Accounting Information

Systems: An Overview
Chapter 1

Copyright © 2015 Pearson Education, Inc.

1-1
 Data vs. Information
• Data are facts stored in the system
▫ A fact could be a number, date, name,
and so on.
For example:
2/22/14
ABC Company, 123,
99, 3, 20, 60

Copyright © 2015 Pearson Education, Inc.

1-2
 Data vs. Information
The previous slide just showed facts, if we put those
facts within a context of a sales invoice, for example, it
is meaningful and considered information.

Invoice Date : 2/22/14 Invoice #: 123

Customer: ABC company

Item # Qty Price

99 3 $20

Total Invoice Amount $60

Copyright © 2015 Pearson Education, Inc.
1-3
 Value of Information
• Information is valuable when the benefits exceed
the costs of gathering, maintaining, and storing
the data.

Benefit (i.e., improved decision making)

> Cost (i.e., time and resources used to get
the information)

Copyright © 2015 Pearson Education, Inc.

1-4
 What Makes Information Useful?
There are seven general characteristics that make
information useful:
1. Relevant: information needed to make a decision
(e.g., the decision to extend customer credit would
need relevant information on customer balance
from an A/R aging report)
2. Reliable: information free from bias
3. Complete: does not omit important aspects of
events or activities
4. Timely: information needs to be provided in time
to make the decision
Copyright © 2015 Pearson Education, Inc.
1-5
 What Makes Information Useful?

5. Understandable: information must be

presented in a meaningful manner
6. Verifiable: two independent people can
produce the same conclusion
7. Accessible: available when needed

Copyright © 2015 Pearson Education, Inc.

1-6
 Organizational Decisions and
Information Needed
• Business organizations use business processes to
get things done. These processes are a set of
structured activities that are performed by
people, machines, or both to achieve a specific
goal.
• Key decisions and information needed often
come from these business processes.

Copyright © 2015 Pearson Education, Inc.

1-7
 Transactional Information Between
Internal and External Parties in an AIS
• Business organizations conduct business
transactions between internal and external
stakeholders.
• Internal stakeholders are employees in the
organization (e.g., employees and managers).
• External stakeholders are trading partners such as
customers and vendors as well as other external
organizations such as Banks and Government.
• The AIS captures the flow of information between
these users for the various business transactions.
Copyright © 2015 Pearson Education, Inc.
1-8
 Interactions Between AIS and Internal
and External Parties

Copyright © 2015 Pearson Education, Inc.

1-9
 Basic Business Processes
• Transactions between the business organization
and external parties fundamentally involve a
“give–get” exchange. These basic business
processes are:
▫ Revenue: give goods / give service—get cash
▫ Expenditure: get goods / get service—give cash
▫ Production: give labor and give raw materials—get
finished goods
▫ Payroll: give cash—get labor
▫ Financing: give cash—get cash
Copyright © 2015 Pearson Education, Inc.
1-10
 What Is an Accounting Information
System?
• It can be manual or computerized
• Consists of
▫ People who use the system
▫ Processes
▫ Technology (data, software, and information
technology)
▫ Controls to safeguard information
• Thus, transactional data is collected and stored into
meaningful information from which business
decisions are made and provides adequate controls
to protect and secure the organizational data assets.
Copyright © 2015 Pearson Education, Inc.
1-11
 How Does an AIS Add Value?

• A well thought out AIS can add value through

effective and efficient decisions.
▫ Having effective decisions means quality decisions
▫ Having efficient decisions means reducing costs of
decision making

Copyright © 2015 Pearson Education, Inc.

1-12
 AIS and Strategy
• An AIS is influenced by an organization’s
strategy.
• A strategy is the overall goal the organization
hopes to achieve (e.g., increase profitability).
• Once an overall goal is determined, an
organization can determine actions needed to
reach their goal and identify the informational
requirements necessary to measure how well
they are doing in obtaining that goal.

Copyright © 2015 Pearson Education, Inc.

1-13
 AIS in the Value Chain
• The value chain shows how the different
activities within an organization provide value to
the customer.
• These activities are primary and support
activities.
▫ Primary activities provide direct value to the
customer.
▫ Support activities enable primary activities to be
efficient and effective.

Copyright © 2015 Pearson Education, Inc.

1-14
Copyright © 2015 Pearson Education, Inc.
1-15
 Overview of Transaction Processing
and Enterprise Resource Planning
Systems
Continued

Copyright © 2015 Pearson Education, Inc.

2-1
 Data Processing Cycle

Copyright © 2015 Pearson Education, Inc.

2-17
 Data Input

Steps in Processing Input are:

• Capture transaction data triggered by a business
activity (event).
• Make sure captured data are accurate and
complete.
• Ensure company policies are followed (e.g.,
approval of transaction).

Copyright © 2015 Pearson Education, Inc.

2-18
 Data Capture

• Information collected for an activity includes:

▫ Activity of interest (e.g., sale)
▫ Resources affected (e.g., inventory and cash)
▫ People who participated (e.g., customer and
employee)
• Information comes from source documents.

Copyright © 2015 Pearson Education, Inc.

2-19
 Source Documents
• Captures data at the source when the transaction
takes place
▫ Paper source documents
▫ Source data automation (captured data from
machines, e.g., Point of Sale scanners at grocery
store)

Copyright © 2015 Pearson Education, Inc.

