Accounting

Information Systems
OLFU

Mon 10:20 – 12:20PM – LEC

Wed 10:20 – 1:20PM – LAB

 Accounting
Information Systems
20XX 2
Part 1 – Overview
of Accounting
Information
System
The Information Environment (Internal and External Flow of Information)
Define System
➢ System is a group of two or more interrelated components or subsystems that serve a common
purpose.

3 Essential Elements

a) Multiple Components

b) Relatedness

c) Purpose
Example of
Artificial
System
Automobile satisfies the
definition of a system.
2 Points in the Study of Systems
1) System Decomposition
Process of dividing the system into smaller subsystem parts. This is a convenient way of representing, viewing and understanding the
relationships among subsytems.
Automobile

Propulsion Electrical
Fuel system Brake System
System System

Brake
Fuel Tank Engine Lights
Pedal

Master
Fuel Pump Transmission Ignition
Cylinder

Fuel Injector Wheels Radio Brake Lines

2) Subsystem Interdependency Battery Disk

A system’s ability to achieve its goal depends on the effective functioning and harmonious interaction of its subsystems.
Information
System

A set of formal procedures by

which data are collected,
processed into information, and
distributed to users.
Financial transaction
- economic event that affects the assets
and equities of the organization, is reflected in its
accounts and is measured in monetary terms

Nonfinancial transactions
- residual definition
- example: adding a new vendor/supplier

Transactions
 2 Types of
Information
Systems
1) Accounting Information System

2) Management Information Systems

 Accounting Management
Information System Information System
(AIS) (MIS)
1. Collects financial data 1. Collects non-financial
data

2. Used by accountants 2. Used by managers at all

and financial managers levels of the organization

3. Reports are financial 3. Reports are analytical,

statements and budget dashboards and forecasts
reports

4. Main function includes 4. Main functions include

recordkeeping and information gathering,
transaction processing. analysis and decision
making.
 Information Systems

Accounting Information Management Information

System System

General Transaction Financial Human

Management Marketing Distribution
Ledger/Financial Processing Management Resource
Reporting System Systems System
Reporting System System Systems System

Revenue Cycle Expenditure Cycle Conversion Cycle

Sales Processing Cost Accounting

Purchase System
System System

Cash Receipts Cash Disbursement Production Planning

System System and Control System

Payroll Processing
System

Fixed Asset System

 3 Major Subsystems of AIS
1) Transaction Processing System (TPS)
Supports daily business operations with numerous reports,
documents and messages for users throughout the organization

2) General Ledger/Financial reporting system (GL/FRS)

Produces financial statements (SFP, P&L, Cash Flows, tax
returns)

3) Management Reporting System (MRS)

Provides internal management with special purpose financial
reports and information needed for decision making (e.g.
budgets, variance reports)
Management Information System (MIS)
➢ processes non-financial transactions that are not normally processed by AIS.
Examples of MIS applications in functional areas
Function Examples of MIS Applications
a.) Finance Portfolio Management Systems
Capital Budgeting Systems
b.) Marketing Market Analysis
New Product Development
Product Analysis
c.) Distribution Warehouse organization and scheduling
Delivery scheduling
d.) Personnel HR management systems
➢ Job Skill Tracking system
➢ Employee Benefits system
Transaction Processing System
(TPS)
➢ Central to the overall function of the information system.
➢ Like a laborer, it deals with business events that occurs frequently.
➢ For huge corporations, thousands of transactions are being processed
in a particular day, hence similar types of transactions are grouped into
three (3) transaction cycles.
1. Revenue Cycle
2. Expenditure Cycle
3. Conversion Cycle
General Ledger/Financial
Reporting System (GL/FRS)
➢ Summaries of transaction cycle activity are processed by
GL system to update the general ledger control accounts.
➢ The FRS measures and reports the status of financial
resources and the changes in those resources and
communicated to external users (FS, Tax Returns and
other legal documents)
Management Reporting System
➢ provides internal financial information needed to manage a business.
➢ Typical reports:
a) Budgets
b) Variance reports
c) Cost volume profit analyses
d) Other Reports using current (instead of historical data) cost data
*** This type of reporting is called discretionary reporting because
the organization can choose what information to report and how to present it
General Model for AIS
The Database
Information Management
System

External
Data Data Information External End
Sources of Collection Processing Generation Users
Data

Feedback

Internal Sources Internal End

of Data Users
The Business Organization
7 Elements of General Model for AIS
1) End Users

2) Data Sources

3) Data Collection

4) Data Processing

5) Database Management

6) Information Generation

7) Feedback
End Users
1. External Users
◦ EPILOC – Existing and potential investors, lenders and other
creditors
◦ Government agencies (BIR, DTI, SEC)
◦ Customers and suppliers
2. Internal Users
◦ Management
◦ Operations personnel
Data Sources
➢ Financial transactions that enter the information system from both internal and external
sources.

