accounting information systems
Post on 15-Nov-2014
41 Views
Preview:
TRANSCRIPT
Accounting Information Systems:
Presented by:ARIEL A. CATAPAL
MBA – OLIVAREZ COLLEGES.Y. 2009 - 2010
CHAPTER 10
Questions to be addressed in this chapter include:◦ What is the meaning of system, data, and
information?◦ What is an accounting information system (AIS)?◦ Why is the AIS an important topic to study?◦ What is the role of the AIS in the value chain?◦ How does the AIS provide information for decision
making?◦ What are the basic strategies and strategic positions
an organization can pursue?
INTRODUCTION
INTRODUCTION◦ What are the basic business activities in which an
organization engages? What decisions must be made to undertake these
activities? What information is required to make those
decisions?◦ What role does the data processing cycle play in
organizing business activities and providing information to users?
◦ What is the role of the information system and enterprise resource planning in modern organizations?
INTRODUCTION
◦What is the purpose of documentation?◦Why do accountants need to understand
documentation?◦What documentation techniques are used in
accounting systems?◦What are data flow diagrams and flowcharts? How are they alike and different? How are they prepared?
A system is:◦ A set of interrelated components◦ That interact◦ To achieve a goal
SYSTEMS, DATA, AND INFORMATION
Most systems are composed of smaller subsystems . . .
. . . And vice versa!
SYSTEMS, DATA, AND INFORMATION
Every organization has goals.◦The subsystems should be designed to
maximize achievement of the organization’s goals
◦Even to the detriment of the subsystem itself◦EXAMPLE: The production department (a
subsystem) of a company might have to forego its goal of staying within its budget in order to meet the organization’s goal of delivering product on time.
SYSTEMS, DATA, AND INFORMATION
Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger system.
Goal congruence occurs when the subsystem’s goals are in line with the organization’s goals.
The larger and more complicated a system, the more difficult it is to achieve goal congruence.
SYSTEMS, DATA, AND INFORMATION
The systems concept encourages integration (i.e., minimizing the duplication of recording, storing, reporting and processing).
Data are facts that are collected, recorded, stored, and processed by an information system.
Organizations collect data about:◦ Events that occur◦ Resources that are affected by those events◦ Agents who participate in the events
SYSTEMS, DATA, AND INFORMATION
Information is different from data. Information is data that have been
organized and processed to provide meaning to a user.
Usually, more information and better information translates into better decisions.
SYSTEMS, DATA, AND INFORMATION
However, when you get more information than you can effectively assimilate, you suffer from information overload.◦Example: Final exams week!
When you’ve reached the overload point, the quality of decisions declines while the costs of producing the information increases.
SYSTEMS, DATA, AND INFORMATION
Benefits of information - Cost of producing information Value of information
SYSTEMS, DATA, AND INFORMATION
Benefits of information may include:• Reduction of uncertainty• Improved decisions• Improved ability to plan and schedule activities
Benefits of information - Cost of producing information Value of information
SYSTEMS, DATA, AND INFORMATION
Costs may include time and resources spent:• Collecting data• Processing data• Storing data• Distributing information to users
Benefits of information - Cost of producing information Value of information
SYSTEMS, DATA, AND INFORMATION
Costs and benefits of information are often difficult to quantify, but you need to try when you’re making decisions about whether to provide information.
Characteristics that make information useful:◦Relevance
SYSTEMS, DATA, AND INFORMATION
It reduces uncertainty by helping you predict what will happen or confirm what already has happened.
Characteristics that make information useful:◦Relevance◦Reliability
SYSTEMS, DATA, AND INFORMATION
It’s dependable, i.e., free from error or bias and faithfully portrays events and activities.
Characteristics that make information useful:◦Relevance◦Reliability◦Completeness
SYSTEMS, DATA, AND INFORMATION
It doesn’t leave out anything that’s important.
Characteristics that make information useful:◦ Relevance◦ Reliability◦ Completeness
◦Timeliness
SYSTEMS, DATA, AND INFORMATION
You get it in time to make your decision.
Characteristics that make information useful:◦Relevance◦Reliability◦Completeness◦Timeliness◦Understandability
It’s presented in a manner you can comprehend and use.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:◦Relevance◦Reliability◦Completeness◦Timeliness◦Understandability◦Verifiability
A consensus notion—the nature of the information is such that different people would tend to produce the same result.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:◦Relevance◦Reliability◦Completeness◦Timeliness◦Understandability◦Verifiability◦Accessibility
SYSTEMS, DATA, AND INFORMATION
You can get to it when you need it and in a format you can use.
Information is provided to both:◦External users◦Internal Users
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:◦External users◦Internal Users
SYSTEMS, DATA, AND INFORMATION
External users primarily use information that is either:◦MANDATORY INFORMATION—Required by a
governmental entity, such as Form 10-K’s required by the SEC; or
◦ESSENTIAL INFORMATION—Required to conduct business with external parties, such as purchase orders
SYSTEMS, DATA, AND INFORMATION
In providing mandatory or essential information, the focus should be on:◦Minimizing costs◦Meeting regulatory requirements◦Meeting minimum standards of reliability
and usefulness
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:◦External users◦Internal Users
SYSTEMS, DATA, AND INFORMATION
Internal users primarily use discretionary information.
The primary focus in producing this information is ensuring that benefits exceed costs, i.e., the information has positive value.
SYSTEMS, DATA, AND INFORMATION
An AIS is a system that collects, records, stores, and processes data to produce information for decision makers.
It can:◦Use advanced technology; or◦Be a simple paper-and-pencil system; or◦Be something in between.
Technology is simply a tool to create, maintain, or improve a system
WHAT IS AN AIS?
The functions of an AIS are to:◦Collect and store data about events,
resources, and agents.◦Transform that data into information that
management can use to make decisions about events, resources, and agents.
◦Provide adequate controls to ensure that the entity’s resources (including data) are: Available when needed Accurate and reliable
WHAT IS AN AIS?
It’s fundamental to accounting.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• Accounting is an information-providing activity, so accountants need to understand:– How the system that provides that
information is designed, implemented and used.
– How financial information is reported– How information is used to make
decisions
It’s fundamental to accounting.• Other accounting courses focus on how
the information is provided and used.• An AIS course places greater emphasis
on:– How the data is collected and
transformed– How the availability, reliability, and
accuracy of the data is ensured• AIS courses are not number-crunching
courses
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
It’s fundamental to accounting. The skills are critical to career success.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• Auditors need to evaluate the accuracy and reliability of information produced by the AIS.
It’s fundamental to accounting. The skills are critical to career success.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• Tax accountants must understand the client’s AIS adequately to be confident that it is providing complete and accurate information for tax planning and compliance work.
It’s fundamental to accounting. The skills are critical to career success.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• In private industry and not-for-profits, systems work is considered the most important activity performed by accountants.
It’s fundamental to accounting. The skills are critical to career success.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• In management consulting, the design, selection, and implementation of accounting systems is a rapid growth area.
It’s fundamental to accounting. The skills are critical to career success. The AIS course complements other systems
courses.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• Other systems courses focus on design and implementation of information systems, databases, expert systems, and telecommunications.
• AIS courses focus on accountability and control.
It’s fundamental to accounting. The skills are critical to career success. The AIS course complements other
systems courses. AIS topics impact corporate strategy
and culture.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
StrategyOccupational
Culture
AIS
InformationTechnology
AIS design is affected by information technology, the organization’s strategy, and the organization’s culture.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
OccupationalCulture
AIS
Strategy
InformationTechnology
Information technology affects the company’s choice of business strategy. To perform cost-benefit analyses on IT changes, you need to understand business strategy.
WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
OccupationalCulture
AIS
Strategy
InformationTechnology
While culture affects the design of the AIS, it’s also true that the AIS affects culture by altering the dispersion and availability of information.
ROLE OF THE AIS IN THE VALUE CHAIN
The objective of most organizations is to provide value to their customers.
What does it mean to deliver value? Let’s peek in on a conversation at Joe’s
pharmacy . . .
ROLE OF THE AIS IN THE VALUE CHAIN
Well, Mr. Pharmaceutical Salesman, your proposal looks good, but your prices are about
5% higher than your competitors.
That’s true, but we’re comfortable with that because of the value-added that we bring to
this arrangement.
ROLE OF THE AIS IN THE VALUE CHAIN
What is that “value-added,” and how do you convert it
into dollars?
ROLE OF THE AIS IN THE VALUE CHAIN
Blah—blah—blah– customer service– blah—blah--blah
ROLE OF THE AIS IN THE VALUE CHAIN
While “adding value” is a commonly used buzzword, in its genuine sense, it means making the value of the finished component greater than the sum of its parts.
