Accounting Information

Systems

Prof. Dr. Tarek Hassanain Ismail

Dr. Abdelati A. Abdoh Dr. Ahmed Sibai Qotb

Dr. Adel Azab Dr. Amr Nageeb

Dr. Waleed Ghoniem Dr. Karim Mansour

Dr. Eman Abdelwanis

2017- 2018
 Accm.mtiug Information System
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Accountants interact with The Accounting Infon11ation

I Systems (AISs) of business as . users~ evaluatcirs at""ld
~ 1· designers. They use information systems \vhen they retrieve
information to prep~re
. .
reports
. .
for managers
.
and fLnx.'1cial
statements for external parties. They evaluate· info!'ll}.ation
systems when they review internal controls during audits. ,.
· ·I T4ey design h">}fonnation _systems when they devise charts of
account~ or propose ~e addition of specific controls within
transaction proces!?ing systems.
-
The rapid· .advancement of computer technology has
dramatically affected the operation of accounting information
syste1ns. This book concentrates on the study of accounting
information· systems vvith · respect to ·the main concepts~
documentation tools, the effect of cmnputer technology on
~ccounting infon:nal:ion systems, systems developm~nt
process, and transaction cycles.
The 1nain objectives of this book is to provide student?.
. ·with a body of knowledge about: .
·(1) The 1nain. concepts of infonnation systerns~
especially those:-pertaining to systen1s, info1mation.
characteristics and functions of AIS.
. .

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·I tools such a.:; data flnv/ di~-:tgrarns, flowcharts and I.

-1 decision·tables. . ~-- I

I (3) The basic components of accounting infonnation !·

1!. systerD.S SUCh as inputs, outputs, proceSSing, 1
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\ (4) The natu.re and phases of systems development 'life I
I cycle. I
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( 5) The basic tyJ)eS of accou.nting cycles. I
·I I TQ achieve the -aforementioned
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objectives the. book is
~.- ~

~~ divided into tvvelve chapters:

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Chapter 1: Provides an overview of accounting information
systems.
"'.· Identify the main role of AIS w1-th respect to 1.
Chapter .£.
I business activities.
I Chapter 3: Describes· accotu1ting information systems
·documentation tools.
Chapter 4: Describes the effects of computer technology
on AIS.
Chapter 5: Provides an overview. of systems development
process.
I
Chapter 6:· Introduces the basic- activities 1n systems
planning and analysis phase.
Chapter 7: Describes the 1nain activities in system design
phase. I '.
Chapter 8: Introduces systems i1nplementation, operation, t
and control phase.- I-
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J Chapter 9: Presents the revenue cycle.. !
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: Chapter 10: Introduces the expenditure cycle. j

1l Chapter 11: Covers the production cycle. 1

Chapter 12: Deals with the general ledger and financial

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reporting cycle. J
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PART I
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Conceptual Fou:nda.ticns of
Acco'f!:anting ln:fo~:ltnatio:n. S1rste~s
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CHAPTER 1

Ove~ie'W of Accou.nting
lnfox-naatio:n Systezns

_:ge~_f.gn, ·
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.-c~-~ponent"'~ysteins.

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 Accnunti:ng information System

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.Overvie'W of Accounti:n.g I
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lnfo:rmmatio:n. Syste:n:t.s I
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1/ f.. Introduction:
This chapter begins by defining basic terms such as
accounting, system, data, and information. It then explains
what an--- accounting
:- .
information system is.' Next, it discusses
...}-.. . .

objectives and users of accounting information· system.

Then it describes resources. and components of accountipg
· · information system.. Firiany, it discusses·how the accounting
inforina~ion system can. provide information for decisiori
miling. .
1/2- Defining Basic Tenns: ~- .
'·· ":"- ..
::.-':.·

11211 .. Accounting Concept:

Accounting has several facets:.
First, it is an information system in its own right. That·
is, it employees various .systemic operatio~s to generate
:. relevant infofm.ation. . Among the operations that is .
encompasses are ( 1) recording · economic data · (data
collection), (2) maintaining stored data (data maintenance),
and (3) presenting quantitative information in financial
. .
_terms (info1mation generation).

9
 Accountinr: Information Systems
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ra.nguag.:::: ot..• b :1s1n.ess
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J provides the means._·_by which the key affairs of a b'Jsiness 1

are expressed and sumrnarized. ;

Finally, accotin.ting may be viewed as financial
information needed· for the O\'erall functioning of an entity
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(such as a business firm). Certain key financial information, I
for instance, reflects the results of operations during
accounting periods and the status of assets and equities at
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the end of accounting periods.
~~·· 1/2/2- System Concept:
I A system is a set oftwo or more interrelated components
Lthat interact to achieve a goal. Systen1s are almost always
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L: composed of smaller subsystems, ·each performing aspecific
F function important to and supportive of the larger system of .
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·which it is a part. For example, the Faculty of Commerce is
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I a system composed of various departments, each of which is
! . ':"" ...

a subsystem. Yet the Faculty of Commerce itself is a

subsystem of Cairo University.
Each subsystem is designed to achieve one or more
organization goals. Goal conflict occurs when a decision or
action or"a subsystern is inconsistent \vith another subsystem
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or the syste1n as a ·:whole. Goal congruence is achieved
~

when a subsysten1 a~chieves its goals \vhile contributing to

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·-d-up.Jcate
1· record._1ng, storage, reporting,
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other processing activities in an organization. 1
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, 1 1/2/J... Data Concept: -1' ._

.I Data aie facts that are collected,- stored, and proc~ssed by I·

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-1 m1 infonnation systern. Data usually represent observations or I -
mea~urements of business a-ctivities that are of LTJ.portance _-I
to information system users. Several kinds of data need to i
· be collected in business,- such as: II
(1) Facts about the activities that take place. I
I .(2) The resources affected by the. activities. 'I
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1 (3) The people who participate in the activity.

l· eVen~~:.:~::~t:::th::~;~:~c:::~~, ::::5::~::
being sold (e.g., the· identity of the goods_ or services, the
quantity sold, unit price); arid the-people who partiC?ipated in
the sale (e.g., the identity of the customer and the s_ales-
person)~

1 /2/4... Information _~oncept:

Infonnation is data that .-have been organized ·and
processed to provide meaning to a user. Users typically need
information to 1nake decisions. or to improve the decisiOJ?.·- ~:­
n1aking process. As a general rule, users can make better
·decisions as the quantity and quality of infonnation increase.

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 Accoux:;ting Inform21tion Systems

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'I whe:::~j:g~;:~:~::l f:rs~::i;::~ :::n:~i:;::::

overload, ~e value of info1mation, and characteristics of !
useful int()~ation. I
Ii ( 1 ) btformadon Overiotid: 1

There;;;.'ar? limits to the amount ofinformation,Lhe huma.'l I

mind can effectively absorb and- process. Information
overload occurs vvhen those limits are passed. Information
overload is costly) because decision-rnaking quality declines
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while the costs of providing that- h1formation increase, I~

Consequently, inforrnation system designers must consider

. how· advances in -information tecl1nology (IT) can help·.
decision
.
makers
-
more .effectively filter and condense
information, thereby avoiding infonnation overload.

{2) Value of Information:

The value of information is the benefit prod!J_ced by the
information minus the cost of producing it. The 1najor
benefits of infopnation are- a reduction · of uncertainty,
improved decisions, and a better ability. to plan and schedul~
activities. · The costs are the time and · resources spent
collecting, processing, and storing data as well as distributing I
information to decision makers. ·I
Unfortunately, detern1ining the value of infor1nation is
not easy. Information costs and benefits are dift1cult to

11
 Oven'iew of Accounting Information Systems

quantify and it is· difficult to determine the value of

i~fonnation b~fore it has been produced and utilized.
Nevertheless_, the expected value of information should be
calculated as· effectively as possible so it""J.formation is not
· produced whose costs exceed its benefits.

(l) Characteristics of Useful_ Information:

Information can be-provided to both internal and ext~mal
user~. Table 1-1 presents s~ven charac~eristics that make
information useful at"ld mea~ih~fu(for decision~making.
• ~ o" • • .. G

1J] .. What an Accounting lnformati~n Systems Is (!JS): ·

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An acco\mting information system ·(AIS) is ·a system

that. collects; records, sto~es, and processes data to. produce
information for decision makers.
· Ar1 AIS can be a very simple paper-and-pencil-based
manual systen1, a very complex system u_sing the very latest
in computers and information technology, or somewhere
. betwe.en these two extremes. Regardless of the approach
taken, the process is the same. The AIS and the people who
use it-must still collect, enter, process, store, and repqrt data
and information. The paper and pencil or the computer
hardware and software are merely the·tools used to produce
the infonnation.

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 Accounting Information Systems
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Table 1 ~ 1: Characteristics of useful informationa '

·=- Rel~~~~t ----~. Info~~-;;ed;ces j

1 1 uncertainty, improves. decision n1akers'
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corrects __fi_1_rm_s-1
expectations.

·-Reliable il!l Information is reliable if it is free from

error or bias and accurately repr-esents·
the events or activities that it measures.

I_ ., Complete e Information is complete if it does not

omit impqrtant aspects of the underlying
I events or activities that it measirres. l
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~~ ·-Timely a Infonnation is timely if it is· provided in
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time for decision · makers to make
decisions. I
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~ Understandable a Information 1s understandable if ·it is.
·presented m a useful and intelligible
format. · I
- Verifiable li. Information is verifiable- if two know-
ledgeable people acting inde_pendently
would each p~oduce . the same infor-
mation. ... .

-Accessible • Information is accessible if it is available

·to users when they need it and in a
format they can use. -

Tl"1ere are six components of an accounting information

system AIS:

14
 Overview of Accounting Information Systems

( 1) The people Vv'ho operate the system and perfonn

various functions.
(2) The proc\!dures and instt=uctions, both 1nanual and
automated, involved in collecting, storing, and
processing data about the organization's activities.
(3) The data about tl:J-e organization and its business
processes.
(4) The software used to process the ·organization's
data.
( 5) The information tec;hnology infrastructure, including
computers, peripheral devices, and netw'ork comm-
unications deyic~s use·d to collect, store, process,
and trarismit data and irifonnation.
( 6) The internal. controls and · security· measures that
safeguard the data in the AIS.
Together, these six components enable an AIS to fulfill
three important business functions:
( 1) Collect and store data about organizational activities,
resources, and personnel.
(2) Transfonn data into informatiqn that is useful for
making decisions so management can· plan, _execute,
control, and evaluate activities, resources, and
personnel.
(3) Provide adequate controls to safeguard the organi-
II
zation's assets including its data, to ensure that the
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15
 Accounting Information Systems

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I assets and data are available when needed and the
Il data is accurate and reliable.
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1/40$ Objectives & Users of Accounting Information

I Systems (AIS):
I The primary aim of any AIS is to provide accounting
1
1 information to a wide variety of users; The users 1nay be
. I internal users, such as managers, or external users such as
I
customers. TI.ree. specific objectivrs can be identified that
1 will help achieve the primary aim. J;ach objective is closely

I
associated with .specific categori~s~ofuser~ of the AIS, so
·I
both. should be viewed together.

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First ObjectiVe: o Support the Day-to-Day Operations:
In order to operate from day to day, a firm conducts a
nun1ber of business events called transactions. Accounting
transactiOJ.?.S include events or transactions that represent
.I exchanges having economic value. For example,~ ~he sale" of
·' goods by a business firm is an accounting transaCtion.
I Accounting transactions are formally captured by the AIS for
1 processing. Most nonacc9unting transactions, such as placing

r a purchas~ order for goods, lead to accounting transactions.

I Transaction processing consists of processing accounting

tI and nonaccounting transactions through key accounting
:I records by means of procedures. As you have learned in
earlier accounting courses, accounting records consist

16
 Ove:rviev~: of Accounting Information. Systems
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: primarily of jourr;_als (transaction files), and ledgers (1naster

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files); however they also include source documents,

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registers, :reference tables, an.dyarious other records.
Transaction.s are processed by means of transaction
1-
processing syste1ns (TPSs), vvhich are subsystems of the AIS.
Each TPS encmnpasses the steps for a particular type of ,
transaction. In some cases, a TPS groups the steps into an .
application(s), a series of logical steps. 'Thus the TPS involving
sales trw..saction for a business firm is subdivided ix1to order
taking, billing; acco~ts receivable posting, and. so· on.
_Users of outputs fi:on1 transaction processing systems
range from. managers. and. employees within the ·affected
finn to a variety_ of parties external to the fn1.n.

Second Objective: To Support Decision Making. by Internal

Decision Makers~
I
· Decisio:ns must be n1ade pertaining to planning and
·I
controllin¥ a finn~s operations. This s.econd objective is aided i
by activities that rnay be broadly labeled as infonnat1on .I
processing.
The managers of a fim1 are the primary decision _makers
who use the outputs fi·om infonnation proc·essing. ·For
I instance, a cost accountant may need a report concerning the
I act11al costs of producing a component to aid hin1 in
1 recommending whether the production manage;· should buy II
·I or make the component. Ji'
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17
 A~ctnmting Infonnation Systems
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Third Objective: To FuifiU ObHgatlons Relating to Stewardship:
. .
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j Every ilnn n1ust fur±1ll its legal obligations. Certain
j ixnportant ·obligations consist of providing mandatory
1 · information to users who are exten::.al to the firm. For I
i example,. firrns that are incorporated ·and publicly o~wned 1

· ! have greater obligations. They n1ay be required to provide

information to stakeholders.
Stakeholders_ include owners, creditors, labor untons,
reguiatory commissions, financial· analysts~ Lndustry associa~
tions, and evep. tP.e general·public.

·1f5 .. P..ccounting lnfon.nation Systetn functions:

k effective accounting inf~rrri'ation system performs
several key functions throughout three stages (data inpll:t,
data processing,. and .information output), to transform data
into information. These functions are:
( 1) Data co.IIection.
(2) Data maintenance.
(3) Data management.
(4) Data control and securitY.
! (5) Information generation.
I
. ( 1 ) Data Collection:
The data collection function (perfon11ed during the input I
stage) involves steps such as: I
1· . (a) Capturing the transaction data. /
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18
 Overview of Accounting Information Systt>ms

(b) Recording the data onto forms.

(c) Validating and editing ·the data to ensure their

I · accuracy and completeness.

If the data elements are quantitative, they may also need I
t.o be measured before recording. If the transactions are ·j
!
captUred at a point remote from the point where they are to.
be processed, the data will need to be transmitted.
I
( 2) Data Maintenance:
The data m1.intenance function (performed during the
processing stage) involves steps like the following:
I (a) Classifying~ or assigning collected data to pre-
j· established categories.
(b) Transcribing, or copying/reproducing the d:- ~ <1 onto
another document or medium.
(c) Sorting, or arranging data elements according to
one or more characteristics.
(d) Batching, or gathering together groups oi trans-
actions of a siinilar nature.
(e) Merging, or combining two or more batches or files
of data.
(f) Calculating, or pert(Jnning addition, subtraction,
I,i 1nultiplication and division operations.
I (g) Sumn1arizing, or aggregating quantitative dnta
I elements. i

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 Accmmtin.g Information. Systems
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(h) Cornparing 7 or exm11ining item.S irom separate I

batches or files to find those · that tnatch or to j
determine how they differ. . _j

( 3) Data Management: · l
The data rnanageinent·function consists Qfthree steps:
-I
I _(a) . StoringS> it involves. placLf1g data in repositories
called files or databases~_ Data must -often be stored
for fhture reference; "Ji-so, data·~ that· hav.e_ .·been
. !

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pr~cessed Lnto inforrnatio~l~
.::.:-l
may·b~ held te1np~rarily .
li until needed by users. _· , ~: ·
(b) Maintaining, it· involve~ adjusting stored data to
"I
-I reflect nevvly occurring - events, operations, or
decisions.·
. (c) R.etdeving, it consists of .accessing and extracting
JI data either for further processing or for reporting to
I users.

{4) .Da!ta Control & Security:

,.
I
The data control function has two basic aims:
I (a) To safeguard and secure. the firn1' s· assets, ·including
I.
data, and
(b) To ensure that the captured data are accurate· and I
processed correctly. I
A variety of techniques and procedures are employed in I:
an effective AJS to 1naintain adequate control and security. 1,~I~
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 Ovcrvievv of Accounting Information Systems

( 5) Information Genera don:

The information generation function includes such. steps 1

as interpreting, reporting, and coro.municating information. I

It supports the outputs from both transaction processing and I··
information processing. !

1/6,., Resources & Components of AIS: _

Since an AIS is tangible, it requires physical and related
. --- - ·-<5!-- -- I
components. · These;:;,."Tesources and components- may ·be l
classified -as processor, database, procedures, and input/ I
output devices. I
(1} Processor: [-
The physical means by . .vhich
. data are transforr.o.ed may
-- -

be~ called a processor. Most fnms today perform processing -

with a mixture of hurnan and automated processors.

( 2) Database:
Broadly- speaking,_ the database consists of all stored
data. Data may be stored in a computer system and such
storage devices as file cabinets and desk dra\vers.

{3) Procedures:
Particular sequences _of steps performed within one or
more of an AIS 's functions are known as procedures. They
1 inay be perfonned manually or by means of the instructions
~~
~...... __
in con1puter prognnns.
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21
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11 P.Jthough the data fuid infom1ation are not ·resourc·es to I
1
an AIS, the physical means of handling or storing them can ·
be included. For exrunple, at a business fmn data.are initially
stored on paper forms or docu..rnents and then entered into the
computer system via xnicrocomputer keyboards. Simi_larly,
outputs are printed on hard-copy forms by printers.

( 5) Miscellaneous Resources: :~;,

. ,•'

. .

An AIS reQuires other reso-urc·es·. For instances, fixed

assets may be 1~~eded to house ~~- system. Various supplies
are needed, such as printer ribbons~·

1J1... P.rovid.ing infoml~tdo~ for Ded$ion Making:

Decision n1aking is a complex, ·r.auitistep activity: ·
Identify the problem, collect and interpret information,
. evaluate ways .to solve the problem, select methodology,
and in1.ple1nent the solution~ An AIS can provide assistance
in all phases of decision making.
·Infonnation can improve decision-making in several Ways:
(1) It identifies situation requiring management action~
· For example, a cost report .with a large variance ,
might stimulate management to investigate and, if
nece~sary, take corrective action.
(2) It provides a basis for choosing atnong alternative
actions by reducing uncertainty. For example,

22.
 . -~ L.!-formation is used to set prices and determine
credit policies.
(3) _Infonnation about the results of previous decisions
provides valuable feedback that can be used to
improve future decisions.
(4) An AIS can improve decision making by providing
accurate information in a timely manner. .
. The degree to which an AIS can support decision making
depends, .hovvever, on the type of decision being r.aade.
Decisions can be categorized either in terms of the degree of I •·
structure that exists or by their scope.as follows:.

11111 ... Decision Structure: ·· · ·

· Decisions
..
va..ry .in terms of, the degree to which they
. . .
are ·
structured into:
. .

(1) .Structured Dedsions: ·

- .

Structu~eddecisions. are repetitive, routine, and under-

stood well enough that they can l;>e delegated to Lower-
. Level employees in the orga,.~zation. For example, the
decision about extending credit to established custorp.ers only
requires knowledge about the customer'~ credit limit and
current balarice. Structured decisions can often be automated.

(2) Semistr.uctured Decisions:

I Sernisttuctured decisions are characterized by incomplete
. I ,decision rnaki.11g rules and the need for subjective assess.ments ·
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23
 Accoun~iE:Rg Information Systems
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and judgments to ~~pplen~ent formal data analysis. An
example is setting a~marketing budget for a nevv product
Althoug..h such decisi9ns
,
usually cannot be fully automated,
they are. often supported by computer-bas_ed decision aids.

(l) UnstrJctured Decisions:

Unstructured decisions are nonrectLrring and nonroutine.
Examples include choosing the cover for a magazine, hiring
senit>r management, and selecting basic research projects to
.I undertake. No framework or model exists to solve such
llil
1! problems. Instead, they. require considerable judgment and
intuition. Nevertheless,. Unstructured decisions can be
supported by computer-based decision aids t.;.at facilitate
gathering information from diverse sources.
I 1/7/2- Decision Scope:
Decisions va.rY in terms of their scope into:

( 1 ) Operational Control:
Operational control relates to the effective and efficient
performance of specific tasks. Exan1ples include de.cisions
relating to inventory management and extending credit.

(2) Management C~ntrol:

Management control relates to ·the ~ffective and efficient

use of resources for accon1plishing those objectites.
. .
Exa1nples include decisions relating to budgeth1g, developing
··~r·'tffii

24
 Oven-·iew of Accounting· Infonnatiofi Systi::m~
,--~~$.5&.~il'l<~li@l1lll!l~llt-llf:.
!r=-------------· -
- •. ~·~"Ill~~~~
-----------.-- ;I
J
I
human resources practices, and deciding on research projects I-
j and product improvem.ents.

(l) $trategic Planning:

Strategic planning relates to establishing organizational
objectives and policies for accomplishing those objectives.-
Examples include decisions relating to setting financial and
accounting_ policies, qeveloping nevv product -lines, and
acquiring ne\v businesses.
A correspondence exists betvveen manager's level ca.nd
his or her decision-making responsibilities. Top rnanagel?ent
faces UD:St11lctured and semistructur~d, gt!ciSi<?.~S ,involving
I strategic planning issues. Middle managers ~eal with semi..;_
structured decisions involving management ?OntroL Lower-
Level ,- supervisors and employees-· face semistniCtured .or
t structured decisio~s involving operational control.

1/8- Information Systems within a Firm:

1
· The AIS is not the only system within a firm that is
concerned with data and information. In fact, the AIS is a
subsystem of a broader infmmation system that encompasses
all _information _generating activities. Other component
inf9rmation systems include the management information
system, decision support systen1s, expert systems, and
executive infon11ation systems. 1

This section surveys the types of information systen1s j·

and suggests relationship arnong then1. I

1
-~~-~-~~-=~~~~~~~~~~~~~~
25
 1/8/1/1 ... Management Information System (MIS):
lI The management information system serves the ,I

managers of the firm ·with their information needs. It is as I .

I
1,, ~::=~:sc:p:;:; s::~~!:~: o~:~ ;ls~e~:c::: ·I
_i as follows: 1
l
(1) Purpose & Scope of MIS:.
. . .
The sole purpose of an MIS is to aid the managers of a
firm in making decisions related to their responsibilities.
That is, the MIS provides information needed to plan and
control the activities of the firm,. ranging from organizing
the firm's personnel and" settfng policies to taking corrective
actions when raw materials are wasted.
It spans all the 1nanageriallevels of a firm, ranging from
the president to the lowest supervisor. The l\tliS employs all
types of data, including nontransactional data; it disseminates
nonfin·ancial as well as financial information.

(2) Subsystems of :'M'anagement Information System:

Like most system's, the MIS contains subsystems. Perhaps
the n1ost useful set of subsy5tems it incorporates is functional 1

i I

26
 i.. Overview of Accounting Information Systcrns
--'----~~~·~<;li>Wl'l-~M"_,.....,~,~...-llilllr~-
----- i

info1mation syster.ns, Since subsystems ha"'.,re all the charac- -I

!
teristics of systems, the term "System'' and ''Subsystem'' are -r
I interchangeable. i\. subsystem can also be viewed as i sy~tem 1•-
. :·j
-.. I within a larger systeri1. ".':

I Functional ·information systems -are so-named because -:-!,'·J

they support key organizational_functions (e.g., 1narke}ing, _j
finance, human resources, production and s-o on). :.1
'I
!
1/8/1/2- Decision Support System- (DSS):
- A decision support system. is a computer-based infor- . I
J

l mation system that. aid~- managers in making ad hoc decisi~ns J

j th_at involve significant- uncertainty. It allows the decision i,l
1 makericfperform manipulations with one. or more decision · _j

/ models, using dat~ that are mostly gathered by the JVliS~

3

1 _DSSs may be subdivided into nonintelligent DSSs and

· I intelligent DSSs. An intelligent DSS enables the decision
i make~ to incorporate rules of thumb into decision models,
thereby refining the decision process.
I 1/8/1/3- Expert Syste~ (ES):
An expert system is ·a knowledge-based information
I system that fully supports the making of decisions. It employs
specialized computer progr~ms to process data and rules in
order to produce clear-cut decisions affecting problem areas.
'. These decisions -the output information- are provided directly I
1
1
to the users (usually 1n~nagers) to execute. The decisions are
·1
I
1· usually sound, since the rules (stored in knowledge base
~I
lLm>Mt<&N!¢$-i&&·E-'- - - - - - - - - __j

27
 Accou.nthrg Infor-mation Systems

l
'
II
;
. I
vvho are experts in the problern area.
II
i
I.
An executive infom1ation systen1 _provides managers
(i.e., executives) vvithinformation that is tailored to th.e needs I
I and interests. Since an EIS is computer-based and interactive, .
·1 the info1mation is generally very timely. Managers for vvhom
I EISs are de.signed can easily access the information, analyze

.I
I it in various ways, generate graphs, and perform other I
j·'
I
~I maninulations.
...
I I
1/8/2.. Relationships between P.JS _& Other Component
I Systems:
i•
The relationship betWeen the AIS and IVIlS is complex
I and somewhat controversial. Some view the AlS ·as being a
I subsystem of the MIS, since the data accepted by the 1\1IS
I

have a broader scope. On the other hand, the AIS serves a I

.I
\Vider range of users. Through its· financial ·accounting j
I

subsysten1, the AIS serves exte1nal users not accon1modated

II
by the IviTS. Also, the AIS serves managers tlu·ough its I
I
managerial accounting subsystern, in part directly and in ·
part providing infonnation to the functional inform~tion I
I
·systems of the MIS. I
I
;

Thus our vievv is that the ~HS and A.IS are overlapping · ·
systems, \Vith each having assigned missions that are i
I
pmticular ·to it. !

