ACCOUNTING INFORMATION SYSTEM CHAPTER 2

TRANSACTION CYCLE
• The Expenditure Cycle
• The expenditure cycle is the acquisition of
materials, property, and labor in exchange for
cash.
• The Conversion Cycle
• The conversion cycle is the cycle composed
of the production system and the cost
accounting system.
• The Revenue Cycle
• The revenue cycle is the cycle composed of
sales order processing and cash receipts.
RELATIONSHIP BETWEEN TRANSACTION
CYCLES

ACCOUNTING RECORDS
Accounting records are documents, journals, or ledgers
used in transaction cycles.

MANUAL SYSTEMS • Journals

• Documents o A journal is a record of a chronological
• Source documents are documents that entry.
capture and formalize transaction data needed
for processing by their respective transaction o SPECIAL JOURNALS
cycles. o REGISTER: A register is often used to
• Product documents are documents that result denote certain types of special journals.
from transaction processing. For example, the payroll journal is often
• Turnaround documents are product called the payroll register.
documents of one system that become source • GENERAL JOURNALS: Journal vouchers are
documents for another system. accounting journal entries into an accounting
system for the purposes of making corrections or
adjustments to the accounting data. For control
purposes, all JVs should be approved by the
appropriate designated authority.
• Ledgers
• A ledger is a book of accounts that reflects the
financial effects of the firm’s transactions after
they are posted from the various journals.
• GENERAL LEDGERS
• SUBSIDIARY LEDGERS
ACCOUNTING INFORMATION SYSTEM CHAPTER 2

THE AUDIT TRAIL

• An audit trail is a set of accounting records that
trace transactions from their source documents to
the financial statements.
• An audit trail is of utmost importance in the conduct
of a financial audit.
• The external auditor’s responsibility involves, in
part, the review of selected accounts and
transactions to determine their validity, accuracy,
and completeness.
 ACCOUNTING INFORMATION SYSTEM CHAPTER 2
DIGITAL ACCOUNTING RECORDS • Data updating is the periodic updating of data
• Modern accounting systems store data in four types stored in the files of an organization.
of digital computer files: • Currency of Information
• A master file contains account data. • Currency of information is a problem
• A transaction file is a temporary file that holds associated with the flat-file model because of
transaction records that will be used to change its failure to update all the user files affected by
or update data in a master file. a change in status; may result in decisions
• A reference file is a file that stores the data based on outdated information.
used as standards for processing transactions. • Task-Data Dependency
• An archive file is a file that contains records of • Task-data dependency is a user’s inability to
past transactions that are retained for future obtain additional information as his or her
reference. needs change.
• The Digital Audit Trail • Flat Files Limit Data Integration
DIGITAL ACCOUNTING RECORDS IN A •
COMPUTER-BASED SYSTEM

FILE STRUCTURES
• Digital file structures and storage techniques vary THE DATABASE MODEL
widely among transaction processing systems. • The database model is a symbolic model of the
• Some structures are effective at processing all structure of, and the associations between, an
records in large master files. organization’s data entities.
• Some file structures are better for directly locating • The database management system (DBMS) is a
and processing a single record in a large file. software system that controls access to the data
• The legacy systems are large mainframe systems resource.
implemented in the late 1960s through the 1980s. • The most striking difference between the database
model and the flat-file model is the pooling of data
THE FLAT-FILE MODEL into a common database that all organizational
• The flat-file model is an environment in which users share
individual data files are not related to other files.
• There are three significant problems in the flat-file
environment: data storage, data updating, and
currency of information.
• Data Capture and Storage
• Data storage is an efficient information system
that captures and stores data only once and
makes this single source available to all users
who need it.
• Data Updating
 ACCOUNTING INFORMATION SYSTEM CHAPTER 2
DOCUMENTATION TECHNIQUES ENTITY RELATIONSHIP DIAGRAM SYMBOLS
• Visual images convey vital system information
more effectively and efficiently than words.
• Accountants use system documentation routinely,
as both systems designers and auditors.
• Five basic documentation techniques are: data flow
diagrams, entity relationship diagrams, system
flowcharts, program flowcharts, and record layout
diagrams.
DATA FLOW DIAGRAMS AND ENTITY.
RELATIONSHIP DIAGRAMS
• Data Flow Diagrams
• The data flow diagram (DFD) is the use of a
set of symbols in a diagram to represent the DATA MODEL
processes, data sources, data flows, and
process sequences of a current or proposed
system.
• Entity Relationship Diagrams
• An entity relationship (ER) diagram is a
documentation technique used to represent the
relationship among data entities in a system.
• Cardinality is the numeric mapping between
entities such as one-to-one (1:1), one-to-many
(1:M), and many-to-many (M:M).
• A data model is the blueprint for what
ultimately will become the physical database.
• Relationship between ER Diagrams and DFDs SYSTEM FLOWCHARTS