It may mean:◦ Making it faster◦ Making it more reliable◦ Providing better service or advice◦ Providing something in limited supply (like O-negative
blood or rare gems)◦ Providing enhanced features◦ Customizing it
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series of activities referred to as the value chain. These include:◦ Primary activities◦ Support activities
These activities are sometimes referred to as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series of activities referred to as the value chain. These include:◦Primary activities◦Support activities
These activities are sometimes referred to as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:◦Inbound logistics
Receiving, storing, and distributing the materials that are inputs to the organization’s product or service.
For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:◦Inbound logistics◦Operations
Transforming those inputs into products or services.
For the pharmaceutical company, this step involves combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:◦Inbound logistics◦Operations◦Outbound logistics
Distributing products or services to customers.
For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:◦Inbound logistics◦Operations◦Outbound logistics◦Marketing and sales
Helping customers to buy the organization’s products or services.
A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:◦Inbound logistics◦Operations◦Outbound logistics◦Marketing and sales◦Service
Post-sale support provided to customers such as repair and maintenance function.
A pharmaceutical firm will typically not be repairing it’s product (though the product may be periodically reformulated). The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc.
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series of activities referred to as the value chain. These include:◦Primary activities◦Support activities
These activities are sometimes referred to as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:◦Firm infrastructure
Accountants, lawyers, and administration. Includes the company’s accounting information system.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:◦Firm infrastructure◦Human resources
Involves recruiting and hiring new employees, training employees, paying employees, and handling employee benefits.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:◦Firm infrastructure◦Human resources◦Technology
ROLE OF THE AIS IN THE VALUE CHAIN
Activities to improve the products or services (e.g., R&D, website development).
For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones.
Support activities include:◦Firm infrastructure◦Human resources◦Technology◦Purchasing
Buying the resources (e.g., materials, inventory, fixed assets) needed to carry out the entity’s primary activities.
In the pharmaceutical company, the purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations.
ROLE OF THE AIS IN THE VALUE CHAIN
Information technology can significantly impact the efficiency and effectiveness with which the preceding activities are carried out.
An organization’s value chain can be connected with the value chains of its customers, suppliers, and distributors.
ROLE OF THE AIS IN THE VALUE CHAIN
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
For example, the inbound logistics of Pharmaceuticals, Inc., links to the outbound logistics of its suppliers.
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
The linking of these separate value chains creates a larger system known as a supply chain.
ROLE OF THE AIS IN THE VALUE CHAIN
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Information technology can facilitate synergistic linkages that improve the performance of each company’s value chain.
The linking of these separate value chains creates a larger system known as a supply chain.
ROLE OF THE AIS IN THE VALUE CHAIN
There is variation in the degree of structure used to make decisions:◦Structured decisions
• Repetitive and routine• Can be delegated to lower-level employees• EXAMPLE: Deciding whether to write an
auto insurance policy for a customer with a clean driving history.
ROLE OF THE AIS IN THE VALUE CHAIN
There is variation in the degree of structure used to make decisions:◦Structured decisions◦Semistructured decisions
• Incomplete rules• Require subjective assessments• EXAMPLE: Deciding whether to sell auto
insurance to a customer with a tainted driving history.
ROLE OF THE AIS IN THE VALUE CHAIN
There is variation in the degree of structure used to make decisions:◦Structured decisions◦Semistructured decisions◦Structured decisions
• Non-recurring and non-routine• Require a great deal of subjective
assessment• EXAMPLE: Deciding whether to begin
selling a new type of insurance policy
ROLE OF THE AIS IN THE VALUE CHAIN
There is also variation in the scope of a decision’s effect:◦Occupational control decisions
• Relate to performance of specific tasks• Often of a day-to-day nature• EXAMPLE: Deciding whether to order
inventory
ROLE OF THE AIS IN THE VALUE CHAIN
There is also variation in the scope of a decision’s effect:◦Occupational control decisions◦Management control decisions
• Relate to utilizing resources to accomplish organizational objectives
• EXAMPLE: Budgeting
ROLE OF THE AIS IN THE VALUE CHAIN
There is also variation in the scope of a decision’s effect:◦Occupational control decisions◦Management control decisions◦Strategic planning decisions
• The “what do we want to be when we grow up” types of questions
• Involves establishing– Organizational objectives– Policies to achieve those objectives
• EXAMPLE: Deciding whether to diversify the company into other product lines
ROLE OF THE AIS IN THE VALUE CHAIN
In general, the higher a manager is in the organization, the more likely he/she is to be engaging in:◦Less structured decisions◦Broader scope (i.e., strategic planning)
decisions
ROLE OF THE AIS IN THE VALUE CHAIN
Corporations have:◦Unlimited opportunities to invest in technology◦Limited resources to invest in technology
Consequently, they must identify the improvements likely to yield the highest return.
This decision requires an understanding of the entity’s overall business strategy.
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are two basic business strategies companies can follow:◦Product-differentiation strategy◦Low-cost strategy
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are two basic business strategies companies can follow:◦Product-differentiation strategy◦Low-cost strategy
THE AIS AND CORPORATE STRATEGY
THE AIS AND CORPORATE STRATEGY
A product differentiation strategy involves setting your product apart from those of your competitors, i.e., building a “better” mousetrap by offering one that’s faster, has enhanced features, etc.
Michael Porter suggests that there are two basic business strategies companies can follow:◦Product-differentiation strategy◦Low-cost strategy
THE AIS AND CORPORATE STRATEGY
A low-cost strategy involves offering a cheaper mousetrap than your competitors. The low cost is made possible by operating more efficiently.
THE AIS AND CORPORATE STRATEGY
Sometimes a company can do both, but they normally have to choose.
THE AIS AND CORPORATE STRATEGY
Porter also argues that companies must choose a strategic position among three choices:◦Variety-based strategic position
• Offer a subset of the industry’s products or services.
• EXAMPLE: An insurance company that only offers life insurance as opposed to life, health, property-casualty, etc.
THE AIS AND CORPORATE STRATEGY
Porter also argues that companies must choose a strategic position among three choices:◦Variety-based strategic position◦Needs-based strategic position
• Serve most or all of the needs of a particular group of customers in a target market.
• EXAMPLE: The original Farm Bureau-based insurance companies provided a portfolio of insurance and financial services tailored to the specific needs of farmers.
THE AIS AND CORPORATE STRATEGY
Porter also argues that companies must choose a strategic position among three choices:◦Variety-based strategic position◦Needs-based strategic position◦Access-based strategic position
• Serve a subset of customers who differ from others in terms of factors such as geographic location or size..
• EXAMPLE: Satellite Internet services are intended primarily for customers in rural areas who cannot get DSL or cable services.
THE AIS AND CORPORATE STRATEGY
Porter also argues that companies must choose a strategic position among three choices:◦Variety-based strategic position◦Needs-based strategic position◦Access-based strategic position
These strategic positions are not mutually exclusive and can overlap.
THE AIS AND CORPORATE STRATEGY
Choosing a strategic position is important because it helps a company focus its efforts as opposed to trying to be everything to everybody.◦ EXAMPLE: A radio station that tries to play all types of
music will probably fail. It’s critical to design the organization’s activities
so they reinforce one another in achieving the selected strategic position. The result is synergy, which is difficult for competitors to imitate.
THE AIS AND CORPORATE STRATEGY
The growth of the Internet has profoundly affected the way value chain activities are performed:◦ Inbound and outbound logistics can be streamlined for
products that can be digitized, like books and music.◦ The Internet allows companies to cut costs, which
impacts strategy and strategic position.◦ Because the Internet is available to everyone, intense
price competition can result. The outcome may be that many companies shift from low-cost to product-differentiation strategies.
◦ The Internet may impede access-based strategic positions.
THE AIS AND CORPORATE STRATEGY
The AIS should help a company adopt and maintain its strategic position.◦Requires that data be collected about each
activity.◦Requires the collection and integration of both
financial and nonfinancial data.
THE AIS AND CORPORATE STRATEGY
Businesses engage in a variety of activities, including:◦ Acquiring capital◦ Buying buildings and equipment◦ Hiring and training employees◦ Purchasing inventory◦ Doing advertising and marketing◦ Selling goods or services◦ Collecting payment from customers◦ Paying employees◦ Paying taxes◦ Paying vendors
INFORMATION NEEDS AND BUSINESS ACTIVITIES
Each activity requires different
types of decisions!
INFORMATION NEEDS AND BUSINESS ACTIVITIES
Businesses engage in a variety of activities, including:◦ Acquiring capital◦ Buying buildings and equipment◦ Hiring and training employees◦ Purchasing inventory◦ Doing advertising and marketing◦ Selling goods or services◦ Collecting payment from customers◦ Paying employees◦ Paying taxes◦ Paying vendors
Each decision requires different
types of information.