2H
Overview of Accounting Informati.or.& Systems

The MIS also has relationships with L~e decision suppor:t

systems, expert systerns, and executive information systems.
We may vie·w these as suh~ystems of the MIS~ since it _- •..
proyides mos_t _of the information inputs neeqed by these
syst~~~~ Some of the information they need, however, may
originate in tb.e AIS and be passed through the :MIS.

29
 Accouni:ing Information Systems·

[S Acco~ting Information Systems (AISs).

m Accessible. -J~joll ¥1s:.A1
m Accounting period. -~b---'"~.JJi
lll Accounting records. ~~L~~~
m Accounting transactions. .~bA~~~
!'!l Activities. .~t

~ Batching transactions. · .u~kit ~

!B Characteristics of information.. .ldl.A~t ~~
Computer~basedAIS. -~W~~~~~~l®_9l'?.~4f'~ · ~~~
l li

~a ·Computer-based decision aids. .~Wt rfl4.! ;_, ''~'.;'~'~~~lui~

,~

ill Databases. .dU\~:~-U ~~~

m Data collection. .t.:!u~l ~
~~ Data maintenance. .uu'.u" A.!~
~~ Data managetnent. .ulil:.¥11 ;.JI..)l
a Decisio4 scope. •.)1_,>1Jll cllt.=U
s Decision structure. ·.J•->.au~-
a Decision Support Syste1ns (DSSs). •.)I.;Jall ~ ~ . I
1\l Events.

':. ,•l 0 oo:tl .. ( -At-tt..,.t;.,.;

n Executive Information Syste1ns (EIS) .. .~ ..-.:.0 c fJ ~\..0~' r----

llli Expert Systems (ESs). .;_r.-.-%11 ~

a Feedback. . (~uA:c) o.JJ_;.A ~.l.~

a Financial infonnation. -~·H-4~\.4~

m Functional Infom1ation Systems. -~~lwL~#f~

~ Goal ~onflict. .~l~:il uO_)GJ

a Goal congruence. .~l...l.hl':!l (~\.bJ) f'~l

·1 • Information generation. .wl4~W!. (J.:l~) ~w..l!

JO
 a Knowledge-based information systen1. -~_;£lr ~ ~ ...":.~l...~ ~~
• 1\-1anagement control. .~i.l! ~~_;
• 11anagement Information System (MIS) . -t.,?}J."/1 ,.:A.4_sl:J.l rUQ.j
II Manual AIS. ·\:?.9..1:! ~b-4.::1.4~ r~
a Master files.
• Merging.
• Operational control.
· a Pirrchase order. • s.l~ .;-&1 .

D Quality Of information. .~LAJLt.ll o.l_?.

• Quantitative data. -~~u~­

• Relevant. .d...o.. ~l
• Reliable. -~~_,31

• Retrieving data. ..uu~t e.~ .;.-•

11 Semistructured decisions. . .a.!tS'_u,. ~ ui_,I..,:S
!a Sorting data. . .t.::.tw\:+11 j_i!
l'il Source documents. .~lui..Ui .. •o

• Stakeholders. -tsl~ly~i

11 Strategic planning. .~1 ~~ Jo •b.;.._;j

- ... J- -

• Structut-~d decisions. .a -..

1! ,$'..'"' ~~...,..;-
,, L~

iQ Subsystem. -~~r~
~:a Timely. .~Ul.' .-,_a_,:ut
· 111 Transaction files. .u~WI ~l.Q.La

(;1 Transaction Processing Systems (TPSs). .u~WI~~

z T'ranscribihg data. ..~t,j~l~

Ill Transfon11 data. .~wt:.:JI ~_s..~:; !.'l

.D Transmit data. ...::l;LLd!. p~ ~
-. ... !~·s
• (\ ~ \ f .. j ,.
Ill un-derstandable. . f'l-IJ-L"= ·1-;-~ ~!!. I '.
:a
1 ~=-=·--~-iiii-•••-iiiiiiiima•iin••~~~~~-~~"'-''=-~~-,...,. . . ~
- ~~~>.::...J,.;.,;..,..-:JC,I:P.--~-:;;;a...~

.31
 Accounting InfQrmation Systems
=-· .1
• Unstructured decisions, . 4 _ri<:'!/A _j:i;. ~I_)!~
I
·l i8 Value of information. ..:.tLo~· l &I .o,
li
m Verifiable. .~d,.!I.'W!

~I
j
l .. ·.·

Ii
I

·.:, .. I

·. f
i
.···:·

32
 CHAPTER2

1
I .

i
-i
I

i
i

I
!I
l

II
~~
,.
I ~~
,-;
! iif::
I. !-
~ I.
/

I
Il I
I I
I
I j
i
I

I I

33
 Ac.~o~nrting bform,r.ticn Systt.:m
;---=~~~~~~~--~-~~~~~-~
i
~~~~~~~~~~~a;:fl~..~~~m'.!~

(/ CHAPTER 2

1-lcc(n;.~nting lnfo:r~ation Syste1!ns:

and. Business Activities

I
211·.. Introduction: I
This chapter is divided into two major sections. Tne I
first major s~ction discuss~s the basic business activities an I
organization engages in) the key decisions that must be i"
considered when n1anaging tt\ose . activities, -and the
information needed to make those decisions.
The second major section discusses the data processing I.:._

cycle and its role in organizing business activities and

providing information .
to users. It also discusses basic
~ /• .
data
. .

. storage concepts. Firially, information output is discussed,

including the different ways information is provided to users
and the different purposes for which information is provided.

2.12 ... lnforrnation Needs & Business Activities:

It is ·necess~y to . understand how the company j .
functions before we can select an accounting package. This
vtill help us to identify the information need to manage the
company effectively. 'Then we can determine the types of data Jr.
and procedures that will be needed to collect and produce g.
L that information. ,,
!f.

Lw-s"" ~ d!i#i!O¥¥M+S W""'i"l!i * e ; s "'"""'*'" ~

35
 · : Accounting !nf~rTfi:a.tion Systems

.
Table 2-1 shn\vs sm.nc ba:r~- busi.l1.ess activities, the kGy
i
i
I decisions that will nyedto be ma~e for each of these activities,
and helpful information that will peed to Inake.these decisions.
I
Table
, __
2-1: Business act.Mtles, key dedsior~; and information needso ·j

r
I
~

I Business
Activities
Key
Decisions
Information
Needs
!
i
l
I

I
- Acqtdre a Howmuch? a Cash flow
capital !!I Find L.'tvestors or projections.
borrow, funds? a Pro-forma.flnancial •ii
m Ifborrow, best statements. I
terms?· e Loan amo~ization
schedule. -

-Acquire II Size ofbuilding? Iii Capacity needs.

building Ill Amountof il Prices.
'I and equipment? ·. a Market study..
eq_uip.ment · a Rent or buy? m Tax tables and

I
II - Ill. Location?

o How to depreciate?
regulations.
~

-Acquire m What models to m Market analysis.

inventory CatTy? l!!i Inventory status
u How much to reports.
purchase? a Vendor
Ill How to manage perforn1ance and -
inventory (store, payment terms.
control, etc.)?
.._ ____ e Which vendor? · J
__....... nc.o:::..w..-u:-.a.~~ ..... ~.......-=----..~"'>-'-'•''·""·'=··=- '~~>27~.........--~--~.-.. .... z. .............

36
 Accounting Information Systems and Business Activities
',_,

I
r·· -
~
Business
- Key Information
I Activities Decisions Needs II
I

-Hire and II Experience Job description.

li!i I,
I
train requirements? •- Applicant jtlb I.
employees w· How to assess history and skills.
integrity and
con1petence of
applicants?
Ill How· to, train?
'
- ~ay Ill .~.t\rrwunt to
pay? . _ii Sales (for
I employees Iii Deductions and ··-~-
:
. coil:iJ."'Ilissions).
I Ill
withholdings? ·.. <
.

Process pay~t;>ll iti:

house or use. ,,,.,
.
- a_:_ Time worked
::··,·(·,> ..~~~.

-·.·:~~.9hrly employees).
·-

.., iill Costs of external

outside service? payroll service.

-.Pay li \Vhat to pay? .- II Vendor invoices.

! vendors II When to pay? II Accounts payable
• How much to pay? _ records.
I
l
1 2/2/2- lnteractio,ns with External & Internal Parties:
I The accounting information system (AIS) interacts ·with
-1nany external parties, such as customers, vendors, creditors,
and governmental agencies as well as with internal pa~ies
such as 1nanage1nent and employees. Figure 2-1 shows the
more important interactions v;ith these parties.

37
 ~'li.1illllll!1'~diiliiMiiiltllliWIII.t<W.lliliUSIJIIMi!MWUili.&W Wt Sf££U!, ·'·---~- ~O·~iifj'!

•, ~~a• tlilj"! ··•··· ,_ ... ·· - __,... _ _ .,_ ... , .• .......,~.,.......,..-.....= ·s·=.:o~-~ ~~ ·

\ ~ ~· : ~ Purchase Orders ~ Cus~r Order& _ _ ____ l j~

1
~ 8 Good & Se1vices Goods & Services . I I~
.g" ~ " Vendors Vendor Invoice~ ; -:- Cus~mer I;~ Customers
I
IJI
i
g. ~ Vt?ndor Payments Cu'stomer Payments
i~ ~~/~
Ill ::::ll OOilll - - ' <til-----~ --~
,, fij ..._ J i.
II
I ,_, '
I. I _·
~ . , ..
8. Invest Funds ., l c . r--·~--··
P"
o a or
b & .)ervJces l~~'1
I
a Dividends 41 ·- ' w--'
I 0" Investors ~ .. Waaes, Salaries_ Employees - .
I ro
~
·
-ell
Financial Statements
•
Accountmg
Information
- - o - -:~
. & CommiSSions L ._... _.___ ,_j I
• 1 1.
I
j[
I
w :-.l System ~~
00
~ loans .at S&S Managerial Reports /3t ·r.·-~-----··--J ~ ~··
- - - - - - .~-ti>- ~· . I ltlJ £':>
8 _ d' Loan Payments Fmanc1al Statements ,_, !~~ ~-<:>
3 l.re 1tors .:1 • ~ . _· . _. Manogernent 1 !~ ;
-g ~~ Fmanc1~l Statements · ~ ·- Bu~gets . .. _ . . ! ;~! ~a·
~ · Accountmg Enlnes l l ~ ri·~
~ pw,
L ---·--·-··j Iw
-1 Deposits Regulations&_ Tax Forms .. _
I [.~
(1) B k ~ . ...... .
------ I1 I~!~~ ~f·~-
Government I' rl ~:·
[ an s. Vv'ithdrawals __.,. Taxe::_~~epo~:_~ Agencies : 'I· .~~
1-
0..
~ / ,. j ' ~::1
·- -'MI!I"'tfl»:-MJI&1~ IW-~---- ~ . I ~t:l
· - - - ____ Jl:_-~
~~i
~lll.'l!'&~'$!1<'~~~,_,.-W§,.,"P5M'B"'F?'lW''~~~~~~~~~~~~=~~
~
•. f
!

I 2/3 ~ Busines:s C"'~de~:

., §

I
. A transaction is an agreement between t'..vo entities to
exchange goods or services or any other event that can- be 1
measured in economic terms by an organization. Examples I!
l
include selling goods to customers, buying .inventory fron1 -r !
i

suppliers, and paying employees. The process that begins witr"'l. 1~

capturing transaction data and ends with afl informational
output such as the fmancial statements is called transaction
·proces~ing.
The basic exchat1ges can be grouped into five maJor
transaction cycles:
(1) · Th"e
.
revenue
.
·cycle, where goods and services are
sold for c·ash or a future promise to pay .cash.
(2) Th~. expenditure cycle, where comp~es purchase
inve:ntory for resale or ravv materials to use in
producing products in exchange· for cash or a fixture
promise to pay cash.
(3) The production cyCle, where raw materials are
transformed into finished goods.·
(4) The human resources/payroll cycle, where
employees are · hired, trained, compensated,
evaluated, promoted, and terrp.inated.
(5) The financing cycle, where companies sell parts
of the company to investors and borro'vV n1oney and
where investors are paid dividends and jnterest is
!
l.
· paid on loans.

39
 Aecii.mrd:in.g Infm·mation Systems
·.~--:'~-~-~_,.~~~~~~~,~~=-J1ii?i!~';"~!l!'lilll2l!!'~.&II-'ri:~
ire----·· ---·--···-----

' These cycles process a few related transactions over and

I over again. For exrunple~ n1ost revenue cycle transactions ar:t
I
I either selling goods or services to custorners or collecting. l
l

cash for those sales. Figure 2-2 shows the transaction cycles I
l
and the give-get exchange· in each cycle" It also sho'WS ho¥.r . !
;
these various transaction cycles relate to one fuJ.other and
interface with the. general ledger and· reporting system, 1
which is used to generate information for both management" I·
and external parties. · · 1

2f4 .. Transaction Processing: The Data Processing Cyde: II

Accountants have a significant role to play in data pro-
cessL~g cycle. For example, they must interact with systems
analysts to help answer questions· such as:
+ What- data should be entered and stored by the
organization, and who should have access to them?
+ How should the data be organized, updated, stored,
accessed, and retrieved?
+ Ho\V can both scheduled and unanticipated infor-
mation needs be met?
To answer these and related questions, accountants
_,, must ui1derstand the data processing concepts explained in
this chapter.

40
 r::·- - - - - - - - - - -

Ir Finoncir>g cycle

I
II
-I

I
I
I
l

}---;f---..- tnrom.alion
for both
internal
and
external
users

Figure 2 ..2:_ The AIS and its subsystemse

One important function of the AIS is to efficiently ·and I

effectively process data about a co1npany' s transactions. In
I
manual (n.on-c01nputer-based) systems, data are entered into
Jomuals and Ledgers maintained on paper. In computer- I·
I
.I based systen1s; data arc entered into con1puters and stored in ·j
b!i?Wrlffi!!'ri"ffiifF~ Sl:";'S'.-~.ii.. ~~~--~
41
 ~~~~~~~~·t~t~:~~~_:_~~~,···~:~_ !;:!>;_~ __ ~-!M~-"';q-
__M:B ;;;;o:. I

~Ill- '1 ' p;lP-::

J.J
"-·-d·
~-- ~........
Jn.ta~··'""s"-"'''
a~ ....~<::t~-...::;"
..-;-.;-_ ... r·v·'-",...'"'tl. ~"""S --~~-~+n,I...,...,..l~
.~ __u;;.::; •. h><~<i..>. ·-HJ.
L _,_!.JLlJ.,J ..tlvU . ...:; U.i.\ '~" t~
---·- u...&a -.-..
lv
,i,,

;
! gcn~rate meaningft.ll Cl..nd. relevant infonnation are referred to I
! ·~ I
1
as t.~r:: data processing cycle. As shovvn in Figure 2-3, this 1
I process consists of four steps: data input, data storage, data I

-i I
l s~~~~J - f.. I
~~ ~ f~-~1~............,..~~- r-----=---~-=--, ~
_li 1 Data
Input .
Data
Processing
Information
Output
1

1
Figure 2 .. J: The· data processing cydee

Each step will be explained as follows:

I 2/4/1 .. Data Input:

The first step in processing transactions_ is to.,.capture the
I data for each transaction that takes place and enter them into
I the system. The data capture prqcess is usually triggered by
the occurrence of a business activity. Data must be collected
about three facets of each business activity:
( 1) Each activity of interest.
(2) The resources affected by each activity.
(3) The people who participate in each activity,

42
 Accounting Information Systems and Business Activities
j~
I
I Historically, most businesses used paper source documents
to collect data about their business activities. They later
transferred that data into the computer.
Today it ~s more common for data about business activities
to be recorded directly through computer data entry screens.
The. data entry· screen ofte~ retains the same name as the
paper 1
source document it replaced. I
2/4/2- Data Storage:
·. ,, ..,.
-... .

. A company's data are one ~fits most important resources.

Therefore, accountantS need· to understand how data are
organized and stored in an AIS and how they can be accessed.
In essence, . they need to know_ h_ow .to mana~e data for
maximum corporate use ..
. This section .explains basic .data storage ·concepts and
definitions such as Ledgers, Journals, coding techniques,
chart of accounts, and ~omputer-based storage concepts.

( 1 ) Journals:
In manual systems transaction data is recorded iiJ a
Joum~l before it is entered into a L_edger. A Journal entry is
made for each transaction showing the accounts and amounts
to be debited and credited. i
·!

A general journal is used to record infrequent or

nonroutine transactions, such as loan pay1nents and end-of-
. period adjusting and closing entries. A specialized journal is I
. -__ . J,
43
 ·- ... ,,, ·---
"
.1 ••
•
ccou:n'tu.tg
~,~~~--~.a:;~;,';Si'%~:::1··.,_.
·----
"C

-
.r,
irLt.•E·matror~

. "
.•

.
., .
,:s.ystems
,;
~~

.
i
'
I
I
I
I
used to siiY.tpli:fy the pro::ess of recording large nun-.tber-s of f
·,'j .
I repetitive transactions accolh11t. and cash disbursements. ·
,·,•: .:>
1.:·'

.I ( 2) Ledgers:
·I In an AIS, the files used fo store cu.1nulative infonnation
1__ ·are called Ledgers. The. general Ie,;:lger 90ntains SUfJL"'lary-

1
clata for every asset, liabllfty, :equity,. revenue~ and
- Level.
·:. j exper~.se account of the. organization. A subsidiary Ledger
:I
· 'i record.s all the detailed data for any general Ledger account
-._:II that has many individual subaccounts.
~ I .
~~i For exarnple, DJ.e general-ledger contains an .P1.ccounts
I Receivable account that surnmarizes the· total antount owed
_ , 1 to the .company by all customers. The subsidiary accounts
receivable_ Ledger has a separate record for each· indjvidual
custotner ~ e.ach of which contaLns detailed information about
a particUlar customer. Subsidiary· Ledgers are cbriimoilly used
for ite1ns such as accounts receivable, inventory, fixed assets,
I a.tl.d accounts payable.
·I
I
TechrmiqTUJ~s;:
I (3) Coding
!
The data stored in ledgers must be organized in a logical
fashion.·_ The most coronion way to do. that is to· use coding
techniques.
Coding 1s the systematic assignment of numbers or
letters to . i~eins to cla~sify an4 organize. th~tn. Many types of
codes are used in business and accounting -applications. The
· main types of coding techniques are:

44
 Accounting Information Systems and Business Activities-

(a) Sequence Codes:

With sequence codes, items are numbered consecutively ·-
to -ensure that there will be no gaps in the sequence. This
enables_ the user to account for all the iteii1s,- b~pause any
missing items will cause a gap in the nurilerical- sequence.
·.._, ·-·. .

Examples include -prenumbered checks, invoices, and

purchase orders.

With a block code, blocks of numbers within a.nU1llerical--

·.- - ':sequehce:-ard r~serV~~ "tor categQges h~~ing .Ille~ing to the

!~"~~~~~~~~efd~~~~=~:~~!i~~=~~~e.
... ·

Account Code Account Type

--- - 001-100 Assets

101_-200 Liabilities
- 201-300 Owners' Equity -
301-400 Revenues
- 401-500 Expenses

. Users- familiar with code can readily identify the type of

account by code nun1ber alone.

(c) Group Codes:

Group codes are often used in conjunction with the
. block code. In group codes two or more subgroups digits of
45
 Ac.;::ountir~1~ luf~Jrmaron System!:.
r:--Q:ol..~4',~~'%"1Y--··-;;;!'l<;-<":"'.;~· - -~·,·.
IF'-·-----·--- - - - -- --

.~~ are us;>d to code the item. lf ABC compar1y uses a seven- i
I digit product code number, for example, :the group coding .
I technique might be applied as follows: -

Digit Position Meaning

1-2 Product line~ size, style.

3 Color.
4-5 Year of manufacture.
6-7 Optional feature~.

.I As you see there are four subcodes within the product

.I cod~, each conveying a different meaning. This type of code
allows one to sort, summarize, and retrieve information by .
usmg one or more of subcodes. This technique is often applied
to general ledger account numbers.
It should be noted that, in·designing ~coding ·system, the
following guidelines will result in a better coding system:
· ( 1) The code should be· con~_istent with its intended ·
use, which requires the code designer to· determine
the types of system outputs desired by users prior
to selecting the code.
(2) Make sure the code allows for growth in the
number of items to be coded.
(3) Make the coding system as sin1ple as possibfe in I
order to rninimize costs, facilitate memorization I
and interpretation of coding categories, and ensure 1

~iimiii!iii!iiii&ami'r.Seiiimiid·p~l~=-=:::_iiiceiiii.s·ij!;-..,.,~wiGsaiiHW"'Biia"""~~~~'"'mi S&i i -i i·~ :6i misG;i;. . ,~i ~J~i

46
 Acccnmting Information Systems and Bus~ness Activities
:-~~--~~~~~~~~~~~~~~~~~~~~~~~
i
(4) l'v1ake sure the coding system is consistent: I
!

( i) With the company's organizational structUre. and.

(ii) -Across the different-divisions of an· organization.

( 4) Chart of Accounts:
.A chart of accounts is a list of all general ledger a~connts
an organization uses. Since the codes are account numbers,
they allow tnmsaction data to be coded,· classi~ed, and.
entered Lllto the proper accoimts.
The structure of chart of accounts is rui important aspect
of an AIS, because it affects the preparation of fihancial
statemen~. Therefore, it is important that the chart of
accounts con~in suf?cient detail to .meet an organi~ation' s
information needs.
Table 2-i shows the chart of accounts for ABC coin,pany.
It should be noted that each account number is three digits .
long, ¥rith each digit serving a specific
.
purpose.
.
For exiunple:
'

(a) The flrst · digit represents the major account

categories as they appear on ABC's financial
statements: ·current assets, noncurrent ..assets, .
.•·.•
liabilities, equity accounts, revenues, expens-es, and :··~~

·summary accounts._ .
(b) The second digit in each account code represents· the
-primary financial subaccounts within each category.
(c) The third digit identifies the specific account to
which the transaction
.
data will be posted. .
FoF
example, account 501 represents cash sale.s, and

47
 Accounting Information Systems

;:~~
· company~ "~ I,
I

Table 2:..2: Sample chart 9f accounts for ABC. I

['!'ccormt Code
"~~""r.
" 0-j~.,9
I - Accou?:! Nam~~ :
I6 {.... u:""rent A!"l"'ets
.
=: : :I !.•
!

II~h~ck~g ~:c:~nt
1U ,!

101
102 Saving Account.
103 Petty Cash. .l
1 120 Accounts Receivable. !
I
.I
125 Allowance for Doubtful Accounts.
il
!!§'
130 N~Jtes Receivable.
150 Inventory.
I! 160
170 .
Supplies.
. Prepaid :Rent.
180 Prepaid Insurance.
200-299 Non Current Assets.;
200 Land.
210 Buildings.
215 Accumulated Depreciation-Buildings.
230 Equipment.
235 Accumulated Depreciation-Equipment.
240 Furniture and Fixtures.
245 Accrunulated Depreciation-Furniture & FL-xtures~ ·
250 Other Assets.
300-399 Liabilities.
300 Accottnts Payable.
310 Wages Payable.
321 Employee Income Tax Payable.

48
 Accounting Information Systems and Business Activities

Account Code Account Name

330 . Accrued Interest Payable ..
.I 340 Other Liabilities.
I 400-499 Equity Accounts.
400. Common Stock.
410 Provi.~ions. I <

420 Retained Earnings.

500-599· Reven..ues.
501 Cash Sales.
502 Credit Sales.
510 Sales Returns & .A.llowance.
511 Sales Discount.
520 Intere,st Rev~nue. . ..
530 Miscellaneous Revenues.
60~799 Expe:r:tses.
600 Cost of Goods Sold.
611 Wage~ Expen~es.
612 Collllilissi~n Expense. .
613 ' Payroll Tax Expense.
620 Rent Expense.
630 Insurance Expense.
640 Supplies Expense. .
650 Bad Debt Expense.
701 Depreciation Expense-Buildings.
702 Depreciation ExpensC?-Furniture & Fixtures..
703 Depreciation Expense-Equipment.
710 Income Tax Expense.
800-899 Summary Accounts.
810 Inco~e Summary.

49
 Accounting Information Systems
~~~ -~:?~~:..:" ... __
·. __
· ---~---~-'-----------_'_____
-- _- -=._:----:!

