Accounting Information system

Chapter 4
Relational databases

Objective 1: The Difference between Database Systems and File-based Systems, as well as the
Advantages of Database Systems.

Files versus databases:

To appreciate the power of databases, it is important to understand how data are stored in computer
systems
Figure 4-1, shows a data hierarchy

➢ Information about the attributes of a customer are stored in fields.

➢ All the fields containing data about an entity e.g., one customer ) form a record.
➢ A set of related records, such as customer records, form a file (e.g., the customer file).
➢ Database A set of interrelated, centrally, coordinated data files that are stored with as little data
redundancy as possible .
➢ A database consolidates records previously stored in separate files into a common pool and serves a
variety of users and data processing applications.

Database systems were developed to address the proliferation of master files.

For many years, companies created new files and programs each time a need for information arose.

This proliferation of master files created problems such as:

1. Storing the same data in two or more master files. This made it difficult to:
a) effectively integrate and update data, and
b) Obtain an organization-wide view of the data.
2. The same data in the different files were inconsistent.
For Example, a customer’s address may have been correctly updated in the shipping master file but not in
the billing master file.
- The database approach treats data as an organizational resource that should be used and organized for the
entire organization, not just for a particular department.
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-
Figure 4-2, illustrates the differences between file-oriented systems and database systems.

➢ A Database management system (DBMS) is the program that manages, and controls
The data, and serves as an interface between the database and the various application
Programs that use the data stored in the database.

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➢ The combination of database, the DBMS and the application programs that access the Database is
referred to as the database system.
➢ The database administrator (DBA) is responsible for coordinating, controlling, and managing the
database.

The Advantages of Database Systems:

The Role of Accountants in Database:
➢ Most accountants are involved with databases through:Data entry, Data processing, Querying, or
Auditing.
➢ They also develop, manage, or evaluate the controls needed to ensure database integrity.

Database systems provide organizations with the following benefits:

1. Data integration:
Master files are combined into large “pools” of data that many application programs can access.
Example, An employee database that consolidates payroll, personnel, and job skills master files.
2. Data sharing:
- Integrated data are more easily shared with authorized users.
- Databases are easily browsed to research a problem or obtain detailed information underlying a report.
3. Minimal data redundancy and data inconsistencies:
- Because data items are usually stored only once, data redundancy and data inconsistencies are minimized
4. Data independence:
- Because data and the programs that use them are independent of each other, each can be changed without
changing the other.
- This facilitates programming and simplifies data management.
5. Cross- functional analysis:
- In a database system, relationships, such as the association between selling costs and promotional campaigns,
can be explicitly defined and used in the preparation of management reports.

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Objective 2: Explain the use of Data Warehouses in Business Intelligence.
➢ Management must constantly reevaluate financial and operating performance in light of strategic goals
and quickly alter plans as needed.
➢ Since strategic decision making requires access to large amount of historical data, organizations are
building separate databases called data warehouses.
Data warehouse:
− A data warehouse is one or more very large databases containing both detailed and summarized data for
a number of years
− is used for analysis rather than transaction processing.
− Data warehouses do not replace transaction processing databases; they complement them by providing
support for strategic decision making.
− Since data warehouses are not used for transaction processing, they are usually updated periodically rather
than in real time.
− Whereas transaction processing databases minimize redundancy and maximize the efficiency of updating
them to reflect the results of current transactions, data warehouses are purposely redundant to maximize
query efficiency.
− Using a data warehouse for strategic decision making is often referred to as business intelligence.
There are two main techniques used in business intelligence: online analytical processing, and data mining.
1- Online analytical processing (OLAP)
2- Data mining

Online analytical processing (OLAP) Data mining

➢ is using quires to investigate hypothesized ➢ is using sophisticated statistical analysis,
relationships among data. including artificial intelligence techniques such
as neural networks, to “discover” unhypothesized
relationships in the data.

For example: For example:

a manager may analyze supplier purchases for the last Credit card companies use data mining to identify
three years, followed by additional quires to usage patterns indicative of fraud.
lower levels by grouping purchases by item
Similarly, data mining techniques can identify
number and by fiscal periods.
previously unknown relationships in sales data
that can be used in future promotions.

Notice that:
Proper controls are needed to reap significant benefits from data warehousing.
I. Data validation controls are needed to ensure that data warehouse input is accurate.
II. It is also important to control access to the data warehouse as well the stored data
III. Finally, it is important to regularly backup the data warehouse and store the backups securely.

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Objective 3: Explain the difference between logical and physical views of a database:
In file-oriented systems, programmers must know the physical location, and layout of records.
- Record-layout: It is a document that shows the items stored in a file, including:
➢ the order and length of the data fields, and
➢ the type of data stored.
- Figure 4-3, shows a record layout of an accounts receivable file.