2-20
 Data Storage
• Important to understand how data is organized
▫ Chart of accounts
 Coding schemas that are well thought out to
anticipate management needs are most efficient and
effective.
▫ Transaction journals (e.g., Sales)
▫ Subsidiary ledgers (e.g., Accounts receivable)
▫ General ledger
Note: With the above, one can trace the path of the
transaction (audit trail).
Copyright © 2015 Pearson Education, Inc.
2-21
 Audit trail for
Invoice #156 for
$1,876.50 sold to
KDR Builders

Copyright © 2015 Pearson Education, Inc. 2-22

 Computer-Based Storage

Data is stored in master files or transaction files.

Copyright © 2015 Pearson Education, Inc. 2-23

 Data Processing
Four types of processing (CRUD):
• Creating new records (e.g., adding a customer)
• Reading existing data
• Updating previous record or data
• Deleting data

Data processing can be batch processed (e.g., post

records at the end of the business day) or in real-
time (process as it occurs).
Copyright © 2015 Pearson Education, Inc. 2-24
 Information Output
The data stored in the database files can be viewed
• Online (soft copy)
• Printed out (hard copy)
▫ Document (e.g., sales invoice)
▫ Report (e.g., monthly sales report)
▫ Query (question for specific information in a
database, e.g., What division had the most sales
for the month?)

Copyright © 2015 Pearson Education, Inc. 2-25

 Enterprise Resource Planning (ERP)
Systems
• Integrates activities from the entire organization
▫ Production
▫ Payroll
▫ Sales
▫ Purchasing
▫ Financial Reporting

Copyright © 2015 Pearson Education, Inc. 2-26

 Advantages of ERP System
• Integrated enterprise-wide allowing for better flow
of the information as it’s stored in a centralized
database and can be accessed by various
departments which also improves customer service.
• Data captured once (i.e., no longer need sales to
enter data about a customer and then accounting to
enter same customer data for invoicing)
• Improve access of control of the data through
security settings
• Standardization of procedures and reports
Copyright © 2015 Pearson Education, Inc. 2-27
 Disadvantages of ERP System
• Costly
• Significant amount of time to implement
• Complex
• User resistance (learning new things is
sometimes hard for employees)

Copyright © 2015 Pearson Education, Inc. 2-28

 Systems Documentation
Techniques
Continued

Copyright © 2015 Pearson Education, Inc.

3-1
 Why Document Systems?

• Accountants must be able to read

documentation and understand how a system
works (e.g., auditors need to assess risk)
• Sarbanes-Oxley Act (SOX) requires management
to assess internal controls and auditors to
evaluate the assessment
• Used for systems development and changes

Copyright © 2015 Pearson Education, Inc.

3-30
 Data Flow Diagrams (DFD)

Focuses on the data flows for:

• Processes
• Sources and destinations of the data
• Data stores
DFD are visually simple, can be used to represent
the same process at a high abstract or detailed
level.

Copyright © 2015 Pearson Education, Inc.

3-31
 Basic Data Flow Diagram Elements

Copyright © 2015 Pearson Education, Inc.

3-32
 Basic Guidelines for creating a DFD
• Understand the system that
you are trying to represent.
• A DFD is a simple
representation meaning that
you need to consider what is
relevant and what needs to be
included.
• Start with a high level (context
diagram) to show how data
flows between outside entities
and inside the system. Use
additional DFD’s at the
detailed level to show how
data flows within the system.
Copyright © 2015 Pearson Education, Inc.
• Identify and group all the basic
elements of the DFD.
• Name data elements with
descriptive names, use action
verbs for processes (e.g.,
update, edit, prepare, validate,
etc.).
• Give each process a sequential
number to help the reader
navigate from the abstract to
the detailed levels.
• Edit/Review/Refine your DFD
to make it easy to read and
understand.
3-33
 Flowcharts
Describe an information system showing:
• Inputs and Outputs
• Information activities (processing data)
• Data storage
• Data flows
• Decision steps

Key strengths of flowcharts are that they can easily

capture control via decision points, show manual vs.
automated processes.

Copyright © 2015 Pearson Education, Inc.

3-34
 Flowcharts Symbols

Copyright © 2015 Pearson Education, Inc.

3-35
 Types of Flowcharts
• Document: shows the flow of documents and
data for a process, useful in evaluating internal
controls
• System: depicts the data processing cycle for a
process
• Program: illustrates the sequence of logic in the
system process

Copyright © 2015 Pearson Education, Inc.

3-36
 Guidelines for Drawing Flowcharts
• Understand the system you are trying to
represent.
• Identify business processes, documents, data
flows, and data processing procedures.
• Organize the flowchart so as it reads from top to
bottom and left to right.
• Name elements descriptively.
• Edit/Review/Refine to make it easy to read and
understand.
Copyright © 2015 Pearson Education, Inc.
3-37
 Business Process Diagrams
• Is a visual way to represent the activities in a
business process
• Intent is that all business users can easily
understand the process from a standard
notation (BPMN: Business Process Modeling
Notation)
• Can show the organizational unit performing the
activity

Copyright © 2015 Pearson Education, Inc.

3-38
 Business Process Diagram Basic
Symbols

Copyright © 2015 Pearson Education, Inc.

3-39
 Payroll Business Process Diagram
Example

Copyright © 2015 Pearson Education, Inc.

3-40