Foundational Concepts of the AIS 2.
often support unique business processes not
inherent in generic accounting software
Accounting information system as a system 3. contain invaluable historical data that may
that captures, records, processes, and reports be difficult to integrate into a
accounting information. new system
Business process is a pre‐scribed sequence 4. are well supported and understood by
of work steps completed in order to produce a existing personnel who are already
desired result for the organization. trained to use the system
The disadvantages of legacy systems
1. are costly to maintain in both dollars and
Types of Accounting Information Systems
time
1. Manual System 2. often lack adequate, up‐to‐date supporting
documentation
2. Legacy System 3. may not easily run on new hardware, and
3. Modern, Integrated IT System the old hardware and parts needed
for maintenance may become obsolete
4. are not usually based on user‐friendly
Manual System generally used by small interfaces such as Microsoft Windows
organizations. or Apple’s Mac OS
5. tend to use software written in older
Manual system would require: computer languages, and fewer pro‐
grammers are available for maintenance
Source document is a record that
6. are often difficult to modify to make them
captures the key data of a transaction.
Web‐based or user‐friendly
Turnaround document is an output of 7. become difficult to integrate when
the accounting system that can be used companies merge or acquire other com‐
as an input in a different part of the panies, in which case consolidating subsidiary
accounting system. company information into one
General ledger provides details for the set of financial statements and reports can
entire set of accounts used involve many manual and error prone steps
in the organization’s accounting
systems. Legacy system decision whether to replace
General journal is the place of original or update legacy system
entry for any transactions that are not Screen scrapers or frontware, which add
recorded in special journals. modern, user friendly screen interfaces to
Special journals are established to legacy systems.
Enterprise application integration or EAI is a
record specific types of transactions.
set of processes, software and hardware tools,
Subsidiary ledgers maintain detailed methodologies, and technologies to integrate
information regarding routine software systems.
transactions, with an account Complete replacement of legacy systems
established for each entity.
Modern, Integrated Systems new programs
Legacy system is an existing system in sold by software development companies are
operation within an organization. more user‐friendly than legacy accounting
systems.
The advantages of legacy systems
1. have often been customized to meet specific Advantages to purchasing accounting
needs in the organization software:
1. Lower Cost
2. Shorter implementation time 4. Cost savings. Because of the detailed
3. Fewer bugs advantages, there are usually significant cost
savings recognized from cloud computing.
Since the mid‐to‐late 1980s, the client–server The accounting software market today is
model of networks has been commonly used. categorized into four market segments:
1. Small company systems Generally,
Client–server computing means that there are revenue <$250,000
two types of computers networked together to 2. Midmarket company systems
accomplish application processing. Generally, revenue between $250,000
Characteristics are as follows: and $100 million
1. Client and server computers are networked 3. Beginning erp systems Generally,
together. revenue between $100 million and $500
2. The system appears to users to be one million
integrated whole. 4. Tier 1 erp systems Generally, revenue
3. Individual parts of processing are shared >$500 million
between the server and client.
4. The client computer participates in the ERP system a large, Fortune 500 corporation
processing or data manipulation in might purchase accounting software systems in
some meaningful way. the tier 1 market segment.
Some of the input methods used in
Cloud computing a more centralized organizations today are described in this
approach to IT. section, including:
Software as a Service (SaaS) software that Source documents and keying the
resides in the cloud. accounting data is often initially captured and
Database as a Service (DaaS) databases that recorded
reside in the cloud are
Bar code is a printed code consisting of a
Platform as a Service (PaaS) the database is
combined with an operating system series of vertical, machine‐readable,
Infrastructure as a Service (IaaS) the rectangular bars and spaces that vary in width
computer infrastructure in the cloud. and are arranged in a specific way to represent
Service Level Agreement (SLA) a company letters, numbers, and other human‐readable
that wishes to buy cloud computing services symbols.
enters into an agreement with a cloud Point of sale systems system (POS) is a
computing provider. method of using hardware and software that
captures retail sales transactions by standard
There are many advantages to cloud bar coding.
computing. A partial list of the advantages
is as follows: EDI Electronic data interchange (EDI) is the
1. Scalability. As a company grows, it can intercompany, computer‐to‐computer transfer
easily purchase new capacity from the cloud of business documents in a standard business
provider. format.
2. Expanded access. Once the software and
E‐Business and E‐Commerce data is also
data are stored in the cloud, it can be accessed
electronically exchanged between trading
by multiple devices from many different
partners
locations.
3. Infrastructure is reduced. The company
has a reduced need for servers and data
storage, since most of these resources are Processing Accounting Data
provided by the cloud provider. Batch processing requires that all similar
transactions are grouped together for a
specified time, and then this group of real time, so that the output is available
transactions is processed together as a batch. immediately.
The advantages to real‐time processing are
as follows:
Advantages to batch processing:
1. System checks for input errors
1. It is very efficient for large volumes of like
transactions 2. Information is provided on a timely basis
2. The basic accounting audit trail is 3. All files are constantly up to date.
maintained
4. The business processes are integrated into
3. Such systems generally use less costly a single database so that a single system is
hardware and software than other methods. achieved.
4. The hardware and software systems are not The disadvantages of real‐time systems are
as complicated as online systems as follows:
5. It is generally easier to control than other 1. Hardware and software are more expensive
types of computerized systems than those used for
6. Personnel become specialized and efficient batch systems.
in processing those routine transactions.
2. A single database that is shared is more
Disadvantages to batch processing: susceptible to unauthorized access of data.
1. Processing can take longer 3. Real‐time systems can be difficult to audit
2. In legacy systems with older hardware,
adding or deleting records takes much
computer maintenance Outputs from the AIS Related to Business
Processes
3 Some data duplication is likely
1. Trading partner documents such as
4. Integration across business processes is checks, invoices, and statements
difficult in legacy systems that are batch‐
oriented. 2. Internal documents are another form of
output from an accounting information
5. Time lag while all transactions in a batch are
collected. system.
6. May require that both the transaction files 3. Internal reports provide feedback to
and master files be sorted in the same managers to assist them in running the
sequential order. business processes under their control.
4. External reports are usually financial
statements that include a balance sheet,
Online and Real‐Time Processing income statement, and statement of cash
flows.
Online processing transactions are not
grouped into batches; rather, each transaction
is entered and processed individually. Some
online processing systems are also real‐time Documenting Processes and Systems
processing systems. The various types of popular pictorial
representations of processes and systems
Real‐time processing means that the
used in businesses today include the following:
transaction is processed immediately, and in
1. Process maps
2. System flowcharts
3. Document flowcharts
4. Data flow diagrams
5. Entity relationship diagrams (ER Data flow diagram or DFD is used by systems
diagrams) professionals to show the logical design of a
system.
Process maps are pictorial representations of
business processes in which the actual flow Entity relationship diagrams or ER
and sequence of events in the process are diagrams are pictorial representations of the
presented in diagram form. logical structure of databases.
Entities can be thought of as the nouns
that represent items in the accounting
system.
Cardinality refers to how many instances of an
System flowchart is intended to depict the entire entity relate to each instance of another entity.
system, including inputs, manual and computerized
processes, and outputs. Cardinality describes each of the following
three manners in which entities relate to
each other:
Document flowchart shows the flow of documents 1. One to one: Each employee has one
and information among departments or units within personnel file. Likewise, each personnel
an organization.
file belongs to only one employee.
2. One to many: One supervisor has many
employees. Each employee has only
one supervisor.
3. Many to many: Each vendor can sell many
items, and each item can be purchased from
many vendors.
