Data storage
Data processing
Information output
DATA 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, with error
reports, transaction reports, and control
totals.
DATA PROCESSING

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

approaches:
Batch processing
If youre going through enrollment,

which of these approaches would you
prefer that your university was using?
Why?
THE DATA PROCESSING

Data input
Data storage
Data processing
Information output
INFORMATION OUTPUT
This output can be in the form of:

Documents
Documents are records of transactions or
other company data.
Documents generated at the end of the
transaction processing activities are known
as operational documents (as opposed to
source documents).
INFORMATION OUTPUT

Documents
Reports
Reports are used by employees to control
operational activities and by managers to make
decisions and design strategies.
They may be produced on a regular basis, on an
exception basis or on demand
Organizations should periodically reassess
whether each report is needed.
INFORMATION OUTPUT
Documents
Reports
Queries
Queries are user requests for specific pieces of

information.
They may be requested periodically or one time
They can be displayed on monitor (softcopy) or
on screen (hardcopy)
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
Budgets: an entitys 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 management of day-to-day operations
INFORMATION OUTPUT
can serve a variety of purposes:
Output
Performance
reports are outputs that are used
Financial statements can be provided to both external and internal parties.
for
control
purposes.
Some
outputs are
specifically for internal use:
These
reportsof day-to-day
compare
an organizations
For management
operations
For control purposes
standard
or expected performance with its
actual outcomes.
Management by exception is an approach to
utilizing performance reports that focuses on
investigating and acting on only those
variances that are significant.
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 management of day-to-day operations
For control purposes
For evaluation purposes
INFORMATION OUTPUT
Behavioral implications of managerial

reports:
YOU GET WHAT YOU MEASURE!
INFORMATION OUTPUT
Suppose an instructor wants to improve student
learning.
He decides to encourage better attendance by grading

students on attendance (i.e., measuring it).
The result will be better student attendance, i.e., you get
what you measure.
The improved attendance may or may not improve learning
outcomes.
Students may be getting better grades when attendance is
measured, but not learning more.
Some students may in fact reduce their studying because
they believe they can use the attendance score to boost
their grade. This behavior would be a dysfunctional result
of the measurement.
INFORMATION OUTPUT
Budgets can cause dysfunctional

behavior.
EXAMPLE: In order to stay within budget,
the IT Department did not buy a security
package for its system.
A hacker broke in and devastated some of
their data files.
Critical security measures were foregone
in order to meet budgetary goals.
The resulting costs far outweighed the
savings.
INFORMATION OUTPUT
Budgeting can also be dysfunctional in

that the focus can be redirected to
creating acceptable numbers instead
of achieving organizational objectives.
Does this mean organizations
shouldnt budget?
INFORMATION OUTPUT
The saying goes, Not many people sit
around and have a roast goose fall in their
lap.
In other words, if you want a roast goose,
you have to aim.
With financial results, youre also unlikely
to achieve when you dont aim.
Just be careful where you aim!
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 companys operations
(including both financial and nonfinancial information) with the
traditional functions of an AIS.
Chapter Summary
What are the basic business activities in

which an organization engages?
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?
Chapter 3:
Systems Development and
Documentation Techniques
Chapter Outline
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?
Types of Documentation Tools
Narrative (written description)

Flowcharts
Diagrams
Other written materials
Types of Documentation Tool
Data flow diagrams

Graphical descriptions of the sources and
destinations of data. They show:
Where data comes from
How it flows
The processes performed on it
Where it goes
Types of Documentation Tool

Data flow diagrams
Flowcharts
Document flowcharts describe the flow of
documents and information between
departments or units.
System flowcharts describe the relationship
between inputs, processing, and outputs for a
system.
Program flowcharts describe the sequence of
logical operations performed in a computer
program.
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
There is no black-and-white
approach to developing a DFD.
DATA FLOW DIAGRAMS