I
' 1
I '
I

(5) Computer-Based Sto:rage Conc~ll:1ts:

Th,e basic ,f()mputer-based stor3;ge concept§ are:

(a) Entity:

Examples of entities include inventory item, employee, !I•

I
. I
customer, supplier, and department. _ I
i
(b) Attribute:
-I Each entity has attributes, or characteristics of interest,
!Qi
HI which need to be stored.. an employee pay rate ·and a
1
customer address are examples of attributes. Generally, each
type of entity possesses the same set of attributes. For
1· example,· all employees possess an employee number, pay
Tate, and home address. Each attribute has a specific value.

1 (c) Field:
i- A field is the physical space in which data values ate
·
1

l stored.
l
I (d) Record:
The set 'of fields that c·ontain data about various attributes
-~- of the same ent~ty form a record. In figure 2-~, each rQw
{: , represents a different rec~rd qr).d each column represents an" , ·
, attribute, o~ field. Thus, each ihtersecting ~·ow and column in·_.
I
: Figure 2-4 is a field vvithin a record, the contents of which
j are called a data value.
j

~------~~----~~~------------~
50
 Accounting.Information Systems and Business Activities
-•!'5!98-iW

Customer Customer Customer Credit

Balance
Number Name Address Lhnit

3 Entities r Cc 1953 ABC Com. GizaEg. 200,000 125~000

Data

j:::::
(3 customers)l
3.Records 1982 Cairo Eg. 400,000 175,000.}. Values·

1987 Alex. Eg. 300,000 150,000

t _t_ ·l t
Individual Fields
Figure 2 .. 4: Data storage elements.

(e) File:
·A file is a· set· of related records.. For example, a set of
custom~r record~. forms a _customer file, a set- of inventory
records: forms an inventory file.· Two basic types of files
exist:·- .

( 1) Master files:
· . A master file is conceptually similar to a· ledger in a
manual AIS. Master. files store cumulative information
·about zhi organization's resources and agents with whom it
interacts. For example, the inventory·and equipl"ll:ent master
files store information about organizational resources.
, Similarly, the customer, supplier, and employee master files
store information about important agents with whom it
interacts.

51
 1
Accounting Information Systems

l~l.~s.
a:x·e n:.~:-e··~~eC~-i<:'=s·~l""·~-ai
1

· j ..... . . . . ~.... ..a.. -:......r A. .... _,..a.. -....Go .... - .l.L , ...~.L J .r~ . . . ~t.. ~'-'!-.. ~ .... u ~,_, .........
•
1

I periods. Individual :records '•Vithh'1 (1 rnaster file, howevex,:, [.

· ·; l ate ftequ~;<.~_:·t_:l._.Y change& The rnost" Con111).oh ·type 9f change. I ·
.

· · macl.e to -records in masterfiles involves updating the datato · 1 .

1: i:
I reflect the effect of specific transaction~. For example; the I
.·1 account balan~es of individual custon1er accounts in the j
1- custon1.er master file are -updated to reflect .· new sales l
II transactions and payments received. Periodically, new . !
records may also be added to a master file a..'1.d som~times t
.1. individual records may even be deleted. 1l .
"I i
;. l I
1 1
(2) Transaction Files: ~1
!-
The second basic type of file ~s called a transaction file, I
-
vvhich is conceptually siinilar to a journal in a manual AIS.
I
~ Transaction files contain records for the individual business
I
l· transactions that occur during a specific fiscal period. For II
. example, ARC company v1ould have a transaction file.
containmg records of sales events and another transaction
file containing records of customer payments. Both of these
files would· be used to update indi~J.duai customer account
balances in the customer 1naster file~ I.
Transaction files are _not permanent, but are usually I
maintained on-line for one fiscalperiod. i
!
. I
·(f) Database~
I
I
A database is a s·et of inteiTelated, centrally coordinated 1-
tl.les. For example, the acconnts receivable file might be

52
 Accounting Information Systems and Business Activities
~~~~~~~~~~~~~~~~~~~~~~

j. combined with customer, sales analysis, and related files to I

l form a customer database. I
I
2/4/3- Data Processing:
Once data about a business activity have been collected
and .entered into the system they. must be. processed. This
processing helps keep the data stored in files.or databases
current. There are four differefit,types of file processing:

( 1J UJX!ating:
-.

It means updating data previously s:tored about the

activity, the resources affected by the activity, or the people
who performed the activity. For example, recording a sales
. transaction and adding the ·sale amount to the account
balance to get a new current balanc~.

(2) Changing:-·
It means changing data, such as changing a customer' s·
address when they move or their credit limit when their
financial situation changes.

(3) Adding:
It means adding data, such as adding a nevv employee to

payroll master file or database after they have been hired.

( 4) Deleting:
It means deleting data, such as purgmg the vendor
 Acco!!nting Infcr.mation Systems
·r~~~~~~~I~~~~---'1
- •.

master file of aU vendors that the company no longer does

business with.
Updating Clli.i be done periodically, ~uch as daily, 'veekly
or mont.h.ly, or imn1ediately as each transaction occurs.
Periodic updating of data is refen·ed to as batch processing.
Updating as each transaction occurs is referred to as on line,
real-time processing. A combination of the tvvo approaches
is batch vvith on-line inquiry processing where transaction
data are entered int6 the system as _they occur. Each approach
. '

will be explained as follows:

( 1 ) Batch Processing System (Approach): .

The . earliest .. co~p.uter-based ·systern used .. batch
processing system. With a· batch processing system, clerks
Write down the data necessa.rY.. for re~ording ac~ountn1g
transactions. They then accumulate· da~ in batches of, for
example~ 50 doq.11nents per batch and deliver ~ese . batc~es
to· data entry clerkS V{ho convert them into computer-
reada~le form. In modem system_s with on-line·data entry
each _batch becomes a computer transaction file. After d8;ta
entry, computer programs process the transactions at a time.
Data control clerks in the AIS. depart1nent monitor this
proc~ssing to ensure . that each l;Jatch stays intact. _No
transactions should be lost or added to any batch.
Figure 2-5 contains a flowFhart of a typical application~
It sho\VS how accounts receivable master file is updated with

54
 . .
Accounting Information Systems and Business ActhH~i:s

batch processing. This system consists of four cmnputer

programs:
.,
(a) Validation Program:
. The validation program examines each transaction in a
batch for obvious recording or data conversion enors. It also·
verifies that the total of the debit entries equals the total of ·
the credit entries in the batch (sometimes t..lris progrrun ·is
. called an edit program).

· (b) Sort Program: ·

- - . .

The sort prow-am, normally a-utility proP, res.equences

. the batch of transactions into ascending customer,:·number
·.·. order.··

··(c) Print Program:

The print progra.m produces a li~t ~f the transactions
. called the sales journal.

(d) Update Program:

The update program posts sales transactions· to the.

accounts receivable master fi~e to update it.

Advantages--of Batch Processing System:

Batch processing system is conceptually simple, ap_d it ·
is relatively easy to conv~rt to this form of processing ftoril
·a 1nanual system.
 Accounting Information Systems

. ...,

i
!
Sales
transactions
I
[
:
I.
;

I
Valid sales Invalid I
I
1 transactions ttansactions
I
I!
Sort __ r:-~
G._~
I
!

Sorted sales
transactions

Print

Sorted sales
trarlsactions

Old New
customer Update customer
mastcrfllc master file

Sorted sales
transactions

Figure 2-5: Updating accounts receivable master me with batch

processing system.

56
 . Accounting Informatkm Systems 21nd :au:sh:ress Activiiies
•c-7:~~""·- . ~~
llr-==-"----------
1 Disadvantages of Batch Processing Systena:
.
Batch proGes~ing syst~J;?. also }lave disa<lvaqt,ages. Fb;-;91, I
I
.·: . The infonnation they prodi.{C:.e may not be ·current. Usually )! }
! -transactions are gathered into batches for a day, a vveek, or a 1
month at a tin1e. The system then posts many batches at once,
either daily, weekly, or monthly. This means thatthe contents
of a computerized data file are usually out-of-date in. a batch.
systerr1.
.:~:.
Second, batch -system is inflexible. It is unable to produce
; ad hoc reports or provide information in any form otb.er than
that coded into the system's p~t program.
·,

(l) B~tch with On-Line Inquiry. System: .· ·

·When many companies replaced magnetic tape files
, with on-line devices i..11 batch processing systen1s, they made
significant improvements i~ them without replacing the
systems. They did this by providing on-line inquiry capability.
This capability means that a user at a terminal can retrieve
data from an accounting data file located in an ·on-line device.
For example, ~ sales cl~rk may want to know if a
customer has exceeded a credit limit. In batch with on-line
inquiry system, the clerk ·accesses· the computerized accounts
receivable master file using a query program ·to find· the
J customer balance. The clerk then decides whether or not to
f.'· sell on c~edit to ;ihe custo~er. Ifthe ~aJes Is ~ade~ the :sy~~em
posts the transaction to the accounts receivable master file
to update it using batch processing procedures.

57
 Sort

,._

Query
program

Figure 2w6: Updating accounts receivable master file with batch

with on~line inquiry systemQ

58
 Accounting Info:cmatiun Syskms and Business A~~tivW.e~

Figure 2~6 contains on-line batch processing system. It

shows how the accounts receivable system in figure 2-5 could
provide ad hoc infonrhition for credit-grantir1g purpo~es ..
l
Advantages of Batch with OnwLfne Inquiry Systern:
I
Batch with on-line inquiry processing systen1 is popular
in accounting applications using indexed sequential files. They
achieve the efficiencies ofbatch_processing~but it is more
flexible in how they produce their outputs. In batch with on- 1 •

line inquiry processing system information is available at a

terminal.

Disadvantages of. Batch. with Qn.. Line Inquiry System:

··With on-line batch processing system information .may
l · not be current, because the data in th~ file was updated at _the
1
last posting, which have been _yesterday, last week, or last
month.

(3) On-Line_, ReaJ ...TJme Processing System:

When it is important
. .
that.· clerks and managers, have .
access to data that is cun·ent, companies implement on-line
real time system. An on-line real time enters, validates; and
updates a single transaction before proceeding to the next
:. tnfnsaction. This rii~ans that the res~Hs ·of. proc~ssing are .j ·
immediately available to clerk or manager entering the data
into the system. ·

59
 Accom1ti:ng Inforntation Systems
~~--~---=--·----~----·--.·--·~-----~---~-~--'--~- Ngm~ .
il 0 n- 1'1ne system
. . ~ . -f.... or ma:nagerncnt purposes.
. 1.nva1uao1e
1s . ·
rl'lll

1 Therefore, many companies use it in accounting system§. I

I An on-liile accounts receivable syste1n allo·ws a sales clerk to J
determine a custo1ner' s current balance; an on-:line inventory I
system allows the same clerk to determine if the· product
I requested by the customer is currently in stock.
Figure 2-7 shows an on-line real time accou.t1ts receivable ·
system. A single program validates and up~ates each
1 transaction as it is entered. This program ~lso gtiides the user

1· ~ entering the data. ·

I ..

-
invoice

-
r .I .... -----..
Validate Customer Query
and
update
\.
master ·
file
\
- _,,;
program Display

.t I
Transaction {
1.\.log \ -
Figure 2-7: Updating accounts receivable master file with on-line,
real time system.

6()
 Accounting Information S:ystems a.:ud Business A{:tiv:i.tie:s

.Advantages of On-Line, Real nne System: ·I

1 On-line real tirne system pro\~ides cun·ent data because 1
- ! the results of ptocessing are immediately avaihtble_. They are J
I frequently used with database managem_ent systems so users !1
I can easily produce ad hoc reports from the database. !
i

Disadvantages of On.,Line Real Time System: i·

On-line real time system is more complex to develop and I
maintain than other systems, ho,wever, and more ~ipensive to !I'
I .
implement. Because they have no visible audit trail, an I
erroneous transaction entered into an on-line real titne_.system
I
may creat~-
in6orrect a ceo tint·.._'balances
, -
±hat are: 'Jiffictiit.·.·to
. - ,. -

detect and correct.

'}.

2/4/4- Information Output~ ·

The final step in the data processing_ cycle is information
output. In this section you will learn about the fonnat,
purpose, and user responsibilities associated with output:

2/4/4/1 . . forms of lnforma~ion Output:

Infotmation is usually presented in one of three forms: ·:/:

· ( 1 ) Documents:
.i
Documents are records oftransaction pr other company·: !
/.
~data. S01ne, such as checks q_nd invoices, are transmitted .to
i
l
external parties. Others, such as receiving reports and

61
 Ac~C.m.li.n~~n~
0
Im~nr-mat£on
. -
Svstem.s
,.J • -

i~~~~%~~~~~-i1!"--~~~
~
. i .

. ·',_·. _purc-h~se
1 rec q~isi~i~~
u.1 • -·· _, .Y]-~_..
...,_·"'~.!·
~
. _...,~
u.:::;'""'-'- 1'"n-'$.,.,....,.._..
-:;.-..t--:.··-1
~.tXllJ.3..U)'.
~" -r-\ ..... ....,...
=-
.LJuc.umen~s
- t
:
1 generaJed at the end of transaction processing activities aJ.,:e
·'I called operational docmnents to disting.uish then1 from source
i
I documents, wh~ch ·are used at the beginning of the process.
.
I
~ Docum.ents. can be printed out or they can be stored as
'G • ~ < .
..
eJectronrc 1n1ages In a computer.

..
Reports ar-r prepared for both internal and external
' j·
users. Reports ~r~ used by employees to control operational
I ·I
1
activities and by managers to make decisions and design
strategies for th_e business. 'External users needs reports for a
wide variety of reasons, such as to evaluate company
profitability, to)udge creditworthiness 7 or to comply with
regulatory requrrements.
- :Reports are-produced on a variety of bases such as:
..•
·• On regular basis: Such as financial statements and
sales analysis. .,. .
• ·On exception basis: To call attention to unusual
conditioP..s· For example, ABC company could have
its system produce a report to indicate \Vhen product
returns exceed a certain percentage of sales.
. -
+ On demand: Reports can also be produced on
demand .. For example, an AIS could produce a
report t~:jdentify the sales person who sold the most
items dui"ing a specific promotional period.

62
 Accounting Information Systems and B~siness Activities
flf~ -
ttrr
m1 ( 3) QlllerNes;~
"i

I Infm.wation needs caP.J."'lOt be satisfied stdctly by

! documents- or periodic_ reports. Instead, problems and
4 I ! _questions constantly arise that need rapid action or ans-vvers.

:J To- respond to this problen1, personal computer or tenninals

-I
I
I'i are· used to query- the systen1. A user ent~rs ·a request- for a
specific niece of information. Vv11.en the inforrnation is
i A . .•. .

i found, it is retrieved, displayed, or ahalyze4 a,s .reql).ested.

I Any unusual or one4ime queries are usually developed

by the user themselves. Wl1en displayed on a ~onitor, output
is referred to as "soft copy".. 'When printed ori .·paper, it is
. ... . '...:. . .

referred to as "hard copy'. -

2/4/4/2... Purpose of Output:

Information is typically produced for a specific purpose.
1;'wo of the tnore important c_ategories of financia~ information
produced by an AIS are financial statements and managerial ·
reports. _
External users are provided with financial statements to
meet stewardship requirements and to provide the information
needed to n1ake decisions, such as whether to loan n1oney to
an organization or invest in it. Internal users also use. the
financial statements produced by th~ .f...IS. i·

An! org~nization' s AIS must also provide 1nanagers with ~~

detailed operational information to plan, manage, control~ and ~~
evaluate company performance as follows: !!'

63
 A.ccmmth1g Infn:rmation Systems
~~~~~~~~~~~~~~~~~~~~~~~~~

For planil'ing purposes, managerrient n~;ds· information

about such things as inventory status, relative profitability : '
of p'r6ducts'{ sales. forecasts,. and new
~ -
prodlicf revenue. and .·
cost \;stimates'. rfhey also need budgets, which are' fomial
I of
expressions . goals in fuiancial tenns. One of the most
I COillinon and important types of budgets is· the cash budget
that shows projected cash inflows and outflows.

(2) Providing Information for CoJitttoi Purposes:

For control purposes, ari orga.nization must constantly .·
monitor its progress so· that problems that arise c~ .be
corrected as soon as
.
possible. Often, monitoring is done using ·
~ .

perforrnance reports that compare standard1 ,o:r ·expected,

performances with actual performance. Since budgeted .
.
. . .
.

amounts are estimates, there are almost certain to be vapances

for each item in the performance report.

(3) Providing Information for Evaluation Purposes:

For evaluation purposes, it is important for the AIS to
store information -about both traditional financial measures

II
.·
and operational data. To improve the evaluation process,
:~corpo~.ate _accountants .1nu~~ knO\N how tCY:. organize inten1al .<j·
company data and present them in a mann<>r that sheds nevi
light on operational results. They n1ust also collect irnpotiant
data fro1n exterr1al sources.

64
 Accounting Information Systems and Business Activities

~~
-
I Exrunples of evaluation reports are comparisons of the
relative importance of each sales person ar.1d data on how
· wdl ari organization meets its delivery commitments and j
;

hov,r satisfied customers are.·

l·i
. . ' . . .·

...
-~: Traditionally, the AIS·has been referred toaS.atra.nSaction :·:
... processing system because its only concern was fmancial i
·data · ~d .· acc~unting
. . .
transactions. . -Cons~qt:iently, many.:_
. . ~

otgallizations developed a4ditional informatio:t?: systems to .·

~oilect, process,. store, and report ~onnationnot contained ~·
· . iii the AIS. Unfortunately, the existence of multiple systems t
creates numerous problems. and .iti~fficiencies s~ch ~'
redundancy _across systems, and difficulty_ to effectively
.· integrate data from the various systems.
Enterprise resource planning (ERP) systems are designed
to overc_ome these problems as they integrate all aspects of a ·1
company's operations ·with its traditional AI~.
A key feature. of ERP systeiD:s is the integration of
financial with other nonfinancial oper~;t.ting data. The value
. of such integration suggests that there may be strategic
benefits to more closely linking the traditionally separate
r • .

functions of inf9rmation systems and accounting, and many

I

organizations are beginning to cotnbine these two functions.

65
 ~~~~...,-'!:~Jk~~=*::~~~~~~.:'~~"'::~'~:o:'':'~"'~~~~~~~-:!'1~:~~m

1: Key ·t'entlS ~~w

I ~ ~
~;- ~ }\ccounting applications. .~L~..:al<i.!.;w.1 i

:
I
~
Adding data.
l!l .uu~ ~L.a!
1 '" Attribute. .~-i~g..
I
·l ~ Batch processing system.. .w~-~-~?u~i,J.;.r.·f·Al1 r~·

~ Block codes. . '

G Cash budget. -~~~ d..j_jljl~

!Oil Ch&nging data. .~w~1 .:l' li1

-~4~' J:.l.l"
l
il Chat~·of accounts.

.Il § Closing entries. .Jl.Ci.Sgi' A~

I ii_ Coding techniques. •>.:A_;Ji y:J~i
l
i !<I Data entry screens. .~ulu.ll J- 1.>-lt ~LJA~
-· .
-'
I.
_ .~wt,:._,,~ Jl>.J1 I
,_

~~
f! Data input. I

l
j
li Data processing cycle. .~.:A.~~~ J.!i,fti O.JJ..'I
I
!il Data stora£e. .wu~l~.fo
! '-"

I m Data --\ralue. .oy,.i~ ~i.l

I,I * Database management systems (DBlv1Ss). .~l:ll:_t..tJI ~~~;;__,l~! 1~

. 'i
' Ill Deleting data. .~u*~.bo-

I a Edit program. . (?'-'-?:tr\1) tJ_..o.?"...:i.ll ~tj__;-:1 II

111 End-of-period adjusting entries. . .3..~-:Jlll~~~~~.l~ I

I! 111 Enterprise resource plam1ing (ERP).system.
1
·by.t.ll ~..l.9-A b.!b~ ~,JO.j I-
.r r.~ Eatity. ._a..1~..:S jl ?l?'t
-!'-~'.:il (.•>·•Aw.l
I
l!l Excention
• basis. !
External parties. -~_)~~~~.;b~' 1

j
!'!
l

\ . a Field. -~
I
- :Ql' - - - ·
 Accountd:ng Infonna.ticm Systems and Busin~ss Activities
jtF
--~~~-~~~~
. ·,- - ~~
-~~ ____ _:_ ____ ,__:__=__~;

. II General ledger and reporting systein. ._J--A_;l:O.:U! ~~~jl rWI ~lk:il r'.h:! I
Ill
I

...:.~~4~jJI~-~i
Il
,. Group codes. i,

m Indexed sequential files. .4.w~l ~L?-;tl w~lJ J

I m Internal parties. .~I.J.li ~t_;.b!llt · l
· ~ Inventory status reports. -u_sj.,.%l.i &Jb ..>=i...JIAi !1
I m Loan amortization schedule. -~~~..!3~~~ JJ~ .
.I m .J\rfagnetic tape. .h·l;,.-44 .b.s_A
I a Noncurrent assets. • (~!ll d.L.._sk ..9i t ..'l;l1) aJ_9l.Jd.A ~ J~1
l 11 ·On-ljne, real time system. -~JA~~ L:a.sJ! J~ 'rJ->~' J.!'"';..:il! r~

~ Operational documents.
~ ~ -It . 'I - I . - .
I'll Paper.source documents.· ·~_)~·..)~_~.J! '"'4

a Performance reports. . ~~.l~i _;...\_J\Al

~~~Permanent.' .~I.J

m Print program. -~~~~U.J-!1

a Pro-forma fin~ncial statement~. . : _.~...LA:i.ll ~U1 1.W1~1

11 ·_ Query program .. • (r~I)_;~I~UJ-:1
11 Record. ·~
. • Regular basis. .(LS..;.J-3) (.:~Au=u <.>"l.wi
- -
• Sequence· codes. .(!;: tu.U ..H-4
· ,_JW
-:. th..• P':~"""*'
L-1
a Sort program. ~ •j__,.i:ll\ ~\.j.>:'
11 Subsidiary ledger. .~L.u..o ,j!.J.u,l fl.j.

11 Systems analysts. . .~,,~

" Terminals. ·¥_;-b~~~

11 The expenditure cycle. ·ll~';l{\"3JJ.j

m i'he financing cycle. . (JUI t,..""1_;) J.lJA111 Ci_;J.l

m The human resources/payroll cycle. . J.¥."-~1/~~1 .j_;1_9ll ;;_;j.l I .

I e The production cycle. . ~l:U?fl ;)_)J.l

I .
I
. II The revenue cycle.
J>; ..li_H?fl b_;j..l

b~ &4W11 ++;;,p.•i=ffiammen rr
67
 Accounting Information Systems

5 Transaction processing. .u:>i..oWI~

iii Update progranL -~~r~u=H

!B Updating data. .~G!.:-:JJ.$s:· t~

a Validation program. -~~~ (!-AL1~

Wll Visible audit traiL • ~_)A ~·_)A .Jtw.A

-...._.

I
I

I
I.
 Accounting Information System

CHAPTER 3

SysteD'ls Tools

I
I-
I
I
!

