Week 3 – Lecture #1

Foundational concepts of AIS

Chapter
2-1
 Business
Business Processes
Processes and
and the
the AIS
AIS

Accounting Information System - a system that

captures, records, processes, and reports accounting
information.

Business Process - a prescribed sequence of work

steps completed in order to produce a desired result.

Chapter
2-2 SO 1 The interrelationships of business processes and the AIS
 Business
Business
Processes
Processes
and
and the
the AIS
AIS

Exhibit 2-1
Overall View of Transactions,
Processes, and Resulting Reports

Chapter SO 1 The interrelationships of business

2-3
processes and the AIS
 AIS, 5 work steps & Business Processes
 Accounting Information System Processes (5 processes):
 Input – keying, punching data, entering transaction using POS
 Processing – recording, classifying, summarising, consolidating.
 Output – cheques, reports, documents
 Data storage – backups and references
 Feedback & control – use of reports for monitoring
 Accounting Information System must identify these 5 work steps:
 Capture all details at point of sale,
 Transactions to record accounting data in computer system,
 Internal controls, security & reconciliation.
 Properly process into correct accounts and summarise data, and
 Provide reports externally and internally.
 Business Processes - Sequence of these work steps are used in
various business processes such as the 4 general types of business
processes:
 revenue processes,
 expenditure processes,
 conversion processes and
Chapter
2-4  administrative processes.
 Business
Business Processes
Processes and
and the
the AIS
AIS

Concept Check
1. Which of the following statements is not true?
a. Accounting information systems must maintain both
detail and summary information.
b. Business processes may vary from company to company.

c. Regardless of the extent of computerization, all

accounting information systems must capture data from
the transactions within business processes.

d. Business processes categorized as expenditure processes

are not intended to be processes that serve customers.

Chapter
2-5 SO 1 The interrelationships of business processes and the AIS
 Types
Types of
of Accounting
Accounting Information
Information Systems
Systems

Three categories of AIS:

1. Manual systems
2. Legacy systems
3. Modern, integrated IT systems

Chapter
2-6 SO 2 Types of accounting information systems
 Types
Types of
of Accounting
Accounting Information
Information Systems
Systems

Manual Systems
Generally used by small organizations. Entirely
manual system would require:
 Source document  General journal
 Turnaround document  Special journals
 General ledger  Subsidiary ledgers

Chapter
2-7 SO 2 Types of accounting information systems
 Types
Types of
of Accounting
Accounting Information
Information Systems
Systems

Legacy Systems
Existing system, often based on old technology.

Advantages are that legacy systems:

1. Customized to specific needs.
2. Support unique business processes not inherent in
generic accounting software.
3. Contain invaluable historical data that may be difficult
to integrate into a new system.
4. Well supported and understood by existing personnel.
Chapter
2-8 SO 2 Types of accounting information systems
 Types
Types of
of Accounting
Accounting Information
Information Systems
Systems

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

Modern, Integrated Systems

New programs sold by software development companies
are more user friendly than legacy accounting systems.
Advantages to purchasing accounting software:
 Lower cost
 Shorter implementation time
 Fewer bugs

Chapter
2-10 SO 2 Types of accounting information systems
 Types
Types of
of Accounting
Accounting Information
Information Systems
Systems

Concept Check
2. In a manual system, an adjusting entry would most
likely be initially recorded in a
a. special journal.
b. subsidiary ledger.

c. general journal.

d. general ledger.

Chapter
2-11 SO 2 Types of accounting information systems
 Types
Types of
of Accounting
Accounting Information
Information Systems
Systems

Concept Check
3. Which of the following is not a disadvantage of
maintaining legacy systems?
a. There are fewer programmers available to support and
maintain legacy systems.
b. They contain invaluable historical data that may be
difficult to integrate into newer systems.
c. Hardware or hardware parts may be unavailable for
legacy systems.

d. It can be difficult to integrate various legacy systems

into an integrated whole.
Chapter
2-12 SO 2 Types of accounting information systems
 Types
Types of
of Accounting
Accounting Information
Information Systems
Systems

Concept Check
4. Which of the following is a disadvantage of
purchased accounting software, compared with
software developed in-house?
a. It is custom designed for that company.
b. It is less costly.

c. The implementation time is shorter.

d. There are fewer bugs.

