BSU VISION

A premier national university that develops

leaders in the global knowledge economy.
BSU MISSION
A university committed to producing leaders by
providing a 21st century learning environment
through innovations in education,
multidisciplinary research, and community and
industry partnerships in order to nurture the
spirit of nationhood, propel the national
economy, and engage the world for sustainable
development.
BSU CORE VALUES
• Vertical flows of information
 Patriotism
– downward flows — instructions,
 Service
quotas, and budgets
 Integrity
– upward flows — aggregated transaction
 Resilience and operations data
 Excellence Information Requirements
 Faith • Each user group has unique information
BSU QUALITY POLICY requirements.
Batangas State University is committed to provide • The higher the level of the organization, the
quality service to all customers and satisfy applicable greater the need for more aggregated
requirements through continuous improvement of all information and less need for detail.
university processes. Information in Business
Chapter • Information is a business resource that:
1 The – needs to be appropriately managed
– is vital to the survival of contemporary
businesses
What is a System?
• A group of interrelated multiple components or
subsystems that serve a common purpose
Multiple Components. A system must contain more
than one part. For example, a yo-yo carved from a single
piece of wood and attached to a string is a system.
Information System: An Accountant’s Perspective Without string, it is not a system.
Relatedness. A common purpose relates the multiple
parts of the system. Although each part functions
independently of the others, all parts serve a common
objective. If a particular component does not contribute
to the common goal, then it is not part of the system.
For instance, a pair of ice skates and a volleyball net are
both components. They lack a common purpose,
however, and thus do not form a system.
• System or subsystem?
– A system is called a subsystem when it
Internal Information Flows is viewed as a component of a larger
• Horizontal flows of information used primarily system.
at the operations level to capture transaction – A subsystem is considered a system
and operations data when it is the focus of attention.
System Decomposition versus System – It identifies, collects, processes, and
Interdependency communicates economic information
about a firm using a wide variety of
technologies.
– It captures and records the financial
effects of the firm’s transactions.
– It distributes transaction information to
operations personnel to coordinate

• System Decomposition
– the process of dividing the system into
smaller subsystem parts
• System Interdependency
– distinct parts are not self-contained
– they are reliant upon the functioning of
the other parts of the system
many key tasks.
– all distinct parts must be functioning or
AIS vs. MIS
the system will fail
• Accounting Information Systems (AIS) process
What is an Information System?
– financial transactions; e.g., sale of goods
An information system is the set of formal procedures
– and nonfinancial transactions that
by which data are collected, processed into information,
directly affect the processing of
and distributed to users.
financial transactions; e.g., addition of
Transactions
newly approved vendors
• A transaction is a business event.
• Management Information Systems (MIS)
• Financial transactions
process
– economic events that affect the assets
– nonfinancial transactions that are not
and equities of the organization
normally processed by traditional AIS;
– e.g., purchase of an airline ticket
e.g., tracking customer complaints
• Nonfinancial transactions
AIS Subsystems
– all other events processed by the
• Transaction processing system (TPS)
organization’s information system
– supports daily business operations
– e.g., an airline reservation — no
• General Ledger/ Financial Reporting System
commitment by the customer
(GL/FRS)
– produces financial statements and
reports
• Management Reporting System (MRS)
– produces special-purpose reports for
internal use
The General AIS Model
Data Sources
• Data sources are financial transactions that
enter the information system from internal and
external sources.
– External financial transactions are the
What is Accounting Information Systems? most common source of data for most
• Accounting is an information system. organizations.
 • E.g., sale of goods and services, – Summarization: aggregated in
purchase of inventory, receipt accordance with the user’s needs
of cash, and disbursement of Information System Objectives in a Business Context
cash (including payroll). • The goal of an information system is to support
– Internal financial transactions involve – the stewardship function of
the exchange or movement of management
resources within the organization. – management decision making
• E.g., movement of raw – the firm’s day-to-day operations
materials into work-in-process Organizational Structure
(WIP), application of labor and • The structure of an organization helps to
overhead to WIP, transfer of allocate
WIP into finished goods – responsibility
inventory, and depreciation of – authority
equipment. – accountability
Transforming the Data into Information • Segmenting by business function is a very
Functions for transforming data into information common method of organizing.
according to the general AIS model:
1. Data Collection
• Capturing transaction data
• Recording data onto forms
• Validating and editing the data
2. Data Processing
• Classifying
• Transcribing
• Sorting
• Batching
• Merging
Functional Areas
• Calculating
• Inventory/Materials Management
• Summarizing
– purchasing, receiving and stores
• Comparing
• Production
3. Data Management
– production planning, quality control,
• Storing
and maintenance
• Retrieving
• Marketing
• Deleting
• Distribution
4. Information Generation
• Personnel
• Compiling
• Finance
• Arranging
• Accounting
• Formatting
• Computer Services
• Presenting
Accounting Independence
Characteristics of Useful Information
• Information reliability requires accounting
• Regardless of physical form or technology,
independence.
useful information has the following
– Accounting activities must be separate
characteristics:
and independent of the functional areas
– Relevance: serves a purpose
maintaining resources.
– Timeliness: no older than the time
– Accounting supports these functions
period of the action it supports
with information but does not actively
– Accuracy: free from material errors
participate.
– Completeness: all information essential
– Decision makers in these functions
to a decision or task is present
require that such vital information be
 supplied by an independent source to
ensure its integrity.

