ACCOUNTING INFORMATION SYSTEM

OVERVIEW OF
TRANSACTION PROCESSING
Chapter 2
 General Model for Accounting Information System

External Environment

The Information Database

System Management

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

Feedback
Internal Internal
Sources of Users of
The Business
Data Data
Organization

Feedback
General Model for Accounting Information System

 Data sources are financial transactions that enter

the information system from both internal and
external sources.
 Data Collection is the first operational stage in the
information systems. The objective is to ensure that
event data entering the system are valid, complete,
and free from material errors. Two rules govern the
design of data collection procedures: relevance and
efficiency. Information system should capture only
relevant data. Efficiency data collection procedures
are designed to collect data only once.
General Model for Accounting Information System

 Data Processing. Once collected, data usually

require processing to produce information.
 Database Management. The organization’s
database is its typical repository for financial and
nonfinancial data.
 Data Attribute
 Record
 File
General Model for Accounting Information System

 Information Generation is the process of compiling,

arranging, formatting and presenting information to
users.
 Characteristics of a useful information
 Relevance

 Timeliness

 Accuracy

 Completeness

 Summarization

 Feedback is a form of output that is sent back to the

system as a source of data.
Management Decision Making

1. Intelligence: Searching the environment

for conditions calling for a decision.
2. Design: Inventing, developing, and
analyzing possible courses of action.
3. Choice: Selecting a course of action.
Management Decision Making

7
Management Problem Structure and
Information Requirements

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Structure of Decisions
 Structured decisions: those for which all three
decision phases (intelligence, design, and choice) are
relatively routine or repetitive.
 Unstructured decisions: those for which none of the
decision phases (intelligence, design, or choice) are
routine or repetitive.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Horizontal and Vertical Information Flows

 Horizontal information flows relate to specific

business events, such as one shipment, or to
individual inventory items. The information moves
through operational units such as sales, the
warehouse, and accounting.
 Vertical information flows service a multi-level
management function from operations and
transaction processing through tactical, operations,
and strategic management.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Information System Breakdown
Information
System

Accounting Management
Information Information
System System

TPS GL/FRS MRS

Expenditure Conversion Revenue

Cycle Cycle Cycle
Transaction Cycles

 Three transaction cycles most of the firm’s

economic activity:
The Expenditure Cycle
The Conversion Cycle
The Revenue Cycle
The Expenditure Cycle
 Business activities begin with the acquisition of
materials, property, and labor in exchange for cash.
Most expenditure transactions are based on a
credit relationship between trading parties. The
actual disbursement of cash takes place at some
point after the receipt of goods or services. Days or
even weeks may pass between these two events.
Thus, from the system perspective, this transaction
has two parts: a physical component (the acquisition
of goods) and a financial component (the cash
disbursement to the supplier).
Subsystems of Expenditure Cycle

 Purchases/Accounts Payable System

 Cash Disbursements Systems

 Payroll Systems

 Fixed Assets System

Purchases/Accounts Payable System

 This system recognizes the need to

acquire physical inventory and places an
order with the vendor. When goods are
received, the purchases system records
the events by increasing inventory and
establishing an account payable to e
paid at a later date.
Cash Disbursements Systems

 When the obligation created in the

purchases system is due, the cash
disbursements systems authorizes the
payment, disburses the funds to the
vendor, and records the transaction by
reducing the cash and accounts payable
accounts.
Payroll System

 The payroll system collects labor usage

data for each employee, computes the
payroll, and disburses paychecks to the
employees. Conceptually, payroll is a
special case purchase and cash
disbursements system. Because accounting
complexities associated with payroll, most
firms have a separate systems for payroll
processing.
Fixed Asset System

 A firm’s fixed asset system processes

transactions pertaining to the acquisition,
maintenance, and disposal of its fixed
assets. These are relatively permanent
items that collectively often represent the
organization’s largest financial investment.
The Conversion Cycle