L
()9
 Accounting Information Syste~

CHAPTER 3

Systems Tools

l/t- Introduction:
Accountants typically participate in project teams that
design and implement accounting sy~tems. They also review
these systems' when performing internal or independent .
audits. This chapter discusses SOIDE? useful teclmiques for
performitig these tasks, includiD.g in~erviews, flowcharts,
. data flow diagrams, and other forms of documentation ..

3/2~ Types of Systems Tools: .·

Some ofthe main types of systems tools are:

l/2/1• Interviews:
Interviewing is an important skill for any accountant to
develop; it is especially important for auditors and
accountants involved in system development. Auditors
interview client employees while conducting reviews during
an audit. Members of a development team interview users of
I the system evaluating existing systems and when identifying
requirements for a new one. Interviews frequently provide .
·II . the source of infonnation that tean1 1nem~ers describe vvitb ,.;
1

.
L:~:: a~~ other fo:1::f docum:.:ta::_ __j
71
 Accounting Information Systems

rI 312/2 . . flowcharts:
P.,.. flowchart is an analytical technique used to describe
I
I
.,
I
50n1e _aspect of an infom1ation systen1 in a clear, concise, and
logical manner. Flo-wcharts use a _standard set of symbols to
1
describe pictorially th_e transaction processing procedures ·a ~~
'I
. ·t
·j
,,I
.I
:o 1:/pan: us:.s and..the :owbof data through a system. · L.
:!i
-I
~i .;~_1A.. 2 1 s. ... rsOWCuart .J'ym o 1s: t

The sy1nbols used to create flowcharts are shown in

Figure 3-1. Each symbol has a special rneaning that is easily
-, conveyed by its shape. The shape indicates and describes
· the operations performed and the input, output, processing,
I and storage media employed.
Flo-vvchcu-ting symbols can be divided into the follo~;ing
four categories, as shown in Figure 3-1 :

( 1 ) Input/Output Symbols:
They represent devices or media that provide input to or
record output from processing operations.
!
i (2) ·Processing Symbols:
I
1 They either show what type of devices is used to process 1

i data or indicate when processing is performed 1nanually. _ I

I I
·I (3) Storage Symbols: I
.· j Th~y
represent the device used to store data that the [.
1 systen1 1s not cuiTent1y using.
I
I

L__ _j
72
 Systems Tools
-~

:~ ·"W! ~
I
I
I Symbol Name Explanation -
..
' ii

D' .·\A dpy~~11tof<:rwort: >The . .

' ~- .. ., . : ~
·.-:Docun1ent.
·.. ~. ~- -~- ~hl
document may b~ ,p,repm;~gby
hand or printed by computer; a ·~-
ww
-. ' : ....-.. .... : ~ . ,: -:: _: ·-.... _, ..--~- ;: : ,. -, . :. .: . _;~
.:•'
,_ . Multiple Illustrated_ by overlapping the._
-document symbol and printing :~;
1
12-
3 copies of one
document. the documerit!1~JP:!?~rggJh~
0::
1: face of the dochment in the ' -.-;

upper right comer: ..

I
i
·--~

..
Input/output; ·- Any input or output function -I

0
.-_,
Journal/ledger. on a program flowchart. Also -· -·,.j
J
used to represent accounting · ..
.··.

journals and 'ledgers in a·

'
document flowchart. ·

0 Display.
.11/,.
Information displayed by an
online output devise such as a·
terminal, monitor, or screen.
-
.

Online keying. Data entry by online devices

0 such as a terminal or personal

computer. ~

)- Terminal or The display and online keying

personal symbols are used togeth~r to
-- computer.- represent terminals and
·r r personal computers. I

q Transmittal
tape.
Manually prepared control ·
totals; .used for control
purposes to ~6rnpare to
computer-generated totals.
I
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I
!
!
;

!
r

. I
'

I~
Figure J .. l: Flowchart symbols. i·
-(
_i
~

73
 .A,.ccounting Ir:fonnatiou Systems

r~~=.--..- ~~---·~~~,~~~

I A computer-performed
I
·~

I r l Computer

LJ
i
processmg. processing function; usually
results in a change in data or
. +'
1n .
. . ormatwn. ·
1
I
!

0 Manual
operation.
A processing operation
performed manually.

D
Auxiliary A processing fimction
I
I
I
1operation. performed by a device that is
not a computer.
•·
I
~
l
~

Off-line An operation utilizing an off-

CJ .
keying
operation .
line keying device (e.g.~ key
to disk, cash register)

Storage Symbols

EJ
l\ifagnetic disk. Data stored permanently on a
magnetic disk; used for
master files arid databases.

Magnetic tape. Data stored on a magnetic tape.

0
[iJ Diskette. Data stored on a diskette.·
-
~~
I

Figure 3·1 : Flowchart symbols (continued).

r~ -
-I
I
I
 a- . -==--..-..-a :...- .. -
!
n~:a st~re~ in a ~~~~or;~~~-l-
CI .
On-line
stor,?,ge .
..
on:hne tile Ln a d1re~t ..acce·ss _-. . ·
me<iium such as a disk .
:··~

_.... .
File· 1
File of ddbtiments m&?J.ually : >_
~·· stored arid retrieved; inscribed
.... ;:·

letter indicates fil~-ord~x:irlg . '

!:I
I
sequence I''
N .·.Iiumerically, A=·. ....
..
. alphabetically, D = by date . ·t
·;~'~
.. . ..
Flow and MisceUaneous Symbols .. :
:s.

~
Document or· IDirection of processing or ·
..
..
'
processmg 1?ocument flow; nor:nai flow .,
flow. Is doWli ·and to the nght. ':··,··

···············)>-
Datal Direction of data/information .·
information flow;. often used to show data
flow.· copied from one document to
I
l
I
another.

s Connnunication Transmission of data from

lin1<.

On-page
one location to another via
communication lines.
-
Connects the processing flo'\-V

0 connector. ·on the same page; its usage

avoids lines crisscrossing a
page.
·Off-page An .entry from, or an exit to)
0 connector. another page.

Figure 3-1: Flowchart symbols (continued) .

.! . - - - - - - - · - - - - - - - - - · - · - - - -
M r=

75
 I ·---../1
~-c---=-~-~-,--==-.-T~e.rminai. ~~~g:~-n-d,-o~r-p-·o_in_t-_o-f"""""""l
ix1teiT1.1ptiqn in a·process or
I• __ pro6Yiam; also us~d to ·indicate I I
an external party. _ ...

.Decision. .·· I~ decisi~_n-makin~ step; used

o m a program flowchart to show :i_ -
.branching to altematiye paths. : ::
i:-.;·_.
Annotation. .A...ddition of descriptive .
comments 01" explanatory .
L--~~--,...,b,----~--~~-·n_o_t_es_a5_c_l=an_·_fi_c_a_ti_on_._·_. _-··---·-"_....._-.-_,~ _;J_
Figure 3 .. 1: Flowchart symbols (continued).. <!
~-·

& Mi~cellaneous ·Symbols:

·-_;.-

( 4) flow
They indjcate· the _flow of data and goods. They. also · j ...

represent such operations as where flowcharts begin or end,

where decisions are made, and when to , add explanatory
notes to flowcharts. ·

3/2/2/2• Flowchart Types:

Flowcharts can be divided _into three types:

( 1 ) Document Flowcharts:
A document flowchart illustrates the flow of documents
and information among areas_ of responsibility within an
. organization. Document flowcharts trace a document from
its cradle to its grave. They show where each document

76
 Systems Tools

originates, its distribution, the purpose for which it is used,_

its . ultimate disposition,
.
and everyth1.'1g that happens
- ...
as _it
.
.·
flovvs through the system..
· A documenttlowchart is pe4'iicularly useful ili aila.lyzing
the adequacy ~f control procedures in a systen1, such .as'·,
internal checks and segregation of functions: Document
flowcharts that describe and- evaluate intenial controls --are
often referred to as· internal control flowcharts. Figtire 3-2
contains a 'document flowchart showing procedures to accept
a
aTld fill sales request from a customer. The order:department·
receives the customer's order; from it they make four copies
. of an internal document, the sales order. These are sent tO the
. shipping department, which<includes. copy .4 as·: a· packing
list with the goods when shlpped. Copy 2 of the sal~s- orde:t;
• returns to the: order department, ·and copy 3_· goes illto off-line
storage. Thls is usually a filling cab meL The -lett~r .p ·in· this
symbol indicates that this is a permanent file. (Analysts may
also use the letter A for alphabetic, N for numeric, and T for
temporary in this \Vay). Copy 1 of the sales order goes to the
billing d_epartment; which prepares a three-part invoice
copies 2 and 3 go to the accounts receivable department. ·
. .

(2) System flowdtarts:

Syste1n flqv.,.rchmis depict the relationship among the
input, processing, and output of an AIS. A systen1 flovvchmi
begins by identifying both the inputs that enter the syste1n
and their origins. The input can be new data entering the

77
 Accounting Info~mation Systems
- - .~~lal§:<,;:b~~=~"""""'-f>)!lYZ!lllil-~~~~":<!!Bi£~~~~
~~--------------- ---------- :
ill - '
-------------

~-
~i d f. ··1:. l 1'~ . . I
I/ 1
;~tenr 5 <aata._,store _ ~Or~ I'l.rture_use~ ~r, bo:.l- . ~e 1~put ~s
'
I
~~ - j_ollowed. by lhe processing pm:t110n o:t tne .tlov<~cnart; that IS I_

!l t..he steps performed on the data. 11He resulting new irrformation 1

is the outPut component, \Vhich can be stored fo:r late:r use~ I

displayed on a screen, or plinted on paper. In many instances,

the otitput from one process is an_ input to another.

Sales "order
copy10'42113ched
I !Dgoodsas
I · a pocling iisz
I
I

Accounts
receivable
proccc!u=.

____.~.__..~_.__ j
_
.· Figure 3-2: A document flowchart to accept and fill a safes request
fforn a customer.

78
 Systems Tools
!~
I
Systems flowcharts are an important systems, analysis,
1
design, and evaluation tool. They are universally employed in
systems work and provide an inunediate fom1 of communi- ,
cation among workers. The system flowchart is an excellent .·f
vehicle for describing information flows and procedures i
within an AIS. l·
Figure 3-3 contains a system flowchart that depicts part
of an accounts receivable application. It ·begins wit.~ a ,
·I
manual input symbol. This shows the input of individual 1

sales transactions to a computer _program depicted by a I

process sy1nbol. The output of the process is a computer file
(sales trans~action file) represented by the on-line· storage
symbol (magnetic disk).· This is the input to the neh.'i process.
The last process, update customer master f1le, has two inputs
and three outputs.

( 3) Program Flowcharts:
A program .flowchart shows i~ de~ail
each processing
step of a computer program. Similar to a system flowchart,· a
program. flowchart uses flow lines to show the sequence of
these steps. The lines proceed from top to bottom and left to
right across the page. A terminal P!ogrammin~ sy1nbol both
st[}rts and stops the flow.
''
i
I
=-I'
7')
 i\.ccmmting Infnrmatiot:] Systems
) ·---~-::~~~::.~~~~3~~~~~~

.i i

II
I
I
I
I

Sort by
.CUstomer
number

customer
·master
me.

· Error Control
listing report

Figure 3M3: A system flowchart that depicts part of accounts

receivable application.·
-.- - - - - - - - - - - - - -
80
 Systems 'J:'ools

'r-
- I ,1,
! Co1nplete documentation for an accounting -system ·
i
includes program flo-wcharts for all progran1s identified on
the system flowchart. Often each program consists qf several
1nodules, or segments. In this case, there is a· flo\\rchart for
each module.
"Figure 3~4 shows a flowchart for one program. It isthe
update customer master file program, which posts sales
transactions to customers' accounts in the accounts receivable
subsidiary records. This program reads _one sales transaction
from a transaction file containing records of all sales. Next
it reads the master file containing customer accounts until it
finds the customer number of the customer receiving the
sale. The program .adds the. amount of_ the sale to the
customer's outstanding balance; the~ it processes the next
1 sales transaction in the sa1ne vvay. When aU transa~tions are
recorded, Ll-:le program stops .
.A.ccountants rnay exan1ine program flowcharts when
evaluating the internal control of a computer-based system.
- .,
3/2/3- Data Flow Diagrams:
A data flow diagram (DFD) graphically describes· the I
1

flovv of data within an organization. It is used to docun1ent

existing systetns and to plan and design new ones.
!
I
I
_..J

8l
 Accounting Information Systems ·

I
I
I
i
.! I MAMOUNT=
NO
I l MAMOUNT-l·
LTAMOto"NT

WRITE PRlNT WR.I1'E

TO NEW ERR.OR TO NEW
MSTR MSG MSTR

------·-------~~J.II.
Figure 3-4: A program flowchart. !

82
 Systems Tools
;:-....;;;:;lBz:??.l _ZJ!! G#f9Si0ii&&i~~~ ~'W'i'W'MMMS ~
{'~--·· ~-

! Elements i~rn a Dat.~ flow Diagram:

A DFD is composed of four ba~ic elements: data sources
and destinations, data flows, transfonnation processes, and
data stores. Each is represented on a 'DFD by one of the
syl!lbols shown in Figure 3-5.

Symbol Name Explanation

nI
I ..
Data sources
and
destinations.
The people and organizations
that send data to and receive
. data frmn the system are
represented by square boxes.
Data destinations are also
referred to as data sinks.·

The flow of the data into or

r
Data flows.
out of a process is represented
by curved or straight lines
with arrows.

Transformation · The processes that transform

0 ..
processes.
~--:
data from inputs to ·outputs
are represented by cirdes.
They are often referred to as
bubbles.·

Data stores. The storage of data is ·

represented by two horizontal
·lines .
....... ·~-

Figure 3~·5: Data flow diagram symbols.

t.~-~-~--~-------~------s~ag-~. ·-·-··~--~-•••·-·----.-.--....--e~·-···-·-------------..·-·-···-.---.-------~.. ~
8J
 .,

Accl}unting Infonnation Syst'!.':ms

iJI~'!E-"'3:'!~''~0~~··:'":.'"':';<;~~;:~,,;;:_·_-_;::~'":'.:''·~~~''?:".::s:::~~;:~:~;:~~?~~~'::'~"'":~~-J."'i':~~:"~'::?~~~(,":_fll'~~~::ii":.

~,~
~ p; n-u~~O .. -: ,::... .('~ ~-~·[-:~ "f1 {"Yr.'Yi I.'"! 1..:,
'}~··~ ~-- .,.
.._._p .-~-~1 0)·~·-.,_~ ....1 c;·"'" "'~ n·.u t'"f"t O."t")t
;gt•=
~.;"'· ·l ti;~; "-""~-..,~~ ~-~,·n ~l.;.r.l~,J-'-'-1..!.1 '-'~ '- -'-•-"~"'-'~1-,>..;l 1-.:::•} .!._~,._,_,_,_ ~,. .

1I
s. ;.>...· _;··v-

" pro-:-;-:~
. ~ '"''"',:}
...8 ,""1,~11
v"\ _,_L --·~·
;. .~.0·. ~j..-({"~-1
v,;:;-..U ~t-----
IAJ
.,- ... ""~11..,~~J'"-. +1--::._"'). -f ~-,-c-r.
exa.uHd,e ,o .:::.~-- . ~a -rc. -~.t·,
•-Alv ~ou-:; 03SlC ._,,ier.fl:.vn ... 0 o ... a

"I DFD in more detail as follows: -

I (1 ) Data Sources and Destinations:: 1

1
r- 1 A source or destL.1atio:n synibol on 'Ll-te DFD represents j
j an orga11ization or i..n.dividual t.~at sends or receives data that 1
1 the system uses or produces. An entity Cfui be both'asource I
.I
I!~. and destination. Data sOurces and destinations ·are represented _,
by squares, as illustrated by ite1ns A (customer), J (bank), and _
1
.I l( (credit m(;n1ager).
,.
(2) Data Flows:
A data- flow represents the f1ov1 of daJa between.
1 processes, data stores, and data sources and destinations.

I Data: that pass between data stores and either a data source or

I
a destination Inust go tlu·ough so1ne form of data processing
that is, through a transfonnation process. Data flow arrows

l
I . .,. '
are labeled to indicate the type of data being processed. The
I

I.
only ·exception to this is data t1ows betWeen a process and a
. '

data store~ such as data flow G in Figure 3-6, because the

data flow -is usually obvious. In data flow G, for example,
data from the q.ccounts receivable files is retrieved, updated,
and stored back in the file. Other data flows in Figure 3-6 are I
item B (custorner pay1nent), [)(remittance data), E (deposit), !
~ and I (receivables infonnation). .Illf,1
!~

-- -~~
84
 Systems Tools
A·?!!?±~
·---~· .,

Accour.ts
receivable
(H)

(G)
Customer
. payment
Customer 1--·_ _(B~)........,~ Credit
1--=--+i manager,
(A)_ .· ''(K) ... ,.

Bonk
(JJ

Figure 3~6: Data flow diagram of customer payment process.

A data flo\v· can consist of one or more pieces of datum.

For exru.nple, data flow B (customer payment) consists oft\vo
parts: a payn1ent and re1nittance data. Process 1.0 (process
payment) splits these two data elements and sends them into.
different directions. The remittance data (D) flows to another j
process, \Vhere it is us.e~ to update accounts receivaple ·
records, and the payment (E) IS sent to the bank with a
I
l
deposit slip.
I .
(3) Processes: i

Processes represent the transformation_ of data. Figure

3-6 shows that process pay1nent (C) takes the customer

. --
·-···---·-·
85
----------·-----J.
 Accounting Information Systems

I
payrnent and splits it into the remittance data and the deposit II

(which. includes the checks and deposit slip created '\Vithin

. . ~-

proeess payment). The update receivables (F) process takes

the ren1ittance data (D) and the accounts receivables ·file (H)
data and produces an updated receivables· record and sends
:receivables information to the credit manager.

(4) Data Stores:

A data store is a temporary or repository of data. DFDs ·
I do not show -the physical storage medium (such as disk and .
I .
paper) used to· store the data. As with the other DFD
.

elements, data store names should be .descriptive. As shown

in Figure 3-6, itein H, data stores. are· represented by
horizontal lines, with. the respective name recoi:ded inside:

3/2/4... Other Systems Documentation:

. .

Besides .t1owcharts and data flow . diagrarns DFDs,

accountants use other forms of documentati()n,.~o describe
accounting information systems. They include entity-
relationsh}p diagrams, syst{!rri charts, and decision tabl~s.

3/2/4/l- Entity.. R.elationship Diagrams:

entity-relationship (E-R) diagram depicts tbe '
An
_ associations betvveen iterns of data · stored in a computer
11

l.'Bi ~during
s&y~sti i iei iniH1.Hsystems
iAa~-n~.a ilyiE-s~tRsi idevelopment.
i ci iri lea~ti.iemtmh§.ieiiiim-ins
. Different . . i i i thmi iei ipi!i r!i <conventions

86
?r.;.:ac~e ~s !i mo~fBid!i ia~ta1i .~1n~exist
oi i di i ieiforl~L.1~g~
-~
 Systems Tools

I
drawing ther:."1 but usuallY' represents a type .of data and a
7

line COlli.'1ecting boxes indicates the natUre of the relationship.

~. ' Figure 3~-7, represents one \Vay of doing this.

CustUmer
l. places .. ,..,., Customer
. order .
I ill--..
placed
- a-=-
1- e:r
'< [ " '
by -g1-
n

~-.

s
=
~}j\ ~ g ~~~
I\.
I Customer.
Invoice
reflects 1 . order item

. -,_s ..
\f.
....-·
= ·•

...g.
. . 0'
•.

..
...
•

('I
0
= -·
=·
0 ~... . ' 0'
B. j \ 1~
hivoice reflects _ Invemory
1
item l item

F{gure 3a7: An entity-relationship diagram •.

. .
. Th_is figure ~haws six entities: customer, invoice, ~vpice
item, customer order, customer. order item, and inventory
stock. The computer stores data about each entity in its
j'. iner.aory. Lines show relationships between these entities, and
. the words and symbols on a line describe the relationship.

87
 Accounting Information Systems
~~-~
...m~~~~~~-~~~,a~~·~~~w~-~"~aP~~~~~~mr~-?~&~5~~~~~~~~~~~~~~~~~~~~
~ i

For example, the top line spovvs tr.Jee relations:b__:i-'C that .I'
the customer places the customer order, that for c·l~--h 11
__ custo;r.ner there may be many orders, and- that each -order I
applies only to one customer. System designers need this I
information when they decide to store data in the comput _r.

/ l

-iI
-_J
-
-,i
i

i'

Figure 3a8: A system charL

j
3/2/4/2- System Charts:
-I
A system chart provides a graphic representation of the 1

equipment configl.lration of a computer system. By~ convention,

a system chart shows output devices to the left and input
-! devices to the right. Figure 3-8 shows inputs by three remote
and one local keyboard data entry devices. The outputs ate a
video display and the document symbol, which indicates a
printer. This systen1 chart uses the process symbol to represent
the central p'rocessing unit, and the n1agnetic disk symbol for
an information storage device. A system chart for an actual
system also contains verbal descriptions ofthe equipment.

88
 Sysiems T ods
~~i'l~~~~"'t)C~~~~-:::-:':~~~~~?!':~~~~L~~E""i'£"';~~E~':-~~~~~~~~~~"~'~ -,--,
i

- I-
l 3/2/4/J,. OedsiCJJn Tables:
- Another useful systems tool is the preparation of decision
I tables. These. offer a concise way to summarize outcomes of '
complex decisions, and they provide a tabular representation
of the logic in a prograrn flowchart. Decision tables offer
advm1tages over flowcharts when there are a large number of
alternatives, hovtever, they do not disclose the sequences.

.
A decision
. table is amatrix
..
divided into three sections.
......
.

The left half of the decision table contains two sections, a list _
of conditions and a list of actions. The right half contains
several columns. Each_ column represents.a rule, which is a ·
. . . .
. - .
combination of conditions and actionS. Each rule· shows the
action taken whenever a combination of conditio~s -occurs.
To illustrate the. use of decision _tables, 'consid_er a
· common decision in ah inventory application. For each
inventory . item, the following six conditions determine
.
the
action taken:
(1) Is the current inventory level below the reorder
point?
(2) Was the item -sold during the previou_s month?
(3) Has the· inventory reached a -critiCal point b~low
the reorder point?
( 4) Is the ite1n cunently being produced?
(5) \Vill the ite1n be sold in the future?
: _ ( 6) Are sales of the item profitable?
-~ I
~~ - . ~
~,~~-G'!!W!i&W~..,..,...,..,~'
89
 A~.::counting Information Systems

Figure 3-9, shows a decision table for an inventory

1 application. This decision table sho\vs the six conditions ·in
r
i the upper left portion,. called the condition stub. The two
I
1
actions are in the lower left portion, the action stub. The
I
r
upper right portion of the decision table, knovvn as the
I
I condition entry, contains seven rules. For eacli rule, if a
II condition is present, the intersection of the row. and columil
contains a Y (yes). If not, contains an N (no). The lov1er
I
II rig.l}t portion, the action entry~ shows the action resulting
II
·l from each condition. Each rule in the decision table
corresponds to one logic pa~h through the flowchart.
Figure 3-9, illustrates the use of the decision tables.

~nventory-Replenishment Decision
Rules.

Rule Rule Rule Rule Rule Rule Rule

1 2 3 4 5 6 7

Conditions:
1. Inventory s reorder point. N y y ·y Y. y· y
I 2. Sales last month. N y y y y y
3. Inventory s critical point.
I
I y N N N N
I
4. Item currently in production. y N N N
I 5. Sales outlook promising. N y y
N y
I 6. Profit from sales satisfactory.
Actions:
-X
I 1. Place production order. X X
2. Do not place production order. X
.X X X

I Figure J-9: A decision table for an inventory application.

90
 Systems Tnols
I~~~~~~~~~~~~~~~~~~~~·!M
~~- ~---~--~~ . ___ --~~
!

i
I
. Figure 3-1 0~ sho·ws a program flowchart of this decision.
lt contains six decision sytnbols, one i·epresenting each
condition. It contains tvvo process syrnbols, one for each
possible action. Notice how awkwarq it,_ and compare it to
the decision table in figure 3-9.
·'N'nen should decision. tables be used? Vlhenever there
a
are more than three conditions, decision table is valuable.
lt surr.unarizes the logic n1ore clearly_ and concisely than a
program :flovvchart, making it easier for so1neone to identify
errors or omission.
When developing accounting systems, many
progrartnners and analysts use_ both decision tables · and
program flowcharts. They create the· decision t<ible first to
. .

ensure that all conditions are considered. They then ~aw

.. the flowchart showing the sequence in which conditions are ·
evaluated. This ·approach ensures that all possibilities are
described in complex situations.