The Computer Services Function • Transaction processing, information processing,

and accounting are physically performed by
Organization of Computer Services Function in a people, usually using paper documents.
Centralized System • Useful to study because:
– helps link AIS courses to other
accounting courses
– often easier to understand business
processes when not shrouded in
technology
– facilitates understanding internal
controls
Flat-File Model
Organizational Structure for a Distributed Processing - it is the most often associated with so-called
System legacy systems.
- Flat-file and early database systems are called
Potential Advantages of DDP
• Cost reductions in hardware and data entry
tasks
• Improved cost control responsibility
• Improved user satisfaction since control is
closer to the user level
• Backup of data can be improved through the
use of multiple data storage sites
Potential Disadvantages of DDP
• Loss of control
• Mismanagement of company resources
traditional systems.
• Hardware and software incompatibility
- These are large mainframe systems that were
• Redundant tasks and data
implemented in the late 1960s through the
• Consolidating tasks usually segregated
1980s.
• Difficulty attracting qualified personnel
Flat-file Model describes an environment in which
• Lack of standards
individual data files are not related to other files. End
Manual Process Model
users in this environment own their data files, rather
• It is the oldest and most traditional form of
than share them with other users. Thus, stand-alone
accounting.
applications rather than integrated systems perform The Evolution of IS Models: The Database Model
Through data sharing, the following traditional
problems associated with the flat-file approach may
be:
Elimination of data redundancy. Each data
elements are stored only once, thereby
elimination data redundancy and reducing data
collection and storage costs.
Single update. Because each data element
exists in only one place, it requires only a single

data processing.
The Evolution of IS Models: The Flat-File Model
Data Redundancy Problems
• Data Storage - excessive storage costs of paper
documents and/or magnetic form
• Data Updating - changes or additions must be
performed multiple times
• Currency of Information - potential problem of
failing to update all affected files
• Task-Data Dependency - user’s inability to
obtain additional information as needs change
• Data Integration - separate files are difficult to
integrate across multiple users
update procedure. This reduces the time and
Flat-Files Limit Data Integration
cost of keeping the database current.
- Flat-file approach is a single-view model. (Page
Current Values. A single change to a database
29)
attribute is automatically made available to all
Database Model
users of the attribute.
- By using this model, the organization can
An REA Data Model Example
overcome the problems associated with flat-file.
REA Model
Database Model Systems (DBMS)
• The REA model is an accounting framework for
- It is a special software system that is
modeling an organization’s
programmed to know which data elements
– economic resources; e.g., assets
each user is authorized to access
– economic events; i.e., affect changes in
resources
– economic agents; i.e., individuals and
departments that participate in an
economic event
– Interrelationships among resources,
events and agents
• Entity-relationship diagrams (ERD) are often
used to model these relationships.
Enterprise Resource Planning (ERP)
- Is an information system model that enables an
organization to automate and integrate its key
business process.
- It breaks down traditional functional barriers by
facilitating data sharing, information flows, and
 the introduction of common business practices
among all organizational users.
ERP Models include:
• Asset Management
• Financial accounting
• Human Resources
• Industry-Specific Solutions
• Plant Maintenance
• Production Planning
• Quality Management
• Sales and Distribution
• Inventory Management