Types of information needed for decisions:◦Some is financial◦Some is nonfinancial◦Some comes from internal sources◦Some comes from external sources
An effective AIS needs to be able to integrate information of different types and from different sources.
INFORMATION NEEDS AND BUSINESS ACTIVITIES
INTERACTION WITH EXTERNAL AND INTERNAL PARTIES
AISExternalParties
The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies.
INTERACTION WITH EXTERNAL AND INTERNAL PARTIES
InternalParties AIS
ExternalParties
The AIS also interacts with internal parties such as employees and management.
INTERACTION WITH EXTERNAL AND INTERNAL PARTIES
InternalParties AIS
ExternalParties
The interaction is typically two-way, in that the AIS sends information to and receives information from these parties.
BUSINESS CYCLES
A transaction is:◦An agreement between two entities to
exchange goods or services; OR◦Any other event that can be measured in
economic terms by an organization. EXAMPLES:
◦Sell goods to customers◦Depreciate equipment
BUSINESS CYCLES
The transaction cycle is a process:◦Begins with capturing data about a transaction◦Ends with an information output, such as
financial statements
Many business activities are paired in give-get exchanges
The basic exchanges can be grouped into five major transaction cycles.◦Revenue cycle◦Expenditure cycle◦Production cycle◦Human resources/payroll cycle◦Financing cycle
BUSINESS CYCLES
Many business activities are paired in give-get exchanges
The basic exchanges can be grouped into five major transaction cycles.◦Revenue cycle◦Expenditure cycle◦Production cycle◦Human resources/payroll cycle◦Financing cycle
BUSINESS CYCLES
REVENUE CYCLE
The revenue cycle involves interactions with your customers.
You sell goods or services and get cash.
GiveGoods
GetCash
BUSINESS CYCLES Many business activities are paired in give-get
exchanges The basic exchanges can be grouped into five
major transaction cycles.◦Revenue cycle◦Expenditure cycle◦Production cycle◦Human resources/payroll cycle◦Financing cycle
EXPENDITURE CYCLE
The expenditure cycle involves interactions with your suppliers.
You buy goods or services and pay cash.
GiveCash
GetGoods
BUSINESS CYCLES Many business activities are paired in give-get
exchanges The basic exchanges can be grouped into five
major transaction cycles.◦Revenue cycle◦Expenditure cycle◦Production cycle◦Human resources/payroll cycle◦Financing cycle
In the production cycle, raw materials and labor are transformed into finished goods.
PRODUCTION CYCLE
Give RawMaterials &
Labor
GetFinishedGoods
BUSINESS CYCLES Many business activities are paired in give-get
exchanges The basic exchanges can be grouped into five
major transaction cycles.◦Revenue cycle◦Expenditure cycle◦Production cycle◦Human resources/payroll cycle◦Financing cycle
HUMAN RESOURCES/PAYROLL CYCLE
The human resources cycle involves interactions with your employees.
Employees are hired, trained, paid, evaluated, promoted, and terminated.
GiveCash
GetLabor
BUSINESS CYCLES Many business activities are paired in give-get
exchanges The basic exchanges can be grouped into five
major transaction cycles.◦Revenue cycle◦Expenditure cycle◦Production cycle◦Human resources/payroll cycle◦Financing cycle
FINANCING CYCLE
The financing cycle involves interactions with investors and creditors.
You raise capital (through stock or debt), repay the capital, and pay a return on it (interest or dividends).
GiveCash
Getcash
Thousands of transactions can occur within any of these cycles.
But there are relatively few types of transactions in a cycle.
BUSINESS CYCLES
EXAMPLE: In the revenue cycle, the basic give-get transaction is:◦Give goods◦Get cash
BUSINESS CYCLES
Other transactions in the revenue cycle include:
• Handle customer inquiries• Take customer orders• Approve credit sales• Check inventory availability• Initiate back orders• Pick and pack orders• Ship goods• Bill customers
• Update sales and Accts Rec. for sales
• Receive customer payments• Update Accts Rec. for
collections• Handle sales returns,
discounts, & bad debts• Prepare management
reports• Send info to other cycles
Note that the last activity in any cycle is to send information to other cycles.
BUSINESS CYCLES
MAJOR GIVE-GET:• Give cash; get goods or
services
OTHER TRANSACTIONS• Requisition goods and
services• Process purchase orders to
vendors• Receive goods and services• Store goods• Receive vendor invoices
• Update accounts payable for purchase
• Approve invoices for payment• Pay vendors• Update accounts payable for
payment• Handle purchase returns,
discounts, and allowances• Prepare management reports• Send info to other cycles
Transactions in the expenditure cycle:
BUSINESS CYCLES
BUSINESS CYCLES
Transactions in the HR/payroll cycle:
MAJOR GIVE-GET:• Give cash; get labor
OTHER TRANSACTIONS• Recruit, hire, and train
employees• Evaluate and promote
employees• Discharge employees• Update payroll records
• Pay employees– Process timecard and
commission data– Prepare and distribute
payroll• Calculate and disburse tax
and benefit payments• Prepare management reports• Send info to other cycles
BUSINESS CYCLES
Transactions in the production cycle:
MAJOR GIVE-GET:• Give labor and raw materials;
Get finished goods
OTHER TRANSACTIONS• Design products• Forecast, plan, and schedule
production• Requisition raw materials• Manufacture products
• Store finished goods• Accumulate costs for
products• Prepare management
reports• Send info to other cycles
BUSINESS CYCLES
Transactions in the financing cycle:
MAJOR GIVE-GET:• Give cash; get cash
OTHER TRANSACTIONS• Forecast cash needs• Sell securities to investors• Borrow money from
lenders
• Pay dividends to investors and interest to lenders
• Retire debt• Prepare management
reports• Send info to other cycles
Every transaction cycle:◦Relates to other cycles◦Interfaces with the general ledger and
reporting system, which generates information for management and external parties.
BUSINESS CYCLES
RevenueCycle
ExpenditureCycle
ProductionCycle
General Ledgerand Reporting
System
Human Res./Payroll Cycle
FinancingCycle
The revenue cycle◦ Gets finished goods
from the production cycle
◦ Provides funds to the financing cycle
◦ Provides data to the General Ledger and Reporting System
Data
Funds
Finished Goods
RevenueCycle
ExpenditureCycle
ProductionCycle
General Ledgerand Reporting
System
Human Res./Payroll Cycle
FinancingCycle
RawMats.
Funds Dat
a
The expenditure cycle◦ Gets funds from the
financing cycle◦ Provides raw
materials to the production cycle
◦ Provides data to the General Ledger and Reporting System
RevenueCycle
ExpenditureCycle
ProductionCycle
General Ledgerand Reporting
System
Human Res./Payroll Cycle
FinancingCycle
Finished Goods
RawMats.
DataLa
bor The production cycle:
◦ Gets raw materials from the expenditure cycle
◦ Gets labor from the HR/payroll cycle
◦ Provides finished goods to the revenue cycle
◦ Provides data to the General Ledger and Reporting System
RevenueCycle
ExpenditureCycle
ProductionCycle
General Ledgerand Reporting
System
Human Res./Payroll Cycle
FinancingCycle
Funds
Data
Labo
r The HR/payroll cycle:◦ Gets funds from the
financing cycle◦ Provides labor to
the production cycle◦ Provides data to the
General Ledger and Reporting System
RevenueCycle
ExpenditureCycle
ProductionCycle
General Ledgerand Reporting
System
Human Res./Payroll Cycle
FinancingCycle
Data
Funds
Funds
Funds
The Financing cycle:◦ Gets funds from the
revenue cycle◦ Provides funds to
the expenditure and HR/payroll cycles
◦ Provides data to the General Ledger and Reporting System
RevenueCycle
ExpenditureCycle
ProductionCycle
General Ledgerand Reporting
System
Human Res./Payroll Cycle
FinancingCycle
Dat
aData
Data
Data Data
Information forInternal & External Users
The General Ledger and Reporting System:◦ Gets data from all of
the cycles◦ Provides information
for internal and external users
BUSINESS CYCLES
Many accounting software packages implement the different transaction cycles as separate modules.◦Not every module is needed in every
organization, e.g., retail companies don’t have a production cycle.
◦Some companies may need extra modules.◦The implementation of each transaction cycle
can differ significantly across companies.
However the cycles are implemented, it is critical that the AIS be able to:◦ Accommodate the information needs of managers◦ Integrate financial and nonfinancial data.
BUSINESS CYCLES
TRANSACTION PROCESSING:THE DATA PROCESSING CYCLE
Accountants play an important role in data processing. They answer questions such as:◦ What data should be entered and stored?◦ Who should be able to access the data?◦ How should the data be organized, updated, stored,
accessed, and retrieved?◦ How can scheduled and unanticipated information
needs be met. To answer these questions, they must
understand data processing concepts.
