CHAPTER ONE

System – set of two or more interrelated components interacting to achieve a goal

Goal Conflict - Occurs when components act in their own interest without regard for overall goal
Goal Congruence - Occurs when components acting in their own interest contribute toward overall goal

• Data
– these are facts that are collected, recorded, stored, and processed by a system.
– insufficient for decision making.
• Information
– data that have been organized and processed to provide meaning and improve decision-making.
• Information Overload
– exceeding the amount of information a human mind can absorb
• Information Technology
– computers and other electronic devices used to store, retrieve, transmit and manipulate data.
• Value of Information
– it is the benefit produced by the information minus the cost of producing it.
Benefits Costs
- Reduce Uncertainty - Time & Resources
- Improve Decisions - Produce Information
- Improve Planning - Distribute Information
- Improve Scheduling
Characteristics
• Relevant - reduces uncertainty, improves decision making, or confirms or corrects prior expectations.
• Reliable - free from error or bias; accurately represents organization events or activities.
• Complete - does not omit important aspects of the events or activities it measures.
• Timely - provided in time for decision makers to make decisions.
• Understandable - presented in a useful and intelligible format.
• Verifiable - two independent, knowledgeable people produce the same information.
• Accessible - available to users when they need it (timely) and in a format they can use (understandable).

Business Process
– set of related, coordinated, and structured activities and tasks, performed by a person, a computer
Transaction
– agreement between two entities to exchange goods or services or any other event
Transaction Processing
– process of capturing transaction data, processing it, storing it for later use, and producing information output
Give-get Exchange
– giving up cash to get inventory from a supplier and giving employees a paycheck in exchange for their labor

Business Processes of Transaction Cycles

➢ The revenue cycle, where goods and services are sold for cash or a future promise to receive cash.
➢ The expenditure cycle, where companies purchase inventory for resale or raw materials to use in producing
products in exchange for cash or a future promise to pay cash.
➢ The production or conversion cycle, where raw materials are transformed into finished goods.
➢ The human resources/payroll cycle, where employees are hired, trained, compensated, evaluated, promoted
➢ The financing cycle, where companies sell shares in the company to investors and borrow money

Accounting Information Systems

– system that collects, records, stores, and processes data to produce information for decision makers
6 Compnents of AIS
1. people who use the system
2. procedures and instructions used to collect, process, and store data
3. data about the organization and its business activities
4. software used to process the data
5. information technology infrastructure, including the computers, peripheral devices, and network communications
6. internal controls and security measures that safeguard AIS data

The Role of the AIS in the Value Chain

1. Inbound logistics consists of receiving, storing, and distributing the materials
2. Operations activities transform inputs into final products or services.
3. Outbound logistics activities distribute finished products or services to customers
4. Marketing and sales activities help customers buy the organization’s products or services.
5. Service activities provide post-sale support to customers.
Support Activities
1. Firm infrastructure is the accounting, finance, legal, and general administration activities
2. Human resources activities include recruiting, hiring, training, and compensating employees.
3. Technology activities improve a product or service.
4. Purchasing activities procure raw materials, supplies, machineries, and the buildings

CHAPTER TWO
Data Processing Cycle
– the four operations (data input, data storage, data processing, and information output) performed on data to
generate meaningful and relevant information

5. Data Input
– first step in processing input is to capture transaction data and enter them into the system
– three facets of each business activity :
a. each activity of interest
b. resource(s) affected by each activity
c. people who participate in each activity

Source Documents – docs used to capture transaction data at its source – when the transaction takes place
Turnaround documents – company output sent to an external party, who often adds data to the document
Source Data Automation – collection of transaction data in machine-readable form at the time and place of origin
2. Data Processing
– second step in processing input is to make sure captured data are accurate and complete.
3. Information Output
– third step in processing input is to make sure company policies are followed

Ledgers
– cumulative accounting information is stored in general and subsidiary ledgers.
General Ledger
– ledger that contains summary-level data for every asset, liability, equity, revenue, and expense account
Subsidiary Ledger
– ledger used to record detailed data for a general ledger account with many individual subaccounts

Control Account
– title given to a general ledger account that summarizes the total amounts recorded in a subsidiary ledger
Coding
– systematic assignment of numbers or letters to items to classify and organize them.
●Sequence Codes - numbered consecutively so that gaps in the sequence code indicate missing items
●Block Code - reserved for specific categories of data, thereby helping to organize the data
●Group Code - two or more subgroups of digits that are used to code an item
●Mnemonic Codes, letters and numbers are interspersed to identify an item
Chart of Accounts
– a list of the numbers assigned to each general ledger account.
Specialized Journals
– used to record a large number of repetitive transactions such as credit sales, cash receipts, purchases
Audit Trail
– path that allows a transaction to be traced through a data processing system
– used to check the accuracy and validity of ledger postings and to trace changes in general ledger accounts