THE ROLE OF THE ACCOUNTANTS

Accountants as Information System Users
• Accountants must be able to clearly convey
their needs to the systems professionals who
design the system.
• The accountant should actively participate in
systems development projects to ensure
appropriate systems design.
Accountants as System Designers
• The accounting function is responsible for the
conceptual system, while the computer
function is responsible for the physical system.
• The conceptual system determines the nature
of the information required, its sources, its
destination, and the accounting rules that must
be applied.
Accountants as System Auditors
• External Auditors
– attest to fairness of financial statements
– assurance service: broader in scope
than traditional attestation audit
• IT Auditors
– evaluate IT, often as part of external
audit
• Internal Auditors
– in-house IS and IT appraisal services
CHAPTER 2: INTRODUCTION TO TRANSACTION the movement of the work-in process
Financial Transaction - An economic event that affects through its various stages of
the assets and equities of the firm, is reflected in its manufacturing.
accounts, and is measured in monetary terms.  Cost Accounting System monitors the flow
of cost information related to production.
TRANSACTION CYCLES Information this system produces is used for
1. Expenditure Cycle - business activities begin with inventory valuation, budgeting, cost control,
the acquisition of materials, property, and labor in performance reporting, and management
exchange for cash decisions, such as make-or-buy decisions.
 Physical Component (the acquisition of 3. Revenue Cycle - involves processing cash sales,
the goods) credit sales, and the receipt of cash following a
 Financial component (the cash credit sale.
disbursement to the supplier) Primary Subsystems:
Major subsystem of the expenditure cycle:  Sales order processing. The majority of
 Purchases/accounts payable system. This business sales are made on credit and
system recognizes the need to acquire physical involve tasks such as preparing sales orders,
inventory (such as raw materials) and places an granting credit, shipping products (or
order with the vendor. rendering of a service) to the customer,
 Cash disbursements system. When the billing customers, and recording the
obligation created in the purchases system is transaction in the accounts (accounts
due, the cash disbursements system authorizes receivable, inventory, expenses, and sales).
the payment, disburses the funds to the vendor, Cash receipts. For credit sales, some period
and records the transaction by reducing the of time (days or weeks) passes between the
cash and accounts payable accounts. point of sale and the receipt of cash. Cash
 Payroll system. The payroll system collects receipts processing includes collecting cash,
labor usage data for each employee, computes depositing cash in the bank, and recording
the payroll, and disburses paychecks to the these events in the accounts (accounts
employees. Conceptually, payroll is a special- receivable and cash).
case purchases and cash disbursements system.
Because of accounting complexities associated ACCOUNTING RECORDS
with payroll, most firms have a separate system Manual Systems
for payroll processing. Document provides evidence of an economic event and
 Fixed asset system. A firm’s fixed asset system may be used to initiate transaction processing. Some
processes transactions pertaining to the documents are a result of transaction processing.
acquisition, maintenance, and disposal of its 3 Types of Documents:
fixed assets. These are relatively permanent a. Source Documents. Economic events result in
items that collectively often represent the some documents being created at the beginning
organization’s largest financial investment. (the source) of the transaction. These are called
Examples of fixed assets include land, buildings, source documents. Source documents are used
furniture, machinery, and motor vehicles. to capture and formalize transaction data that
2. Conversion Cycle the transaction cycle needs for processing.
Major Subsystems: b. Product Documents. Product documents are
 Production system involves the planning, the result of transaction processing rather than
scheduling, and control of the physical the triggering mechanism for the process. For
product through the manufacturing example, a payroll check to an employee is a
process. This includes determining raw product document of the payroll system.
material requirements, authorizing the c. Turnaround Documents. Turnaround
work to be performed and the release of documents are product documents of one
raw materials into production, and directing
 system that become source documents for • The data entry and computer programs are the
another system. physical trail.
• The data are stored in magnetic files.
Journal is a record of a chronological entry.
Primary Types of Journals: Types of Files:
a. Special Journals. Special journals are used to a. Master File. A master file generally contains
record specific classes of transactions that occur account data. The general ledger and subsidiary
in high volume. Such transactions can be ledgers are examples of master files.
grouped together in a special journal and b. Transaction File. A transaction file is a
processed more efficiently than a general temporary file of transaction records used to
journal permits. change or update data in a master file. Sales
b. Register. The term register is often used to orders, inventory receipts, and cash receipts are
denote certain types of special journals. For examples of transaction files.
example, the payroll journal is often called the c. Reference File. A reference file stores data that
payroll register. We also use the term register, are used as standards for processing
however, to denote a log. transactions.
c. General Journals. Firms use the general journal d. Archive File. An archive file contains records of
to record nonrecurring, infrequent, and past transactions that are retained for future
dissimilar transactions reference. Archive files include journals, prior-
period payroll information, lists of former
Ledger is a book of accounts that reflects the financial employees, records of accounts written off, and
effects of the firm’s transactions after they are posted prior-period ledgers.
from the various journals. Whereas journals show the
chronological effect of business activity, ledgers show Documentation Techniques
activity by account type. A ledger indicates the 6 Basic Techniques:
increases, decreases, and current balance of each a. Data flow diagram (DFD) uses symbols to
account. represent the entities, processes, data
Basic Types of Ledgers: flows, and data stores that pertain to a
a. General ledgers system.
- contain the firm’s account information in the b. Entity relationship (ER) diagram is a
form of highly summarized control accounts. documentation technique used to represent
- summarizes the activity for each of the the relationship between entities. Entities
organization’s accounts. are physical resources (automobiles, cash,
- provides a single value for each control account, or inventory), events (ordering inventory,
such as accounts payable, accounts receivable, receiving cash, shipping goods), and agents
and inventory. (salesperson, customer, or vendor) about
b. Subsidiary ledgers which the organization wishes to capture
- contain the details of the individual accounts data.
that constitute a particular control account. Cardinality - degree of the relationship
- kept in various accounting departments of the c. Flowchart is a graphical representation of a
firm, including inventory, accounts payable, system that describes the physical
payroll, and accounts receivable. relationships between its key entities.
Flowcharts can be used to represent
Audit Trail – use in tracing transactions from source manual activities, computer processing
documents to the financial statements. activities, or both.
Document flowchart is used to depict the
Computer-Based Systems elements of a manual system, including
• The audit trail is less observable in computer- accounting records (documents, journals,
based systems than traditional manual systems. ledgers, and files), organizational
departments involved in the process, and
activities (both clerical and physical) that