TRANSACTION PROCESSING:THE DATA PROCESSING CYCLE
An important function of the AIS is to efficiently and effectively process the data about a company’s transactions.◦In manual systems, data is entered into paper
journals and ledgers.◦In computer-based systems, the series of
operations performed on data is referred to as the data processing cycle.
The data processing cycle consists of four steps:◦Data input◦Data storage◦Data processing◦Information output
TRANSACTION PROCESSING:THE DATA PROCESSING CYCLE
The data processing cycle consists of four steps:◦Data input◦Data storage◦Data processing◦Information output
TRANSACTION PROCESSING:THE DATA PROCESSING CYCLE
DATA INPUT
The first step in data processing is to capture the data.
Usually triggered by a business activity. Data is captured about:
◦The event that occurred◦The resources affected by the event◦The agents who participated
A number of actions can be taken to improve the accuracy and efficiency of data input:◦Turnaround documents• EXAMPLE: The stub on your telephone bill that you tear off and
return with your check when you pay the bill.• The customer account number is coded on the document, usually
in machine-readable form, which reduces the probability of human error in applying the check to the correct account.
DATA INPUT
A number of actions can be taken to improve the accuracy and efficiency of data input:◦Turnaround documents◦Source data automation
• Capture data with minimal human intervention.• EXAMPLES:
– ATMs for banking– Point-of-sale (POS) scanners in retail stores– Automated gas pumps that accept your credit card
DATA INPUT
A number of actions can be taken to improve the accuracy and efficiency of data input:◦Turnaround documents◦Source data automation◦Well-designed source documents and
data entry screens• How do these improve the accuracy and efficiency of
data input?
DATA INPUT
A number of actions can be taken to improve the accuracy and efficiency of data input:◦Turnaround documents◦Source data automation◦Well-designed source documents and data
entry screens◦Using pre-numbered documents or having
the system automatically assign sequential numbers to transactions
• What does it mean if a document number is missing in the sequence?
DATA INPUT
A number of actions can be taken to improve the accuracy and efficiency of data input:◦Turnaround documents◦Source data automation◦Well-designed source documents and data
entry screens◦Using pre-numbered documents or having
the system automatically assign sequential numbers to transactions
• What does it mean if there are duplicate document numbers?
DATA INPUT
A number of actions can be taken to improve the accuracy and efficiency of data input:◦Turnaround documents◦Source data automation◦Well-designed source documents and data
entry screens◦Using pre-numbered documents or having the
system automatically assign sequential numbers to transactions
◦Verify transactions
• EXAMPLE: Check for inventory availability before completing an online sales transaction.
DATA INPUT
TRANSACTION PROCESSING:THE DATA PROCESSING CYCLE
The data processing cycle consists of four steps:◦Data input◦Data storage◦Data processing◦Information output
DATA STORAGE
Data needs to be organized for easy and efficient access.
Let’s start with some vocabulary terms with respect to data storage.
DATA STORAGE
Ledger
A ledger is a file used to store cumulative information about resources and agents. We typically use the word ledger to describe the set of t-accounts. The t-account is where we keep track of the beginning balance, increases, decreases, and ending balance for each asset, liability, owners’ equity, revenue, expense, gain, loss, and dividend account.
Ledger◦Following is an example of a ledger account
for accounts receivable:
ACCOUNT: Accounts Receivable Account Number: 120
Date Description Post Ref Debit Credit Balance01/01/05 42,069.00 01/03/05 Sales S03 1,300.00 43,369.00 01/13/05 Cash collections CR09 4,600.00 38,769.00 01/23/05 Sales S04 5,600.00 44,369.00
GENERAL LEDGER
DATA STORAGE
Ledger General ledger
The general ledger is the summary level information for all accounts. Detail information is not kept in this account.
DATA STORAGE
Ledger General ledger
Example: Suppose XYZ Co. has three customers. Anthony Adams owes XYZ P100. Bill Brown owes P200. And Cory Campbell owes XYZ P300. The balance in accounts receivable in the general ledger will be P600, but you will not be able to tell how much individual customers owe by looking at that account. The detail isn’t there.
DATA STORAGE
Ledger General ledger Subsidiary ledger
The subsidiary ledgers contain the detail accounts associated with the related general ledger account. The accounts receivable subsidiary ledger will contain three separate t-accounts—one for Anthony Adams, one for Bill Brown, and one for Cory Campbell.
DATA STORAGE
DATA STORAGE
Ledger General ledger Subsidiary ledger
The related general ledger account is often called a “control” account.
The sum of the subsidiary account balances should equal the balance in the control account.
Ledger General ledger Subsidiary ledger Coding techniques
• Coding is a method of systematically assigning numbers or letters to data items to help classify and organize them. There are many types of codes including:– Sequence codes– Block codes– Group codes
DATA STORAGE
DATA STORAGE
Ledger General ledger Subsidiary ledger Coding techniques
• With sequence codes, items (such as checks or invoices) are numbered consecutively to ensure no gaps in the sequence. The numbering helps ensure that:– All items are accounted for– There are no duplicated numbers, which would suggest errors or
fraud
DATA STORAGE
Ledger General ledger Subsidiary ledger Coding techniques• When block codes are used, blocks of numbers within a numerical
sequence are reserved for a particular category.• EXAMPLE: The first three digits of a Social Security number make
up a block code that indicates the state in which the Social Security number was issued:– 001-003 New Hampshire– 004-007 Maine– 008-009 Vermont
DATA STORAGE
Ledger General ledger Subsidiary ledger Coding techniques• When group codes are used, two or more subgroups of digits are
used to code an item.• EXAMPLE: The code in the upper, right-hand corner of many
checks is a group code organized as follows:– Digits 1-2 Bank number– Digit 3 Federal Reserve District– Digits 4-7 Branch office of Federal Reserve– Digits 8-9 State
DATA STORAGE
Ledger General ledger Subsidiary ledger Coding techniques
• Group coding schemes are often used in assigning general ledger account numbers. The following guidelines should be observed:– The code should be consistent with its intended use, so make
sure you know what users need.– Provide enough digits to allow room for growth.– Keep it simple in order to:
• Minimize costs• Facilitate memorization• Ensure employee acceptance
– Make sure it’s consistent with:• The company’s organization structure• Other divisions of the organization
LedgerGeneral ledgerSubsidiary ledgerCoding techniquesChart of accounts
• The chart of accounts is a list of all general ledger accounts an organization uses.
• Group coding is often used for these numbers, e.g.:– The first section identifies the major account categories, such as asset,
liability, revenue, etc.– The second section identifies the primary sub-account, such as current
asset or long-term investment.– The third section identifies the specific account, such as accounts
receivable or inventory.– The fourth section identifies the subsidiary account, e.g., the specific
customer code for an account receivable.• The structure of this chart is an important AIS issue, as it must contain
sufficient detail to meet the organization’s needs.
LedgerGeneral ledgerSubsidiary ledgerCoding techniquesChart of accountsJournals
• In manual systems and some accounting packages, the first place that transactions are entered is the journal.– A general journal is used to record:
• Non-routine transactions, such as loan payments• Summaries of routine transactions• Adjusting entries• Closing entries
– A special journal is used to record routine transactions. The most common special journals are:
• Cash receipts• Cash disbursements• Credit sales• Credit purchases
LedgerGeneral ledgerSubsidiary ledgerCoding techniquesChart of accountsJournalsAudit trail
• An audit trail exists when there is sufficient documentation to allow the tracing of a transaction from beginning to end or from the end back to the beginning.
• The inclusion of posting references and document numbers enable the tracing of transactions through the journals and ledgers and therefore facilitate the audit trail.
DATA STORAGE
Now that we’ve learned some storage terminology, let’s return to the data storage process.
When transaction data is captured on a source document, the next step is to record the data in a journal.
A journal entry is made for each transaction showing the accounts and amounts to be credited.
DATA STORAGE
If you took a principles of financial accounting, you probably worked with journals that looked something like this:
01/15/04 Accounts receivable 2,200 Sales revenue 2,200
01/18/04 Cash 1,800 Accounts receivable 1,800
01/21/04 Salaries expense 900 Cash 900
DATA STORAGE
You may not have gotten much experience with special journals, but in most real-world situations, journal entries really work like this.◦ Entries are originally made in the general journal only
for Non-routine transactions. Summaries of routine transactions
◦ Routine transactions are originally entered in special journals. The most common special journals are: Credit sales Cash receipts Credit purchases Cash disbursements
DATA STORAGE
Let’s work through an example with a special journal. In this case we’ll use the sales journal.
DATA STORAGE
On Dec. 1, a sale is made to Lee Co. for $800. Lee Co. was sent Invoice No. 201.
