PART I

Conceptual Foundations
of Accounting
Information Systems

Systems Documentation Techniques

Chapter 3

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 Learning Objectives
 Understand the purpose of documentation.
 Understand why accountants should understand documentation.
 Describe the documentation techniques used in accounting systems.
 Prepare and use data flow diagrams to understand, evaluate, and
document information systems.
 Prepare and use flowcharts to understand, evaluate, and document
information systems.
 Prepare and use business process diagrams to understand, evaluate,
and document information systems.

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 Why Document Systems?
• Documentation explains how a system works, including the
who, what, when, where, , why, & how of data entry, data
processing, data storage, information output, and system
controls.
• Accountants must be able to read documentation and
understand how a system works (e.g., auditors need to assess
risk).
• Sarbanes-Oxley Act (SOX) requires management to assess
internal controls and auditors to evaluate the assessment used
for systems development and changes.
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 Documentation Techniques

• Documentation includes the following types of tools:

– Data Flow Diagrams (DFD)
– Flowcharts
– Tables
– Other graphical representations
These are supplemented by Narratives (written
descriptions) of the system.
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 1. Data Flow Diagrams (DFD)

• Data Flow Diagrams (DFD) is a graphical description of data

sources, data flows, transformation processes, data storage, and
data destinations.
• It is used to: Document existing systems, & Plan and design new
systems.
• DFD are visually simple, can be used to represent the same
process at a high abstract or detailed level.
• There is no black-and-white approach to developing a DFD.
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 Data Flow Diagrams (DFD)
• A data flow diagram consists of four basic
elements:
▫ Data sources and destinations
▫ Data flows
▫ Transformation processes
▫ Data stores
▫ Internal Control
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 Data Flow Diagram Symbols

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 Basic Data Flow Diagram Elements

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 Data Flow Diagrams (DFD)
• Subdividing the DFD:
▫ Few systems can be fully diagrammed on one
sheet of paper, and users have needs for differing
levels of detail.
▫ Consequently, DFDs are subdivided into
successively lower levels to provide increasing
amounts of detail.
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 Data Flow Diagrams (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
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 Data Flow Diagram of Customer Payment Process

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Basic Guidelines for creating a DFD
• Understand the system that you • Identify and group all the basic
are trying to represent. elements of the DFD.
• A DFD is a simple representation • Name data elements with descriptive
meaning that you need to consider names, use action verbs for processes
what is relevant and what needs to (e.g., update, edit, prepare, validate,
be included. etc.).
• Start with a high level (context • Give each process a sequential
diagram) to show how data flows number to help the reader navigate
between outside entities and from the abstract to the detailed
inside the system. Use additional levels.
DFD’s at the detailed level to show • Edit/Review/Refine your DFD to
how data flows within the system.
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make it easy to read and understand.
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Ashton co. Case (DFD)
• The cash receipts system of Ashton co. as follows:
Customer payments include cash received at the time of purchase
and account payments received in the mail. At day’s end, the
treasurer endorses all checks and prepares a deposit slip for the
checks and the cash. A clerk then deposits the checks, cash, and a
deposit slip at the local bank each day.
When checks are received as payment for accounts due, a
remittance slip is included with the payment. The remittance
slips are used to update the accounts receivable file at the end of
the day. The remittance slips are stored in a file drawer by date.
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Ashton co. Case (DFD)
• Cont. The cash receipts system of Ashton co. as
follows:
• Every week, a cash receipts report and an aged trial balance
are generated from the data in the accounts receivable ledger.
The cash receipts report is sent to management. A copy of the
aged trial balance by customer account is sent to the credit
and collections deportment, where it’s reviewed.

Required: Develop a context diagram and a Level 0

DFD for the cash receipts system.

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Ashton co. Case (DFD)
Required: Develop a context diagram and a Level 0 DFD for the cash
receipts system.

