Understanding Accounting Information Systems: Foundational Concepts & Business Processes

1. Foundational Concepts of the AIS Accounting Information Systems, 1st Edition

2. Study Objectives • The interrelationships of business processes and the AIS • Types of accounting information systems • Accounting software market segments • Input methods used in business processes • The processing of accounting data • Outputs from the AIS related to business processes • Documenting processes and systems • Client-server computing • Ethical considerations at the foundation of accounting information systems

3. Business Processes and the AIS Accounting Information System - a system that captures, records, processes, and reports accounting information. Business Process - a prescribed sequence of work steps completed in order to produce a desired result. SO 1 The interrelationships of business processes and the AIS

4. Business Processes and the AIS Exhibit 2-1 Overall View of Transactions, Processes, and Resulting Reports SO 1 The interrelationships of business processes and the AIS

5. Business Processes and the AIS Concept Check 1. Which of the following statements is not true? • a. Accounting information systems must maintain both detail and summary information. • b. Business processes may vary from company to company. • c. Regardless of the extent of computerization, all accounting information systems must capture data from the transactions within business processes. • d. Business processes categorized as expenditure processes are not intended to be processes that serve customers. SO 1 The interrelationships of business processes and the AIS

6. Types of Accounting Information Systems • Three categories of AIS: • Manual systems • Legacy systems • Modern, integrated IT systems SO 2 Types of accounting information systems

7. Types of Accounting Information Systems Manual Systems • Generally used by small organizations. Entirely manual system would require: • Source document • Turnaround document • General ledger • General journal • Special journals • Subsidiary ledgers SO 2 Types of accounting information systems

8. Types of Accounting Information Systems Legacy Systems • Existing system, often based on old technology. • Advantagesare that legacy systems: • Customized to specific needs. • Support unique business processes not inherent in generic accounting software. • Contain invaluable historical data that may be difficult to integrate into a new system. • Well supported and understood by existing personnel. SO 2 Types of accounting information systems

9. Types of Accounting Information Systems Legacy Systems • Disadvantagesare that legacy systems: • Costly to maintain. • Often lack adequate supporting documentation. • Hardware needed to maintain may become obsolete. • Not usually based on user-friendly interfaces. • Tends to use software written in older computer languages. • Often difficult to modify to make user friendly. • Difficult to integrate when companies merge. SO 2 Types of accounting information systems

10. Types of Accounting Information Systems Legacy Systems • Decision whether to replace or update legacy systems. • Screen scrapers • Enterprise application integration • Complete replacement of legacy systems SO 2 Types of accounting information systems

11. Types of Accounting Information 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 SO 2 Types of accounting information systems

12. Types of Accounting Information Systems Concept Check 2. In a manual system, an adjusting entry would most likely be initially recorded in a • a. special journal. • b. subsidiary ledger. • c. general journal. • d. general ledger. SO 2 Types of accounting information systems

13. Types of Accounting Information Systems Concept Check 3. Which of the following is not a disadvantage of maintaining legacy systems? • a. There are fewer programmers available to support and maintain legacy systems. • b. They contain invaluable historical data that may be difficult to integrate into newer systems. • c. Hardware or hardware parts may be unavailable for legacy systems. • d. It can be difficult to integrate various legacy systems into an integrated whole. SO 2 Types of accounting information systems

14. Types of Accounting Information Systems Concept Check 4. Which of the following is a disadvantage of purchased accounting software, compared with software developed in-house? • a. It is custom designed for that company. • b. It is less costly. • c. The implementation time is shorter. • d. There are fewer bugs. SO 2 Types of accounting information systems

15. Accounting Software Market Segments Exhibit 2-2 Accounting Software Market Segments SO 3 Accounting software market segments

16. Accounting Software Market Segments Exhibit 2-3 Popular Accounting Software Programs within the Market Segments SO 3 Accounting software market segments

17. Accounting Software Market Segments Concept Check 5. Which of the following is not a method of updating legacy systems? • a. Enterprise application integration. • b. Backoffice ware. • c. Screen scraper. • d. Complete replacement. SO 3 Accounting software market segments

18. Accounting Software Market Segments Concept Check 6. When categorizing the accounting software market, a company with revenue of $8 million would most likely purchase software from which segment? • a. Small company. • b. Midmarket. • c. Beginning ERP. • d. Tier 1 ERP. SO 3 Accounting software market segments

19. Input Methods for AIS • Input methods used in organizations: • Source documents and keying • Bar coding • Point of sale systems • EDI • E-business SO 4 Input methods used in business processes

20. Input Methods for AIS Concept Check 7. An IT system that uses touch-screen cash registers as an input method is called • a. Electronic data interchange. • b. E-business. • c. Point of sale system. • d. Source documents and keying. SO 4 Input methods used in business processes