I -
.,
I

91
 A~~tmnting Information Systems

i
I (,-START )
I '--~·

I
I No

I
I
I
I

I
I
i
Yes
I

·I
I
i
Yes

I
l
I
I No
I

Donal
place 01der
'----r--.1

I
·I
I Figure 3-1 0: A program flowchart for an inventory appiication.
ii

92
 '.
Key Terms -

Ill Accounts receivable departrnent. (r..:Y...u.l!) ~ ·,J.JJ.I wl:~ -~

a Actions. .J~lJluQ~

• Analytical technique. .~y~i

ill Billing department. .~!~1.31~!~

• Conditions. ..bj~

~ Credit manager. ·'-'~~~ j:..J..A

1!8 Data flow diagrams. .~u~~~ <~~) J~1
m Data sources and destinations .~U~t (J~J) r ~~ I)Sl.4i_, ~~

_ • Data stores. .~wl:HJI oJ~ . .

a Datum. -v~
• De~ision symbol. .Jt_;an j..o_,
s Decision ~bles. .~tjl~t J_gl~

.a Deposit slip. ··
a Document flowcharts.· ~~,,.,·,;;u.lf~Ja;n~lfo
11 Entity-relationship diagrams. .(~u~t) s-~!lt al~Jts:J,I
a Flow lines. -~..b~
•• Flowchart symbols. J.!..wlt ,bjt__,> J¥.;
· !II Flowcharts. -~' .Wt~
11 Horizontal lines. .<t.{a!Lb~
• Input/output symbols. .ut:>~l/~~..t.UJ¥.J
a Internal control.flowcharts. , · :d...t..(;.:t..UI
-, 4.!1.S ·. tr.-· · - ~f~
.'J"'~ ·- •

111 Interviews. -
.~lu~Wt .
• Inventory application. -uJ~I (riJ:O..j) ~
"" Miscellaneous sy1nbols~ -~~j¥.)
Ill. Ivfodule. -~.P.- _gl ;;..t=--..9
1:! Outstanding balance. (l$.J~) ~tl-~J I :
., -i'i Packing list. -~ (W\.1) o~ li ·

·l--~--~~~~~--~---~~~~-
93
 Accounting Information Systems
,,
9 Processing symbols. -~~ j_s.4_) 1

m Program flowcharts. .[_....ol_r.JI ~..b,jl_}>

12 Ren1ittance data. . A:.iA:J! ~~ ~w~

!ill Reorder point. .~lo.lkt~

• Repository of data. .uw~ (o~) f:.:i~

!! Rules. -~~~
ii Sales order. -~.>-41
I a Saie~ request.
-~·~~
.
I m Sales transaction file. -~~~ ~;.lol£.4 U21.o

1 • Shipping departD?-ent. ~~fM'~

1-
I
I
a Storage media. -\)-\~I .b.,jt..u.9 l
o Storage symbols. ~...FUJI ]_9-4J

a System charts. -~1~1_,.>

11 System flowcharts. -~· J.Ui .bjJ_.,>
• Systems tools. ·f'"UQ:.JI ~~.9~1
a Transaction processing procedures. •~ :>\Al11.1.l ~ ui~I..Jo?'-l
• Transformation process. -~~·~·

94
...

!
"i
I
I
!I
I
'
- ~! :.{.
~ -
j
i
j
I
I

95
I'
 Accounting Infor·mation System

!i
CHAPTER 4 i
I

I
lnfo:rarn.ation Systeli;tis and I
i
Coznpute1r Technology I
I
-~~~---~-<i"~"fi.'iiF~.liilil. il<i&lf.«<4ii$bW .~Wll if!lli~£1 """" 1£ iiiilfii_w"' .I
I
i
-I

4f1 ... Introduction:

Accountants and business people need to have basic
understanding ofcomputer technology. Although few need to
be technical experts, most need to Understand what computers
are, what they are composed of, how they operate, how they
store and process data, and so forth~ This understanding helps
.I them to design:, manage, and operate their information. systems. ·'

4/2- Physical Components of an Information System:

In order to transform data into._ usable. information, an
informatio:n system must-have at least five basic elements:
· (1)Data,· or input, to be processed by the system,
(2)A data processor (huriian or machine),
(3)A means of. storing
. . data. for future use,
.
·
. .. .

(4)An output medium to communicate the information,

and
(5) Instructions or procedures for processing the data .
.Figure 4-1 illustrates the Data Transformation Processes.
Notice that the other four elements flow either into or out of
the data processor, making it the central, pivotal elements.

97
 Accounting Information Systems
J~~ . _---.-_·_ -. ~~

~~ As explained. earlier~ a number of data processir~g activities l

'!
l
relate to each of these five elements. v~ -I
1 ,._
. -___ : · : 7 -------,_
. I

I
r r
'Datal
Storage
, -
J
- 1 ,

J
' - --~-
7
----
-.

-"' Data r
Output
Processor

Inst:rucficns
-

Figure 4-1 : Basic elements of an information system ..

Both manual and con1puter information systems .have

these five basic elements. In a manual inventory management
systen1, a person (possibly aided by an adding machine or a
calculator) is usually the processor. The input is inventory
transactions that have been collected- and captured on
· purchase orders, invoices, cash registers, and other media.
i
The output is . inventory managen1ent reports. Inventory 1~
\
·,
r records are maintained in a joun1al or ledger and are usually 1
stored in file cabinets. The instructions are the rules and I
procedures used to operate the jnventory systen1.

98
 Any systern con.sists of its component pa:rts, a process
that coordinates these parts in a defined way, and goals
toward ~vhich the component parts are coordinated. For a
computer system, a project team identifies · goals · ?-uring
system design and creates so:ftv(are that determines the·
system's process. Component parts include the computer
hardware and software used by the systern. The hardware is
I

the computing equipment, and the softvvare provides the 11

instructions that "tell" the equipment what tasks the user 11

,(1
· wants i~ to perform. i ., ..
i
l
I
! ~

4/l/1 ... Computer Hardware: !. '

I

People who have worked with personal computers 1 .

kno\:v that the computer consists of several different devices
located at various distances apart. These devices consist of a
central processing unit (CPU) and several peripheral devices.
i
In a personal computer system, the CPU and some of the ;
peripheral devices are located within a single computer 11
I
chassis. In a large system, these devices are usually housed
separately. Each of these units will be discussed as follows:

1>:: ( 1 ) Central
!
Proc~~~ing Unii: 'I
; ~

The heart of a computer system is its central processing

unit, which consists of three other devices: The control unit,
._the arith1netic-logic unit, and the main storage unit. Each of

99
 Accounting Information Systems

how data and instructions

.
t1ovv betvveen these circuits and ~ ~-

the peripheral de·uces. This section discusses these- units.

rI
I
~· =
.I Con!r.Q!..
r,~pthmeticl
. .-= l
~ ~ana!Z'V '"'~~-,..," ..

U~it Logic Unit

..
...____In-p-u.t~
___ device Lt . ·. EY Output

I ·..1

J
Main Storage
Unit
AE
.
·
device

.
~

-~,., Flow of data

-~·-···~ Flow of
· instructions
Secondary
Storage
Unit

Figure 4~2: Components of the central processing unit. l

II (a) Main Storage Unit:

The 1nain storage unit of the CPU fulfills two functions:
I
I
( 1) It provides a place to store the executable inst1uctions
II making up a computer progrmn, and
rI (2) It provides areas for storing data processed by the
program.
I ~

~~----~----------~~~--~~~
100
 Information Systems and Computer Technology
~~~~~~~~~~~~~~~~~~~~-~~-~~.~~~~

II The size of n1ain storage is a,.ry indicator of the computer's f.:

I ·power and usefulness. Size is measured in Kilobytes. A I
·I
I

general purpose computer used for scientific or business

]li .~:~:~:so~i; ~;v;:~::~:~~i:~~;r~-~ 7se!::~~: .I

ofstoring n1illions ofcharacters of data and instructions.
·Main storage is also called primary storage or main
men1ory. In modem computers, ~ain storage is made of
circuits such as the RA.t\1 used in microcomputers.

(b) Control Unit:

Th.e control unit is a circuit that interprets the· instructions
-contained ill an executable computer program and directs
. ~

the operations of the computer system. An instruction contains

codes identifying one operation to be performed, and
designating data to be used in ·the operation. Each instruction .
is copied in sequence _from main storage into the control unit.
The controt unit theri reads the operation code of the
instruction and carries out the operation on data contained in
1nain storage. The time needed for the CPU to process as
operation is its execution time, which is one of the factors
determining the speed of the computer system. . !
I

(c) Arithmetic-Logic Unit:

f·

The aritlunetic-logic unit, or ALU, executes the ! '

operations identified by the control unit. This circuit is

designed to perform two ·operations, addition and con1parison.

101
 · Accounting Inform~tion Systems

· j .A.ll other arith1netic and logic operations that it performs are

I combin_ations of these t\vo. For exa.rnple, 1nultiplication ·js
I repeated addition, Sllbtraction is· addition in reverse, and
1 division is repe;;tte~ suptraction._ Logic·. operation~ jf!l;lu~e
· I detenninirig whether two quantities are equal, whet.her a
I quantity is positive, or which oft"wo quantities is larger. The
I i\LU, the control unit, and main storage are all made up to
I
'j electronic circuits.

(2) Periphe.rai Devices:

I
-I Peripheral devices in a computer system are those pieces
of equipment outside of the central processor. They include
secondary storage devices, input devices, output devices,
and devi<?.es that perform both input and output.
Each of these devices will be explained
.
as follows:
.
.

(a) ·secondary Storage:

Regardless. of the size of niain storage, it is inadequate
for storing all the records maintained by a coniputer-based
information system. The system stores this information in
files contained ·in secondary, or mass storage devices.
Whenever accounting data from these files is required for
I· processing, the CPU transfers it frotn a secondary storage
} dev:ice into main storage. Then the control unit can transfer
it into the aritlunetic..;logic unit and perfo1m an operation on
it. I

~~·~w.-Q5~~--am-LAma€~sm~w~MHh~*~a~"~-=a~~a·~wswwma~·~~-~·~~~-~~wew~~~~~
102
 Information Systems and Computer 'Iechnoh}g)'
~- ~-
j t--·-----~------·--·---------- "!
I (a} Secondary Storage Devices: .Il
·'
;
",\
+ Magnetic disk. i
I

+ Magnetic tape. ~ --

1~ IVIagnetic drum. I .jI

+· Optical disk. I
(b) Input Devices:

..
.• Terminal.-
lVIagnetic tape drive.
+ Magnetic disk drive.
.
•.Card reader.
Optical scanner•
-
• Audio input unit.

• Console.

.•
. Key to disk dev~ce.
Key to tape device.

•(c) Output Devices: ·

Magnetic ink character :reader.

• Terminal
.+ Magnetic tape drive.
+ Magnetic disk drive.
+ Printer.
+ Computer output on microfilm.
• · Grap:}!ics plotter.
Voice response unit.

103
 Accounting Information Systems
':~~££ 4W"""""'51'~,~~~~~~~~~~
~ I
~~, .
Secondary storage also contains " o·f coiT_lputer
cup1es 1-
.
prograrnds ~~vhen 'L~ey are t ~ot+ be~g u~~dt" Bef~re t Qeing ~- _
execu1e , uie progrmn IrlUS .. oe %.ransrerreG Jn ·o ma1n s orage, .
then the instructiof!_? are copied· into the control upjt one by
.·:

one executed.
T All~ tA>.A.
q_vstp·ry)~ ~Hour t-rans-her r.f" segments 0.£'1. ,e,
\11.,..-~-,u.·~ 1 ~tor!=lgP t,JJ
l...i' lf:o,.o(!,. ""'""
a,
'!oo'W..'I..d...t.~ '!A.o.ii..:L t'"'l \r.A, .L .L. .L .V"A.. J..J.. .!.

program, rather than the e~tire progrmn, into main storage. ·

Each segment of a program, called a page, contains only
those instructions needed for current execution. When other
instructions are needed later, another page of the program is
transferred into main storage. In this way, virtual storage
systems can execute very large progranlS v.rithout using up a
lot of main storage.
The CPU uses the re~ainder of main storage for data or
pages of their programs~ When more than one program is in
main storage for execution at the same time, the system is
called a multiprogramming system_. In these systems, the
computer functions so rapidly that it appears to execute
multiple programs simultaneously.
vVhen a secondary storage device such as a magnetic
disk can interact with the CPU without human intervention, _it
is said to be on-line. Modem business computer systems
·· provide the ability to store ·many millions of characters_ of
data in on-line secondary storage devices. Removable storage
media,·such'as magnetic. tape provide storage that is off-line.
The time needed for the CPU · to gain access, to
instructions or data on a secondary storage device is the

104
 Informa~km Systems and Cumputer Technology

f• device's access time: It is another t!tctor in .determining the lI

speed of the computer system.-::-1hJlen data are stored 01.1-line, 1
access time ·is or~lj!].arily much faster than when it is off-line.I
This is why modem computer~based systetns rely primarily
ori. tnagnetic disk storage. Systems today prL."TTa...rily use off-
line .storage, such as tapes, for m3;king spare copies called
backup files. Computer operators use backup files to: recreate
on-line files when an accident destroys them in the on-line
device~

(b) Input Devices:

Input devices are the communica~ions links between the
computer and
its users. They provide the means to convert
accounting data fro1n a .form understood by people to one
·understood by a computer.
·The earliest input devices were punched card readers
and paper tape readers. Punched card data entry \-Vas common
in the 1950s and the 1960s, but now is seldom used ..
- .
Modem computer systems use terminals as the primary
fo;r:m of data entry, these are faster an~. easier to use. than
keypunch machines, the clerk can then correct input errors
promptly before any further processing· occurs. This an
example of on-line processing,. because the clerk is in direct
communication with the central processor. When the I·
ten11inal contains some main storage and can be program1ned
·to perform silnple tasks, it is an intelligenftenninal.

105
 Accounting Information Systems
r;;;;;;t? .. ,_ _ L l i
lf! :_
I-
Business computer applications are characterized by the
I
1

J input of large numbers oftran.sactions. Thus, efficient systen1s

! .' are those that aHow rapid, a:Cctrrate input of data. Computer
manufacturers devote a great deal ofd~velopmental effort to
creating more efficient forms of data entry. - -

{c) Output Devices:

The most comrnon output device, the printer, translates
electronic impulses into reports that can be read by people. ! .
Frequently a personal computer uses a laser, or daisy w-heel J
printer with output rates measured L.~ characters per second.
These are slow in comparison: to the hi&fl~speed printers
Used in COrporate data centers, Which Cafl produce reports at I

a rate of several pages per_second. · II

II
The accounting information systems of a business
produce reports that rnust be retained for several years for
I
tax and audit purposes. RaL;,er than produce all of these
l
reports on a printer~ many orga.11izations acquire co1nputer I,t!
~-

1
. output on microfilm (COM) devices. These produce reports '
'I directly on a piece of transparent plastic a few square inches
in size, such reports are easier to store than those printed on
paper.
t Many devices provide both inputs to and outputs fl.-om
the computer system. Because this describes magnetic disk
drives, magnetic tape drives,· and terminals. They are called
i input-output device, a computer user enters data at an on-
,
ri
I-

106
 Inform;ation Systems and Computer Technology
~~
line terminal. The system hnmediately posts th~ data to
'
;J
·,~

compute_r files so that the result~ of processing .are

immediately available for the user at the tem1inal. Tlt..is is a :
real time _system.
·Real time systems always use on-line devices, but on- ·! ·
lin~· devices. do not necessarily signify real-time systems.
Many payroll systems~ for example, allow entry of pay-Toll
data fron1 a keyboard directly into a computer file. ·This is
on-line data entry. Ho·wever; becausethis d::tta i_s posted to
ledgers at a later 4ate and· the outputs from _posting are not
· inunediately available to the user; .such processing is not ·
c~I1sidered real-time. . . .
Equ~lly as ·important as the· hardware component of ~
computer system is· computer software; Computer software
consists of computer programs, .the executable instructions
that control how the hardware devices function.

4/3/2 . . Computer Software:

Computer software controls the activities of today's
hardware. However, computers have not always used soft-
ware. Early computers were programmed by setting sco"res
of individual switches. This made computers difficul_t to
adapt to varying applications.
In· i 940s so1ne rnathetnaticians, proposed the idea of
•I storing an entire set of instructions in the computer hardware. L
~~ The operations _of the hardware could be changed si1nply by i

-~~~~~~~~~~~~~~
. 107
 Ac~omating Information Systems
r-
1 ·r
changing these instructions, This concept, tb.e stored program 1

i computer, marked the beginning of co1nputer systerns as vve II

I' ¥J10\l\l them today. '

-I
Computers used for accounting purposes rely on two
basic categories of software: systems and applications, Any
_organization with a computer-based information system uses
many different programs in each category.
Each category will be explained as follows:

. I ( 1) Syst~ms Software:
I
.i
These are progrruns _intended to execute on a- specific
1-
make and model of computer. The tnanagement information -
j system department usually obtains systems software from the
i computer ma~ufacturer or from independent software vendors.
~Although the users of accounting systems are frequently
unaware of systems software, ·it is necessary for any
accounting program to function properly. Systems software
includes: (a) the operating system, (b) utility programs, (c)
language translators, and (d) data _management s.oftware.
Each component of systems software will be explained
as follow:

(a} Operating System:.

The operating system is a s~t of comp~ter programs that
directs the operations of the entire computer syst~m. When
starting the system, a computer operator copies the operating

108
 Information Systems and Computer Technology

-system software from a secondary storage device into main

storage. The operating system then takes controi of the CP~
1
anrl all of·its. peripherals. Sometimes the operating system j·
allows other programs to control the c:pu temporarily, but
controi always returns to the operating systenl.
Table 4-1 summarizes the five basic_ fu..Tlctions of an
operating system.

Table 4-1 : B~sic funqions of an operating system.

Function Meaning
- .Job Control • Keeping track of jobs ·
submitted for processing

-Job Sf!heduling B Assessing the priority Ot jObS

awaiting processing and
assigning them to a queue.

- Library Management • Making available various

.. applications and systems
programs needed in executing
individuals jobs.

- Memory Management • Ke~ping track of main

memory us.age and allocation
it to individui:tl jobs for storing
their instructions and data. .

- Peripheral Management • Keeping track of input and

output devices in use, and
assigning output to them as it
is produced by the CPU.

109
~~~~
!§j · ProgrmniLKrs control the activities of the operating !I
liI svst'"m
.J '- "" .....
L by· •·on>YY•Uni·.~.-~~in£·'
-"" '- ~....\..r;,A.
YC-t-.-:..A.;:::.
..:. >ill~ 'n' 1"t u'"'ing
(-t L:!..i!. .( .•
..t.'- ""u ! ·)h c,....n1L.t···o1
1~.. Ll l,_"i .! ·.'i I
! hn1gaage (JCL). l.Tsing JCI~, t~:w exarap1e, they -identify ~h~ j
: peripheral devices to be used for input, -f0r output, and for II
I secondary storage by accounting programs. The operating Jl
., '
syste1n IS f' t
a pO'-Ver.i.LH, I
con1fH(:X .
p1ece orc- sort\:vare,
..... ' ·
wrthout '
1t ~~-~II!

II the computer hardvv-are is useless. li

I (b) Utility Programs: I
II Con1puter ITI&.!ufacturers norrnally provide utility 1~
I
softv,;are. A utility progran1 pe:dorms a specialized function i~
',! ! };
.

:lj · such as sorting files.• nrintinjz (HlL ~he -<~r1nknts () f main storage: Ij
~ ~- ~·

I or of a con1puter file, or copying 1iies from one device to !

1 another. A utility program 1nay be useful in n1a.ny different 1

!i nccountin2:
'-'
anplications.
... -
A ...nruEra.1nn1er
'--'
executes a utilitv"' 1
li .
I.
I progrmn and directs its activities using iob control language.
I ~ ~- >
!
'

I
I
l (c) Language Translation Progr~rns~
'j
I
!
Language translation prognuns convert . application
I
I
I
I
program written in a fom1 understood by hu111ans into a
forn1 that the CPU's control unit can inr.erpret.
Most people prefer .computer languages that resem.bte
either English sentences or mathematical equations. Procedure
oriented languages, such as COBOL, FORTRAN, or BASIC,
1 have this characteristic. The CPU, however, requ1res
.I
11 instructions written in a binary forrn or n1achine language.
rl
b~?rr~
11 n
 Information Systems and Computer Technology
If""-·

These instructions are difficult for people to interpret. So we

usually write them in a sytnbolic form called assembly
language. ,
In the early days. of computer, programs·:.were frequently I.
. Vlritten in assembly language. Today some programmers use .I!
I
· ·assembly language whenever they develop programs for a I
new kind of computer or when they want the fastest possible
execution speed. Software called an assembler translates from ·
the symb_olic assembly language into machine language .

.·(d) Data Manag~ment Software:

. When learning a programming. la..~guage, you were
thought to use input· and output commands such.-~ ~AD
and· WRITE. These commands identify to· t[t~ ·computer
system the procedure you want executed. :Programmers of
frrst generation computers were required to specify in
· programs not only .the desired procedtire but also how the
procedure was to be carried out. This made programming
these machines . complex . and time-consuming. Because
computer systems use these proced~es . so frequently,
co~puter manufacturers · developed .data . managem-ent
software.
•• I~ I

Data managenient·::software determines how to locate·

desired data when it is transferred from a secondary storage
device to main storage. It also determines where to record
~ data transferred from main to secondary storage. This

111
 Accounting Information Systems
iF"~~~~~~~:-~~~~~~~~~~·:?-:~~~~~~
~~

I
I . .
~ J:,. .. .. 1 II
i sott.\\'a.re aHo·,.-..,·s a
. .... .... '2

~ser to e:-;.ecute tne IOrego1ng s1n1p e il

I
! ·~
[ comrnands v1ithout b~ing concerned -about the 1nechanics of'"-!
I ~n;::::st:~:~ut. This greatly <=es the task of programming
·! 'v'Vhen designing a systen1~ a project te-;anl selects for ,_
j each cornputer :file in the system a method of accessing the j
data in the file. Each n1ethod requires that the systern have a
data n1anagernent program to ilr1plen:ient it.
Il
":i d
!"T">':I .. .. .I:.
r' .•
1.·
I ne kHl S OI syste:nJ.S S01t\Vare JUSt described are

I!
~j
~~
I-Iowever.,
.
the real fHlrpose
..
for having a con1puter system is
li
!I
I·I to apply it to problems in ace:ountL.1g, m.anagement, or I·
I;
science. i\pp!ications sofuvare accomplishes this purpose. I
I
(2) Applications Software: l
I
_Au.-1 accou..11ting ·information systen1 is composed of j
application syst_ems ~uch as the .payroH and billing systems. I
In a co1nputer-based system, these application systems rely-. 1
on computerized processes to accomplish their.,. g·oals. The I
computer programs used in these systems are examples of
applications software. There are two kinds of applications
s~~are: (a) transaction process~n~ software (i.e., payroll ~nd _ I
b1llmg programs), and (b) decision support software (I.e.,
computer models).
These_ kinds of application processing software will be
discussed as follows:

112
r;
lnformaiion Systems and Compute!· Technology
._,
I (a) Transaction Processing Software: Ii .
I .
Most transaction processing software automates
procedures that have been performed manually for centuries.
These procedures may vary between organizations-depending:
on the technology used and the preferences of management .I.,
even these variations are predictable. :.I
. .

For this reason, few organizations today choose to

develop in-house programs for processing general ledger,
accounts receivable, accounts payable, or payroll. They find
it quicker ·and less costly to purchase this application
II software frorri software development companies. Frequently
-...::-··

they. mo~ify these packages to suit the preferences of their

I management.
When ·an organization chooses . to develop ·its o\vn
.iI
application sofuvare, it may choose to do so using ari
i application generator, which is a computer program that
writes other programs~ Members of the implementation
project team specify to the application generator the files,
inputs, and outputs of the application program. The software
package then produces a_ source program in son1e procedural
language, that satisfies these specifications.
' . . ~

·· (~) Decision Support Software:.