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Ashton co. Case (DFD)
Required: Develop a context diagram and a Level 0 DFD for the cash receipts
system.
Remittance
Customers File
Payments at
Sale
Remittances
on
Account
Remittance
Slips 2.0
1.0
Update
Process
Customer
Payments
Accounts
Endorsed
Checks &
Cash, Deposit
Slip

3.0
Accounts
Bank Prepare
Receivable
Reports
Ledger Aged Trial
Balance

Cash
Receipts
Report

Credit and
Management
Collections

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 2. Flowcharts
A flowchart is a pictorial, analytical technique used to
describe some aspect of an information system in a clear,
concise, and logical manner.
Describe an information system showing:
• Inputs and Outputs
• Information activities (processing data)
• Data storage
• Data flows
• Decision steps

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 Flowcharts
Key strengths of flowcharts are that they can easily capture
control via decision points, show manual vs. automated
processes.
• Flowcharts record how business processes are performed
and how documents flow through the organization.
• They are also used to analyze how to improve business
processes and document flows.
• Flowcharts use a standard set of symbols to describe
pictorially the transaction processing procedures a
company uses and the flow of data through a system.
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 Flowcharts
• Every shape on a flowchart depicts a unique operation,
input, processing activity, or storage medium.
• Most flowcharts are drawn using a software program
such as Visio, Word, Excel, or PowerPoint.
▫ The software uses pre-drawn shapes, and the
developer drags the shapes into the drawing.

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 Flowcharts
• TYPES OF FLOWCHARTS:
1. Document flowcharts were developed to illustrate the flow of
documents and data among areas of responsibility within an
organization.
- Internal control flowcharts, are used to describe, analyze, and”
evaluate internal controls; they are used to identify system
weaknesses or inefficiencies, such as inadequate communication
flows, insufficient segregation of duties, unnecessary complexity in
document flows, or procedures responsible for causing wasteful
delays.
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 Flowcharts
• TYPES OF FLOWCHARTS:
2. System Flowcharts depict the relationships among system
input, processing, storage, and output.
3. Program Flowcharts illustrate the sequence of logical
operations performed by a computer in executing a program.
The relationship between system and program flowcharts is
that: a program flowchart describes the specific logic used to
perform a process on a system flowchart.

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 Flowcharts
Flowcharting symbols are divided into four categories:
1. Input/output symbols show input to or output from a
system.
2. Processing symbols show data processing, either
electronically or by hand.
3. Storage symbols show where data is stored.
4. Flow and miscellaneous symbols indicate the flow of
data, where flowcharts begin or end, where decisions are
made, and how to add explanatory notes to flowcharts.
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 Common Flowcharting Symbols

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 Common Flowcharting Symbols

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 Common Flowcharting Symbols

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 A Document flowchart Example:

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 A System Flowchart Example

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Relationship Between System & Program Flowcharts

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 Guidelines for Drawing Flowcharts

• Understand the system you are trying to represent.

• Identify business processes, documents, data flows, and
data processing procedures.
• Organize the flowchart so as it reads from top to bottom and
left to right.
• Name elements descriptively.
• Edit/Review/Refine to make it easy to read and understand.
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 Using the information of Ashton co. Case (slide 13&14) ,
prepare a document flowchart to document the cash receipts system.

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 3. Business Process Diagrams
A Business Process Diagram (BPD) is a visual way to describe
the different steps or activities in a business process. E.g. there
are many activities in the revenue cycle. Among them are
receiving an order, checking customer credit, verifying inventory
availability, and confirming customer order acceptance.
• All of these activities can be shown on a BPD to give the
reader an easily understood pictorial view of what takes
place in a business process.
• Can show the organizational unit performing the activity.

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 Business Process Diagrams
• While BPDs can describe interactions within an entity as
well as interactions between entities, the BPDs in the
textbook do not document the activities performed by
external parties.
• Thus, a BPD for the revenue cycle will only describe the
functions performed by the selling company and a BPD for
the expenditure cycle only depicts the activities performed
by the purchasing company.
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 Business Process Diagram Symbols
The Business Process Modeling Initiative Notation Working Group
established standards for drawing BPDs.

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 A Business Process Diagram Example

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 Key Terms

• Documentation • Context diagram

• Narrative description • Flowchart
• Data flow diagram (DFD) • Document flowchart
• Data source • Internal control flowchart
• Data destination • System flowchart
• Data flow • Program flowchart
• Process • Business process diagram
• Data store (BPD)

End of Chapter 3
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