➢ External financial transactions are the most common source of data for most organizations.

External Transactions Internal Transactions

1. Sale of goods and/or services 1. Movement of raw materials into WIP
2. Purchase of inventory 2. Application of Labor and Overhead to WIP
3. Cash Receipts 3. Transfer of WIP into FG Inventory
4. Cash Disbursement 4. Depreciation of Plant and Equipment
 Data Collection
➢ The first operational stage in the information system.
➢ The most important stage in the system because it filters the data that are entering into
the system and ensure that they are valid, accurate and free from material errors.

2 Rules for Data Collection Procedures:

1) Relevance - IS should only capture relevant data. Irrelevant facts must be filtered.
2) Efficiency – IS have limited data storage capacity so data redundancy must be
avoided because it overloads facilities and reduces the overall efficiency of the
system.
 Data Processing
➢ After data collection, data is process further to produce information.
Examples:
a) Linear programming models
b) Statistical techniques for sales forecasting
c) Posting and summarizing procedures used for accounting applications
Database
Management
Database is the physical repository for
financial and nonfinancial data.
Data Hierarchy

Files

Record

Data
Attribute
Data Attribute
➢ Most elemental piece of potentially useful
data in the database.

➢ Example

Attributes of Accounts Receivable are:

(a) Customer Account Number
(b) Customer Name
(c) Customer Address
(d) Current Balance of Account
(e) Customer Credit Limit
Record
➢ A complete set of attributes for a single
occurrence within an entity class.

Attributes of Accounts Receivable:

(a) Customer Account Number
(b) Customer Name Accounts
(c) Customer Address Receivable
(d) Current Balance of Account Record
(e) Customer Credit Limit
Files
➢ A complete set of records of an identical
class.

Accounts
Receivable
Accounts
Record 06
Receivable
Accounts
Record 05
Receivable
Accounts
Record 04 Accounts
Receivable Receivable
Accounts
Record 03
Receivable File
Record 02

Accounts
Receivable
Record 01
Database Management
3 Fundamental Tasks
1) Storage – assigns keys to new records and
stores them in their proper location in the
database

2) Retrieval – locating and extracting an

existing record from the database for
processing.

3) Deletion – permanently removing obsolete

or redundant records from the database.
Information Generation
➢ The process of compiling , arranging,
formatting and presenting information to
user.

➢ Information can be an operational document

such as Sales Order, a Structured Report or a
message on a computer screen.
Characteristics of Useful Information
1. Relevance
2. Timeliness
3. Accuracy
4. Completeness
5. Summarization
FEEDBACK ➢ A form of output that is
sent back to the system
as a source of data

➢ Inventory Status Report

reaching minimum
allowable levels would
feedback the Inventory
clerk to initiate re-order
process.
Information System
Objectives

1. To support the stewardship function of management.

Stewardship is management’s responsibility to
properly manage the resources of the firm.

2. To support management decision making.

3. To support the firm’s day to day operations.

Acquisition of Information Systems
1.) Inhouse system development

2.) Purchase of pre-programmed commercial systems from software vendors

Currently, how much does a Software Development Engineer earn in a month in the
3 Basic Types of
Commercial Software
1) Turnkey Systems
--- completely finished and tested
systems that are ready for implementation.

2) Backbone Systems
--- consist of basic system structure
on which to build. The primary processing
logic is pre-programmed, and the vendor
designs the user interfaces to suit the client’s
unique needs.

3) Vendor-supported systems
--- customized systems that client
organizations purchased commercially rather
than develop in-house. The software vendor
designs, implements and maintains the
system for its client.
Examples of Turnkey
Systems
- Salesforce
- Wordpress
- Automated assembly line (Manufacturing
setting)
- POS Systems
Examples of Backbone
Systems
a) Trading systems (Financial)

b) Telcom switching systems

(network/telecom)

c) Fiber optic backbone (network/telecom)

d) Air traffic control systems (transportation)

e) Power grid control system (Energy)

f) Learning Management System (Educational)

Examples of Vendor-Supported
Systems
Enterprise resource planning (ERP) is a
software system that helps you run your entire
business, supporting automation and processes
in finance, human resources, manufacturing,
supply chain, services and procurement.

a) SAP

b) Oracle

c) Quickbooks

d) Peachtree