A second classification of applications software consists
of those computer programs used in decision support
I
systems. These progrmns are created to help managers make
I
;ii ---· -- ----.- ~
113
 Accounting Information Systems

I a
..."-=--·isinn·~
Decision support soft·Nare
\ .... L_._ ... -~ ~"

I
I models and m.ost expert systerns.
I lVIanagers use co1nputer models to evaluate alternatives
1 in both structured and unstructured decisions. Optimization
1
1
! n1odels; such as linear progrmnrning fiJn11ulations> are useful
1 when making repetitive decisions in structured situations.
l
I Managers .fi·equently use sirnulation 1nodels in unstructured
situations. These n1odels rely on data estin1ates and require
·j the evaluation of nun1erous "Vvnat if' scenarios.
Probably the most com.monly used simulation model is
· the financial rnodel, which is similar to a computerized
I budget. To create a financial model, a programmer describes
in equations the rel~tionships bet\veen income -a dependent .I
variable- and several independent .variables such as sales.
. . .

vohune fu!d costs. L4. 1nanager executes the model to determine

_; how· net income would be affected by different decision ·
· alternatives.
Computer models are useful in describing decisions that
can be analyzed as algorithmic processes, whose relation-
ships can be described by equations in a computer program. :
. The inputs to the decision can be stated as .inputs to the _
·equations, and the results of the decision can be predicted
by solving the equations. Many rr~anagement decisions,
however, do not have these charactei·istics, and are better
served by a form ()f decision support 'softv,rare knovv.n as the
expert system.
_.__.

114
 Information Systems and Computer Technology
fir:~~~:~~~e-~rt~Sy.~~~·'*~:m~em~S:~~~.,~'~"Wi'""~·~m~~~~~~w~~~..,~~·~m~m~'M!I'ii~~e=~~~~

I
. I ·Expert system.s are a practical result of research in a ~--
branch of computer scie;nce called artificial intelligence . .l\n
expert system is an on-:- line, real tin1e system that uses . j
computer programs and the knowledge of a human expert l to ·
mimic the experts decision-making processes~ It serves as an
I
advisor to less-experienced managers who make. decisions in
. . ..

the expert's field. Expert systems have applications in many

.areas, including medicine, con1puter system design equipment
. ..
maintenance, accounting and auditing.
· Hardware and software c~mponents II?-ake up a computer
system. -Hardware consists of the central process~g unit and
its peripheral devices. Software cons_ists of the instructions
which, when converted to machine language and stored in
_mait=l storage, direct the. activities
.
of .the ·har'dware.. · All .

computer systems contain these components,_ ~ut not all

systems combine them in the same way. How they are
. corn~ined depends on the configuration of the computer
syst.~m. A project team determines system configuration
during the system design process. : .-·~ .

4/tJL The Impact of Computers on Organizations:

I
·The presence of computers affects a firm's organizational
·stru.cture as well as its information system. As we have seen, 1'
co:t'J}puters can process data quickly and transmit the resulting 1
inf~·~nation without delay. Thus, information may be shared ~~
.. .. ~

~--------------------------------~·~
. .; ..· . ~-
115
 Acce:mnth1g Info!"mattou Systems
~--;·-----~~~~~~~~:?~~~~~~~·:~-~~~:-:r:~~~~~~~~~~~~~~~~~~~~~~~YA~~:-~
I . , 1

·i ~;::;:~~:c: ~dr~!~,:~~a:::~!:;~~~~:~~~~~~~7~;~
I
i
1

-
selecting and changir1g organizational structures. It may j
~~
I
I

select a centralized structure, with the benefits of centralized 1

I decision making and improved coordination, without ·1,_
I
Ii
i decentralized organizational structure, \Vith the consequent
-! · advantages of c'flatness" and localized decision rnaking. I
I };lore extensive use may be made of project-ori_ented and I
I
I ·other transitory organizational structures, these -structures I
~I can be quickly created and then easily disbanded when the
I . projects are COTI1pleted.
Computers also may affect the organizational respon-
sibility for managing transaction and information processing.
Often these activities are unified under an information
systems function. ·This function is likely to be newly
established and assigned a- relatively high status within the
organizational structure.
Computers are likely to have diverse effects ~ri individual· -
employees within firms. Many employees must learn new
skills related: to the use of computer technology. New types
of knowledge oriented employees, such as information
analysts .and 1nodelers, may be needed. On the other hand,
middle-level managers may see· their job security weakened
,
1
when computers are ii1stalled. For instance, some firms gave
I thinned their ranks of middle management through firings and
I
116
 InformaHon Systems and Computer Technology

forced retirements. Certain d':lties of the released n1anagers,

such as those relati.t1g to corru.nunic.ation and control functions~
have been a,ssumed by the finn's c~mputer.systems.
I
., 4/4/1· The impact of Computer$ on Managerial Decision
I. Maldng:
.Ir
I
I Computers can greatly aid managerial decision making.
Beca,use of their processing · speeds, they · ~an perforn1
· extensive analyses of data in a very timely manner. \Vhen
. connect~d to computer nen:vorks thereby forrn.ingnurnerous
information channels, they provide ma..11agers who must make
decisions with easy and direct access to . the · analyzed
information.·
II Decision making and control are facilitated all at
I managerial levels ·by computers .. At tl!.e lower levels :
j :ffianagers are aided in .making oper~tiorial decisions and j
prov:iding operatJonal control. For instance, computers can
generate timely exception reports that inform department
·I
rn.anagers when parts or supplies need to be requisitioned and
in what quantities; they then can aid purchasing managers in
deciding which suppliers to select and can even prepare the
purchase orders for signature . .At the middle levels managers
are aided in 1naking tactical planning decisions and in
. I r
j perfom1ing th~ir coordinating functions. At the higher. levels J
Inanagers are aided in rnaking strategic ·decisions and in l

I
~ controlling the major activities of their fi1ms. For instance,

117
~
 Accounting Information Systems
.,I
~ . ;.1.... • ..J! .d
I ' • .£:"

1 computers can assist tu.e presH...~.ent ana "•llce-presr ents 01 a

· I firm in devr-:::lopi:.ng timely and ~Nell-analyzed budgets fu1d in
-I controlling t.he performance of the various operational

I functions. Computers serve as tools to increase the etiective..;

ness of information processing systems.

4/4/2- The-Impact of ComplGters on Accounting

functions:
Accounting functions in many firms have also been
significantly. affected by the arrival of computers. The effects
have been both traumatic and beneficial.
. ·On the negative side, accounting functions have lost or
been forced to share key responsibilities. Thtis, the accounting
function in many firms no longer have sole jurisdictjon over .
data processing. This
. .
responsibility-
. .
increasingly is. being ·
transferred to information system functions, as accounting ·
:ftlnctions · · primarily become users of information.
Consequently, accounting functi?ns are losing control over
processing resources. In fact, the ranks of accounting. clerks
thit;1
.
when c~mputers appear. Such accounting . departments·
as billing,_ accounts receivable, accounts _pay~ble, inventory
control, payroll, cost distribution, and general ledger therefore
shrink, consolidate, or even disappear.
On the positive side, computers have provided
considerable support to accounting functions and accounting .
- managers. Comp~ters also are helping accountants to provide

118
 Information Systems and Computer Ted:moiogy

key accounting responsibilities: reporting to outside pmties

and evaluating the performances and results of inf.Q~ation
systems. ·!
On balance, these negative and positive effects have
tended to offset each other thus far. The future net effect can
be positiv~, ho·wever, if accountants rise to the challenge
and opportunity of ~e developing information technology
-I and take the lead in information management.

119
 Accounting Info1mation Systems
~rjiit!::.~~::~~~~~~~~~~£<2':~~~~;~-~~-~~~~~~~~l
I /

,1· Key Terms !

I i
Ill AccoJ.,mting functions. .~bU~tbJ

e Applications software. .~la_•..;.kU.H ~I..HJ-~

• .Arithmetic-logic-unit (ALU). .Jhlll_9 y~l ;...~..>_:,

m Artificial inteHigence systems. ·~~':11 ~lS.lll f-~

:~ Backup files. • d _!.hi.: 1>! ~l.Q.I <)

I.
-~~~~I~.J.:>.j
I 111 Ceniral processing unit (CPU).

ill Computer hatdware. " ·~ b::ll-· CI.J4?'-i

11 Cmnputer software. - -~b.ll ~J_.H_g·~
1!1 Computer syste1n. .~b:Jif'~

I 111 Control unit. . ~ ll_;J I ;...!..>..9

11 Data managernent software. .ww\.:.tJI c.JI,ji t_&..AI~_g ~
a Decision support software. . .Jt~l ~..) ~I__H_g ~
113 Expert systems. -~~~~
• Input devices~ .~>L;..ill :>~i

m Intelligent terminal. .a._:s.:u, ¥ _;.bjl a..,:~l

11 Language translator programs. .~\.iUI ~-?"~ t_-..AI_H

~a Logic operations. -4..?l.b.M ~~ .

e Magnetic disk. .h",4o~..;l­

· a Magnetic drums. :ato-.;uJ~

11 Magnetic tape.
.atSM .b.J_A-

o Main storage unit. ·~_;.11 ~_j.%jjl 3..l>j

• Manual inventory management system. ·OJ..}>...ll E.Jioo:~~ IJJ~ rLW-

• Multiprogramming system. .;;~~~ ~'.r.l' r\.IQ.j
a On..:Iine secondary storage devjces . . 3~L:J.I ~t~lili0J~I o*i

s Operating system. -J=.i·t.J.lt r~

s Output devices. .uL:~--~1 ;;~~ ,.
Ill Output medium. ...-:l\~,-_;-.?.:.4 (~1~_9) .,k,-;!J.!!~ I·
!

120
 In.fon:n.ation sv~;t.:=:.ms
"'
:and C!:"!H!CHJh;r
li
T.edm•.dDTi
...........

~--~~~'-J;~~:~~~:o:..~~~~:::.__. ______ --,

l!l Peripheral de-./ices. .a~~~;~~~

II! Primary storage.

.~_;0-J.._j~

w Pr~ject tean1.

~:~ Secondary storage devices.

iii Systems sofuvare.

<ll Transaction processing softvvare.

a Transformation process. -0::~~1~

m· Utility prograrns. .4·~:J.\ ~~..H

.I

.'
.Ii
I

12 t
 PART 11: Developing Accottnti11g
· Informatio11 S:ystems:
CHAPTER 5: Syste1ns Development Process.
CHAPTER 6: Systems Analysis .
Chapter 7: Systems Design .
Chapter 8: Systems Implementation and
operation.
 CILL\PTER5
Systen1.s l)evelop~ei1t P_r,ocess
-.:'~.

Learning Objectives:
After studying th_is chapter, the student
should be able to:
~ Understand the objective of systen1s development.
* Explain the qualities of a successful accounting
inforn1ation systen1~
~ Discuss reasons of systems· developn1.ent.
~ ~ Explain the five phases of the systen1s

development life ·cycle~

• Discuss the people involved in systen1s

developntent and the roles the play.
• Explain the importance of systen1s development
planning and describe planning techniques.
 ·:.

'•,·
Chapter ':5 : : Systems Development Process

Chapter. 5
$ystems ])..evelopment Pr-Ocess

5/l~ Introduction:
Accoup~ts c~mmonly ..·apply · the system approach
in ; the :developmen~ .··•~ :,of : ~e;w:, ·~ccounting information
syste~ ... M~y0 § orgaJ?.!,;~,ati9n~ f illl.plement the ·systems
approach in·a . form~l{ Pl"~ess c~U~d;the systems development
life cycle SDLC. : .-·_:_ . :'..

. Accountants n~ed to lmow about sy~tem develop···

for two reasons:
First: they participate· in project teams · that design
accounting information .systems.
Second: auditors. review and· make. s~ggestions· for. p.ew
systems prior to their implementation.
.
: J2- The Objective of System Development:
Accountants have been creating . accounting
information systems for ·hundreds of years. In past. 4b
years, accou·ntants hav.e h-id both .success~& and ~ailures

in implementing the double-entry system on co1nputers.

Because all accountants are likely to participate in
developing a new· accm_mting information system, hovJ can .
one avoid participating in. a failure? Which steps are
necessary to successfully implement an ac.counting system?
'
"'f:tW, implem_entation of a ·.successful · accounting
information system is the objective of any system
development process.

.~/3- The Qualities of a_ Successful Accounting

Information System:
No accounting information system is completely
successful or totally. unsuccessfuL In general, an accounting
information system is successful if it achieves four
objectives:
First: it should produce correct and timely information.
Second: it should be developed within a reasonable amount
of time,
Third: the system should meet the organization's n~eds for.
information.
Finally: users should be satisfied with it.
Each of these qualities will be explained in some details
.as follows:

============~~)F============
 Chapter
ltS5\;E# .
5 _: Systems Development Process
'""ffl~'""

5/3/1- Correct and Timely Information:

1-Cerrect Info:rlnatio:n:
In an accounting information system, errors and fraud
are the two sources of incorrect information. The double-
entry system prevents or detects many of the errors that
humans can make manually processing accounting data.
Because of this, double-entry system is implemented even
though computers are· less likely to make these kinds of
errors.
A successful accounting information system has
internal controls that prevent and detect errors and- fraud.
Accountants and auditors frequently participate in system
development process because they, more than most other
professionals who work with computers, are
knowledgeable about internal controL Adequate inten1a1
control is necessary for implementing a successful .
accounting information system.
2- Timely Information:
Information is considered ti1nely if it is available to it~

users when needed for decision making. Some of the enrlier

computerized accounting information systems fell short of

=======~ 129)1=======
""'=-
 C!"!.z.pte;r · S ·-,~ Systems Development Process
tl.~~~~~~~~-~._.;_~_..5!!~~~~~~~

this objective. In these systems, information 1n

computerized ledgers was updated \¥eekly or monthly, even
though. employees . needed current information
.
daiiy.
These accounting ·systems provide information ·that is ·
untimely. ~fore modem processing methods avoid this
shortcoming. Timely information· is provided by adopting
transaction processing method that meets the needs of the
system user.

'5./3/2- Time required for System Development:

Another quality of a successful accounting information
system is that its development should be completed in a
. reasonable period of time. Many large accounting
information systems require three or more years to
complete. Excessive time for development results m.·
.
excessive costs that may cause the system's costs to exceed
its benefits.
The question now is what can be done to avoid this
kind of system failure?
First: system designers learn to limit the scope of any new
system to a size that can be develo~ed within a
reasonable time. In the terminology of systems theory,

==============~==============
Chapter 5 : Systems Development Process
~"' 1 ;me tM

they define the boundaries of the system and li1nit

their efforts to those con1ponents vvithin the
boundaries ..
Second:· system· design teams learn to use project
rnanagerr1ent techniques such as budgets, Gantt charts
and Program Evaluation and Review Technique
(PERT) or Critical Path Method ( CPM) diagrams.

These 1nethods require that the designers identify iri

advance all activities required by. the develop1nent effor(
and the estimated times and costs for each activity.
Designers can monitor actual elapsed time and costs,
comparing them to those expected. Then they can change
either the scope of the system or the resources assigned to
the effort before an excessive amount of time elapses.

iS./3/3- Satisfy the Organization's Needs:

A. third quality of a successful accounting information
system is that it meets the needs of the organization
implementing it. The system should provide information
that is· both meaningful and relevant to its users. Because
developing accounting information systems can be
expensive and time consuming, they should be useful for

===========~'==========
Chapter '5 · : Systems Development Process

many users. Thus, any new system should satisfy not only
the current needs of the company but also anticipated future
needs.
!-Satisfying Current Information Needs:
Most organizations have management committees ·that
provide short - and medium - range planning for new
information syste1ns. Frequently called the information
system steering committee, this group considers and
approves new systems on a project - by - project basis.
When approving the final design for a new system, they
try to ensure that the current information needs will be met
2- Satisfying Future Information Needs:
To develop successful systems, organizations should
also engage in long-range systems planning. This type
of planning examines information at a broader level
than a project-by- project analysis .allows. It may be·
accomplished by members of a corporate long-range
planning staff or by a system planning group within
an MIS department.
This long-range systems planning group identifies
long- range infonnation resource requirements and
develops a syste1n master plan for new systems. The master

==~~~=€D~:========
Chapter. 5·-:: Systems Development Process

plan is based on overall corporate goals, on .proposed new

products, on new markets the firm will enter, and on
future critical tasks within the fi~'s operations.
5/3/4- User Satisfaction with the System:
A system
. is usually considered to be successful if its
.

users are satisfied. In fact, many systems professionals

consider user satisfaction as the strongest indicator of
success. User s~tisfaction indicates that the system provides
information that is correct .and timely enough to satisfy
the user's rteeds.
User may resist a new system for several reasons such
as:
First: sometimes personnel may feel an economic threat
due to the fear of losing a job.
Second: In other cases, the threat is simply to the user's ego
or status.
Third: The job may have added complexity or become
rigid due to a time schedule established for the new
system.
Fourth: occasionally a person may feel insecure because of
formality introduced by using co1nputer-generated
· reports rather than those humans produce, and

®======
 Chapter
ill"IBM:---
~'
-
5- ·: Systems Development Process
--·. ·-'.!!!!!!!!!!!!!- .,..........~,..........,

Finally: many people simply oppose any change- in their

work routines.

Systems designers have lGarned to anticipate these

problems and to take steps during system development to
gain user's acceptance of the new system. These steps are:

(I) User Inplit in Setting Policies:

The information systems steering committee should
involve users .. The steering committee should have
representatives from top management and form all the
major information systems user departments·: accounting,
marketing, production, engineering, internal audit, and
others. Each representative should be a high~ranking
manager within a department and may be the head of th~
department. The manager in charge of the MIS group (
frequently called the chief information officer or CIO)
should also serve on this committee.

The steering committee provides user input into the

selection of new systems for development. Table 2-1, lists
the primary responsibilities of a typical steering committee.

==~====~(~!==========
Chapter .5 -: Systems Development Process
,·.~:

Table ( 5,/1)
Responsibilities of the information system steering
committee
1-Review and approve for further study all projects ' ~~.~

. I
req~es~ed by · operating departments or the MIS !
,!:'

department.
2- Review and approve the MIS department's 'work· ·~

determine priorities for projects.

3- Review periodic progress reports on active system
projects .
._
4- Review and approve proposed. , plans for system
implementation.
-"

5- Review periodically the :MIS department's budget.

\~
,li
2- User Support for Projects: I

System designers must enlist user support for I

development projects irt progress. All managers and
Q

supervisors· should be sold on the project's value to their

department. If the superiors openly support a new
_system, subordinates will have difficulty resisting it after
hnplementation.

. . . -- . ... . ~~~·=====-
~135 •· : : : : : :·-====-===~=
J'~ .
-=--
Chapter 5 ·'= Systems DevelQpment Process

3- Active User Participation in Projects:.

Users not only should be sold on the value of a new system ...
project but should also be ·.active participants in the
design process. A multidisciplinary project team handles
most projects. Members of the team come from varied
backgrounds, and each contributes unique skills to the
design process.
The project team should provide· input to the
development process throughout. Users representatives
should be involved not only in developing specifications
for the system but also jn coordinating the
project, in performing. cost-benefit analyses, and 1n
planning the final implementation of a new system.

4- User Responsibility for the Implemented System:

One objective o( user involvement· throughout a
project's life is to have a manager in the affected user area
assume responsibility for the implemented system.
The .manager then becomes the internal advocate for _
the neVf system. He or she can help train other users,
answer questions or resolve · problems in .the user
development, and serve as a contact person with the MIS

. ~F====~~
 Chapter ·: 5 ': Systems Development Process

department. ·
The qualities, and some methods of achieving th_~~1 ,

are summarized in table 2-2 as follows:

Table Ci/2)
I\ch1evmg the Qualities of a Successful System.
Quality Achieved
1-Correct • Have adequate internal control.
information
2-Timely • Choose a processing method suited to the
I

L
. ~.
f I
I
user's needs

3-Reasonable a- Properly defme the scope of the project, b-

time for Use project management techniques.

development
4- Satisfy the
organization's
needs:
• Get steering committee approval for new
a- Current
' systems projects.
b- Future
• Have a long-range systems ma_ster plan.
~~

·5- User a- lJger input in setting policies,

satisfaction b- User support foi pr~jects,
c- Active user participation in projt;dS;
. I
d- User responsibility for the system.
I

~. . .. - . ®·=··====================
Chapter 5 ;: Systems Development Process
~ 3 ::S::::::::::ZZW:e:s:!UJiGiii:"""'to::snsa:::&l:tWi211~4&G>\IJ:WS ; 1 .~~!§3.~~-~

5/4- Systems Development:

2/4/1~ Reasons of Systems Deveioprnent (Change):
·~.

Because we live in a highly cmnpetitive and ever-

changing world, organizations continually face the need
for !lev;" faster; and more reliable \XJays of obtaining
information. To meet this need, an information system
must continually undergo changes, ranging from 1ninor
adjustments to major overhauls.
Companies usually change their accounting
infoullation systems for one of the following reasons:
1-Changes in User or Business Needs:
Increased competition, business growth or
consolidation, 1nergers, new regulations, or changes 1n
regional and global relationships can alter an
organization's structure and purpose. To remain responsive
to company needs, the system must change as well.
2- Technological Changes:.
As technology advances and becomes less costly, an
organization can make use of the new capabilities or-
existing ones that were previously too expensive.
3- Improved Business Processes:
Many cotnpanies have inefficient business processes
··-
=========='~,==~======
Chapter · 5 : Syst~rn.s De~dopment Process
~:.:.~~~~!!'2~;?"~~-~f~~~~:-~.::.~~~~~~~~

that need to be updated.

4- Competitive Advantages:
Increased quantity, quality, anc;I speed of information
·~·>· .
can result in· an improved product or ·service and n1ay help
4

lower costs.
5- Productivity Gains:
Computers autor.aate clerical· and· repetitive tasks and
significantly decrease the performance time of other
tasks. Expert systems place specialized knowledge at the
disposal ofmany others.
6- Growth:
Companies outgrow their systems .and must either
update or replace them entirely.
7- DownsiZing:
Companies often ·move from centralized
mainframes to networked PCs or Internet-based based
systems to place 'decision making and its corresponding
information as far down the organizational chart as
possible. ·
8- System Integration:
Orgahiza1fibns often have many adequate and:
serviceable systems that are incompatible. That is, they do

==============~==============
not communicate well with each other because they
were developed over rnany years using different
technoi6gies and;: data formats. The-se:systems -often are
rewritten to remove the incompatibilities and consolidate
databases.
9- Systems Age and Need to be Replaced:

As systems age· and are repaired numerous times,

they become less stable · and eventuaily need to be
replaced.

5/4/2~ Systems DevelopmentLife Cycle SDLC:

Whether systems changes are major or minor, most

companies go through a system development life cycle
SDLC. As shown in Figure 2-1, the system development
life cycle consists of five phases.
Phase 1: Systems Analysis
I .
. +
Phase 2: Concept,al Systems Design

Phase 3: Physical Systems Design

Phase 4: Systems Impleientation and Conversion

T
Phase 5: Systems Operation and Maintenance
Figure (.S'Il). ·.· .. ·

Phases in Systems Development

===============~F===============
Chapter . 5 ·.; Systems Devdopment Process
-Fifm?G'ilfrx·~u.~ep·~~-~~~~~~~.t~

These phases can be briefly explained as follo"V'!S:

Phase 1: Systems Analysis:
As. organization grow. and chan~~' management and_
employees·: ·,recognize tire/'''' need .for l}lrite . or . o'etter.
information and request a new or improved information
system. The first step in systems development is systems
analysis.
Systems analysis is the process of examinfug an existing
information system and its environment to identify potential
•
improvements.
Systems analysis is initiated for three reasons:

GJ)To solve a problern with the existing system:

1J.J..e first and most frequent reason .is that an existing
system is not functioning as required. For example, a small
business accounting system may have been adequate at the
time of its acquisition, ·but the growth of the business now
produces bottlenecks in the processing of transactions. In
this case, systems analysis begins to solve a problem with
an existing system.

=============~======~=====
 Chapter ''5 · : Systems Development Process

(2) A new requirement for.info:rmation:

The second reason a system study team may be
a~t6d ·'.1s~.:.~. new; r~til~~~ntetitB':'f~~' fufottiiltion~ A .·aew,
requirement may be .. identified by long-range systems
pianning staff or may result. from legal or competitive
changes in the business environment. For ·example, in
response .to competition~ many co;mpanies . choose to
analyze past acc~unting data on sales by customers to
plan future marketing programs. Companies have invested
substantial . sums in·. new 8ystems . to satisfy these
requirements.

