HAPTER 1

1. HAPTER 1 Accounting Information Systems: An Overview

2. WHAT IS AN AIS? • 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.

3. 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

4. ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Pharmaceuticals, Inc. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service The linking of these separate value chains creates a larger system known as a supply chain. Customer Pharmacy Inbound Logistics Operations Inbound Logistics Marketing & Sales Service Information technology can facilitate synergistic linkages that improve the performance of each company’s value chain.

5. SYSTEMS, DATA, AND INFORMATION • Characteristics that make information useful: • Relevance • Reliability • Completeness • Timeliness • Understandability • Verifiability • Accessibility

6. SYSTEMS, DATA, AND INFORMATION Benefits of information - Cost of producing information Value of 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.

7. HAPTER 2 Overview of Business Processes

8. BUSINESS CYCLES • The business transaction cycle is a process that: • Begins with capturing data about a transaction. • Ends with an information output, such as financial statements.

9. BUSINESS CYCLES • Many business processes are paired in give-get exchanges. • Basic exchanges can be grouped into five major transaction cycles: • Revenue cycle • Expenditure cycle • Production cycle • Human resources/payroll cycle • Financing cycle

10. 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.

11. DATA STORAGE • Ledger • General ledger • Subsidiary ledger • Coding techniques • Chart of accounts • Journals • Audit trail

12. 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.

13. HAPTER 3 Systems Development and Documentation Techniques

14. INTRODUCTION • Questions to be addressed in this chapter include: • 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?

15. INTRODUCTION • How do accountants use documentation? • At a minimum, they have to read documentation to understand how a system works. • They may need to evaluate the strengths and weaknesses of an entity’s internal controls. • Requires heavy reliance on documentation • They may peruse documentation to determine if a proposed system meets the needs of its users. • They may prepare documentation to: • Demonstrate how a proposed system would work • Demonstrate their understanding of a system of internal controls

16. INTRODUCTION • In this chapter, we discuss two of the most common documentation tools: • Data flow diagrams • Flowcharts • Include three types: • Document flowcharts describe the flow of documents and information between departments or units. • System flowcharts describe the relationship between inputs, processing, and outputs for a system. • Program flowcharts describe the sequence of logical operations performed in a computer program.

17. INTRODUCTION • Documentation techniques are necessary tools for accountants: • SAS-94 requires that auditors understand the automated and manual procedures an entity uses. • This understanding can be gleaned through documenting the internal control system—a process that effectively exposes strengths and weaknesses of the system. • SOX (2002) effectively requires that publicly-traded corporations and their auditors document and test the company’s internal controls. • Auditing Standard No. 2 promulgated by the PCAOB requires that the external auditor express an opinion on the client’s system of internal controls.

18. DATA FLOW DIAGRAMS • A data flow diagram consists of four basic elements: • Data sources and destinations • Data flows • Transformation processes • Data stores

19. Accounts Receivable DATA FLOW DIAGRAMS • Example of a data flow diagram of the customer payment process from Figure 3-3 in your textbook. 1.0 Process Payment 2.0 Update A/R Customer payment Customer Receivables Information Remittance data Credit Manager Deposit Bank

20. DATA FLOW DIAGRAMS Govt. Agencies Depart- ments Tax report & payment Time cards Payroll Processing System Employees Employee checks Payroll check New employee form Bank Employee change form Human Resources Payroll report • This is the context diagram for the S&S payroll processing system (Figure 3-5 in your textbook). Manage- ment

21. Employee/ Payroll File General Ledger DATA FLOW DIAGRAMS Depart- ments Employees Employee paychecks Human Resources New employee form Time cards 1.0 Update Empl. Payroll File 2.0 Pay Employ- ees Employee change form Payroll check Bank Payroll disburse- ment data 3.0 Prepare Reports 5.0 Update Gen. Ledger This diagram shows the next level of detail for the context diagram in Figure 3-5. Payroll tax disb. voucher Payroll report 4.0 Pay Taxes Manage- ment Tax report & payment Govt. Agencies

22. 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

23. This is part of the document flowchart from Figure 3-9 in your textbook.