CHAPTER 1ː the Information System, an o Decomposition is the process of dividing

Accountants Perspective system into smaller system parts

o Convenient way of representing, viewing,
I. The Information Environment and understanding relationship among
subsystem
 Business operation – base of the pyramid o View the relationships between subordinate
o Product oriented work of organization and higher level subsystem
o Manufacturing
o Sales  Subsystem Interdependency
o Distribution o Subsystems ability to achieve its goal
depends on the effective functioning and
 Above the base level harmonious interaction of its subsystem
o Operations management – responsible for
controlling day-to-day operations III. AN INFORMATION SYSTEMS FRAMEWORK
o Middle management – responsible for short
term planning and coordination of activities - Set of formal procedure
o Top management - responsible for longer data collection – process information –
term planning and setting organizational distribution to users
activities
 Transaction – as an event affects or is of
II. SYSTEM interest to the organization and is processed by
its information system as a unit of work
- A group of two or more interrelated
components or subsystems that serves a  Financial Transaction - is an economic event
common purpose that affects the assets and equities of the
- Generates mental images of computers and organization, is reflected in its account, and is
programming measured in monetary terms

o Natural System – range from the atom  Non-financial Transaction – are events that do
(system of electrons, protons, and neutrons), not meet the narrow definition of financial
all life forms such as plant and animals transaction
o Artificial System – man-made (clock,
submarines, social systems, information IV. AN ACCOUNTING INFORMATION SYSTEM
systems)
- AIS subsystems process financial
 Multiple Components transactions and nonfinancial transactions
o system must contain more than 1 part that directly affect the processing of financial
(exampleː yoyo) transactions.

 Relatedness 3 Major Subsystems of AIS

o common purpose relates multiple part of the
system  Transaction Processing System (TPS)
o each part functions independently o Supports daily business operation (reports,
o all part serves common objective documents, and messages for users and
organizations)
 System vs. Subsystem (matter of perspective)
o Subsystem – when system is viewed in  General Ledger / Financial Reporting System
relation to the larger system of which it is a (GL/FRS)
part o Produces traditional financial statement -
o System – subsystem is called a system income statement
when it is the focus of attention -balance sheet
-cash flows
 Purpose -tax return
o System must serve at least one purpose, but
it may serve several  Management Reporting System (MRS)
o Its purpose is its fundamental justification o Provides internal management with special-
purpose financial reports and information
needed (for decision making)
-budgets
-variance reports
 System Decomposition
-responsibility reports
 o management at every level of the
V. THE MANAGEMENT INFORMATION SYSTEM organization, as well as operations
- Process nonfinancial transactions that are
personnel
normally processed by traditional
X. DATA vs. INFORMATION
 SOX – this includes the financial reporting
system, the general ledger system, and the
transaction processing systems that supply the  Data - are facts, which may or may not be
data for financial reporting. processed (edited, summarized, or refined) and
have no direct effect on the user
VI. TRANSACTION PROCESSING SYSTEM
 Information - causes the user to take an action
- The TPS is central to the overall function of that he or she otherwise could not, or would
the information system by converting not, have taken. Information is often defined
economic events into financial transactions,
recording financial transactions in the simply as processed data.
accounting records (journals and ledgers),
and distributing essential financial  Data Sources - are financial transactions that
information to operations personnel to enter the information system from both
support their daily operations. internal and external sources
 3 Transaction Cycle
o External financial transactions are the most
o Revenue Cycle
o Expenditure Cycle common source of data for most
o Conversion Cycle organizations.

VII. GENERAL LEDGER/ FINANCIAL REPORTING o Internal financial transactions involve the
SYSTEM exchange or movement of resources within
the organization
- The general ledger system (GLS) and the
financial reporting system (FRS) are two  Data Collection - first operational stage in the
closely related subsystems. information system. Most important stage in
the system
 FRS measures and reports the status of financial
resources and the changes in those resources.  Data Processing - range from simple to
The FRS communicates this information complex, include mathematical algorithms
primarily to external users. (non-discretionary)
 Data Management - The organization’s
VIII. MANAGEMENT REPORTING SYSTEM
database is its physical repository for financial
(discretionary)
and nonfinancial data
- provides the internal financial information
needed to manage a business o Data Attribute - most elemental piece of
- Typical reports produced by the MRS potentially useful data in the database
include budgets, variance reports, cost-
o Record - complete set of attributes for a
volume-profit analyses, and reports using
current (rather than historical) cost data. single occurrence within an entity class

IX. END USERS o Files - is a complete set of records of an

identical class
 External Users
o Typical reports produced by the MRS
include budgets, variance reports, cost-
volume-profit analyses, and reports using
current (rather than historical) cost data.