• A system flowchart is used to show the

relationship between the key elements—input
sources, programs, and output products—of
computer systems.
• Flowcharting Manual Activities
• Lay out the physical areas of activity.
• Transcribe the written facts into visual format.
• Flowcharting Computer Processes
• Transcribe the written facts into visual format.

FLOWCHART SHOWING AREAS OF ACTIVITY

 ACCOUNTING INFORMATION SYSTEM CHAPTER 2
SYMBOL SET FOR REPRESENTING MANUAL PROGRAM FLOW CHARTS
PROCEDURES
• A program flowchart is a diagram providing a
detailed description of the sequential and logical
operations of the program.
• Every program represented in a system flowchart
should have a supporting program flowchart that
describes its logic.
• The connector lines between the symbols establish
the logical order of execution.

RECORD LAYOUR DIAGRAMS

• Record layout diagrams are used to reveal the
internal structure of the records that constitute a file
or database table. The layout diagram usually
shows the name, data type, and length of each
attribute (or field) in the record.
• Detailed data structure information is needed for
FLOWCHART SHOWING STATED FACTS such tasks as identifying certain types of system
TRANSLATED INTO VISUAL SYMBOLS failures, analyzing error reports, and designing
tests of computer logic for debugging and auditing
purposes.

RECORD LAYOUR DIAGRAM FOR CUSTOMER

FILE

TRANSLATION PROCESSING MODELS

• Alternative transaction processing models fall
broadly into two types: (1) batch processing and (2)
real-time processing.
• Batch processing involves gathering transactions
into groups or batches and then processing the
entire batch as a single event.
• Real-time processing systems process individual
transactions continuously as they occur.
• Many systems incorporate both real-time and batch
processing features.
SYMBOL SET FOR REPRESENTING
COMPUTER PROCESSES CHARACTERISTIC DIFFERENCES BETWEEN
BATCH AND REAL-TIME PROCESSING
 ACCOUNTING INFORMATION SYSTEM CHAPTER 2
DIFFERENCES BETWEEN BATCH AND REAL- • Real-time processing is well suited to systems that
TIME SYSTEMS process lower transaction volumes and those that
• Information Time Frame do not share common records.
• Batch systems are systems that assemble • Terminals at distributed sites throughout the
transactions into groups for processing. organization are used for receiving, processing,
• Real-time systems are systems that process and sending information on the status of current
transactions individually at the moment the transactions.
economic event occurs.
• Resources DATA CODING SCHEMES
• Operational Efficiency • Data coding involves creating simple numeric or
• Efficiency versus Effectiveness alphabetic codes to represent complex economic
phenomena that facilitate efficient data processing.
UPDATING MASTER FILES FROM
TRANSACTIONS A SYSTEM WITHOUT CODES