BATCH PROCESSING
- permits the efficient management of a large
volume of transactions.
- is an economical method of high-volume
transaction processing.
Batch is a group of similar transactions (such as sales
orders) that are accumulated over time and then
are performed in the departments. processed together.

System flowcharts portray the computer Record layout diagrams are used to reveal the internal
aspects of a system. They depict the structure of the records that constitute a file or
relationships between input (source) data, database table. The layout diagram usually shows the
transaction files, computer programs, name, data type, and length of each attribute (or field)
master files, and output reports produced in the record.
by the system. System flowcharts also Characteristic Differences between Batch and Real-
describe the type of media being used in Time Processing
the system, such as magnetic tape, DATA PROCESSING METHODS
Distinguishing Batch Real-Time
Feature
Information Lag exists Processing
Time Frame between time takes place
when the when the
economic event economic event
occurs and occurs.
when it is
recorded.
Resources Generally, More resources
fewer resources are required
(hardware, than for batch
programming, processing.
magnetic disks, and terminals. training) are
required.
Program flowcharts describe the internal Operational Certain records All records
logic of computer programs. Efficiency are processed pertaining to
after the event the event are
to avoid processed
operational immediately.
delays

DIFFERENCES BETWEEN BATCH AND REAL-TIME

SYSTEMS:
-------------------Information Time Frame---------------------
Batch systems  Byte of data (representing a character, digit, or
- assemble transactions into groups for special symbol) is recorded on the tape across its
processing. width. (One byte equals eight binary digits, or bits. A
- there is always a time lag between the point at bit is the smallest possible unit of electronic
which an economic event occurs and the point information, with a value of either 0 or 1.)
at which it is reflected in the firm’s accounts.  Data stored on magnetic disks (hard disks or floppy
Real-time systems disks) are considered nonvolatile. The data will
- process transactions individually at the moment reside in a certain location on the magnetic surface
the event occurs. until they are replaced with different data or
- As records are not grouped into batches, there erased.
are no time lags between occurrence and  Disks are known as direct access storage devices
recording. because a piece of data can be accessed directly on
------------------------------Resources---------------------------- the disk.
Batch systems demand fewer organizational resources  File allocation table is an area on the disk that
(such as programming costs, computer time, and user keeps track of the name of each file, the number of
training) than real-time systems. bytes in the file, the date and time it was created,
Real-time systems use direct access files that require the type of file, and its location (address) on the
more expensive storage devices, such as magnetic disks. disk.
-------------------------Operational Efficiency------------------  Disk Address. The concept of an address applies to
Real-time processing in systems that handle large all types of magnetic disks, including individual
volumes of transactions each day can create floppy disks and hard disks used in microcomputers
operational inefficiencies. A single transaction may and the larger mainframe disk packs.
affect several different accounts.  Data Storage on a Disk Pack. Every disk in a disk
Batch processing of noncritical accounts, however, pack has two surfaces with the same number of
improves operational efficiency by eliminating tracks on each surface.
unnecessary activities at critical points in the process.  Locating a Record Based on Its Address. A disk
address consists of three components: the cylinder
Legacy systems tend to have the following number, the surface number, and the record (or
distinguishing features: they are mainframe-based block) number. To find a record, the system must
applications; they tend to be batch oriented; early know the numeric value for each of these
legacy systems use flat files for data storage; however, components.
hierarchical and network databases are often associated  Optical disks are growing in popularity. The
with later-era legacy systems. These highly structured advantage of optical disks is that they can store very
and inflexible storage systems promote a single-user large amounts of data. A compact disc, one type of
environment that discourages information integration optical disk, is as portable as a floppy disk but can
within business organizations. store more than 600 MB of data. There are several
Modern systems tend to be client-server (network) types of optical disk storage systems, including CD-
based and process transactions in real time ROM, WORM, and erasable optical disks.
 CD-ROM (Compact Disc Read-Only Memory) is a
------------------------------APPENDIX------------------------------ secondary storage device that contains data or
 Secondary storage includes devices used to store programs imprinted by the manufacturer. However,
