Information is the vital resource to a company, similar b.

Expenditure Cycle
to capital, raw materials, and labor. c. Conversion Cycle

Flow of Information

2. GL/FRS- General Ledger/ Financial

System is a group of two or more interrelated
components or subsystem which serve a common
purposes.
System decomposition breaks down the larger system
into smaller subsystem and sub-components
Framework for information system: THE AIS AND
MIS
ACCOUNTING INFORMATION SYSTEM
- An accounting information system consists of the
people, records, and methods used to gather financial
information about business events, record it, process it
into a useful form, and communicate the information to
end users and decision makers. In other words, an
accounting system is everything and everyone involved in
collecting, recording, and organizing financial transactions
for the company.
Reporting System
- Takes and summarizes data in the TPS
- Update the general ledger
- Create reports that are for both internal and
external users
- The bulk of inputs are from Transaction cycle
- Non-frequent or unique transaction are
entered with specialized methods
- Reports status of financial resources and
changes in those resources
- Primarily for external users
- Typically termed “NONDISCRETIONARY
REPORTING” ( format is required by
GAAP,IRS,GAAS)
3. MRS- Management Reporting System
- Takes and summarizes data in the TPS and
the GL/FRS
- Create reports for internal users
- Managers need this information to plan,
execute and control their operations
- Typically term as “DISCRETIONARY
REPORTING” ( content and format depends
on each organization)

The AIS has three major subsystems:

(TPS, GL/FRS, MRS) MANAGEMENT INFORMATION SYSTEM

1. TPS- Transaction Processing System -A management information system (MIS).The main

- For daily operations purpose of the MIS is to give managers feedback about
- Converts economic events into financial their own performance; top management can monitor the
transactions company as a whole. Information displayed by the MIS
- Record transactions in the accounting typically shows "actual" data over against "planned"
journals and ledger results and results from a year before; thus it measures
- Distributes essential financial information to progress against goals.
daily operations personnel 1. Financial Management Systems
- Three(3) subsystems: (REC) 2. Marketing Systems
a. Revenue Cycle 3. Production Systems
 4. Human Resource Systems - Where the raw data is processed before it is
considered as information to users
-the distinction between AIS and MIS centers on the
- Processing can be simple as:
concept of a transaction
-sorting events alphabetically or adding up
TRANSACTIONS- event that affects or is of interest to like events; or
the organization and that is processed by its information -as complex as statistical modelling.
systems
3. DATABASE MANAGEMENT
1. Financial Transaction
- Involves the tasks of storing, retrieving and
- The focus of AIS
deleting collected and processed data.
- An economic event that affects the assets
- Data is typically presented in logical hierarchy
and equities of the organization, is reflected
from smallest to largest where;
in its accounts, and is measured in monetary
1. Data Attributes
terms,
-most elemental characteristics of
2. Nonfinancial Transactions
data
- The focus of MIS
-such as address of supplier; unit
- Include all other business transactions
cost of an inventory item
The AIS process financial and non-financial transactions - offend called COLUMNS or FIELDS
that directly affect the processing of FS.
2. Record

- set of attributes for single occurrence

DATA vs. INFORMATION within an entity class

Data- raw or processed measurement fact that has no -such as a customer, an invoice or a
direct effect to the users piece of machinery

Information- data that causes users to take action -each record must have a unique
identifier attribute termed as “PRIMARY
GENERAL MODEL FOR AIS KEY”

3. FILE
DATA SOURCES -a complete set of similar records for
- Has two (2) sources: identical class
a. External Sources -such as all customers or all invoices
- Sales
- Purchases 4. DATABASE
- Payments; and etc
-is the organization’s collection of files.
b. Internal Sources
- Moving materials into production - Involves storage, Retrieval and deletion
- Adding labor cost to inventories & etc. of data
-
4. INFORMATION GENERATION
STEPS: - Data is compiled , arranged, formatted and
presented to a meaningful and useful to end
1. DATA COLLECTION
users
- Crucial / the most important phase of system
- External users such as creditors,
- Lies the first and best opportunity to ensure
stockholders, and potential investors and
that data is valid, correct, and free from
internal users such as management and
material error
operation personnel will have an information
- Two Rules that govern: (1) Relevance (only
lacking with value without the following
data that contributes to user’s information
characteristics:
need); (2) Efficiency ( collect data once and
1. Relevance- data must serve a purpose
make them available to variety of users)
2. Timeliness- receive by user before
decision is made.
2. DATA PROCESSING
 3. Accuracy- data is free from material
error. It usually trades off with timeliness
4. Completeness- no relevant data is
missing
5. Summarization- data is aggregated to
the level demanded by the user’s purpose
5. FEEDBACK
- Decision related to a system output that is
sent back to the system as a source of data.
- Feedback may be: Internal or External
Information System Objectives
1. Support management in its responsibility for the
firms resources
2. Support management in the decision making
3. Support day-to day operations of the firm
Three basic types of Commercial Software
1. Turnkey systems- finished, tested and ready
for standard use. A computer system that has
been customized for a particular application. The
term derives from the idea that the end user can
just turn a key and the system is ready to go.
Turnkey systems include all
the hardware and software necessary for the
particular application. They are usually developed
by OEMs
(original equipment manufacturers) who buy
a computer from another company and then add
software and devices themselves.
2. Backbone Systems- Consist of a basic system
structure on which to build. The primary
processing logic is pre-programmed, and the
vendor then designs the user interfaces to suit
the client’s unique needs. A backbone system is
a comprise between a custom system and a
turnkey system. This approach can produce
satisfactory results, but customizing the systems
is costly.
3. Vendor-supported systems-Are custom (or
customized) systems that client organizations
purchase commercially rather than develop in-
house. Under this approach, the software vendor
designs, implements, and maintains the system
for its client. This is popular option with
healthcare and legal services organizations that
have complex systems.
ACCOUNTING FUNCTION
-captures and records the firms financial transactions in
the database and distributes transaction information
throughout the organization
THE VALUATION OF INFORMATION
- Valued by Reliablity
- Reliable information have integrity that it
must be: Relevant, accurate, complete
summarized and timely.
ACCONTING INFORMATION IS INDEPENDENT to
ensure integrity of recorded data
THE COMPUTER SERVICES FUNCTION
1. Centralized Data Processing
- All data is done with one or more large computers
at a central site that serves users throughout the
organizations.
a. Database administration: security and integrity of
database.
b. Data processing: responsibility for daily transaction
processing.
c. Systems Development and Maintenance:
designing new systems.
2. Distributed Data Processing
Information Processing Units (IPUs) – a network of
interconnected but independent IPUs results in highly
distributed data processing system.
THE EVOLUTION OF INFORMATION SYSTEM
MODELS
1.THE MANUAL PROCESS MODEL
Oldest and most traditional form of accounting systems.
Physical task of record keeping
2. Flat File Models
Large main-frame legacy systems
advocates for a non-integrated system and therefore a
stand alone application in order to take on data
processing.
3 significant problems in flat file environments are:
• Data Storage: data items are stored repeatedly
• Data Updating: redundant storage
• Currency of information: some date fields may
not be the most current.
 5. ERP Systems
-Allows the integration and automation of the firms key
processes thus breaking down the traditional model
barriers by enabling data sharing, information flows to all
users of data in a firm. However its implementation is
timely.