 The conversion cycle is composed of two

major subsystem: the production system
and the cost accounting system. The
production system involves the planning,
scheduling, and control of the physical
product through the manufacturing
process.
The Revenue Cycle
 Firms sell their finished goods to customers through
the revenue cycle, which involves processing cash
sales, credit sales, and the receipt of cash following
a credit sale. Revenue cycle transactions also have a
physical and a financial component, which are
processed separately.
 The primary subsystems of Revenue Cycle are:
 SalesOrder Processing
 Cash Receipts
Sales Order Processing

 The majority of business sales are made

on credit and involve tasks such as
preparing sales orders, granting credit,
shipping products (or rendering services)
to the customer, billing customers, and
recording the transaction in the accounts.
Cash Receipts

 For credit sales, some period of time

(days or weeks) passes between the
point of sale and the receipt of cash.
Cash receipts processing includes
collecting cash, depositing cash in the
bank, and recording these events in the
accounts.
Documenting Processes

 Process documentation is a important skill in accounting

 You will learn that data flow diagrams portray a
business processes’ activities, stores of data, and flows
of data among those elements.
 Systems flowcharts, on the other hand, present a
comprehensive picture of the management, operations,
information systems, and process controls embodied in
business processes.

23
 Basic DFD Symbols
24
CONTEXT DIAGRAM

25
 Physical DFD
26

A physical data flow diagram is a graphical

representation of a system showing the system’s
internal and external entities, and the flows of data
into and out of these entities.
 A physical DFD specifies where, how, and by whom a
system’s processes are accomplished.
 A physical DFD does not tell us what is being
accomplished.
 In the following slide, we see where the cash goes and
how the cash receipts data are captured (that is, on
the register tape), but we don’t know exactly what
was done by the sales clerk.
 Physical DFD

27
 Logical DFD
28

A logical data flow diagram is a graphical representation of

a system showing the system’s processes (as bubbles), data
stores, and the flows of data into and out of the processes
and data stores.
 We use a logical DFD to document information systems
because we can represent the logical nature of a system—
what tasks the system is doing— without having to specify
how, where, or by whom the tasks are accomplished.
 The advantage of a logical DFD (versus a physical DFD) is
that we can concentrate on the functions that a system
performs.
 So, a logical DFD portrays a system’s activities, whereas a
physical DFD depicts a system’s infrastructure.
 We need both pictures to understand a system completely.
29

Logical
DFD
 Balanced DFDs
30

 The next slide depicts “balanced” data flow

diagrams.
 Balanced DFDs exist when the external data

flows are equivalent.

 DFD (a) is a context diagram and (b) is an
“explosion” of it into a level 0 logical DFD.
 DFD (c), (d) and (e) are “explosions” of the

logical level 0 DFD, and so on.

31

Balanced
DFDs
 Standard
Flowchart
Symbols

32
 Common system flowcharting routines
33

 The following slides show several

common ways of showing processing
using system flowcharting.
 Pay particular attention to the way the
columns are set up to communicate the
flow of activities between processing
entities.
Enter document into
computer via keyboard,
edit input, record input
User queries the
computer

Update sequential
data store
 Preparation and later manual
reconciliation of control
totals

36
 Key and key verify
inputs

37
Enter
document
into
computer
using a
scanner
Enter document into computer using scanner & manual keying
 Preparing Data Flow Diagrams
40

 Read narrative carefully - number lines

and paragraphs in text
 Prepare table of entities and activities

 Draw context diagram - use DFD

guidelines
 DFD Guidelines
41

 1. Include within the system context (bubble) any entity that

performs one or more information processing activities.
 2. For now, include only normal processing routines, not
exception routines or error routines, on context diagrams,
physical DFDs, and logical level 0 DFDs.
 3. Include on the systems documentation all (and only)
activities and entities described in the systems narrative -
no more, no less.
 4. When multiple entities operate identically, depict only
one to represent all.
 Causeway Context Diagram
42
 DFD Guidelines (cont.)
43