• Updating a master file record involves changing the • Business organizations process large volumes of
value of one or more of its variable fields to reflect transactions that are similar in their basic attributes.
the effects of a transaction. • Uncoded entry takes a great deal of recording
• Master file backup procedures space, is time-consuming to record, and is
• If the current master file becomes corrupted or is obviously prone to many types of errors.
destroyed, corporate IT professionals can retrieve
the most current backed-up file from the archives. A SYSTEM WITH CODES
• Advantages of data coding in AIS are:
RECORD STRUCTURES FOR SALES, • Concisely representing large amounts of
INVENTORY, AND ACCOUNTING RECEIVABLE complex information that would otherwise be
FILES unmanageable.
• Providing a means of accountability over the
completeness of the transactions processed.
• Identifying unique transactions and accounts
within a file.
• Supporting the audit function by providing an
effective audit trail.
•
NUMERIC AND ALPHABETIC CODING SCHEMES
• Sequential Codes
• Sequential codes are codes that represent
items in some sequential order (ascending or
descending).
• ADVANTAGES
• DISADVANTAGES
• Block Codes
• A numeric block code is a coding scheme that
BATCH PROCESSING USING REAL-0TIME
assigns ranges of values to specific attributes
DATA COLLECTION such as account classifications.
• A popular data processing approach, particularly • A chart of accounts is a listing of an
for large operations, is to digitally capture and organization’s accounts showing the account
process aspects of the transaction at the source as number and name.
they occur, and process other aspects of the
• ADVANTAGES
transaction in batch mode.
• DISADVANTAGES
• Deadlock or “wait” is a state that occurs between
• Group Codes
sites when data are locked by multiple sites that are
waiting for the removal of the locks from the other • Group codes are used to represent complex
sites. items or events involving two or more pieces of
related data.
• ADVANTAGES
REAL-TIME PROCESSING
• DISADVANTAGES
• Real-time systems process the entire transaction
• Alphabetic Codes
as it occurs.
• Alphabetic codes are alphabetic characters
assigned sequentially.
 ACCOUNTING INFORMATION SYSTEM CHAPTER 2
• ADVANTAGES: Alphanumeric codes are SEQUENTIAL STORAGE AND ACCESS
codes that allow the use of pure alphabetic METHOD
characters embedded within numeric codes.
• DISADVANTAGES

• Mnemonic Codes
• Mnemonic codes are alphabetic characters in
the form of acronyms and other combinations
that convey meaning.
• ADVANTAGES
• DISADVANTAGES

APPENDIX-DATA STRUCTURES APPENDIX-DATA STRUCTURES

• Data structures are techniques for physically
arranging records in a database. • INDEXED STRUCTURE
• Organization refers to the way records are • Indexed structure is a class of file structure
physically arranged on the secondary storage that uses indexes for its primary access
device (e.g., a disk). method.
• Access method is a technique used to locate • Indexed random file is a randomly organized
records and navigate through the database. file accessed via an index.
• Flat-file approach is an organizational • VIRTUAL STORAGE ACCESS METHOD
environment in which users own their data STRUCTURE
exclusively. • Virtual storage access method (VSAM) is a
structure used for very large files that require
TYPICAL FILE PROCESSING OPERATIONS routine batch processing and a moderate
degree of individual record processing.
• HASHING STRUCTURE
• Hashing structure is a structure employing an
algorithm that converts the primary key of a
record directly into a storage address.

• POINTER STRUCTURE
• Pointer structure is a structure in which the
address (pointer) of one record is stored in the
APPENDIX-DATA STRUCTURES field on a related record.
• SEQUENTIAL STRUCTURE • Types of Pointers: A physical address
• Sequential structure is a data structure in pointer contains the actual disk storage
which all records in the file lie in contiguous location (cylinder, surface, and record number)
storage spaces in a specified sequence that the disk controller needs. A relative
arranged by their primary key. address pointer contains the relative position
• Sequential access method is a method in of a record in the file. A logical key pointer
which all records in the file are accessed contains the primary key of the related record.
sequentially.
• Sequential files are files that are structured
sequentially and must be accessed
sequentially.
• DIRECT ACCESS STRUCTURES
• Direct access structures is the storage of
data at a unique location, known as an address,
on a hard disk or floppy disk.