Page 5
Date Invoice Number
Account Debited
Account Number Post Ref. Amount
12/01/04 201 Lee Co. 120-122 800.00
Sales Journal
DATA STORAGE
The general ledger account number for accounts receivable is No. 120. Lee Co. was about the 122nd customer, so their subsidiary account number is 120-122.
Page 5
Date Invoice Number
Account Debited
Account Number Post Ref. Amount
12/01/04 201 Lee Co. 120-122 800.00
Sales Journal
DATA STORAGE
The next sale on Dec. 1 was made to May Co. for $700.
Page 5
Date Invoice Number
Account Debited
Account Number Post Ref. Amount
12/01/04 201 Lee Co. 120-122 800.00 12/01/04 202 May Co. 120-033 700.00
Sales Journal
DATA STORAGE
The third and final sale on Dec. 1 was made to DLK Co. for $900.
Page 5
Date Invoice Number
Account Debited
Account Number Post Ref. Amount
12/01/04 201 Lee Co. 120-122 800.00 12/01/04 202 May Co. 120-033 700.00 12/01/04 203 DLK Co. 120-111 900.00
Sales Journal
DATA STORAGE
Suppose the company making these sales posts transactions at the end of each day. Consequently, at day’s end, they will post each individual transaction to the accounts receivable subsidiary ledger:◦ An $800 increase in accounts receivable (debit) will be
posted to Lee Co.’s subsidiary account (120-122).◦ A $700 debit will be posted to May Co.’s subsidiary
account (120-033).◦ A $900 debit will be posted to DLK Co.’s subsidiary
account (120-111).
DATA STORAGE
Then a summary journal entry must be made to the general journal. The sales for the period are totaled. In this case, they add up to $2,400.
Page 5
Date Invoice Number
Account Debited
Account Number Post Ref. Amount
12/01/04 201 Lee Co. 120-122 800.00 12/01/04 202 May Co. 120-033 700.00 12/01/04 203 DLK Co. 120-111 900.00
TOTAL 2,400.00 120/502
Sales Journal
DATA STORAGE
The “120/502” that appears beneath the total indicates that a summary journal entry is made in the general journal with a debit to accounts receivable (120) and a credit to sales (502).
Page 5
Date Invoice Number
Account Debited
Account Number Post Ref. Amount
12/01/04 201 Lee Co. 120-122 800.00 12/01/04 202 May Co. 120-033 700.00 12/01/04 203 DLK Co. 120-111 900.00
TOTAL 2,400.00 120/502
Sales Journal
DATA STORAGE
The entries in the general journal are periodically (or automatically) posted to the general ledger. The $2,400 debit to accounts receivable will be posted to the accounts receivable control account, and the $2,400 credit will be posted to the general ledger account for sales.
12/01/04 Accounts receivable 2,400 Sales revenue 2,400
12/01/04 Cash 1,800 Accounts receivable 1,800
12/01/04 Salaries expense 900 Cash 900
DATA STORAGE
From time to time, the subsidiary account balances will be added up, and this sum will be compared to the balance of the control account.
What does it mean if they aren’t equal?
DATA STORAGE
Review so far:◦ When routine transactions occur, they are recorded in
special journals.◦ When non-routine transactions occur, they are recorded in
the general journal.◦ Periodically, the transactions in the special journal are totaled,
and a summary entry is made in the general journal.◦ The individual line items in the special journal are posted to the
subsidiary ledger accounts.◦ The items in the general journal are posted to the general
ledger.◦ Periodically, the balances in the general ledger control
accounts are compared to the sums of the balances in the related subsidiary accounts.
DATA STORAGE
COMPUTER-BASED STORAGE CONCEPTS
Now let’s moving on to discussing some computer-based storage concepts, including:◦ Entity◦ Attribute◦ Record◦ Data Value◦ Field◦ File◦ Master File◦ Transaction File◦ Database
An entity is something about which information is stored.
In your university’s student information system, one entity is the student. The student information system stores information about students.
What are some other entities in your student information system?
COMPUTER-BASED STORAGE CONCEPTS
Attributes are characteristics of interest with respect to the entity.
Some attributes that a student information system typically stores about the student entity are:◦ Student ID number◦ Phone number◦ Address
What are some other attributes about students that a university might store?
COMPUTER-BASED STORAGE CONCEPTS
A field is the physical space where an attribute is stored.
The space where the student ID number is stored is the student ID field.
Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
COMPUTER-BASED STORAGE CONCEPTS
A record is the set of attributes stored for a particular instance of an entity.
The combination of attributes stored for Barry Andrews is Barry’s record.
Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
COMPUTER-BASED STORAGE CONCEPTS
A data value is the intersection of the row and column.
The data value for Barry Andrews’ phone number is 405-744-0236.
Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
COMPUTER-BASED STORAGE CONCEPTS
A file is a group of related records. The collection of records about all students at
the university might be called the student file. If there were only three students and four attributes stored for each student, the file might appear as shown below:
Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863
COMPUTER-BASED STORAGE CONCEPTS
A master file is a file that stores cumulative information about an organization’s entities.
It is conceptually similar to a ledger in a manual AIS in that:◦The file is permanent◦The file exists across fiscal periods◦Changes are made to the file to reflect the
effects of new transactions.
COMPUTER-BASED STORAGE CONCEPTS
A transaction file is a file that contains records of individual transactions (events) that occur during a fiscal period.
It is conceptually similar to a journal in a manual AIS in that:◦The files are temporary◦The files are usually maintained for one fiscal
period
COMPUTER-BASED STORAGE CONCEPTS
A database is a set of interrelated, centrally-coordinated files.
When files about students are integrated with files about classes and files about instructors, we have a database.
StudentFile
ClassFile
InstructorFile
COMPUTER-BASED STORAGE CONCEPTS
TRANSACTION PROCESSING:THE DATA PROCESSING CYCLE
The data processing cycle consists of four steps:◦Data input◦Data storage◦Data processing◦Information output
DATA PROCESSING
Once data about a business activity has been collected and entered into a system, it must be processed.
There are four different types of file processing:◦Updating data to record the occurrence of an
event, the resources affected by the event, and the agents who participated, e.g., recording a sale to a customer.
◦Changing data, e.g., a customer address◦Adding data, e.g., a new customer.◦Deleting data, e.g., removing an old customer
that has not purchased anything in 5 years.
DATA PROCESSING
Updating can be done through several approaches:◦Batch processing
DATA PROCESSING
Batch processing:◦Source documents are grouped into batches,
and control totals are calculated.◦Periodically, the batches are entered into the
computer system, edited, sorted, and stored in a temporary file.
◦The temporary transaction file is run against the master file to update the master file.
◦Output is printed or displayed, along with error reports, transaction reports, and control totals.
DATA PROCESSING
Updating can be done through several approaches:◦Batch processing◦On-line Batch Processing
DATA PROCESSING
On-line batch processing:◦Transactions are entered into a computer system as they occur and stored in a temporary file.
◦Periodically, the temporary transaction file is run against the master file to update the master file.
◦The output is printed or displayed.
DATA PROCESSING
Updating can be done through several approaches:◦Batch processing◦On-line Batch Processing◦On-line, Real-time Processing
DATA PROCESSING
On-line, Real-time Processing◦Transactions are entered into a computer
system as they occur.◦The master file is immediately updated with the
data from the transaction.◦Output is printed or displayed.
DATA PROCESSING
Updating can be done through several approaches:◦Batch processing◦On-line Batch Processing◦On-line, Real-time Processing
If you’re going through enrollment, which of these approaches would you prefer that your university was using?
Why?
DATA PROCESSING
The data processing cycle consists of four steps:◦Data input◦Data storage◦Data processing◦Information output
TRANSACTION PROCESSING:THE DATA PROCESSING CYCLE
The final step in the information process is information output.
This output can be in the form of:◦Documents
INFORMATION OUTPUT
• Documents are records of transactions or other company data.
• EXAMPLE: Employee paychecks or purchase orders for merchandise
• Documents generated at the end of the transaction processing activities are known as operational documents (as opposed to source documents).
• They can be printed or stored as electronic images.
The final step in the information process is information output.
This output can be in the form of:◦Documents◦Reports
• Reports are used by employees to control operational activities and by managers to make decisions and design strategies.
• They may be produced:– On a regular basis– On an exception basis– On demand
• Organizations should periodically reassess whether each report is needed.
INFORMATION OUTPUT
The final step in the information process is information output.
This output can be in the form of:◦Documents◦Reports◦Queries
• Queries are user requests for specific pieces of information.