21. Processing Methods Batch Processing -Transactions are grouped. • Advantages • Efficient for large volumes of like transactions. • Audit trail is maintained. • Generally use less costly hardware and software. • Hardware and software systems are not as complicated as on-line systems. • Generally easier to control than other types of computerized systems. • Personnel become specialized and efficient in processing routine transactions. SO 5 The processing of accounting data

22. Processing Methods Batch Processing -Transactions are grouped. • Disadvantages • Processing can take longer • Adding or deleting records takes much computer maintenance time. • Some data duplication is likely. • Integration across business processes is difficult in legacy systems that are batch oriented. • Lag while all transactions in a batch are collected. • May require that transaction and master files be sorted in the same sequential order. SO 5 The processing of accounting data

23. Processing Methods Online and Real-Time Processing • Advantages • System checks for input errors. • Information provided on a timely basis. • All files are constantly up to date. • The business processes are integrated into a single database so that a single system is achieved. SO 5 The processing of accounting data

24. Processing Methods Online and Real-Time Processing • Disadvantages • Hardware and software are more expensive than a batch systems. • A single database that is shared is more susceptible to unauthorized access of data. • Real-time systems can be difficult to audit. SO 5 The processing of accounting data

25. Processing Methods Concept Check 8. When similar transactions are grouped together for a specified time for processing, it is called • a. Online processing. • b. Real-time processing. • c. Batch processing. • d. Group processing. SO 5 The processing of accounting data

26. Outputs of the AIS • General Categories of Outputs • Trading partner documents such as checks, invoices, and statements • Internal documents • Internal reports • External reports SO 6 Outputs from the AIS related to business processes

27. Documenting Systems • Pictorial Representations of processes and systems include: • Process maps • System flowcharts • Document flowcharts • Data flow diagrams • Entity relationship diagrams (ER diagrams) SO 7 Documenting processes and systems

28. Documenting Systems Process Maps Pictorial representations of business processes in which the actual flow and sequence of events in the process are presented in diagram form. Exhibit 2-5 Process Map Symbols SO 7 Documenting processes and systems

29. Documenting Systems Exhibit 2-7 Common System Flowchart Symbols System Flowcharts Intended to depict the entire system, including inputs, manual and computerized processes, and outputs. SO 7 Documenting processes and systems

30. Documenting Systems Exhibit 2-8 Payroll System Flowchart Document Flowcharts Flow of documents and information among departments or units within an organization.

31. Documenting Systems Exhibit 2-9 Restaurant Process Map

32. Exhibit 2-10 Restaurant Document Flowchart

33. Exhibit 2-10 Restaurant Document Flowchart

34. Documenting Systems Exhibit 2-11 Restaurant Data Flow Diagram Data Flow Diagrams Used to show the logical design of a system.

35. Documenting Systems Entity Relationship Diagrams • Pictorial representations of the logical structure of databases. • Entities - items in the accounting system, such as employees, customers, vendors, and inventory items. • Each entity has attributes, such as last name, first name, pay rate, and number of withholdings. SO 7 Documenting processes and systems

36. Documenting Systems Entity Relationship Diagrams • Cardinalityrefers to how many instances of an entity relate to each instance of another entity. • One to one: Each employee has one personnel file. • One to many: One supervisor has many employees. • Many to many: Each vendor can sell many items. SO 7 Documenting processes and systems

37. Documenting Systems Exhibit 2-11 ERD of Internet Sales Entity Relationship Diagrams Entity Relationship Diagrams SO 7 Documenting processes and systems

38. Documenting Systems Concept Check 10. In documenting systems, which pictorial method is described as a method that diagrams the actual flow and sequence of events? • a. System flowchart. • b. Process map. • c. Data flow diagram. • d. Entity relationship diagram. SO 7 Documenting processes and systems

39. Client–Server Computing • Two types of computers are networked together to accomplish the application processing. • 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. SO 8 Client-server computing

40. Client–Server Computing • Two Levelsof Client-Server Computing: • Distributed presentation. • Distributed applications. SO 8 Client-server computing

41. Client–Server Computing Concept Check 12. In a client–server system, when the client PC manipulates data for presentation, but does not do any other significant processing, it is called • a. Distributed presentation. • b. Distributed application. • c. Distributed database. • d. Distributed processing. SO 8 Client-server computing

42. Ethical Considerations of AIS • Accountants should be aware of opportunities for unethical behaviors within the various business processes. • As a company chooses features and options for its accounting information systems, the importance of monitoring those systems should not be overlooked as a factor in decision making. SO 9 Ethical considerations at the foundation of accounting information systems