Common ERP Modules include:

 Asset Management
 Financial Accounting
 Human Resources
 Industry-Specific Solutions
Other issues include:  Plant Maintenance
 Task-Data Dependency: user is unable to obtain  Production Planning
relevant information relevant to his/her work as  Quality Management
need arise, user’s information is limited to that  Sales and Distribution
which he/she already possesses and controls.  Inventory management

 Limited Data Integration: single view model. This Disadvantages:

means that the files are structured, formatted,
and arranged to suit the specific needs of the
owner. This may however excludes some
components useful for other users and this
prevents accurate data.
3. The Database Model
There are no owners for each application. All users have
access to the shared resource.
 They may not meet the firms needs as they are
not tailor made.
 ERP may need modifications to fit industry needs.
o Bolt-ons – additional software connected
to the ERP to handle unique business
functions.
 ERP packages are extremely expensive.
THE ROLE OF THE ACCOUNTANT
 Accountant as Users – responsible to forecast
and articulate users needs.
 Accountant as System Designers
 Accountant as System Auditors
Auditing
 External Auditing - Assurance
 Internal Auditing – in- house appraisal function

AN OVERVIEW OF TRANSACTION PROCESSING

-FINANCIAL TRANSACTION
- an economic event that affects the assets
and equities of the firm.
- measured in monetary terms

THE TRANSACTION CYCLE

• Database Management System (DBMS) The Expenditure Cycle
Conversion Cycle
-special software system that is programmed to
know which data elements each user is authorized to Revenue Cycle
access. This on its own needs a good internal control
system.

4. Relational Database Models

-Is flexible as it allows the design and application of
integrated systems capable of supporting the information
needs of multiple users from a common set of database
tables.
 2 types of ledger
 General ledger
 Subsidiary ledger- group of similar individual
accounts

b. The Audit Trail

-An audit trail is a step-by-step record by which

accounting or trade data can be traced to its source.
-Audit trails are used to verify and track many types of
transactions including accounting transactions and trades
in brokerage accounts.

c. Computer-based systems

 Master files: contain account data that are

updated from transaction data. For example a
customer file will contain details of a customer such
as customer ID, name and contact address.
 Transaction files: holds records from events that
will change master files. For example in a busy
supermarket, daily sales are recorded on a
transaction file and later used to update the stock
file. The file is also used by the management to
check on the daily or periodic transactions.
 Reference files: hold the transaction processing
standards or rules. For example, in a point of sale
terminal, the item code entered either manually or
using a barcode reader looks up the item
ACCOUNTING RECORDS description and price from a reference file stored
a. Manual Systems on a storage device.
-bookkeeping system where records are maintained by  Archive files: are historical files of past journals
hand, without using a computer system. and ledgers.
3 types
DOCUMENTATION TECHNIQUES
• Source Documents -visual or graphic descriptions can convey accounting
system components and flows more effectively and
• Product Documents efficiently than words.
6 common documentation techniques.
• Turnaround documents
1. Data Flow Diagrams(DFD)
1. Journals - Representations of entities, processes, data flows and
-records of chronological entry stores that pertain to a system
-Documents are the primary source of data for journals.
-Each transaction requires a separate journal entry
2 types of journal.
 Special journal: sales, purchasing, cash receipts,
and cash disbursement.
 General journal: nonrecurring, infrequent, and
dissimilar transactions. Ex; Asset sales,
Depreciation, Interest income and interest
expense,

2. Ledgers

- By account type

- Show the account balances, or the financial effects

of the transactions on the related account.
2. Entity Relationship (ER) Diagram manual process, hardcopy file, accounting journals,
-Depict the established relationships between entities. registers, logs and ledgers, batch total, etc.

4. System flowcharts
-contain both manual and computerized processes

5. Program flowcharts
-explain what computer application program does to the
data.
3. Document flowcharts
6. Record Layout Diagrams
-are typically created by following the hard copy of -The purpose of record layout diagrams is to depict the
business forms utilized by a company. fields or data attributes within a particular record, on
 The internal entities are presented as columns in a instance of an entity.
document flowchart.
 Other document flowcharting symbol include:
start/end or processing oval, source document,