• They may be requested:– Periodically– One time
• They can be displayed:– On the monitor, called soft copy– On the screen, called hard copy
INFORMATION OUTPUT
Output can serve a variety of purposes:◦Financial statements can be provided to both
external and internal parties.◦Some outputs are specifically for internal use: For planning purposes
• Examples of outputs for planning purposes include:– Budgets
• Budgets are an entity’s formal expression of goals in financial terms
– Sales forecasts
INFORMATION OUTPUT
Output can serve a variety of purposes:◦Financial statements can be provided to both
external and internal parties.◦Some outputs are specifically for internal use:
For planning purposes For management of day-to-day operations
• Example: delivery schedules
INFORMATION OUTPUT
Output can serve a variety of purposes:◦Financial statements can be provided to both
external and internal parties.◦Some outputs are specifically for internal use:
For planning purposes For management of day-to-day operations For control purposes
INFORMATION OUTPUT• Performance reports are outputs that are
used for control purposes.• These reports compare an organization’s
standard or expected performance with its actual outcomes.
• Management by exception is an approach to utilizing performance reports that focuses on investigating and acting on only those variances that are significant.
Output can serve a variety of purposes:◦Financial statements can be provided to both
external and internal parties.◦Some outputs are specifically for internal use:
For planning purposes For management of day-to-day operations For control purposes For evaluation purposes
• These outputs might include:– Surveys of customer satisfaction– Reports on employee error rates
INFORMATION OUTPUT
Behavioral implications of managerial reports:◦YOU GET WHAT YOU MEASURE!
INFORMATION OUTPUT
ROLE OF THE AIS
The traditional AIS captured financial data.◦Non-financial data was captured in other,
sometimes-redundant systems Enterprise resource planning (ERP) systems
are designed to integrate all aspects of a company’s operations (including both financial and non-financial information) with the traditional functions of an AIS.
DATA FLOW DIAGRAMS
A data flow diagram (DFD) graphically describes the flow of data within an organization. It is used to:◦Document existing systems◦Plan and design new systems
There is no black-and-white approach to developing a DFD.
DATA FLOW DIAGRAMS
• Example of a data flow diagram of the customer payment process
AccountsReceivable
2.0Update
A/R
CreditManager
1.0ProcessPayment
Customer
Bank
Customerpayment
Remittancedata
ReceivablesInformation
Deposit
A data flow diagram consists of four basic elements:◦Data sources and destinations◦Data flows◦Transformation processes◦Data stores
DATA FLOW DIAGRAMS
A data flow diagram consists of four basic elements:◦Data sources and destinations◦Data flows◦Transformation processes◦Data stores
DATA FLOW DIAGRAMS
Data sources and destinations◦ Appear as squares◦ Represent organizations or individuals that send or
receive data used or produced by the system An item can be both a source and a destination
DATA FLOW DIAGRAMS
• Data sources and destinations are marked in red.
• Can you tell which are sources and which are destinations?
AccountsReceivable
CreditManager
2.0Update
A/R
1.0ProcessPayment
Customer
Bank
ReceivablesInformation
Remittancedata
Customerpayment
Deposit
DATA FLOW DIAGRAMS
A data flow diagram consists of four basic elements:◦Data sources and destinations◦Data flows◦Transformation processes◦Data stores
DATA FLOW DIAGRAMS
Data flows◦ Appear as arrows◦ Represent the flow of data between sources and
destinations, processes, and data stores
DATA FLOW DIAGRAMS
• Data flows are shown in red.• Does it appear that a data
flow can be two-way?• If so, how is it handled?
AccountsReceivable
CreditManager
2.0Update
A/R
1.0ProcessPayment
Customer
Bank
Customerpayment
Remittancedata
ReceivablesInformation
Deposit
DATA FLOW DIAGRAMS
AccountsReceivable
Customer1.0
ProcessPayment
2.0Update
A/R
CreditManager
Bank
Customerpayment
Remittancedata
ReceivablesInformation
Deposit
• Data flows should always be labeled.
• The exception is a data flow moving into or out of a data store.
• What symbol is the data store?
DATA FLOW DIAGRAMS
As you probably surmised from the previous slides, if a data flow is two-way, use a bi-directional arrow.
DATA FLOW DIAGRAMS
GeneralLedger
UpdateReceiv-ables
If two data elements flow together, then the use of one data flow line is appropriate.
CustomerProcessPayment
Cash Rec’t & Remittance Slip
DATA FLOW DIAGRAMS
If the data elements do not always flow together, then multiple lines will be needed.
CustomerProcessPayment
Customer Inquiry
Customer Payment
DATA FLOW DIAGRAMS
A data flow diagram consists of four basic elements:◦Data sources and destinations◦Data flows◦Transformation processes◦Data stores
DATA FLOW DIAGRAMS
Processes◦Appear as circles◦Represent the transformation of data
DATA FLOW DIAGRAMS
• The transformation processes are shown in red.
• Every process must have at least one data inflow and at least one data outflow. Why?
• What do you notice about how the processes are labeled?
AccountsReceivable
CreditManager
2.0Update
A/R
1.0ProcessPayment
Customer
Bank
Customerpayment
Remittancedata
ReceivablesInformation
Deposit
DATA FLOW DIAGRAMS
Data stores◦Appear as two horizontal lines◦Represent a temporary or permanent
repository of data
DATA FLOW DIAGRAMS
• The data store is shown in red.• Notice that the inflows and
outflows to the data store are not labeled.
AccountsReceivable
CreditManager
2.0Update
A/R
1.0ProcessPayment
Customer
Bank
Customerpayment
Remittancedata
ReceivablesInformation
Deposit
DATA FLOW DIAGRAMS
Data dictionary:◦Data flows and data stores are typically
collections of data elements.◦EXAMPLE: A data flow labeled student
information might contain elements such as student name, date of birth, ID number, address, phone number, and major.
◦The data dictionary contains a description of all data elements, data stores, and data flows in a system.
DATA FLOW DIAGRAMS
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.
DATA FLOW DIAGRAMS
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
DATA FLOW DIAGRAMS
• This is the context diagram for the S&S payroll processing system
PayrollProcessing
System
Govt.Agencies
Employees
Bank
Manage-ment
Depart-ments
HumanResources Employee change form
New employee form
Time cardsTax re
port & payment
Employee checks
Payroll checkPayroll report
DATA FLOW DIAGRAMS
DATA FLOW DIAGRAMS
PayrollProcessing
System
Depart-ments
Govt.Agencies
Employees
BankHuman
Resources
Manage-ment
Time cards
New employee form
Employee change form
Tax report &
payment
Employee checks
Payroll checkPayroll report
• What information comes into this process, and from where?
Bank
Employees
Govt.Agencies
PayrollProcessing
System
Depart-ments
HumanResources
Manage-ment
Time cards
New employee form
Employee change form
Tax report &
payment
Employee checks
Payroll checkPayroll report
DATA FLOW DIAGRAMS
• What information is produced by this process, and where does it go?
DATA FLOW DIAGRAMS
We’re going to go into a partial example of how the first level of detail was created.
But before we do, let’s step through some guidelines on how to create a DFD.
DATA FLOW DIAGRAMS
RULE 1: Understand the system. Observe the flow of information and interview people involved to gain that understanding.
RULE 2: Ignore control processes and control actions (e.g., error corrections). Only very critical error paths should be included.
RULE 3: Determine the system boundaries—where it starts and stops. If you’re not sure about a process, include it for the time being.
DATA FLOW DIAGRAMS
RULE 4: Draw the context diagram first, and then draw successively greater levels of detail.
RULE 5: Identify and label all data flows. The only ones that do not have to be labeled are those that go into or come out of data stores.
RULE 6: Data flows that always flow together should be grouped together. Those that do not flow together should be shown on separate lines.
DATA FLOW DIAGRAMS
RULE 7: Show a process (circle) wherever a data flow is converted from one form to another. Likewise, every process should have at least one incoming data flow and at least one outgoing data flow.
RULE 8: Transformation processes that are logically related or occur simultaneously can be grouped in one bubble.
RULE 9: Number each process sequentially. A process labeled 5.0 would be exploded at the next level into processes numbered 5.1, 5.2, etc. A process labeled 5.2 would be exploded into 5.21, 5.22, etc.
DATA FLOW DIAGRAMS
RULE 10: Process names should include action verbs, such as update, prepare, etc.
RULE 11: Identify and label all data stores, whether temporary or permanent.
RULE 12: Identify and label all sources and destinations. An entity can be both a source and destination. You may wish to include such items twice on the diagram, if needed, to avoid excessive or crossing lines.
DATA FLOW DIAGRAMS
RULE 13: As much as possible, organize the flow from top to bottom and left to right.
RULE 14: You’re not likely to get it beautiful the first time, so plan to go through several iterations of refinements.
RULE 15: On the final copy, lines should not cross. On each page, include:◦ The name of the DFD◦ The date prepared◦ The preparer’s name
DATA FLOW DIAGRAMS
Now that we’ve been through the guidelines for developing DFDs, let’s go back to the chapter example and see if we can re-create a part of it.