Example, suppose a programmer wants a report showing customer number, credit limit, and current balance.
To write the program, the programmer must understand:
➢ The location and length of the fields needed, and
➢ The format of each field (alphanumeric or numeric).
➢ The process becomes more complex if data from several files are used.
Database systems overcome this problem by separating the storage of the data from the use of data elements
The database approach provides two separate views of the data:
The logical view Physical view
➢ The logical view is how people conceptually organize and ➢ The physical view refers to the way
understand the relationship among data items. (how and where) data are physically
arranged and stored in the computer
For example: a sales manager views all customer information as
system.
being stored in a table.

Notice that:
➢ Database management system (DBMS) software links the way data are physically stored with each
user’s logical view of the data.
➢ The DBMS allows users to access, query, or update the database without reference to how or where data
are physically stored
➢ Separating the logical and physical views of data also means that the user can change their logical view
of data without changing the way data are physically stored
➢ Likewise, the DBA can change physical storage to improve system performance without affecting users
or application programs.

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Objective 4: Explain fundamental concepts of database systems such as schemas, the dictionary, and
DBMS languages
Schemas:
A schema is a description of: The data elements in a database, The relationships among data elements,
and The logical model used to organize and describe the data elements.
There are three levels of schema:
1. The conceptual-level schema.
2. The external-level schema.
3. The internal-level schema.
The Conceptual-level Schema The external-level schema The internal-level schema
➢ the organization wide- view of ➢ is an individual user’s view of ➢ a lower-level view of the
the entire database, lists all portions of a database, each of database, describes how the
data elements and the which is referred to as a data are stored and accessed
relationships among them. subschema. including:
Example, the conceptual schema Example, the sales order entry Record layouts, Definitions,
for the revenue cycle subschema includes data about: Addresses, and Indexes.
database contains data about:
Customer credit limits, Current
Customers, Sales, Cash balances, Inventory quantities,
receipts, Sales personnel, and and Prices.
Inventory.
It would not include the cost of
inventory or bank account balances.
➢ The DBMS uses the mappings to translate a user’s or a program’s request for data (expressed in terms
of logical names and relationships) into the indexes and addresses needed to physically access the data

The Data Dictionary

A data dictionary contains information about the structure of the database.

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- As shown in Table 4-1, for each data element stored in the database, there is a record in the dictionary
describing it.
- The following table shows an example of data dictionary

➢ The DBMS maintains the data dictionary.

➢ The data dictionary has inputs and outputs.

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 Inputs of data dictionary Outputs of data dictionary
include: Reports for programmers, designers, and users such as:
➢ New or deleted data elements, and a) Programs or reports using a data item,
➢ Changes in data element names, b) Synonyms for the data elements in a file, and
description, or uses.
c) Data elements used by a user.
These reports are used for:
System documentation, Database design and
implementation, and as part of audit trail.

DBMS Languages
- A DBMS has several languages such as:
1. The data definition language (DDL).
2. The data manipulation language (DML).
3. The data query language (DQL).
The data definition language The data manipulation The data query language (DQL)
(DDL) language (DML)
➢ Builds the data dictionary, ➢ changes database
➢ is a high-level, English-like
➢ Creates the database, content, including data
Language that contains powerful,
➢ Describes logical view for elements updates,
easy-to-use commands that enable
each user, and insertions, and
users to:
➢ Specifies record or field deletions.
security constraints. Retrieve, Sort, Order, and Display data.

Notes:
1. A report writer simplifies report creation.
- For example, users specify the data elements they want printed, and the report writer searches the database,
extracts the data elements, and prints them in the user –specified format.
2. The DQL and report writer are available to users.
3. The DDL and DML should be restricted to authorized administrators and programmers.

Objective 5: Explain the Impact of database systems on the future of accounting

Database systems have the potential to alter external reporting significantly.
➢ Considerable time and effort are currently invested in defining how companies should summarize and
report accounting information to external users.
For Example:In the future, companies may make a copy of the company’s financial database available to
external users in lieu of the traditional financial statements.
➢ In this case users would be free to analyze the raw data however they see fit.

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A significant advantage of database systems is the ability to create ad hoc queries to provide the
information needed for decision making.
➢ No longer is financial information available only in predefined formats and at specified times.
➢ Instead, powerful and easy-to-use relational database query languages can find and prepare the
information management needs whenever they want it.
Relational DBMSs can also accommodate multiple views of the same underlying phenomenon

For example:
Tables storing information about assets can include columns not only for historical costs but also for:
current replacement costs and market values.
Thus, managers will no longer be forced to look at data in ways predefined by accountants.
- Finally, relational DBMSs are capable of integrating financial and operational data.
For example:
Customer satisfaction data could be stored in the database, giving managers a richer set of data for decision
making..

Notice that:
Relational DBMSs have the potential to increase the use and value of accounting information.
Accountants must understand database systems so they can help design and use the AISs of the future.
Such participation is important for:
➢ Ensuring that adequate controls are included in those systems to safeguard the data, and
➢ Ensure the reliability of the information produced.
End of Chapter Four

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