Divine Word College of Legazpi School of Business, Management, and Accountancy Accounting Information Systems a) Module 2: Introduction to Transaction Processing b) Transaction Cycles 1) Expenditure Cycle - covers the acquisition of materials, property, and labor in exchange for cash. 2) Conversion Cycle - conversion cycle is composed of two major subsystem: a) Production system - involves the planning, scheduling, and control of the physical product through the manufacturing process. b) Cost accounting system - The cost accounting system monitors the flow of cost information related to production. 3) Revenue Cycle – involves processing cash sales, credit sales, and the receipt of cash following a credit sale. c) Accounting Records Manual systems 1) Documents a) Source documents b) Product documents c) Turnaround documents 2) Journals a) Special journals b) Register c) General journals 3) Ledgers a) General ledgers b) Subsidiary ledgers Computer-based systems 1) Master file – contains account data. The general ledger and subsidiary ledger are examples of master files. 2) Transaction file - A transaction file is a temporary file of transaction records used to change or update data in a master file. Sales orders, inventory receipts, and cash receipts are examples of transaction files. 3) Reference file - A reference file stores data that are used as standards for processing transactions. For example, the payroll program may refer to a tax table to calculate the proper amount of withholding taxes for payroll transactions. 4) Archive file - ontains records of past transactions that are retained for future reference. These transactions form an important part of the audit trail. Archive files include journals, prior period payroll information, lists of former employees, records of accounts written off, and prior-period ledgers. Audit trail The accounting records mentioned above provide an audit trail for tracing transactions from source documents to the financial statements. Basic Documentation Techniques 1) Data flow diagrams 2) Entity relationship diagrams 3) System flowcharts 4) Program flowcharts 5) Record layout diagrams Data flow diagrams Uses symbols to represent the entities, processes, data flows, and data stores that pertain to a system. d) Entities – represent sources of and destination for data. They may be other interacting systems or functions, or they may be external to the organization. They should always be labeled as nouns. Data stores – represents the accounting records used in each process. Labeled arrows – represent the data flows between processes, data stores, and entities. Processes – should be labeled with a descriptive verb. They should not be represented as nouns. Each data flow label should be unique—the same label should not be attached to two different flow lines in the same DFD. When data flow into a process and out again (to another process), they have, in some way, been changed. This is true even if the data have not been physically altered. - DFDs do not depict the physical system. It shows what logical tasks are being done, not how they are done or who (or what) is performing them. Entity relationship diagrams is a documentation technique used to represent the relationship between entities. Entities are physical resources, events, and agents which the organization wishes to capture data The square symbols are the entities in the system The labeled connecting line represents the nature of relationship between two entities. Cardinality – degree of relationship between entities. It can be: a) one-to-one (1:1) b) one-to-many (1:M) c) many to many (M:M) System flowcharts Graphical representation of the physical relationships among key elements of a system. It reflects the physical system as opposed to DFDs and ERDs. These elements may include organizational departments, manual activities, computer programs, hard-copy accounting records (documents, journals, ledgers, and files), and digital records (reference files, transaction files, archive files, and master files) It is important to note that flowcharting is as much an art form as it is a technical skill, giving the flowchart author a great deal of license. Rules and conventions in flowcharting a) b) c) d) e) The flowchart should be labeled to clearly identify the system that it represents. The correct symbols should be used to represent the various entities in the system. All symbols on the flowchart should be labeled. Lines should have arrowheads to clearly show the process flow and sequence of events. If complex processes need additional explanation for clarity, a text description should be included on the flowchart or in an attached document referenced by the flowchart. Symbol set for manual processes Disadvantages 1. Sequential codes carry no information beyond their order in the sequence. 2. Inserting a new item at some midpoint requires renumbering the subsequent items in the class. b) Block codes – variation of sequential coding. This can be used to represent whole classes of items by restricting each class to a specific range within the coding scheme. Ex. Chart of accounts Advantages 1. Allows for the insertion of new codes within a block without having to reorganize the entire coding structure. Disadvantages 2. As with sequential codes, the information content of the block code is not readily apparent. Symbol set for computer processes c) Group codes – used to represent complex items or events involving two or more pieces of related data. Ex. Sales order coded based on branch stores. Advantages: 1. Facilitates the representation of large amounts of data. 2. Allows complex data structures to be represented in a hierarchical form that is logical and easily remembered by humans 3. Permit detailed analysis and reporting. Program flowcharts Every program represented in a system flowchart should have a supporting program flowchart that describes it logic. Accountants sometimes use program flowcharts to verify the correctness of program logic. They compare flowcharts to the actual program code to determine whether the program is actually doing what the documentation describes. Disadvantages: 4. As it can be used to present diverse information, they tend to be overused. 5. Unrelated data may be linked simply because it can be done which may result to complex group codes. 6. Overuse can increase storage costs, promote clerical errors, and increase processing time and effort. Symbol set for program flowcharts d) Advantages 1. Capacity to represent large numbers of items is increased dramatically through the use of pure alphabetic codes or alphabetic characters (alphanumeric codes). Record layout diagrams Used to reveal the internal structure of the records that constitute a file or database table. The layout diagram usually shows the name, data type, and length of each attribute (or field) in the record. Detailed data structure information is needed for such tasks as identifying certain types of system failures, analyzing error reports, and designing tests of computer logic for debugging and auditing purposes. Computer-Based Accounting Systems Fall into two broad classes: batch systems and real-time systems. Alphabetic codes – are used for many of the same purposes as numeric codes. Alphabetic characters may be assigned sequentially or may be used in block and group coding techniques. e) Disadvantages: 1. Difficulty rationalizing the meaning of codes that have been sequentially assigned. 2. Users tend to have difficulty sorting records that are coded alphabetically. Mnemonic codes - alphabetic characters in the form of acronyms and other combinations that convey meaning. Advantages: 1. The mnemonic coding scheme does not require the user to memorize meaning; the code itself conveys a high degree of information about the item that is being represented. Data Coding Schemes Data coding involves creating simple numeric or alphabetic codes to represent complex economic phenomena that facilitate efficient data processing. a) Sequential codes – represent items in some sequential order (ascending or descending). Ex. Prenumbered source documents. Advantages 1. Supports the reconciliation of a batch of transactions. Disadvantages: 1. They have limited ability to represent items within a class.