(3) To take advantage of a new technology:_

Sometimes organizations .initiate systems analysis to
take advantage of a new .technology.· The · existing
system may be function_ing ~atisfactory, but since its
implementation, technological . change introduced new
methods that are inore efficient.
Table · 2-3, summarizes these reasons for initiating
systems analysis.
,. "' ' .
·. -~ . ~ .-~·::.~~~-- ··.: .~·~?.~:;;._

==============~==============
 Chapter 5 ~: Systems Development Process

Table (5/3)
Reasons for Initiating Systems Analysis
f1 ~ P~oblem solving: An . existi.11g .system does not ,;:,-;,et its I
IobJectives.
I I
E:xmnple:. A small-business system has been outgrowth.
2-New Requirement: Information that was not· needed
before.
Example: Reporting dividends and interest paid to comply with
tax laws

3- New Technology: Better methods are now available.

Example: Point-of..,sale data entry to computer system

Phase 2: Conceptual Systems Design:

During conceptual systems design, the company
decides how to meet user needs. The·first task is to identify
and evaluate appropriate design alternatives. There are
many different ways to obtain a new system including:
• Buying software.
• Developing it in-house by the AIS staff or users, or
• Outsourcing the system to someone else.

======~;@)======---
Cbapte~ ' 5 : Systems Development Process
~ ~22 ~- o\l?S

Detailed specifications outlining what the system is to

accompHsh and how it is to be controlled must be
developed. · This phase·· is complete when conct~ptual

system design requirements are communicated to the

information system steering committee.
Phase 3: Physical Systems Design:
During physical systems . design, the company
translates the broad, ·user -oriented requirements of the
conceptual design into detailed specifications that are used
. .
to code and test the computer programs. Input and output
. .

documents are designed computer programs are written,

files are created, procedures are developed, and controls
are built into the new system. This phase is complete when
physical systems design results are communicated to the
information systems steering committee.
Phase 4: Implementation and Conversion:
Implem~ntation and conversion phase is the capstone
phase where all the elements and activities of the system
come together. Because of the complexity and importance
of this phase, an implementation and conversion plan is
developed and followed. As part of implementation, any

==============.~==============
 Chapter · 5' : Systems Development Process

nevv hardware or software is installed and tested. Nevv-

employees may need to be haired and 1Tained, or existing
employees relocated. New processing procedures must be
tested and· perhaps modified. Standards and controls for the
....
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vv i:> L l l m··st
.l1 U t...e
U es+'"'b 1; ... 'herl ......... d
I..Q. ll.::>H U Q.ll "'"S+e...;... ...:~,.,. ....... men+.-.+:,..1
.:::>) 1.. .Ul UVvUU LQ.LlV ..l

completed.
The principal roles · of user management are to
determine information requirements for departmental
·projects, to assist systems analysts with project cost and
benefits estimates, to assign key staff members to
development projects, and to allocate: ~ppropriate funds to
support development and operation.
The final step in this phase is to deliver the operational
system to the organization, at which time the development
of the new system is complete. A final report is prepared
and sent to the information systems steering committee.
Phase 5: Operations and Maintenance: ·
The new- and now operational- -system·is used as needed in
the organization. During its life, the system is periodically
revie\ved. Modifications are made as problems arise or as
new needs become evident and as the organization uses the
iinproved syste1n. This process is referred to as the

:
==========~~==========
 Chapter 5· ": Systems Development Process
a. sa t!IR ~·§*? ~as g r 11=: a rua
±.

operations and maintenance phase. Eventually, a maJor

ffi{)dification or system replacement rs necessary and the
SDLC begins again.
?!5- The Players:
Many people must operate to successfully develop and
implement an AIS. This section discusses the roles of those
involved.
~/5/1-Management:
One of the most effective. ways to generate systems
development support is a . clear signal form top
management that the user involvement is important.
With respect to systems development~ top management's
roles are:

• Providing support and encouragement for development

projects,
• Aligning information systems with corporate· strategies.
• Other key roles include:
• Establi~hing system goals and objectives,
• Re~iewing the performance and leadership of the
information system department,
• Establishing policies for project selection and
organi:z;ational structure and.
• Participating in important system decisions.

================~!================
Chapter · 5: -·: Systems Development Process

5!512- A.ccounta.nts:
Accountants may play three roles during system design.
First: as AIS users they must detennine their information
needs and system requirements and communicate them·
to system developers.
Second: as members of a project development team or
information systems steering cmnmittee, they help
mange system development. ·
Third: accouJ,'ltants should take an active role in
designing system controls and periodically
monitoring and testing the system to verify. that the
controls are implemented and functioning properly. AH
systems. should contain sufficient controls to ensure the
accurate and complete processing of data. The system
also should be easy to audit.

5/5/3- Information Systems Ste~ring Committee:

Because AIS development spans . functional and
divisional ·boundaries, organizations usually establish an
executive -level infom1ation systems steering committee
to plan and oversee the information systems function.
The committee often consists of high-level management

==================~IF===========~====
 people, such as controller and systems and user-
- department management. The steering com..111ittee sets
policies that govern the AIS and ensure top-1nanagen1ent
participation, guidance, and control.
The steering committee also facilitates the
coordination and integration of information systems
activities to increase goal congruence and reduce goal
conflict.
5!514- Project Development Team:
Each development project has a team of systems
specialists, managers, accountants and auditors, and
-qsers that guides ~t_s development. Team members plan
each project, monitor it to ensure thnely and cost-effective
completion, make sure proper consideration is given to
human elen1ent, and communicate project status to top
management and the steering committee. They should
communicate frequently with users and hold regular
meetings to consider ideas and discuss progress. so there are
no surprises upon project completion .

.5/515~ Systems Analysts and Computer Prog-rammers:

Systems analysts study existing systems,. design

=========~=========
 Chapter - 5 -,: Systems Development Process
a ~nn '~i' ii£+ rrrn 2 : ;zr;- zc:iE&!CW

new ones, and prepare specifications that are used by

co1nputer programmers. Analysts are responsible for
ensuring that the system meets user needs.
Computer programmers write programs ustng the
specifications developed by the analysts. They also modify
and maintain existing computer programs.

S/5/6- External players:

_'·~Many people outside an organization play a role in

systems development, including customers, vendors,·

independent auditors, and governmental entities. For
example, ABC company has told its vendors that they must
implement and use electronic data interchange ( EDI) if
they want to do business with the company .

.'i./6- Planning Systems Development:

Several activities must be performed at varies times
throughout the SDLC. Once such activity is planning. The
organization must have a long-range plan, each systems
developtnent project requires a plan, and each phase of each
developtnent plan 1nust -also be planned. This section
discusses these plans and a nun1ber of techniques used to
develop them.

~============!~=-=============
Chapter 5 ;: Systems Development Pro~ess

!1/611- Systems Development Plans:

Two types of syste1ns development plans are needed:
individual project plans prepared by project teams and a
master plan developed by the information system steering
committee.

(l) Project development plan: .

The basic building block of information systems
planning is the project_ development plan. Each project
development plan contains:
• A· cost/benefit analysis. ·
• Developmental and operational requirements
including human resource, hardvvare, software, and
financial resource requirements), and
.. A schedule of the activities required to develop and
operate ~he new application.
(2) The master plan:
A master plan is a long.;.range plam1ing. document that
specifies:
• What the system will consist of,
• How it will be developed,
• Who will develop it,

==============~=.=============
 Chapte:r ' 5 : Systems Devdopme~~:xt P1ocess
~~~~~~~~~~-=~"!~~Eli,m.~.;";;?~~=-:~=~~~

I-Iow needed resources will be required, and

8
Where the AIS is headed.
The master. plan also should describe the status of
proj-ects in process~ prioritize plrumed projects, de~crl.be the
criteria used for prioritization, and provide timetables for
development. The projects with the highest priority should
be. the first to be developed. The management and not by
computer specialists.

5J6/2- Planning Techniques:

Two techniques for scheduling and monitoring
·systems development activities are.:
(l)The · program evaluation and review technique
(PERT):·
PERT requires that all activities and the precedent and
subsequent relationships among them be identified. The
activities and relationships are used to draw a PERT
diagra1n, which consists of a network of arrows and
nodes representing, respectively,. project activities that
requtre an expenditure of time and resources and the
cempletion and initiation of activities. Completion time I.

. estimates are made, and·. the critical path-the path .

==:::::::::::::======@=.========.==
 Chapter · .5 : Systems DeYelopment Process

requiring the greatest amount of tin1e- is detennined.

If any activity on the critical path is delayed~ then th(~ ,,
whole project is delayed. If possible resources are shifted
to critical path activities to reduce project completion tim~.

(2) Gantt chart:

A Gantt. chart is a bar chart with project activities
listed on the left hand side and units of time ( days or
weeks ) across the top. For each activity, a bar is drawn
from the scheduled starting date to the ending date, thereby
defining expected project completion time.
As activities are completed, they are recorded on the
Gantt chart by filling in the bar ; at any time it is possible to
determine quickly which activities are on schedule and
which are behind. The capacity to sho~, in graphical form,
the entire schedule for a large, complex projects, including
progress to date and current status, is the primary
advantage of the Gantt chart. · The charts do not show,
however, the relationships among various project activities. _

f.·
'/.
·;.~;:;'
.. @)==;=::.~~=-===
Chapter 5 : Systems Development Process

·Key Terms
Post-implementation review ¥rJI ~ (~l_;.Jl) ~I
Preliminary feasibility ~.}'11 r..S _,~;Jj ~tlo
measures
Preliminary feasibility study ~ }i I r..S _,.l:;JI ~I.Jj
Preliminary survey J}llc~\
Project management tools •
tJ.~I o.Jbl_ wl _,jl
Proposal for a new .l:!~ wLG~ r-~ cfo
information system
Qualities of a successful
~t:J\ f' t.l;:J\ ~~
system
Quantities techniques ~\~1...}'1\
Site preparation costs ~_,.JI jl ~J '-¥\Sj
Software maintenance [...O1~1
. J ~~~b
~

Software packages r, _}\ 4-JI ~I _r.JI f' y..

Steering committee ul ..J-'-ll~-~~
• .J ~_;JI
"". W.
Strategic planning ~~~')/\ b;b::i. ..lll
Structure charts . ..
~~~·
_;:::.
' --
Structured syste1n analysis ~ ~~ f¥•<'"',11_, ~~
and design .
System conversion f' U:ull L1..~.
System design Ub.lll ."" .. :. .
f' ~· "'' ~_JJ
gocumentati9n
System design ~~
..·-.·~~~ ...
-.

Systen1 desigers ~~ _,.~~•.:14

===============:::::i:::======.~@=.
'••
.: : :.:-:· ===..
:::!::::'::::::. =====::·
·. = = = , .====·::
,._,-..
Chapter 5 .: Systems Development Process
~ ~~ tHiiiSi);,)~~~ JC::C:ZWLll¥ = :J4'

Syste1n maintenance ··~J- ( \J;jj\ ~~I

~
'
System operation )~\~~
\ .,

System analysis ~~~

Systems development life ~I ~_,.b:j o~ o..J.J.:~
cycle (SDLC)
System development ~\.>.!#
System master plan ~~~
_) . ....
System planning ~~- hJb:;.i
Tangible costs ~yJ.a U:l\S:l

=============~!=============
 ClfAPTER...6
Systems Analysis

Learning Objectives:
After studying this chapter, the student should
be able:
e ·Discuss the various steps of systems analysis.
• Explain the basic· aspects of systems survey.
• Discuss the various types of types of feasibility
~ .analysis and calculate economic feasibility.
• Explain information needs and system
requirements.
Chapter 6 ·_ - : Systems Analysis

Chapter 6
Systems Analysis

611 - Introduction:
When a new or improved system is needed, a written
request for system development is prepared. The request
describes the existing system1s problem, the reasons for the
change, and the proposed system's goals and objectives as
well as its anticipated benefits and costs. The project
development team conducts the analysis.

-612- Systems Analysis Concept:

Systems analysis is the process ·of examining an
existing information system and its environment to
identify potential improvements. The information
systeli_l steering committee b~gins syste1ns analysis in
response to a request from a manger or from a long-range
systems planning group ..
Systems analysis may begin for three reasons:
1- to solve a proble1n with an existing system;
2- to satisfy a new require1nent for infonnation; or
3- to implement a new form of technology.

==========~@~=======
Chapter ·6 · ·- ·: Systex-ns l~. .:nalysis

In an infonnation systems department, highly skilled

employees called systems analysts coordinate systems
analysis activities. A good systems analyst has a thorough
knowledge both of computer processing methods and of
business needs for inf~rmation. A system analyst is also
skillful at applying systems approach.

.Q/3- Steps in Systems Analysis:

The five steps in the systems analysis phase and their
objectives are shown in table 3-1, ·and discussed in this
section~

Table (~/1)
Steps in system analysis

Step Objectives
1- Initial - Investigate each development activity to
Investigation define the problem to be solved.
- Make preliminary assessment of
_feasibilit)r.
- Prepare a proposal to conduct systems
analysis.
2-
. Systems - Study: the existing system to gain a
Survey thorough understanding of how it works.
-

=============9~F============
 <'hapter 6 : Systems Anailysis

.. ~-~~-=-~~~=··«=·=~==~-~~-~~=.,.)[

3- Feasibility -- Develop a more thorough feasibility, l

Study especially 'with respect to econorrric costs
and benefits.
--
4-Information - IdentifY information needs of users.
:needs and - Determine objective and requirements of
Systems the new system.
1
Ixequirements
5- Systems - Provide management with the findings of I
~
Analysis the analysis phase.
Report.

Each of these steps will be discussed in some detail as follows:

6/3/1- Step 1: Initial investigation:

An initial investigation is conducted to screen
projects. The person conducting initial it"'1Vestigation must
gain a clear picture of the problem or need, determine the
project's viability and expected costs and payoff,
evaluate the projects scope and the nature of the new AIS,
and recommended whether the development project should
be initiated as proposed, modified or abandoned.
 Chapter 6 : Systems Analysis

During the initial investigation, the exact nature of

the problerr1(s) under review must be determined. In some
instances, vvhat .is thought to be the cause of the proble1n is
not the real source.
The project's scope (what it should and should not seek
to accomplish) also must be determined. J.~ nevv AIS is
useful when probler.as are a result of lack of information,
inaccessibility of data, and inefficient data processing.
If a project is approved, a proposal to conduct systems
analysis is prepared. It is assigned a priority and add to the
1nast~r plan, and the development team begins the survey
of the existing AIS. As investigation progress, the proposal
will be modified as more information becomes.
6!312- Step 2: Systems survey:_
During the systems survey, an extensive study of the
existing AIS is undertaken. The objectives of a systems
survey is as follows:
o Gain a thorough undertaking of company operations,
policies, and procedures; data and information flow;
AIS strengths and weaknesses; and available
hardware, software, and personnel.

==================~~~================
 Chapter '6 . : Systems Analysis

~ Make preliminary assessments of the existing system

and future processing needs, and determine the
extent and nature of the cha:p:ges need.
• Develop working relationship with users and build
support for the AIS.
o Collect data that identify user needs, conduct a
feasibility analysis, and make reco1nmendations to
.management.

Systems survey includes the following aspects:

1. Gathering data about the existing accounting
information system (AIS).
2. Document findings and model the existing AIS,
3. Analyze the existing AIS.
4. Prepare systems survey report.

Each of these aspects will be discussed in some detail

as follows:
1- Gathering data about the existing AIS:
During the systems survey, the study team uses many
of systems tools to gather data about the existing AIS.
Members of the team review existing documentation,
conduct interviews, using questionnaires, using work -
measure1nent techniques to understand how the existing
accounting information system operates. Each of these
tools will be explained as follows:

=========\~159}
-=-
Chapter 6 : Systems Anai:ysis

(a) Docmtnentatiol!l Review:

Three kinds of documentation concern the study temn:
organizational, Individual, and pro~essing dccumentation.
1- Organizational documentation:
Th~ study temn exa_mines docu1nentation describing
the organization's structure and accounting procedures.
This information includes organization charts, the chart of
accounts and departmental budgets for recent years.
Organizational docmnentation describes the environment
of the problem as. well as the new requirements or new
technology that caused the proposal.
2- Individual documentation:
The study team also looks at all available
documentation concerning how individuals perform their
jobs. These include job description, procedures _manuals,
performance standards; and computer operating
instructions. This individual documentation is often
highly detailed, and examining it is a tedious process. Yet
in this documentation study team 1nembers find precise
descriptions of individual tasks that n1ay help identify
the source of a problen1.

============~==~~~·================
3- Processing docum,entatio~:
Another type of doeunwntation examined by the study
temns 1s processing documentation. This pro':.ides
infonnation on interfaces between individual tasks and
between these tasks and the computer.. Processing
documentation shows how computerized. and manual
procedures interact, it inciudes flowcharts, sample forms,
and sample reports.
By exarnining flowcharts, the study teatn identifies the
sequence of tasks t~at make up a system~ The sequence,
rather than the -individual tasks, may require change to
correct a problem. Satnple fonns identify the data that the
system collects, and smnple reports · illustrate the
information it . provides. Frequently, these 1nust be
changed to satisfy a new requirement for information or
to implement a new technology.
Table 2-.6, su1nmarizes the three types of documentation
gathered during the systems survey.

==============~··~~=============
 :. Sys-.terras A:nalyslis

..,., bl i' < ir'' .\

1 a -1e \:::i.tJ)
Doc lJnv"·n·t'-'t~or·~ .a''Tl·e·wea' D-u.111
~:ng tn ~~.."·'o."'
·~-~~-l
1
--····'-" Q, '· P\..'-'\
. ·- ... .. p. ;;;::vste1Y'
u . - .d. !J
\.J ..... '
r-org_a_n.,-i7..a_ti_on-_a_1_ 'T"individual DocurnentationT:P;~cessi.n g----~-----1
I Documentation ____ 1 _ _ _______ fQocume!·~~?ti<:_~---- i

r;- Organization chaR't: f .Job D~scriptjon: je F!owcharts: ~

I- A diagram shm;ving
superior and
1
- Identifies for each
clerical and
I- A.graphic
representation of
I subor_dinat~ I r sequ:n~al processes.
1
supervis?ry position
! Relatwnsh1p. I the specific tasks, o 6.a:mJHe wrms:. !
@ Chart of Accounting:
- A list of all accounts
I . procedures, and
responsibilities
- One of each kmd
produced by the
I
in the general ledger. I assigned. · system.
a Department Budgets: 0 Procedures manual~ <» Sample reports:
- Projected costs and - A document that - One of each kind
revenues summarized . identifies and produced by the
by responsibility describes tasks each system.
centers. These may be constituting each non
compared to actual · computerized
costs and revenues. procedure required by
a system. It also
identifies the job
description performing
each procedure.
a. Computer operating
instruction:
- Adocument
description tasks
assigned to a computer
operator..
• Performance
standards:
- Expected measures of
efficiency, quality, or
I
quantity for a task or
rocedure. ·

(b) Using interviews:

After collecting documentation, the next step m
systems survey is conducting interviews. Men1bers of the
study team first interview the 1nanager in charge of ~he

=================9~~=================
affected user departlnent. In this intervievv-~ the team_ not
only learns the nu.m.ager's perspective on the .problem but
also atternpts to gain the manager1s enthusias1n and
support. The cooperation of all affected user employees is
in1portant to the success of the study, and this cooperation
is easier to attain if en1ployees realize that their bosses
support it. After interviewing the manager, D1erribers of the
study team then conduct interviews with key supervisory
and clerical personnel.
In ·conducting intervie·ws, the study team encourages
the interviewees -whether rnanagers, supervisors, or clerks-
to describe their job functions. This allows the study team
to learn how existing documentation is out-of-date. The
team also learns the interviewees' opinions concerning the
problem, the information requiren1ents, or the technological
change initiated the study.
While conducting an interview, the study team member
tnay take notes or collect samples of completed forms for
later review. Interviews aid in gaining user acceptance if-
tnanagement decides to introduce a ne\v systetn later. They
also provide the study temn \vith the inforn1ation needed to
understand ho\v the existing syste1n operates.

==============~~F===·======~======
 tea:rtl use
syste1ns survey. PJ,. questionnaire xnay be used in two vvays:.

questionnaire for its rnembers to use "~.vhen conducting

interviews ..,· The questiorrnaire lists facts that should
< ~

be identified or answers that should be obtained by

the analyst during the intervie"'JV. The analyst uses it as
a guide to ensure that all necessary data are gathered.
Second: at other times, the stUdy team desires information
or opinions fro1n a large number of user persomiel. The
team· may allow the users to complete a questionnaire
.. rather than interview each user individually. This
approach is efficient when the study teani has examined
the syste1n and identified specific information
requirements. A questionnaire used in this way may
save significant time and cost. Ho,vever, substituting a
questionnaire for interviews may cause the temn to
o1nit important infonnation. It does not allovv' the
analyst to ask probing questions, nor does it
encourage an interviewee to volunteer information.

================~~~===============
(d) Work l\feasurement:
Sometimes the study team uses questionnaires in
conjunction vvith work measurement studies. While other
techniques used by the study terun identify tasks occurring
in the system, a ·work measurement study determines the
magnitttde or quantities of these tasks.
For example, an analyst may find through interviews
or docu1nentation reviews that an accounts payable clerk
prepares a batch control slip. The analyst, however, does
not know_ how n1uch time this task requires. The analyst
ask the clerk to complete a questionnaire each day showing
how much was required to complete each batch control
slip. After several days' questionnaires are available, the,
analyst computes an average elapsed time for the task. As
an alternative, the analyst may choose to time the task
over several repetitions using a stop watch.
Another approach to work measurement counts the
number of outputs from a task or systerri, such as forms
completed or reports produced. This enables a study tern -
to compute n1easures of _efficiency by the number of
outputs per e1nployees or unit of time.

============9~F============
 Chapter 0 :Systems Analysis

(e) Audit Reports:

The study team may choose to examine· reports written
. by auditors prior to t]J.e . study, Thes~..reports 1nay be
.~

prepared by internal auditors or by independent

auditors. As part of their duties, internal auditors perform
operational audits of departments or segments of the
organization. In the operational audit, the internal
auditor analyzes the operations of the departments and
identifies weaknesses or potential improvements. At its
conclusion, the internal auditor writes a report to
management describing them.
The independent auditor writes a management letter to
..
top management during the audit of the financial
statements. This letter describes weaknesses in internal
control that . the auditor identified during the audit. ·
Frequently, an operational audit report or a management
letter describes weaknesses and makes suggestions useful
to the study team. The auditor may have examined the
system under study, and the auditor's evaluation helps the
tean1 identify a problem. The auditor's ~uggestiC?ns 1nay be
.
included in the design of a new system.

========~GD~======
Chapter ·_ 6 : Systems Analysis

T. 1H~
L
1nrormat:wn
• " •
gatnerea dunng
1 1 . ·1
tt_le an.a1ys1s
• p h ase

must be docurnented so it can be used d~IJ~oughout the

systerns development project. The study tean1 can use data
rnodeling~ and process modeling to ·document th.e existing
system.
(a) Data Modeling:
Using information gathered from the documentation review
and interviews, the study team creates models of the data
used by the system .. Data modeling is a technique for
organizing ~nd documenting the .organization's data. It does
this independent of how the data will be processed to ·
produce information.
When done properly, data modeling helps to ensure
that the data processed by the system are accurate and up-
to-date and meet . all of the current information
requirements. The data are also organized so that future
requirements can be met by easily modifying existing data
forms.
One popular approach to data modeling uses entity-
relationship (E-R) diagrams. An E-R diagram identifies the
items of data used by a system and shows the associations

================~~~===============
 ·.. : Systerr1s Analysis

between those ite1ns. It represents an iten1 of data ( an

entity ) with a rectangle and associations between data
items ( the relationships ) with lines between r~ctangles.
(b) Process Modeling:

The study team creates process models to document the

existing system. Process rnodeling is a technique for
organizing and documenting a syste1n's processes, outputs,
inputs, and data. Different models exist for . producing
process models, but the most com1non
.
one today uses data·
.

flow diagrams DFDs.

A data flow diagram shows the flow of data betWeen
processes, files, and external destinations. One 1nethod of
drawing them uses circles to represent processes, squares to
~ignify external destination for data, rectangles (open on two
sides), or two horizontal lines for data stores, and arrows for
data flow. These sytnbols show processes performed by a
system without identifying the technology used in the
processes.
Because data ·flow qiagrams show logical rather than
physical flows, they allow analysts more creativity.
Analysts are forced to think about what is done rather than
how it is done. This .enables them to identify probletns
easier. and develop better soiutions.