You may wish to create a table with the following headings to organize your information:◦ Data Inputs◦ Processes◦ Data Outputs
Data Inputs Processes Data Outputs
DATA FLOW DIAGRAMS
The first paragraph of the narrative for the payroll process reads as follows:◦ When employees are hired, they complete a new employee form.
When a change to an employee’s payroll status occurs, such as a raise or a change in the number of exemptions, human resources completes an employee change form. A copy of these forms is sent to payroll. These forms are used to create or update the records in the employee/payroll file and are then stored in the file. Employee records are stored alphabetically.
DATA FLOW DIAGRAMS
The first paragraph of the narrative for the payroll process reads as follows:◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status occurs, such as a raise or a change in the number of exemptions, human resources completes an employee change form. A copy of these forms is sent to payroll. These forms are used to create or update the records in the employee/payroll file and are then stored in the file. Employee records are stored alphabetically.
The portion marked in red relates to activities that go on outside the boundaries of the payroll system. Consequently, these activities will not be included on the DFD.
DATA FLOW DIAGRAMS
The first paragraph of the narrative for the payroll process reads as follows:◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status occurs, such as a raise or a change in the number of exemptions, human resources completes an employee change form. A copy of these forms is sent to payroll. These forms are used to create or update the records in the employee/payroll file and are then stored in the file. Employee records are stored alphabetically.
The portion marked in red suggests two data flows coming into the payroll process (new employee forms and employee change forms). The source of the inflows is the human resources department.
DATA FLOW DIAGRAMS
Data Inputs Processes Data OutputsNew employee forms and employee change forms (from H.R. Dept.)
DATA FLOW DIAGRAMS
The first paragraph of the narrative for the payroll process reads as follows:◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status occurs, such as a raise or a change in the number of exemptions, human resources completes an employee change form. A copy of these forms is sent to payroll. These forms are used to create or update the records in the employee/payroll file and are then stored in the file. Employee records are stored alphabetically.
The sentence marked in red suggests a process (update employee records) with the data outflow going to a data store (the employee/payroll file).
DATA FLOW DIAGRAMS
Data Inputs Processes Data OutputsNew employee forms and employee change forms (from H.R. Dept.)
Update records (read from file and record)
Updated employee/ payroll file
DATA FLOW DIAGRAMS
The first paragraph of the narrative for the payroll process reads as follows:◦ When employees are hired, they complete a new employee
form. When a change to an employee’s payroll status occurs, such as a raise or a change in the number of exemptions, human resources completes an employee change form. A copy of these forms is sent to payroll. These forms are used to create or update the records in the employee/payroll file and are then stored in the file. Employee records are stored alphabetically.
The final sentence in this paragraph provides information about the physical storage of the data. Physical information is utilized in flowcharts but not in data flow diagrams.
DATA FLOW DIAGRAMS
Data Inputs Processes Data OutputsNew employee forms and employee change forms (from H.R. Dept.)
Update records (read from file and record)
Updated employee/ payroll file
We will not do the entire DFD, however, you could finish this table by reading the remainder of the narrative in Table 3-1 in your textbook. The portion of the table completed so far allows us to draw the segment of the DFD that is highlighted on the following slide.
DATA FLOW DIAGRAMS
HumanResources
1.0Updateempl.Payroll
file
Employee/Payroll file
Depart-ments
2.0Pay
Employ-ees
5.0Update
Gen.Ledger
4.0Pay
taxesManage-ment Govt.
Agencies
GeneralLedger
Bank
Employees
Payrollreport
3.0Preparereports
Timecards
Employeepaychecks
Payrollcheck
PayrollDisburse-ment data
Payroll taxdisb. voucher
Tax report& payment
EmployeeChange
form
New employeeform
DATA FLOW DIAGRAMS
Keep the following in mind as you develop your DFD:◦ Remember to ignore control activities, such as error
correction processes.◦ Some data inputs and outputs will not appear on the
first level of the DFD but appear as the processes are exploded into greater levels of detail.
DATA FLOW DIAGRAMS
The data flow diagram focuses on the logical flow of data.
Next, we will discuss flowcharts, which place greater emphasis on physical details.
DATA FLOW DIAGRAMS
FLOWCHARTS
A flowchart is an analytical technique that describes some aspect of an information system in a clear, concise, and logical manner.
Flowcharts use a set of standard symbols to depict processing procedures and the flow of data.
Every shape on a flowchart depicts a unique operation, input, processing activity, or storage medium.
In the days of yore, flowcharts were commonly drawn with templates.
Now, it is more common to use a software program such as Visio.◦ Microsoft and Power Point are also used◦ The software uses pre-drawn shapes, and the
developer drags the shapes into the drawing.
FLOWCHARTS
There are four types of flowcharting symbols:◦Input/output symbols
Input/output symbols indicate the type of device or media that provides input to or records output from a process.
FLOWCHARTS
There are four types of flowcharting symbols:◦Input/output symbols◦Processing symbols
Processing symbols indicate the type of device used to process the data or whether the data is processed manually.
FLOWCHARTS
There are four types of flowcharting symbols:◦Input/output symbols◦Processing symbols◦Storage symbols
Storage symbols indicate the type of device used to store data while the system is not using it.
FLOWCHARTS
There are four types of flowcharting symbols:◦Input/output symbols◦Processing symbols◦Storage symbols◦Flow and miscellaneous symbols
• Flow and miscellaneous symbols may indicate:– The flow of data and goods– The beginning or end of the flowchart– The location of a decision– An explanatory note
FLOWCHARTS
Document Symbol◦ Represents a document or report that is prepared by
hand or printed by a computer.
INPUT/OUTPUT SYMBOLS
23
1
Multiple Copies of One Document◦ Indicates multiple copies of a paper document or report.◦ The document copies should be numbered in the upper,
right-hand corner.
INPUT/OUTPUT SYMBOLS
Input/Output; Journal/Ledger◦ Can represent any input or output on a program
flowchart.◦ Also represents accounting journals or ledgers in a
document flowchart.
INPUT/OUTPUT SYMBOLS
Display◦Represents information displayed by an online
output device such as a terminal, monitor, or screen.
INPUT/OUTPUT SYMBOLS
Online Keying◦Represents data entry by an online device
such as a terminal or personal computer.
INPUT/OUTPUT SYMBOLS
INPUT/OUTPUT SYMBOLS
Terminal or Personal Computer◦Combines the display and online keying
symbols to represent terminals and personal computers.
Transmittal Tape◦Represents manually prepared control totals
which are to be compared to computer totals for control purposes.
INPUT/OUTPUT SYMBOLS
Computer Processing◦ Represents a process performed by a computer, which
usually results in a change in data or information.
PROCESSING SYMBOLS
PROCESSING SYMBOLS
Manual Operation◦Represents a processing operation that is
performed manually.
PROCESSING SYMBOLS
Auxiliary Operation◦Represents a processing operation carried out
by a device other than a computer, e.g., an optical character scanner.
PROCESSING SYMBOLS
Off-line Keying Operation◦Represents an operation that uses an off-
line keying device, such as a cash register or keying to a disk.
STORAGE SYMBOLS
Magnetic disk◦Represents data stored permanently on a
magnetic disk.◦Frequently used to represent master files and
databases.
STORAGE SYMBOLS
Magnetic Tape◦Represents data stored on a magnetic tape.◦Sometimes represents transaction files.
STORAGE SYMBOLS
Diskette◦Represents data stored on a floppy disk or zip
disk.
Online Storage◦Represents data stored in a temporary online
file in a direct-access medium such as a magnetic disk.
STORAGE SYMBOLS
A
File◦ Represents a file of documents that are manually
stored and retrieved.◦ Letter indicates the ordering sequence:
A = Alphabetic order D = Date order N = Numeric order
STORAGE SYMBOLS
FLOW AND MISCELLANEOUS SYMBOLS
Document or Processing Flow◦Represents the direction of processing or
document flow.◦Normal flow is top to bottom and left to right.
FLOW AND MISCELLANEOUS SYMBOLS
Data/Information Flow◦Represents the direction of data/information
flow.◦Often used to show data being copied from
one document to another.
FLOW AND MISCELLANEOUS SYMBOLS
Communication Link◦Represents the transmission of data from one
location to another via communication lines.
On-page connector◦Connects processing from one location to
another on the same page.◦Used to avoid crisscrossing lines.
FLOW AND MISCELLANEOUS SYMBOLS
Off-page connector◦Connects the processing flow between two
different pages.◦Signals the exit from one page and the
corresponding entrance on another page.
FLOW AND MISCELLANEOUS SYMBOLS
Terminal◦Represents the beginning, end, or a point of
interruption in a process or program.◦Also used to indicate an external party.