and retrieve system software, application software, the user cannot write to (alter) the data on the CD
and data on magnetic or optical media, such as because it is a read-only device.
magnetic tape, hard or floppy disks, and CD-ROMs.  WORM (Write-Once, Read-Many) disk is a
 Modern magnetic tape systems use reels that are secondary storage device that allows the user to
similar to a VCR tape. write to the disk one time.
 Tape drive is used to record bits of data onto  Erasable Optical Disk allows the user to store and
magnetic tape by winding the tape from one reel to modify data on the disk many times.
the other and passing it across a read/write head.
 Data structures constitute the physical and logical  Virtual storage access method (VSAM) structure is
arrangement of data in files and databases. used for very large files that require routine batch
 Organization refers to the way records are processing and a moderate degree of individual
physically arranged on the secondary storage device record processing.
(for example, a disk). This may be either sequential  Hashing structure employs an algorithm that
or random. converts the primary key of a record directly into a
 Records in sequential files are stored in contiguous storage address.
locations that occupy a specified area of disk space.  Pointer structure is used to create a linked list file.
 Records in random files are stored without regard This approach stores in a field of one record the
for their physical relationship to other records of address (pointer) of a related record. The pointers
the same file. In fact, random files may have records provide connections between the records.
distributed throughout a disk.  Relative address pointer contains the relative
 Access Method is the technique used to locate position of a record in the file.
records and to navigate through the database or  Logical key pointer contains the primary key of the
file. related record. This key value is then converted into
 Data processing is thus performed by stand-alone the record’s physical address by a hashing
applications rather than integrated systems. algorithm.
 Flat-File Approach is a single-view model that  Batch mode using sequential file structures is the
characterizes legacy systems in which data files are most basic computer-processing configuration.
structured, formatted, and arranged to suit the  Updating a master file record involves changing the
specific needs of the owner or primary user of the value of one or more of its variable fields to reflect
system. the effects of a transaction.
Typical File Processing Operations:  An important characteristic sequential file update
1. Retrieve a record from the file based on its process is that it produces a new physical master
primary key value. file. The new file contains all of the records from the
2. Insert a record into a file. original file, including those that were updated by
3. Update a record in the file. transactions and those that were not updated.
4. Read a complete file of records.  Grandparent–Parent–Child Approach automatic
5. Find the next record in a file. backup capability.
6. Scan a file for records with common secondary  Start-Up
keys. The process begins by reading the first transaction
7. Delete a record from a file (T) and the first master (M) record from their
 Sequential Structure is typically called Sequential respective files in the computer’s memory. The T
Access Method. and M records in memory are designated as the
 Sequential files are simple and easy to process. The current records.
application starts at the beginning of the file and  The first step in the update loop is to compare the
processes each record in sequence. key fields of both records. One of three possible
 Direct access structures store data at a unique conditions will exist:
location, known as an address, on a hard disk or a) T = M. When the key of T is equal to that of
floppy disk. M, the transaction record matches the
 Indexed structure is so named because, in addition master record. Having found the correct
to the actual data file, there exists a separate index master, the program updates the master
that is itself a file of record addresses. This index from the transaction. The update program
contains the numeric value of the physical disk then reads another T record and compares
storage location (cylinder, surface, and record the keys. If they are equal, the master is
block) for each record in the associated data file. updated again. This continues until the key
 Records in an indexed random file are dispersed values change; recall that under
throughout a disk without regard for their physical Assumption 2, there may be many Ts for
proximity to other related records. any M record.
b) T > M. The normal change in the key value
relationship is for T to become greater than
M. This is so because both T and M are
sorted in ascending order (Assumption 3).
The T > M relation signifies that processing
on the current master record is complete.
The updated master (currently stored in
computer memory) is then written to a new
master file—the child—and a new M record
is read from the original (parent) file.
c) T < M. The T < M key relationship signifies
an error condition.