Adopted from Accounting Information Systems
Romney, M.B. and Steinbart, P.J.
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
data
management
data
processing
Information
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?
• It’s 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
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• 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
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• Auditors need to evaluate the accuracy and
reliability of information produced by the
AIS.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• Tax accountants must understand the
client’s AIS adequately to be confident that
it is providing complete and accurate
information for tax planning and
compliance work.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• In management consulting, the design,
selection, and implementation of
accounting systems is a rapid growth area.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• In private industry and not-for-profits,
systems work is considered the most
important activity performed by
accountants.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• 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.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• 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.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• 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
organization’s 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 entity’s 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
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
of decisions!
 Doing advertising and marketing
different types
 Selling goods or services
(financial
or nonEach
decision
 Collecting payment from customers
financial) and
requires
 Paying employees
from different
 Paying taxes
different types
sources (internal
 Paying vendors
ofor
information.
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
• 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
REVENUE CYCLE
• The revenue cycle involves interactions
with your customers.
• You sell goods or services and get cash.
Give
Goods
Get
Cash
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
EXPENDITURE CYCLE
• The expenditure cycle involves interactions
with your suppliers.
• You buy goods or services and pay cash.
Give
Cash
Get
Goods
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
PRODUCTION CYCLE
• In the production cycle, raw materials and
labor are transformed into finished goods.
Give Raw
Materials &
Labor
Get
Finished
Goods
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
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
Human resources/payroll 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 company’s 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
–
–
–
–
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
45
Data that has been
processed into
information
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
• A number of actions can be taken to
improve the accuracy and efficiency of data
input:
– Turnaround documents
– 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
• A number of actions can be taken to
improve the accuracy and efficiency of data
input:
– Turnaround documents
– Source data automation
– Well-designed source documents and data
entry screens
DATA INPUT
• A number of actions can be taken to
improve the accuracy and efficiency of data
input:
– Turnaround documents
– Source data automation
– 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.
• Let’s 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 isn’t 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-accounts—one 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
• The chart of accounts is a list of all general
• Ledger
ledger accounts an organization uses.
• General ledger
• The structure of this chart is an important AIS
• Subsidiary
issue, as itledger
must contain sufficient detail to meet
the organization’s
• Coding
techniquesneeds.
• Chart of accounts
DATA STORAGE
• Ledger
• General ledger
• Subsidiary
ledger and some accounting
In manual systems
• Coding
techniques
packages,
the first place that transactions
are entered
is the journal.
• Chart
of accounts
• Journals
DATA STORAGE
• An audit trail exists when there is sufficient
• Ledger
documentation to allow the tracing of a
• General
ledger
transaction
from beginning to end or from the
end back to
the beginning.
• Subsidiary
ledger
• The inclusion
of posting references and
• Coding
techniques
document numbers enable the tracing of
• Chart
of accounts
transactions
through the journals and ledgers
• Journals
and therefore facilitate the audit trail.
• Audit trail
DATA STORAGE
• Now that we’ve learned some storage
terminology, let’s 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
• Let’s work through an example with a
special journal. In this case we’ll 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 day’s end, they will post each
individual transaction to the accounts receivable
subsidiary ledger:
• An P800 increase in accounts receivable (debit) will
be posted to Avatar’s subsidiary account (120-122).
• A P700 debit will be posted to ToyStor’s subsidiary
account (120-033).
• A P900 debit will be posted to Karate’s 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
2,400
Sales revenue
2,400
12/01/10 Cash
1,800
Accounts receivable
1,800
12/01/10 Salaries expense
Cash
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
COMPUTER-BASED STORAGE
CONCEPTS
• An entity is something about which
information is stored.
• In your university’s 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?
COMPUTER-BASED STORAGE
CONCEPTS
• 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?