Example of a data flow
diagram of the customer
payment process
Accounts
Receivable
1.0 Remittance 2.0

data
Credit
Customer
Process
Update
Customer
Payment
A/R ReceivablesManager
payment
Information
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

basic elements:
Data flows
Data stores
DATA FLOW DIAGRAMS

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

Can you tell which are
sources and which are
destinations?
Accounts
Receivable
1.0 Remittance 2.0

data
Credit
Customer
Process
Update
Customer
Payment
payment
Information
Deposit
Bank
DATA FLOW DIAGRAMS

basic elements:
Data flows
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

Does it appear that a data
flow can be two-way? If
so, how is it handled?
Accounts
Receivable
1.0 Remittance 2.0

data
Credit
Customer
Process
Update
Customer
Payment
payment
Information
Deposit
Bank
DATA FLOW DIAGRAMS

If two data elements flow together, then the use of one data flow
line is appropriate.
Customer
Cash Receipt & Remittance Slip
Process
Payment
DATA FLOW DIAGRAMS
If a data flow is two-way, use a bidirectional arrow.
General
Ledger
Update
Receivables
DATA FLOW DIAGRAMS
If the data elements do not always flow

together, then multiple lines will be
needed.
Customer Inquiry
Customer
Customer Payment
Process
Payment
DATA FLOW DIAGRAMS

basic elements:
Data flows
Data stores
DATA FLOW DIAGRAMS
Processes
Appear as circles
Represent the transformation of data
DATA FLOW DIAGRAMS

Every process must have at
least one data inflow and at
least one data outflow. Why?
Customer
Customer
payment
1.0
Process
Payment
Remittance
data
Deposit
Bank
Accounts
Receivable
2.0
Update
A/R
Credit
Receivables Manager
Information
DATA FLOW DIAGRAMS
Data stores
Appear as two horizontal lines
Represent a temporary or
permanent repository of data
DATA FLOW DIAGRAMS

Notice that the inflows
and outflows to the data
store are not labeled.
Accounts
Receivable
1.0 Remittance 2.0

data
Credit
Customer
Process
Update
Customer
Payment
payment
Information
Deposit
Bank
DATA FLOW DIAGRAMS
Subdividing the DFD

The highest 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.
Agencies
Departments
Payroll
Processing
System
Employee
checks
Employees
Bank
Human
Resources
Management
DATA FLOW DIAGRAMS

Departments
Human
Resources
New employee
form
Time
cards
1.0
Update
empl.
Payroll
file
Employee
Change
form
3.0
Prepare
reports
2.0
Pay
Employees
Employee/
Payroll file
Payroll
Disbursement data
Payroll
check
Bank
5.0
Update
Gen.
Ledger
Payroll tax
disb. voucher
Payroll
report
Management
Employees
Employee
paychecks
4.0
Pay
taxes
General
Ledger
Tax report
& payment
Govt.
Agencies
DATA FLOW DIAGRAMS

Departments
Human
Resources
New employee
form
Time
cards
1.0
Update
empl.
Payroll
file
Employee
Change
form
3.0
Prepare
reports
2.0
Pay
Employees
Employee/
Payroll file
Payroll
Disbursement data
Payroll
check
Bank
5.0
Update
Gen.
Ledger
Payroll tax
disb. voucher
Payroll
report
Management
Employees
Employee
paychecks
4.0
Pay
taxes
General
Ledger
Tax report
& payment
Govt.
Agencies
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 youre 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.
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.
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: Youre 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 preparers name
DATA FLOW DIAGRAMS
Now that weve been through the

guidelines for developing DFDs, lets 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 Inputs
Processes
Data Outputs
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 employees
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

payroll status occurs, such as a raise or a change
in the number of exemptions, human resources
used toThe
create
or update
records
inoutside
thethe
portion marked
in red relatesthe
to activities
that go on
boundaries of the payroll system. Consequently, these activities will not be
employee/payroll
file and are then stored in the
included on the DFD.
DATA FLOW DIAGRAMS

employee
form.
When
a
change
to
an
employees
The portion marked in red relates to
activities
that
go on outside
theresources
in the
number of
exemptions,
human
boundaries
of the payroll
system.
completes
an employee
change form.
A copy of
theseConsequently,
forms is sent tothese
payroll.
These forms
activities
will are
usednot
to create
or
update
the
records
in
the
be included on the DFD.
DATA FLOW DIAGRAMS

in the number of exemptions, human resources
used to create or update the records in the
DATA FLOW DIAGRAMS