Computer-Based Storage Concepts

• Entity - something about which information is stored, such as employees, inventory items, and customers.
• Attributes - properties, identifying numbers, and characteristics of interest of an entity that is stored in a database.
• Field - portion of a data record where the data value for a particular attribute is stored
• Record - set of fields whose data values describe specific attributes of an entity,
• Data Value - actual value stored in a field. It describes a particular attribute of an entity

File - set of logically related records, such as the payroll records of all employees.
Master File - permanent file of records that stores cumulative data about an organization
Transaction File - contains the individual business transactions that occur during a specific fiscal period

Database - set of interrelated, centrally controlled data files that are stored with as little data redundancy as possible .
- consolidates records previously stored in separate files into a common pool
Four Different Types of Data Processing activities, referred to as CRUD, are as follows:
1. Creating new data records, such as adding a newly hired employee to the payroll database.
2. Reading, retrieving, or viewing existing data.
3. Updating previously stored data.
4. Deleting data, such as purging the vendor master file of all vendors

Batch Processing – When updating is done at a certain period

Documents – records of transaction or other company data.
Reports – used by employees to control operational activities and by managers to make decisions
Query – request for the data base to provide the information needed to deal with a problem or answer a question

Enterprise Resource Planning (ERP) system

– system that integrates all aspects of an organization’s activities into one system
Typical ERP modules include:
• Financial (general ledger and reporting system)—general ledger, accounts receivable, accounts payable, fixed assets,
• Human resources and payroll—human resources, payroll, employee benefits, training, time and attendance,
• Order to cash (revenue cycle)—sales order entry, shipping, inventory, cash receipts, commission calculation
• Purchase to pay (disbursement cycle)—purchasing, receipt and inspection of inventory, inventory and warehouse
• Manufacturing (production cycle)— engineering, production scheduling, bill of materials, work-in-process, workflow
• Project management—costing, billing, time and expense, performance units, activity management
• Customer relationship management—sales and marketing, commissions, service, customer contact, and call center
• System tools—tools for establishing master file data, specifying flow of information, access controls, and so on
ERP systems also have significant disadvantages:
• Cost
• Amount of time required
• Changes to business processes
• Complexity
• Resistance

CHAPTER THREE
Documentation
– narratives, flowcharts, diagrams, and other written materials that explain how a system works

Narrative Description
– written, step-by-step explanation of system components and how they interact.

Documentation tools are important on the following levels:

• At a minimum, you must be able to read documentation to determine how a system works.
• You may need to evaluate documentation to identify internal control strengths and weaknesses
• More skill is needed to prepare documentation that shows how an existing or proposed system operates.

1. Data flow diagram (DFD) – a graphical description of data sources, data flows, transformation processes, data storage
2. Flowchart – graphical description of a system.
Types of Flowcharts
a. Document flowchart – the flow of documents and information between departments or areas of responsibility
b. System flowchart – the relationship among the input, processing, and output in an information system
c. Program flowchart – the sequence of logical operations a computer performs as it executes a program.

3. Business Process diagrams – a graphical description of the business processes used by a company

Data Flow Diagrams (DFD)

– graphical description of the flow of data within an organization
1. Data Source - produces or sends the data that is entered into a system.
2. Data Destination - receives data produced by a system.
3. Data Flow - movement of data among processes, stores, sources, and destinations

Process - action that transforms data into other data or information

Data Store - place or medium where system data is stored

Context Diagram
– highest-level DFD; a summary-level view of a system, showing the data processing system, its input(s) and output(s), and
their sources and destinations.

Flowcharts
– analytical technique that uses a standard set of symbols to describe in a clear, concise, and logical manner.

Flowchart Symbols
4. Input/output symbols show input to or output from a system.
5. Processing symbols show data processing, either electronically or by hand.
6. Storage symbols show where data is stored.
7. Flow and miscellaneous symbols indicate the flow of data, where flowcharts begin or end, where decisions are made,
and how to add explanatory notes to flowcharts.
Types of Flowcharts
• Document Flowchart – flow of documents and data among areas of responsibility within an organization.
• Internal Control Flowchart – used to describe, analyze, and evaluate internal controls. strengths & weaknesses
• System Flowchart – depicts the relationships among system input, processing, storage, and output.
• Program Flowchart – sequence of logical operations performed by a computer in executing a program.

Business Process Diagram

– visual way to describe the different steps or activities in a business process