COMPUTER-BASED STORAGE
CONCEPTS
• 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
Col. 10-30
Col. 31-40
Col. 41-50
328469993
328500732
SIMPSON
ANDREWS
ALICE
BARRY
4053721111
4057440236
529036409
FLANDERS
CARLA
4057475863
COMPUTER-BASED STORAGE
CONCEPTS
• A record is the set of attributes stored for a
particular instance of an entity.
• The combination of attributes stored for
Barry Andrews is Barry’s 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
COMPUTER-BASED STORAGE
CONCEPTS
• 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
Col. 10-30
Col. 31-40
Col. 41-50
328469993
328500732
SIMPSON
ANDREWS
ALICE
BARRY
4053721111
4057440236
529036409
FLANDERS
CARLA
4057475863
COMPUTER-BASED STORAGE
CONCEPTS
• 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
ANDREWS
BARRY
4057440236
529036409
FLANDERS
CARLA
4057475863
COMPUTER-BASED STORAGE
CONCEPTS
• A master file is a file that stores
cumulative information about an
organization’s 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.
COMPUTER-BASED STORAGE
CONCEPTS
• 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
COMPUTER-BASED STORAGE
CONCEPTS
• A database is a set of interrelated,
centrally-coordinated 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
• Updating can be done through several
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
• Updating can be done through several
approaches:
– Batch processing
– On-line Batch Processing
– On-line, Real-time Processing
DATA PROCESSING
• On-line, Real-time 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
• Updating can be done through several
approaches:
• Batch processing
• On-line Batch Processing
• On-line, Real-time Processing
• If you’re 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
• This output can be in the form of:
– 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
• This output can be in the form of:
– 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 entity’s 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 planning purposes
• For management of day-to-day operations
INFORMATION OUTPUT
Performance
outputs that
are used for
•• Output
can reports
serve are
a variety
of purposes:
control purposes.
–
Financial
statements
can
be
provided
to
both
• These reports compare an organization’s standard or
external
and internal
parties.
expected
performance
with
its actual outcomes.
– Some outputs
are specifically
for internal
use:
• Management
by exception
is an approach
to utilizing
performance
reports
that focuses on investigating and
• For planning
purposes
acting
on management
only those variances
that operations
are significant.
• For
of day-to-day
• For control purposes
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
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 shouldn’t
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, you’re also unlikely to
achieve when you don’t 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
company’s operations (including both financial
and non-financial 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?
End of Chapter 2
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
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
A data flow diagram consists of four
basic elements:
–Data sources and destinations
–Data flows
–Transformation processes
–Data stores
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
• Data sources and destinations
– 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?
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
A data flow diagram consists of
four basic elements:
–Data sources and destinations
–Data flows
–Transformation processes
–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?
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
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
A data flow diagram consists of
four basic elements:
–Data sources and destinations
–Data flows
–Transformation processes
–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.
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
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
you’re 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: You’re 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 preparer’s name
DATA FLOW DIAGRAMS
4 Now that we’ve been through the guidelines
for developing DFDs, let’s go back to the
chapter example and see if we can re-create a
part of it.
4 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
4 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 employee’s 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
4 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 employee’s 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.
The portion marked in red relates to activities that go on outside the
boundaries of the payroll system. Consequently, these activities will not be
included on the DFD.
DATA FLOW DIAGRAMS
4 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 employee’s 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.
The portion marked in red suggests two data flows coming into the payroll
process (new employee forms and employee change forms). The source of
the inflows is the human resources department.
DATA FLOW DIAGRAMS
Data Inputs
New employee forms and
employee change forms
(from H.R. Dept.)
Processes
Data Outputs
DATA FLOW DIAGRAMS
4 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 employee’s 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.
The sentence marked in red suggests a process (update employee records)
with the data outflow going to a data store (the employee/payroll file).
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
DATA FLOW DIAGRAMS
4 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 employee’s 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.
The final sentence in this paragraph provides information about the
physical storage of the data. Physical information is utilized in flowcharts
but not in data flow 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
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
4 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
4 The data flow diagram focuses on the logical flow of
data.
4 Next, we will discuss flowcharts, which place greater
emphasis on physical details.