 Internal Users
 Database Management Task XI. Acquisition Information System
3 Fundamental Tasks  Turnkey System
- finished and tested systems that are ready
o Storage Task - assigns keys to new records
for implementation
and stores them in their proper location in
- customized to a specific industry
the database
- have built-in software options that allow the
o Retrieval - task of locating and extracting
user to customize input, output, and
an existing record from the database for processing through menu choices
processing  Backbone System
- pre-programmed
o Deletion - is the task of permanently
- consist of a basic system structure
removing obsolete or redundant records - Vendor then designs the user interfaces to
from the database suit the client’s unique needs
 Information Generation - is the task of  Vendor-Supported System
permanently removing obsolete or redundant - Customized
records from the database - purchase commercially rather than develop
in-house
o Relevance - must serve a purpose
- software vendor designs, implements, and
o Timeliness - age of information is a critical maintains the system for its client
factor in determining its usefulness
o Accuracy - Information must be free from XII. Organizational Structure
material errors - reflects the distribution of responsibility,
o Completeness - No piece of information authority, and accountability throughout
essential to a decision or task should be the organization
missing
o Summarization - Information should be  Business Segment
aggregated in accordance with the user’s
o Geographic Location
needs
- organizations have operations dispersed
 Feedback across the country and around the world
o is a form of output that is sent back to the - each geographic segment as a quasi-
system as a source of data autonomous entity
o may be internal or external
o Product Line
 Information Objective - Companies that produce highly diversified
1. To support the stewardship function of products often organize around product
management lines, creating separate divisions for each
2. To support management decision making.
3. To support the firm’s day-to-day operations. o Business Function
- Functional segmentation divides the
organization into areas of specialized
responsibility based on tasks

 Functional Segmentation

o Segmentation by business function is the most

common method of organizing
  Personnel - Competent and reliable employees
are a valuable resource to a business
 Finance - manages the financial resources of the
firm through banking and treasury activities,
XIII. Materials Management portfolio management, credit evaluation, cash
disbursements, and cash receipts
- The objective of materials management is  The Accounting Function
to plan and control the materials inventory
of the company - manages the financial information resource
of the firm
3 Sub functionsː
 Value Information
o Purchasing - responsible for ordering inventory
from vendors - The value of information to a user is
determined by its reliability
o Receiving - accepting the inventory previously
ordered by purchasing A marketing manager signed a contract with a customer
to supply a large quantity of product by a certain
o Stores - takes physical custody of the inventory deadline
received
 Accounting Independence
XIV. Production
- Information reliability rests heavily on the
- Production activities occur in the conversion concept of accounting independence
cycle in which raw materials, labor, and
plant assets are used to create finished
XVI. The Information Technology Function
products
- IT function is associated with the
o Primary manufacturing activities shape and
information resource
assemble raw materials into finished products
 Centralized Data Processing - all data processing
o Production support activities ensure that
is performed by one or more large computers
primary manufacturing activities operate
housed at a central site that serve users
efficiently and effectively.
throughout the organization
 Production planning involves scheduling the flow  Data Base Administration - Centrally organized
of materials, labor, and machinery to efficiently companies maintain their data resources in a
meet production needs. central location that is shared by all end users
 Quality control monitors the manufacturing
process
XVII. Systems Development and Maintenance
 Maintenance keeps the firm’s machinery and
other manufacturing facilities in running order.  Systems Professionals - Systems professionals
gather facts about the user’s problem, analyse the
facts, and formulate a solution
XV. Marketing
 End Users - Systems professionals gather facts
- deals with the strategic problems of product
about the user’s problem, analyze the facts, and
promotion, advertising, and market
formulate a solution. Managers who receive
research.
reports
 Distribution - activity of getting the product to the
 Stakeholders - individuals inside or outside the
customer after the sale
firm who have an interest in the system but are
not end users
XVIII. Distributed Date processing

- reorganizing the IT function into small

information processing units (IPUs) that are
distributed to end users and placed under
XX. The REA Model
their control
 REA - is an accounting framework for modeling an
 Disadvantagesː
organization’s critical resources, events, and
- Mismanagement of organization-wide
agents (REA) and the relationships between them
resources.
- Hardware and software incompatibility o Resources
- Redundant tasks - assets of the organization
- Consolidating incompatible activities - objects that are both scarce and under the
- Hiring qualified professionals control
- Lack of standards o Events
- phenomena that affect changes in resources
 Advantagesː
- can result from activities such as
- Cost reductions.
production, exchange, consumption, and
- Improved cost control responsibility.
distribution
- Improved user satisfaction
- critical information
- Backup
o Agents
XIX. The Evolution of Information System Models - individuals and departments that
participate in an economic event
 Manual processing model - They are parties both inside and outside the
- the oldest and most traditional form of organization
accounting systems.

 The Flat-File Model

- These are large mainframe systems that
were implemented in the late 1960s
through the 1980s.
- Most often associated with so-called legacy
systems
- describes an environment

 Data Storage
- An efficient information system captures
and stores data only once and makes this
single source available to all users who need
it

 Data Updating
- data stored in files that require periodic
updating to reflect changes

 Currency of Information
- performing multiple updates

 Task-Data Dependency
- user’s inability to obtain additional
information as his or her needs change