 5. For clarity, draw a data flow for each flow into and
out of a data store. You may, also for clarity to help you
determine that you have included all necessary flows,
label each flow with the activity number that gives rise
to the flow or with a description of the flow.
 6. If a data store is logically necessary (that is, because
of a delay between processes), include a data store in
the diagrams, whether or not it is mentioned in the
narrative.
 Causeway Current Physical DFD
44
 DFD Guidelines (cont.)
45

 7. Group activities if they occur in the same place and

at the same time.
 8. Group activities if they occur at the same time but in
different places.
 9. Group activities that seem to be logically related.
 10. To make the DFD readable, use between five and
seven bubbles.
46

Causeway
Logical Level
0 DFD
 DFD Guidelines (cont,)
47

 11. A data flow should go to an operations entity square

only when operations process functions (that is, work-related
functions such as storing goods, picking goods from shelves,
packing the customer’s order and so on) are to performed
by that entity. A data flow should enter an entity bubble if
the operations process entity is to perform an information
processing activity.
 12. On a physical DFD, reading computer data stores and
writing to computer data stores must go through a computer
bubble.
 13. On a logical DFD, data flows cannot go from higher- to
lower-numbered bubbles.
 Preparing Systems Flowcharts
48

 1. Divide the flowchart into columns; one column for

each internal entity and one for each external entity.
Label each column.
 2. Flowchart columns should be laid out so that the
flowchart activities flow from left to right, but you
should locate columns so as to minimize crossed lines
and connectors.
 System flowcharting guidelines (cont.)
49

 3. Flowchart logic should flow from top to bottom and

from left to right. For clarity, put arrows on all flow
lines.
 4. Keep the flowchart on one page. If you can’t, use
multiple pages and connect the pages with off-page
connectors. Computerized flowcharting packages will
print your flowcharts only on paper that will fit in your
printer!
 Causeway’s Systems Flowchart
50

 The systems flowchart for Causeway follows on the

next slide
 This flowchart for causeway is without an enterprise
database
51
 System flowcharting guidelines (cont.)
52

 5. Within each column, there must be at least one manual

process, keying operation, or data store between
documents. That is, do not directly connect documents
within the same column.
 6. When crossing organizational lines (one column to
another), show a document at both ends of the flow line
unless the connection is so short that the intent is
unambiguous.
 System flowcharting guidelines (cont.)
53

 7. Documents or reports printed in a computer facility

should be shown in that facility’s column first. You can then
show the document or report going to the destination unit.
 8. Documents or reports printed by a centralized
computer facility on equipment located in another
organizational unit ( warehouse, shipping dept.) should
not be shown within the computer facility.
 System flowcharting guidelines (cont.)
54

 9. Processing within an organizational unit on devices

such as a PC or computerized cash register should be
shown within the unit or as a separate column next to
that unit, but not in the central computer facility column.
 10. Sequential processing steps (computerized or
manual) with no delay between them (and resulting
from the same input) can be shown as one process or as
a sequence of processes.
 System flowcharting guidelines (cont.)
55

 11. The only way into a computer data storage unit is

through a computer processing rectangle.
 12. A manual process is not needed to show the sending
of a document. The sending of the document should be
apparent from the movement of the document itself.
 13. Do not use a manual process to file a document. Just
show the document going in to a file.
 Causeway’s Systems Flowchart
56

 The systems flowchart for Causeway is presented

again on the next slide
 This flowchart for causeway is again presented
without an enterprise database
57
 Documenting Enterprise Systems
58

 Moving from a file-based system to an enterprise

database changes the system flowchart
 An enterprise database replaces transaction and
master data
 Other flows may change depending on the system
implementation
 Causeway’s Systems Flowchart
59

 The systems flowchart for Causeway follows on the

next slide
 This flowchart for causeway is with an enterprise
database
60