Chapter
2-13 SO 2 Types of accounting information systems
 Accounting
Accounting
Software
Software
Market
Market
Segments
Segments

Exhibit 2-2
Accounting Software
Market Segments

Chapter
2-14 SO 3 Accounting software market segments
 Accounting
Accounting Software
Software Market
Market Segments
Segments

MYOB
MYOB

Exhibit 2-3
Popular Accounting Software Programs
within the Market Segments
Chapter
2-15 SO 3 Accounting software market segments
 Accounting
Accounting Software
Software Market
Market Segments
Segments

Concept Check
5. Which of the following is not a method of
updating legacy systems?
a. Enterprise application integration.
b. Backoffice ware.

c. Screen scraper.

d. Complete replacement.

Chapter
2-16 SO 3 Accounting software market segments
 Accounting
Accounting Software
Software Market
Market Segments
Segments

Concept Check
6. When categorizing the accounting software market,
a company with revenue of $8 million would most likely
purchase software from which segment?

a. Small company.
b. Midmarket.
c. Beginning ERP.
d. Tier 1 ERP.

Chapter
2-17 SO 3 Accounting software market segments
 Input
Input Methods
Methods for
for AIS
AIS

Input methods used in organizations:

 Source documents and keying
 Bar coding
 Point of sale systems
 EDI
 E-business

Chapter
2-18 SO 4 Input methods used in business processes
 Input
Input Methods
Methods for
for AIS
AIS

Concept Check
7. An IT system that uses touch-screen cash registers
as an input method is called

a. Electronic data interchange.

b. E-business.

c. Point of sale system.

d. Source documents and keying.

Chapter
2-19 SO 4 Input methods used in business processes
 Processing
Processing Methods
Methods

Batch Processing -Transactions are grouped.

Advantages
1. Efficient for large volumes of like transactions.
2. Audit trail is maintained.
3. Generally use less costly hardware and software.
4. Hardware and software systems are not as complicated
as on-line systems.
5. Generally easier to control than other types of
computerized systems.
6. Personnel become specialized and efficient in processing
routine transactions.
Chapter
2-20 SO 5 The processing of accounting data
 Processing
Processing Methods
Methods

Batch Processing -Transactions are grouped.

Disadvantages
1. Processing can take longer
2. Adding or deleting records takes much computer
maintenance time.
3. Some data duplication is likely.
4. Integration across business processes is difficult in
legacy systems that are batch oriented.
5. Lag while all transactions in a batch are collected.
6. May require that transaction and master files be sorted
in the same sequential order.
Chapter
2-21 SO 5 The processing of accounting data
 Processing
Processing Methods
Methods

Online and Real-Time Processing

Advantages
1. System checks for input errors.
2. Information provided on a timely basis.
3. All files are constantly up to date.
4. The business processes are integrated into a single
database so that a single system is achieved.

Chapter
2-22 SO 5 The processing of accounting data
 Processing
Processing Methods
Methods

Online and Real-Time Processing

Disadvantages
1. Hardware and software are more expensive than a
batch systems.
2. A single database that is shared is more susceptible
to unauthorized access of data.
3. Real-time systems can be difficult to audit.

Chapter
2-23 SO 5 The processing of accounting data
 Processing
Processing Methods
Methods

Concept Check
8. When similar transactions are grouped together for
a specified time for processing, it is called

a. Online processing.
b. Real-time processing.

c. Batch processing.

d. Group processing.

Chapter
2-24 SO 5 The processing of accounting data
 Outputs
Outputs of
of the
the AIS
AIS

General Categories of Outputs

1. Trading partner documents such as checks, invoices,
and statements

2. Internal documents

3. Internal reports

4. External reports

Chapter
2-25 SO 6 Outputs from the AIS related to business processes