FLOW AND MISCELLANEOUS SYMBOLS
Decision◦Represents a decision-making step.◦Used in a program flowchart to show
branching to alternate paths.
FLOW AND MISCELLANEOUS SYMBOLS
Annotation◦ Provides for the addition of descriptive comments or
explanatory notes as clarification.
FLOW AND MISCELLANEOUS SYMBOLS
DOCUMENT FLOWCHARTS
A document flowchart shows the flow of documents and information among areas of responsibility in an organization.
These flowcharts trace a document from cradle to grave and show:◦ Where a document comes from◦ Where it’s distributed◦ How it’s used◦ It’s ultimate disposition◦ Everything that happens as it flows through the system
DOCUMENT FLOWCHARTS
Internal control flowcharts are document flowcharts used to evaluate the adequacy of internal controls, such as segregation of duties or internal checks.
They can reveal weaknesses or inefficiences such as:◦ Inadequate communication flows◦ Unnecessarily complex document flows◦ Procedures that cause wasteful delays
Document flowcharts are also prepared in the system design process.
This is part of the document flowchart
GUIDELINES FOR PREPARING FLOWCHARTS
Let’s step through some guidelines for preparing flowcharts:◦ As with DFDs, you can’t effectively prepare a flowchart if
you don’t understand the system, so: Interview users, developers, auditors, and
management. Administer questionnaires. Read through narratives. Walk through systems transactions
◦ Identify: Entities to be flowcharted, e.g., departments,
functions, external parties (the parties who “do” things in the story)
Documents or information flows Processes
◦As you read through a narrative, you may want to mark the preceding items with different shapes (e.g., drawing a rectangle around entities, circling documents, etc.).
GUIDELINES FOR PREPARING FLOWCHARTS
◦Use separate columns for the activity of each entity. Example: If there are three different
departments or functions that “do” things in the narrative, there would be three columns on the flowchart.
GUIDELINES FOR PREPARING FLOWCHARTS
What are the entities in this flowchart?
◦Flowchart the normal course of operations, and identify exceptions with annotations.
◦As much as possible, the flow should go from top to bottom and left to right.
◦Use standard flowcharting symbols, and draw with a template or computer.
◦Clearly label all symbols. Use annotations if necessary to provide adequate explanation.
GUIDELINES FOR PREPARING FLOWCHARTS
◦Give the flowchart a clear beginning and ending. Show where each document originated and
its final disposition.◦One approach you can use is to read through
the narrative and for each step define: What was (were) the input(s) What process was carried out What was (were) the output(s)
◦Note on the next slide that the flow sequence is input -- process – output.
GUIDELINES FOR PREPARING FLOWCHARTS
Identifies where input is coming from
Inputs
Process
Input fornext
process
Process
Output
◦Every manual process should have at least one input and at least one output.
◦Show all data entered into or retrieved from a computer file as passing through a process first.
◦Do not show process symbols for: Forwarding a document to another entity Filing a document
GUIDELINES FOR PREPARING FLOWCHARTS
Forwardinga document
Filinga document
◦Do not connect two documents except when forwarding to another column. When a document is forwarded, show it in
both locations.
GUIDELINES FOR PREPARING FLOWCHARTS
Show forwarded document in both
locations
◦When using multiple copies of a document, place document numbers in the upper, right-hand corner.
GUIDELINES FOR PREPARING FLOWCHARTS
What happens to the document
numbers as the documents move
to other locations?
◦Show on-page connectors and label them clearly to avoid excess flow lines.
GUIDELINES FOR PREPARING FLOWCHARTS
◦Use off-page connectors if the flow goes to another page.
GUIDELINES FOR PREPARING FLOWCHARTS
Are there other off-page
connectors on this flowchart?
◦ If a flowchart takes more than one page, label the pages as 1 of 5, 2 of 5, 3 of 5, etc.
◦ Show documents or reports first in the column where they are created.
◦ Start with a rough draft; then redesign to avoid clutter and crossed lines.
◦ Verify the accuracy of your flowchart by reviewing it with users, etc.
◦ Place the flowchart name, the date, and the preparer’s name on each page of the final copy.
GUIDELINES FOR PREPARING FLOWCHARTS
SYSTEM FLOWCHARTS
Now that we’ve looked at document flowcharts and guidelines for creating flowcharts, let’s take a brief look at system flowcharts.
SYSTEM FLOWCHARTS
A system flowchart depicts the relationship among the inputs, processes, and outputs of an AIS.◦The system flowchart begins by identifying
the inputs to the system.
• These inputs can be:– New data– Data stored for future use– Both
A system flowchart depicts the relationship among the inputs, processes, and outputs of an AIS.◦The system flowchart begins by identifying the
inputs to the system.◦Each input is followed by a process, i.e.,
the steps performed on the data.
SYSTEM FLOWCHARTS
• If the process is performed by a computer, the logic of the computer program would be depicted in a program flowchart.
A system flowchart depicts the relationship among the inputs, processes, and outputs of an AIS.◦The system flowchart begins by
identifying the inputs to the system.◦Each input is followed by a process, i.e.,
the steps performed on the data.◦The process is followed by outputs—
the resulting new information.
• The output may be:– Stored for later use– Displayed on a screen– Printed on paper– An input to the next process
SYSTEM FLOWCHARTS
A system flowchart depicts the relationship among the inputs, processes, and outputs of an AIS.◦The system flowchart begins by identifying the
inputs to the system.◦Each input is followed by a process, i.e., the
steps performed on the data.◦The process is followed by outputs—the
resulting new information.◦In other words, it’s the same basic input –
process – output pattern that we saw in the document flowchart.
SYSTEM FLOWCHARTS
System Flowchart Shown
Can you spot the input – process – output pattern?
Program flowcharts illustrate the sequence of logical operations performed by a computer in executing a program.
They also follow an input – process – output pattern.
PROGRAM FLOWCHARTS
• The program flowchart shown on the right.
• Note that the program flowchart details the logic of processes performed by the computer.
• This flowchart becomes the programmer’s blueprint for writing the actual computer program.
Now that we’ve examined both flowcharts and DFDs, it may be useful to discuss the differences again.
DFDs place a heavy emphasis on the logical aspects of a system.
Flowcharts place more emphasis on the physical characteristics of the system.
An example may be useful.
FLOWCHARTS VS. DFDs
EXAMPLE: The registrar’s office of a small college receives paper enrollment forms from students. They sort these records alphabetically and then update the student record file to show the new classes. They also prepare class lists from the same data. The sorted enrollment forms are forwarded to the bursar’s office for billing purposes. Class lists are mailed to faculty members.
FLOWCHARTS VS. DFDs
Students
1.0UpdateStudentRecords
2.0Prepare
Class Lists
StudentRecords
Faculty
Bursar
EnrollmentForms
EnrollmentForms
EnrollmentForms
ClassLists
Here’s a DFD that goes with the story.
Students
Registrar’s Office
EnrollmentForms
SortForms
SortedEnrollment
Forms
UpdateStudentRecords
A
PrepareClassLists
SortedEnrollment
Forms
ClassLists
SortedEnrollment
Forms
BursarFaculty
Here’s a flowchart that goes with the story
Students
1.0UpdateStudentRecords
2.0Prepare
Class Lists
StudentRecords
Faculty
Bursar
EnrollmentForms
EnrollmentForms
EnrollmentForms
ClassLists
Now let’s change the story so that students enter enrollment data online. The registrar’s office sends a tape file of the enrollment data to the bursar’s office and continues to send paper class lists to faculty.
FLOWCHARTS VS. DFDs
Students
1.0UpdateStudentRecords
2.0Prepare
Class Lists
StudentRecords
Faculty
Bursar
EnrollmentForms
EnrollmentForms
EnrollmentForms
ClassLists
Students
1.0UpdateStudentRecords
2.0Prepare
Class Lists
StudentRecords
Faculty
Bursar
EnrollmentData
EnrollmentData
EnrollmentData
ClassLists
Original DFD
Here’s the revised DFD. How has it changed?
Students
Registrar’s Office
EnrollmentForms
SortForms
SortedEnrollment
Forms
UpdateStudentRecords
A
PrepareClassLists
SortedEnrollment
Forms
ClassLists
SortedEnrollment
Forms
BursarFaculty
Original Flowchart
Registrar’s Office
Students
ClassLists
Bursar
Faculty
EnrollmentData
UpdateStudentRecords
StudentRecords
EnrollmentData
PrepareClassLists
Here’s the revised flowchart. How has it changed?
Moral of the Story: Changes in the physical characteristics of the process do affect the flowchart but have little or no impact on the DFD.
The DFD focuses more on the logic. When deciding which tool to employ, consider
the information needs of those who will view it.
FLOWCHARTS VS. DFDs
THANK YOU!
top related