FOUNDATIONAL CONCEPTSOF AIS

BUSINESSPROCESS A prescribed sequence of work steps

completed in order to produce a desired result.
ACCOUNTING INFORMATION SYSTEM a system that
captures, records, processes, and reports accounting
information.
OVERALL VIEW OF TRANSACTIONS, PROCESSES,
AND RESULTING REPORTS

OVERALL VIEW
OF
TRANSACTIONS,
PROCESSES, AND
 Types of Accounting Information Systems
1. MANUAL SYSTEMS
A source document is a record that captures the
key data of a transaction. The data on a source document
usually includes the date, purpose, entity, quantities, and
dollar amount of a transaction. Some examples of source
documents are employee time cards, purchase orders, sales
orders, and cash receipts.
A turnaround document is an output of the
accounting system that can be used as an input in a different
part of the accounting system. An example is your credit card
statement, which is a computer output of the system your
credit card company uses.
These source documents become the inputs to
record transactions in ledgers and journals. The general
ledger provides details for the entire set of accounts used in
the organization’s accounting systems.
Special journals are established to record specific
types of transactions. For example, a sales journal records all
sales.
Subsidiary ledgers maintain detailed information
regarding routine transactions, with an account established for
each entity. For example, the accounts receivable subsidiary
ledger maintains all detailed information regarding customer
purchases, payments, and balances due.
2. LEGACY SYSTEMS
A legacy system is an existing system in operation within an
organization. A legacy system uses older technology in which
 the organization has a considerable investment and that might
be entrenched in the organization.

ADVANTAGES DISADVANTAGES
 Customized to specific  Costly to maintain.
needs.  Often lack adequate
 Support unique business supporting documentation.
processes not inherent in  Hardware needed to maintain
generic accounting may become obsolete.
software.  Not usually based on user-
 Contain invaluable friendly interfaces.
historical data that may  Tends to use software written
be difficult to integrate in older computer languages.
into a new system.  Often difficult to modify to
 Well supported and make user friendly.
understood by Existing  Difficult to integrate when
personnel. companies merge.

Decision whether to replace or update legacy systems:

 Screen Scrapers
 Enterprise Application Integration
 Complete Replacement of legacy Systems
MODERN, INTEGRATED SYSTEMS New programs sold
by software development companies are more user friendly
than legacy accounting systems.
ADVANTAGES to purchasing accounting software:

 Lower cost
 Shorter implementation time
 Fewer bugs
Characteristics:

 Client and server computer are networked together.

 System appears to users to be one integrated whole.
 Individual parts of processing are shared between
server and client.
 Client computer participates in processing or data
manipulation in some meaningful way.
CLIENT - SERVER COMPUTING
Two types of computers are networked together to accomplish
the application processing.
Two Levels of Client-Server Computing:
o Distributed Presentation
o Distributed Application

CLOUD COMPUTING
Cloud Refers to a network or internet. Essentially refers to the
use of technology that uses the internet and remote servers to
maintain data and applications.
Cloud computing Refers to manipulating, configuring, and
accessing the application online.
SERVICE MODEL OF CLOUD COMPUTING
o Software as a Service (SaaS)
o Database as a Service (DaaS)
o Platform as a Service (PaaS)
o Infrastructure as a Service (SaaS)
SERVICE LEVEL AGREEMENT
ADVANTAGES
1. Scalability As a company grows, it can easily
purchase new capacity from the cloud provider. It
need not buy servers or new data storage, as the cloud
provider already has the capacity. This scalability is
also a tremendous advantage for spikes in business
activity
2. Expanded Access Once the software and data are
stored in the cloud, it can be accessed by multiple
devices from many different locations. This gives the
company much more flexibility for those who use or
enter the accounting data. It also makes it easier for
users to start up new computing capabilities.
3. Infrastructure is reduced. The company has a
reduced need for servers and data storage, since most
of these resources are provided by the cloud provider.
This also means that the cloud provider provides data
security and backup of data reduced.
4. Cost savings Because of the detailed advantages,
there are usually significant cost savings recognized
from cloud computing. Cloud computing is usually a
pay‐for‐service model. In other words, a company
pays the cloud provider only for the level of services
it actually uses.
CLOUD HOSTING OF ACCOUNTING SOFTWARE
Accounting Software Market Segments