The portion
suggests
employee
form.marked
Whenina red
change
to antwo
employees
data status
flows coming
payroll
occurs, into
suchthe
as apayroll
raise or a change
process
(newofemployee
forms
and resources
in the
number
exemptions,
human
completes
anchange
employee
change
copy of
employee
forms).
Theform.
sourceAof
these
is is
sent
payroll.
These forms are
the forms
inflows
theto
human
resources
used
to create or update the records in the
department.
DATA FLOW DIAGRAMS

Data Inputs
New employee
forms and
employee change
forms
(from H.R.
Dept.)
Processes
Data Outputs
DATA FLOW DIAGRAMS

employee form. When a change to an
employees 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

employee form. When a change to an
employees payroll status occurs, such as a raise
or a change in the number of exemptions,
The
sentence
marked an
in red
suggests
human
resources
completes
employee
change
form. A(update
copy of these
formsrecords)
is sent to
a process
employee
payroll.
formsoutflow
are usedgoing
to create
withThese
the data
to a or
data
store
(the
employee/payroll
file).
DATA FLOW DIAGRAMS

Data Inputs
New employee
forms and
employee
change forms
(from H.R.
Dept.)
Processes
Data Outputs
Update records Updated

(read from
employee/
file and
payroll file
record)
DATA FLOW DIAGRAMS

When employees are hired, they complete a
new employee form. When a change to an
employees 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
DATA FLOW DIAGRAMS

payroll status occurs, such as a raise or a change in
the
of exemptions,
resources
Thenumber
final sentence
in thishuman
paragraph
completes
an
employee
change
form.
A
copy
of
provides information about the physical
storage
of theordata.
information
used
to create
updatePhysical
the records
in the
is utilized in flowcharts
butthen
notstored
in datain the
employee/payroll
file and are
file.
flowEmployee
diagrams.
DATA FLOW DIAGRAMS

Data Inputs
New employee forms and
employee change forms
(from H.R. Dept.)
Processes
Update records (read from
file and record)
Data Outputs
Updated employee/
payroll file
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

Departments
Human
Resources
New employee
form
Employee
Change
form
1.0
Update
empl.
Payroll
file
3.0
Prepare
reports
Payroll
report
Management
Employee/
Payroll file
Employees
Time
cards
2.0
Pay
Employees
Payroll
Disbursement data
Employee
paychecks
Payroll tax
disb. voucher
4.0
Pay
taxes
Payroll
check
Bank
5.0
Update
Gen.
Ledger
General
Ledger
Tax report
& payment
Govt.
Agencies
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.

Accounting Information System - Chapter 1-3

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Chapter 1:

The Information System

a unified structure that employ

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

WHY STUDY ACCOUNTING INFORMATION

Other systems courses focus on design and

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

WHY STUDY ACCOUNTING INFORMATION

Its fundamental to accounting.

Business Functions of an AIS

products and services

ROLE OF THE AIS IN THE VALUE CHAIN

For example, the inbound logistics of a

ROLE OF THE AIS IN THE VALUE CHAIN

And the outbound logistics of a

Decision Structure and Scope

THE AIS AND CORPORATE STRATEGY

Basic Business Strategies

Product differentiation strategy

What are the basic business activities in

INFORMATION NEEDS AND BUSINESS

INFORMATION NEEDS AND BUSINESS

INTERACTION WITH EXTERNAL AND

The interaction is typically two-way, in that

The transaction cycle is a process:

Many business activities are paired in

Many business activities are paired in

The revenue cycle involves interactions

Many business activities are paired in

The expenditure cycle involves

Many business activities are paired in

In the production cycle, raw

Many business activities are paired in

The human resources cycle involves

THE DATA PROCESSING

An important function of the AIS is to

THE DATA PROCESSING

The data processing cycle

THE DATA PROCESSING

Manipulate the input

Any data or instructions

Data that has been

THE DATA PROCESSING

The first step in data processing is to

A number of actions can be taken to

A number of actions can be taken to

A number of actions can be taken to

A number of actions can be taken to

THE DATA PROCESSING

Data needs to be organized

A ledger is a file used to store cumulative