The Accounting
Software Market
Segments and
Movement in the
Market

Input Methods used in Business processes

Accounting Data is generated that must be captured and
recorded in the accounting information system.
Some of the input methods used in organizations today are
described in this section, including;
o Source Documents are usually preprinted and
sequentially prenumbered—preprinted to have an
established format to capture data and prenumbered
for control purposes to ensure that there are no
duplicate or missing source documents and that all
source documents are accounted for.
o Keying To key in the customer and items ordered, the
person entering the data would need to enter the
information from the source document— the
customer sales order.

Microsoft Dynamic 365

The software can be purchased and installed and run
on the purchasing company’s servers and the data is
also stored on the company’s data servers.
Alternatively, numerous cloud‐ hosting companies
offer the option of purchasing Microsoft Dynamics
GP as a Software as a Service model.
o Bar coding printed code consisting of a series of
vertical, machine‐readable, rectangular bars and
spaces that vary in width and are arranged in a
specific way to represent letters, numbers, and other
human‐readable symbols. Bar codes are “read” and
decoded by bar code scanners.
o Point of Sale Systems A point of sale system (POS)
is a method of using hardware and software that
captures retail sales transactions by standard bar
coding. The bar code label on the products is usually
called the “Universal Product Code” or UPC.
o Electronic Data Interchange is the intercompany,
computer‐to‐computer transfer of business documents
in a standard business format. EDI transmits pur-
chase orders, invoices, and payments electronically
between trading partners. Since transmission is
electronic, the paper source documents and the
manual keying of those documents are eliminated.
o E‐business e‐business relates to all forms of online
electronic business transactions and processing
o E-commerce e‐commerce is a type of e‐business that
is specific to consumer online buying and selling
Data is also electronically exchanged between trading
partners in e‐business and e‐commerce.

The Processing of Accounting Data

After accounting information has been input into the
accounting system, it must be processed. Processing
accounting data involves calculations, classification,
summarization, and consolidation.
 In manual accounting systems, this processing occurs
through the established manual methods and the
recording, posting, and closing steps in the journals
and ledgers.

Automated processing can be accomplished by:

o Batch Processing Batch processing requires that all

similar transactions are grouped together for a
specified time, and then this group of transactions is
processed together as a batch. Batch processing is
best suited to applications having large volumes of
similar transactions that can be processed at regular
intervals. Payroll processing is a good example of a
system that is well suited to batch processing.
Advantages to batch processing:
1. It is very efficient for large volumes of like transactions
where most items in a master file are used during each
processing run.
2. The basic accounting audit trail is maintained, because
there are well‐defined beginning and ending periods and a set
of documents to reconcile to the batch being processed.
3. Such systems generally use less costly hardware and
software than other methods.
4. The hardware and software systems are not as complicated
as online systems and are therefore easier to understand.
5. It is generally easier to control than other types of
computerized systems. Batch totals can be used to ensure the
batch was processed correctly.
6. When personnel are dedicated to batch processing, they
become specialized and efficient in processing those routine
transactions.
Disadvantages to batch processing:
1. Processing can take longer than normal if the master files
are large and not all records in the master file are used. For
example, if only a few customer payments are to be processed
from a large master file of customer records, it may take a
legacy system with older hardware (that reads all master file
records in sequence) as long to deliver the output as it would
take if all the customer records were demanded.
2. In legacy systems with older hardware, adding or deleting
records takes much computer maintenance time due to the
sequential structure of the files.
3. In legacy systems with older hardware, some data
duplication is likely, because each batch process often uses its
own separate master file. Accounts payable and purchasing
may be separate batch processes with separate master files,
but in both master files vendor information, for example,
would be duplicated.
4. Integration across business processes is difficult in legacy
systems that are batch‐oriented. The isolated master files and
separate batch processing systems make integration very
difficult.
5. By necessity, batch systems have a time lag while all
transactions in a batch are collected. This means that available
information in files will not always be cur- rent, as it would in
real‐time systems.
6. Legacy systems with older hardware may require that both
the transaction files and master files be sorted in the same
sequential order. This leads to less flexibility in record storage
and retrieval.
o Online and Real‐Time Processing- Most modern,
integrated systems frequently use online and real ‐time
processing. With online processing, transactions are
not grouped into batches; rather, each transaction is
entered and processed individually. Some online
processing systems are also real‐time processing
systems. Real‐time processing means that the
transaction is processed immediately, and in real time,
so that the output is available immediately. Online
processing is best suited to applications in which
there is a large volume of records, but only a few
records are needed to process any individual
transaction.
The advantages to real‐time processing are as follows:
1. As data is entered in real time, the system checks for input
errors. Therefore, errors can be corrected immediately.
2. Information is provided to users on a timely basis, without
the time lag inherent in batch systems.
3. Since all data is in a database system and is updated in real
time, all files are constantly up to date.
4. The business processes are integrated into a single database
so that a single system is achieved.
The disadvantages of real‐time systems are as follows:
1. The hardware and software are more expensive than those
used for batch systems.
2. A single database that is shared is more susceptible to
unauthorized access of data, unless extensive controls are
implemented to prevent unauthorized access.
3. Real‐time systems can be difficult to audit because of the
complexity of the system.
Outputs from the AIS Related to Business Processes
Trading Partner Documents Invoices and statements are
examples of documents sent to customers. Checks are outputs
sent to vendors. These outputs may be in electronic or paper
form.
Internal Documents include credit memorandums, receiving
reports, production routing documents, and production
scheduling documents. These documents may be printed
paper forms, or they may be in the form of screen outputs
viewed on the user’s computer.
Internal Report provide feedback to managers to assist them
in running the business processes under their control. vary by
process, by manager level, and by the type of organization.
They are designed specifically for the function that is the
subject of the report.
External Report are usually financial statements that include
a balance sheet, income statement and statement of cash
flows.
Documenting Processes and Systems
Systems professionals and accountants must understand the
documentation and charts that describe accounting systems.
The various types of popular pictorial representations of
processes and systems used in businesses today include the
following:
1. Process maps are pictorial representations of
business processes in which the actual flow and
sequence of events in the process are presented in
diagram form—the start of a process, the steps within
the process, and a finish of the process.

2. System flowcharts A system flowchart is intended to

depict the entire system, including inputs, manual and
computerized processes, and outputs. System
flowcharts do not necessarily show details of each
process, but display the overall sequence of processes
and the media used for processing and storage.
3. Document flowcharts shows the flow of documents
and information among departments or units within
an organization. Document flowcharts are usually
divided into columns, each representing a department
or unit of the organization

4. Data flow diagrams or DFD, is used by systems

professionals to show the logical design of a system.
Systems professionals use data flow diagrams in
structured system design, a process wherein the
logical system is diagrammed at a high, conceptual
level first.
 5. Entity relationship diagrams (ER diagrams)
or ER diagrams, are pictorial representations of the
logical structure of databases.

Entities can be thought of as the nouns that represent

items in the accounting system.
(e.g. Employees, customers, vendors, and inventory)

Each entity has Attributes, or characteristics of the

entity. (e.g. Last name, first name, pay rate, and
number of withholdings.

Ethical Considerations at the Foundation of Accounting

Information Systems
Detecting fraud may be difficult in a computerized
environment, especially when there are a limited number of
people responsible for maintaining the computer systems.
Accountants must recognize the opportunities for unethical
behavior within computerized processes, and must carefully
monitor those systems.