=============9·~F=============
 : S:ystems A]i]~=dysis

./\s an accountant, you n:my encounter either fonn of

process n1oaeL I...,:Zegara1ess or(""' the approacl1, the systerns
• 1 -~;-; "<' ,

study uses process · 1nodeling for · three purposes:

sumn1arizing, docu1nenting~ and analyzing. The diagrams
are an efficient way to su:rr1n1arize what the study team.
learns f:ron1 interviews and documentation reviews.

Data flow diagrams also allo\V the study team to

document how the existing system works. Those produced
during the systems survey update older documentation that
may no longer be conect. If the systems analysis phase is
followed by the design of a new system, new diagrams of
the old system are useful in design and conversion. New
diagrams also demonstrate to management and the
steering committee that the study team has adequately·
examined the existing system.
Data flow diagrams are valuable once the study team
has gathered all its data. At this point, the team begins to
analyze the existing system to identify problems or_potential
improvements. A data flow diagram contains a concise
description of the processes tnaking up a systen1. The -
analyst can see the effects of changes more easily than
when notes, narratives, or other fonns of documentation are
used.

========~~~=========
 Chapter 6 ··- ·,: Systems Analysis

3- Analyze the Exlisting System:

Once data gathering is complete, the study team
evaluates the AIS!s strengths and weaknesses to develop
. .

ideas for designing and structuring the ne"'N AIS. When

appropriate, strengths should be retained and \Veaknesses
corrected. For exan1ple, if output is being duplicated,
consolidati:qg reports might produce cost savi.ngs.
4- Pre·pare Systems Survey Report:
The systems survey culminates with a systems survey
report. The report is supported by documentation such as '
-memos, interview and observation notes,· questionnaire
data, file and record layouts and descriptions, input and
output descriptions, copies of documents, flowcharts, and
data flow diagran1s.
6!3/3- Step 3: Feasibility Study:
A feasibility study is prepared during systems
analysis phase and upd~ted as necessary during the
remaining phases in the SDLC. The extent of these
studies varies, depending on the size and nature of the
system.
The steering committee uses the feasibility study to
decide - ·whether to terminate· a project, proceed

=============·~·. ~F============
Chapter ,(5 : Systern.s Anaiysis

unconditionally, or proceed if specific problems are

resolved. A.lthough a project can be terrninated at any time, '>

the early go I no- go decisions are particularly important as

each subsequent SDLC step requires more ti1ne and
monetary commitlnents. As the project proceeds, the study
is updated and the project's viability is reassessed.
During conducting the feasibility study, the types
feasibility
costs and benefits must be considered .
.6/3/3/1- Types of Feasibility Study:
Five important aspects to be considered during a
feasibility study are as follows:
1- Technical Feasibility: .
This feasibility criterion concerns the state of
.
technology in the computer industry and the technological~

capabilities of the organization. In evaluating technical

feasibility, the study team determines whether computer
software and equipment that allow .implementation are
available.
This is the easiest feasibility criterion to evaluate. MIS
representatives on a study team usuaHy are knc)Wledgeable
about the capabilities of available equipment. Technical

==================~~F=================
Chapter' 6 :Systems Analysis

and trade journals keep team 1nen1bers up-to-date

regarding the state of technology. Predicting the success of a
technology in an orga,:niz~tion is_ more difficult. This
-requires evaluation of a second feasibility criterion, the
operating feasibility.
2- Operating Feasibility:
In considering the operating feasibility of an
aiternative, the study temn determines if a proposed systetn
change could enable the system to 1neet its operating
objectives. An -alternative_ that fails to do -so is
discarded. Technological change often occurs. faster than
employees can adapt to it. Sometimes a system alternative is
.
unsuccessful- if employees feel threatened by the new
technology, or if they feel that it makes their jobs less
important or enjoyable. In other cases, a new technology
may require capabilities that existing personnel lack.
A significant factor in determining operating feasibility
is user satisfaction. If users are dissatisfied with a system, it
does not meet its objectives. When users are dissatisfied
with a system, they fail to use it. Or, even- worse, they may
sabotage it, 1naking it ineffective. Thus, when a study team
perfo1ms the feasibility study, they n1ust consider any

====~======~G])F============
 : Systems Anaiysfis

behavioral or social im.plications of a system change on .the

people work with it.
When analyzing operating feasibiHty, the study -team
answers the following questions:
- Do top management have the vision, support, and
commitlnent to the new system?
. Are employees willing to accept the changes caused
by the new system?
Will all affected managers have input into the desigx~

of the new system?

Can the organization ensure an orderly transaction to
the new system?
Is the organization willing to accept the
organizational changes brought by the new system?
3- Time Feasibility:
In evaluating this feasibility criterion, the study team
determines if the alternative can be implemented within a
reasonable length of time. They compare the time needed
to implement it with the company's needs forth~ system. If
the company,. started a system study to implement a ne';\'
technology, it may be willing to go through a lengthy
development process, to gain the technology. If the study

============~~~=============
 Chapter 5 :Systems Analysis
....

resulted fron1 a critical problern with an existing system

or an irrnnediate need for inforn1ation, the con1pany
wants an alternative that can be implemented quickly.
In determining time feasibility, the study team predict~~
the tune needed to design and
-
implement the new system. .
This time frame is affected by four factors:
1. The team estimates the equipment delivery time.
2. The team must project the software delivery time. If
computer programs are available for purchase, the
system can be implemented mote quickly than
if the programs are written.
·. ·,
,·· ~

:.·_~
--
....-

3. The training time for users and,

4. The time for conversion to the new system.

' These will be longer if the system requires a major

technological change than if it requires only a major
change to an existing system. The study team consider~

these factors and compares implementation time to the time

allowed by the company.

4- Economic Feasibility:
_ In analyzing this criterion, the study team detern1ines
whether the proposed change will benefit the organization

==============~~~================
Chapter· 0 ·. ·-;:Systems ..Analysis

financially. Their objective 1n evaluatLng economtc

feasibility is to fmd out whether the change is worth making.
During Jlae feasibility study, the team rnakes prelhninary
calculation to determine whether the benefits received are
worth the costs.
5- Legal Feasibility:
In analyzing this criterion, the study team detennines
whether the proposed system will comply will aU state laws
and statutes, adffiirtistrative agency regulations, and the
company's contractual obligations.
Before a study team recommends ·initiation of system
design, the · proposed system or system change must
satisfy all ·five feasibility criteria. If an alternative is
infeasible on any of the grounds, then the alternative is not
considered further.

6!3/3/2- Determining Economic Feasibility of a New

AIS:
Determining economic feasibility requires a careful -
invest~gation of the costs and benefits of a proposed
system. Because accountants ·are fa1niliar with cost
concepts, they 1nake a significant contribution to this

==========~€?~F=·=·========
Chapter 6 .: Systexns Analysis

evaluation. The basic fran1ework for feasibility analysis is

the capital budgeting model, in which cost savings and
other benefits, as well as initial outlay costs, operating costs,
and other outflows, are translated into dollar estimates.
1- Determining Benefits of a New AIS:
So1ne of tangible and intangible benefits of a
company might obtain from a new AIS are cost savings;
improved customer service, productivity, decision making;
and .data processing; better management control; and
increased job satisfaction and employee morale.
2- Determining Costs of a New AIS~.
Costs of a new AIS include:
(a) Equipment cost:
Equipment costs are an initial outlay cost if the
system is purchased and an operating cost ·if rented or
leased. Equipment costs are usually less than the cost of
acquiring software and maintaining, supporting, and
operating the systetn.
(b) Software Costs:
Software acquisition costs include the purchase price of
software, as well as the time required to design programs,
test, and document software.

=============9~~============
Chapter 6- .~: Systems ft~nalysis

(c) Human Resource Costs:

The human resource costs associated with hiring,
training, and relocating staf£ In addition, the salaries of
systems analysts, prograrmners, operators, ,data entry
operators~ and managen1ent.
(d) Operating Costs:
The primary operating cost is maintaining the
system. In addition, there 1nay be significant annual cash
outflows for equipment replacement and expansion, as
well as software updates. ·Costs are also incurred for
supplies, overhead, and financial charges.
(e) Other Costs:
Site preparation costs 1nay also be incurred for large
computer systems. In addition, there are costs involved in
installing the new system and converting files to
appropriate format and storage media.
3- Determining Financial Benefits:
To illustrate the financial benefits of a new AIS
consider the following example.

Example: ABC Company is considering the development of

a computerized inventory control system to replace its
current 1nanual one. The average of cost of finished goods

==============9.~F==============
Chapter 6 :Systems Analysis

inventory durjng the most recent years \Vas L.E. 15

million. A consultant has determined that a computerized
syste1n would allow inventories to decrease to an average of
L.E. 12 million while maintaining the same level of
customer service. ABC finances its inventories with a line
of credit at its bank, which charges an interest rate of 10 ·
percent per year. What are the expected financial benefits
to ABC Company from the computerized inventory system?
.This proposed operational control system allows ABC
to reduce its inventory level by L.E. 3,000,000. The
inventory carrying cost for ABC Company . is 10
percent. -The financial benefits resulting from the
computerized system is as follows:
Current average inventory L.E. 15,000,000
Possible · average inventory with the new 12,000,000.
system 3,000,000
Decrease in average i~ventory X 0.10
Inventory carrying cost

Annual savings in inventory carrying L.E. 300,000

costs -
ABC Co1npany could save L.E. 300,000 per year by
implementing the computerized control system. The
savings constitutes the interest that ABC does not pay
due to excessive inventory.

================~<iZi)~===============
Chapter D · :::Systems Analysis
aasw: mrr = 2A

4- Comparing Costs and Benefits:

The study team evaluates the economic feasibility of a
new system' or system change by comparing its costs with
its benefits. In many cases, such as. the previous example,
theses costs and benefits can be estimated accurately. The
next step is to compare the costs with the benefits by
using one of three methods: net cost or benefit, return on
investment, or discounted cash flow.
a.- Net cost or benefit method:
The simplest way to compare costs and benefits is to
-
subtract one from the other. When benefits exceed costs, the
study team calculates the net bene~t. · If benefits ·are less
than costs, the result is a net cost. Many people refer to this
calculation as cost-benefit analysis.
This form of analysis is appropriate when the study
team is comparing annual costs with annual benefits, or
one-time costs with one-time benefits. However, the n1ethod
may produce incorrect conclusion if, for example, onetime
costs are subtracted from annual benefits. Doing so ignore
the time value of money; discounted cash flow methods are
better for this comparison.

========~~~=======
 Chapter 6 :Systems Analysis

b- Return on investment method:

Soine companies evaluate economic feasibility by
using return on investment (ROI) ·method. One way of
computing ROI is to divide annual benefits from a system
by the one-time costs of developing it. If there are annual
costs, these should be subtracted from . the annual benefits
.

first.
Annual benefits - Annual costs
FtOI== -----------------------------~-----------
One~tim.e development costs

. ROI is a popular measure but, like cost-benefit analysis,

it ignores the time valu~ -money. Discounted cash flow
. .

methods overcome this disadvantages.

~ ' ..
. . y- ..
c- Discounted cash flQw methods:
These methods of comparing costs and benefits
recognize the importance of the timing of cash flows as
well as their magnitudes. Many new sys~ems require_ a
major one-time investment of cash during development and
· produce smaller annual benefits over many years. The val_ue
to an organization of the annual benefits receiyed this y~ar

is greater than an identical annual benefit received 5 years in

the future.

=================.~·~F================
 :: Systems Analysis

Because of this, the money saved or received over an

extended period of time has time value. These methods
consider the time value of money and include such
techniques as the internal rat~ of return, . the net present
value, and the net present value index.
Example:
ABC Company estimates that a computerized
inventory control system produce~ an an.llual savings of
L.E. 300,000. The system wili be used for eight years {1'-Jote:
The present value of aJ?llUity ofL.E. 1 for 8 years at 10 % is
5 .335). ABC's cost of capital is 10 percent. Projected
costs for the system are as follows:
Annual costs:
Salaries L.E60,000
Utilities 20,000
Supplies 10,000
Total L.E. 100,000

One-time development costs:

Equipment.· . L.E. 200,000
Computer programs 700,000
Conversion costs 100,000-
Total . L.E. 1,000,000

==================~=================
 : Sy:stcniS Ana lysis
~s~~~~~w~==~~~~~~~~~~~=~~-~-~~

Instruction:
Determine the financial benefits of the new system·using
each of the following
methods:
a. Net cost or benefit.
b. Return on investment ROI.
c. Net present value.

a- Net cost or benefit method:

Net Benefit =
-.
Annual benefits L.E. 300,000
Less: Annual costs 100,000
Net annual benefits L.E. 200,000

b- Return on investment method:

· ·Return on investment=

Net annual benefits L.E. 200,000

Investment 1000,000
ROI {200,000 + 1, 000,000) 20%

=================9.~F================
Chapter 6 · ·: Systems Analysis

c- Net present value:

Net present value= ·~

Present value of benefits:

(. L.E. 300,000 X 5,335 ) L.E. 1,600,500
Less: Present value of costs;
(L.E. ·1 00,000x5,335)
One-time cost 533,500
1,000,000
Total 1~533~500
'
:t"''et present value li L. E.67,000---I.

6/3/4- Step 4: Information Needs . and System

. :Requirement:
Once a project 1s deemed feasible, the company
identifies the information needs of AIS users and
documents systems requirements. Table 3-3, is an example
of AIS requirements.
Petermining information needs can be a challenging
process due to the sheer quantity and . variety of
information that must be specified,· even for a relatively
simple AIS. In addition, it may be difficult for employees-
to articulate the information needs or they may identify
them incorrectly.

=================="~~======~~~=====
~~
 .. Chapter "'· 6 : Systen1s Analysis -'
SULW'&!

Table ('/3)
Possible Contents of System Requirements

. ' Requirem~nt Meaning_

---
~ Processes '"< fe A descripiibn- of all business, what is to be
done processes, including
-
• Data elements I' A description of the data elements needed,
including their name, size, format, source,
and significance.
"' Data structure 8 A preliminary data structure, elements will
be organized into showing how the data
logical records .
• .-·Outputs
• A copy of system <;>:utp\ltS and a description
of their purpose, frequency, and
distribution.
• Inputs • A copy of system inputs and description
of their contents, source, and who IS
responsible for them·.
~ Documentation • A description of how the new system and
each subsystem will operate.
r- Constraints • A description of constraints such as
deadlines, security requirements, staffing
limitations, and statutory, or requirements.
~ Controls • Controls to ensure the accuracy and reliability
of inputs outputs, and processing.
~ Reorganization • Organization reorganization needed to meet
users' information needs, such as increasing
staff levels, adding new job functions,
.
restructuring, or terminating existing
operations or jobs.

============~~F=============
Chapter 6 ; Systems Anaiysis

Identifying information needs and syste1n

requirements needs to consider the following aspects:
(1) Systems objectives and constraints.
(2) Strategies for determining information needs .
.(3) Documentation and approval of user requirements.

1- Systems Objectives and Constraints:

a- Systems objectives:
It is important to determine system objectives so that
analysts and users can focus on those elements most vital to
AIS's success. However, it is difficult for a system to satisfy
every objective. For example, designing adequate internal
controls must be viewed as a trade.. off between the
objectives of economy and reliability. Similarly, cutting
clerical costs must balance the· objectives of capacity,
flexibility, and customer service. Table 3-4, illustrates AIS
objectives.

==================~~~================
 Chapter 6 .: Syste:ms Analysis

Table ( /4) ·
Custon1er Service
Objective Meaning
• Us~fulnes5· • "-~:.Information ·Ol4tput<.should help
mmiagement and users make decisions.
• Economy @
The benefits of the system should
• Reliability The system should process data
C>

accurately and completely.

I. Availability Users
G
should be
access. at their convenience.
-
able to

I e Tilneliness I
e Crucial information should be
produced first, and less important items
• Customer • Courteous and efficient customer
service service should be provided.
• Capacity • System capacity ·should handle
periods of peak operation and future
.;
• Ease ofuse • The system should be user-friendly.
• Flexibility • The system should accommodate
reasonable operating or system
• Tractability • The system should be easily
understood by users and designers and
facilitate problem solving and future
• Audit ability • Audit ability should be built into the
system from the beginning.
0
Security • Only authorized users should be
granted access or allowed to . change

b- Systems Constrai1;1ts: .
Organizational constraints usually 1nake it impossible
to develop parts of new AIS simultaneously. Therefore, the

=============9.~F============
Chapter 6 ~= Systems i\. nalysis
rrrrnr ~

system is divided into smaller subsystems, or n1odules, that

are analyzed, developed, and installed independently. When
changes are made to the system, only the affected 1nodule
needs to be changed. Great care should be taken to ensure
that the modules are properly integrated into a workable
system.
A system's success often depends on the project .
team~s ability to cope with the constraints the orga..~ization

faces. Common constraints include:

. • Governmental agency. requireme11.ts,
.

• management policies and guidelines, ·

• lack of sufficiently qualified staff,
e the capabilities and attitudes of system users,
•available technology, and
• Limited financial resources.
To maximize system performance, that effect of these
constraints on system design must be minimized.
2- Strategies for Determining Information Needs:
One or more of the following four strategies are
used to determine information needs.

============~~~============
 Chapter ·d · : Systems Analysis

a- Ask users "Nhat they need:

Though this is the simplest and faste~t strategy, many

people do not ·. 'Fealize or understand their .· true needs.
Although they may knowhow to do their jobs, they may not
be able to break the1n down into the individual information
elements they use.
It is sometin1es better to ask user questions pertaining
to what decisions they make and what processes they are
·involved in and then help them design systems to address
their ans\vers. Users must think beyond their current
information needs so that new systems do not simply
replicate the c'urrent information in · new and improved
formats.
6- Analyze existing systems:
Both internal and external . systems should be
analyzed. A partial solution may already exist, thus
eliminating the problem of reinventing the wheel.
c- Examine existing system use:
This strategy differs from the previous one by taking
into account that certain modules may not be used as
intended, 1nay be augmented by manual tasks, or may be
a~oided altogether. This approach helps determine if a
syste1n can be 1nodified or must be replaced.

===================~~F·==================
Chapter 0 . : Systems Analysis

d.- Create a prototype:

\Vhen . it is difficult to iqentify a usable set of
information requirements, a developer can quickly rough
out a system for users to critique. Once users see something
on the screen, they can begin to identify what they like and
dislike and request changes. This iterative process of
looking · at · what is developed and then improving .it
continues until users agree on their needs.
3- Documentation and Approval of User Requirements:

Detailed requirements for the new ATS that explain

exactly what the system must produce should be created
and documented. The requirements list should be
supported by sample input and output forms, as well as
charts,_. to make it easier for readers
·. :. .
to conceptualize the
system. A nontechnical summary that captures important
user requirements and development efforts to date is often
prepared for management.
When user requirements have been determined and
documented, the project team. meets with the users,
explains the requiretnents, a11d obtains their agreement -
and approval. When an agreement is reached, user
management should sign the appropriate system
requirements documents to indicate approval.

================~~~================
 Chapter -tf .. : Systems Analysis

3/3/5- Step 5~ Systelus Al!lalysis Report~

Systems analysis is concluded by· preparing a system
analysis report to summarize and docu1nent the analysis
activities and serve as a repository of data from which
systems designers can draw. The report shows:
e The new syste1n's goal and objectives,
a The scope of the project and the new syste1n, ··,
fj How the new system fits into the company's master
plan;
·" The user's processing requirements and information
needs,
o The feasibility analysis, and
o Recommendations for the ne\v system.
A go/no go decision may be made up to three times
during systems analysis:
(1) during initial investigation to determine whether to
conduct a systems· survey;
(2) at the end of feasibility study, to detennine whether
. to proceed to the information requiretnents step, and
(3) at the completion of the analysis phase, to decide
_ whether to proceed to the next phase.

=============9~~=============
 After s;rst~:-;n·1s lS

d-ev"'l.opmen...
· v ~ t -1"'=, .. if
t ,:)L1.,5 -v:n~
'-' _...,
j.;;, ('ir'%r
d.L/.LJ C a., p p1\·r''"'C
..-d. .n. "no
1
"-' to (<.11
H •\,,. ,-1 e
conceptual design phase and then to physical design phase,
in1plementation and conversion phase, and operation and
maintenance phase. These topics are discussed in the next
two chapters,

6.!4- Outcomes of Svstems Anaivsis:

~ ~ . ~

The systems analysis phase has · three possible

outcom.es. The outcome is selected by the steering
coll'imittee with input frotn top management. It is based
on the -recoiThuendations of the study team.

1-Do Nothing:
The information systems steering coi1llnittee may
decide that no further action is warranted. Perhaps the
problem is not as serious as originally though, the need
for new information no longer exists, or the new
technology is not cost-efficient. Often the committee will
simply delay further action until sometime in the future
when more resources are available. , Any change to _
information systems requires a commitment of MIS and
user depart1nent personnel. The co1nmittee 1nust allocate
. ' existing analysts and programmers to the needs that are
currently m_ost critical.

=============9~'F============
 Chapter 6 !: Systems Analysis
'*"'

2- Modify an Exftsting System:

The committee r11ay decide that a satisfactory solution
can be attained. by modifying an existing application
system. This outcome may be chosen because it requires
fewer resources and can be accomplished more quickly
than developing a new system. It often represents a
compromise; though. not ideal, this solution is satisfactory
and can be L.uplen1ented at lower cost
3- Design a. New System:
Sometimes the committee concludes that the problem
or need is serious enough to require a completely new
system. This occurs when the committee believes that an
existing system is outdated and that a modification would be
unsatisfactory or not \Vorth the cost. A new syste1n is
desired to solve the problem. They then authorize the
f~rmation of a system design team that creates a paper
description of a new syste1n. This marks the beginning of
the system design phase of the system developtnent life
,,
cycle. Table (3/5) swnmarizes the outcotnes of the systen1s
analysis phase.

=
========~~~=========
Chapter 6 :Systems Analysis

Table (6/5)

Possible Outcomes of Systems A.nalysjs

Possible Outcome Why?
*Do nothing - Problem is not senous or resources
are unavailable.
@I
Modify existing -A less costly solution that may
system provide satisfactory results.
a Design a New -Existing systems cannot solve the
Systern problem.

============~~F===========-
 Ch~iptcr

---------------------- · · - - - - - - - - - - - - - - - - · - · - - - - -
Comn1ission system project
~I JA:~t.J~
~---------~-----r---------- ----
Computer-integrated ~ ;;~\ A.i.t.s::.JI c~··· ..,~JI ~-
manufacturing system
1--------------------------- .-----------
Data diCtionary
r--------------------·----+--------------
Discretionarv
·----------·------ - - - - - 4 - - - · - . - · · - - - - - - - - - - - -
Evaluation of outputs
Human factor~-------~-------------------------
J..------·- ------·---+------- ···- ···--·---- -- --------·
Long-run planning cycle
J------ ---------+------- - - -------------·--.
Mandatory
1-----------------.. ·-·-··-- !----··· ---- ---·-- - - - - - · - - - - - - - - · · - - · - · - - ·
Modify an existing system (:)t:~Ji) ~·~\ r-' i; ~n ~.A::
~-~-----------~--- --·-----------r-·-··---·----··-············-·······--··-···-···-----···
Operational functions 4::1-1;. .~r,\1 u:,U;__,ll.
·---1'---------
--······---
Organization c.hmis ~I ~~ ~
1----------------------- ,.----···--··-···· ---· -----·--------
Organizational environ1nent
1----~------ ------·--··- ··-------·-·------·--···-····---·-----·
. Organizational structure '-=' 4Jl;·...,\l ~I
f--· ___ .:., ___________________ ---- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - " · - ·

Outcmnes of systen1s
-~pal y_~~s -----····-- ····-···· ____ ··--··--··-----·-- ---······-··----·---- ....... ----········ -···-··-·-······--·-· ... _
Perforn1ancc evaluation
1-----·----··--------··----·---·--··-·· ·---· ·---··----------------- ·····
Production control system
--- ··---·--·-- ------···-·· ·---·-·· --··--------1----·---
Project develop1nent team \.l •
-~-.r--
t..~, i\ t .. ~
..,/_r··-
i lu .....,r-
..._, ..
,Q
t-----------·-··-- ---~---- ····-- ·-·- --------·-- ---------- --- ------·---··----- . ....
Quality contru.l

,y;-"-~:"\
======= ==9~94
-..:: -
jl'i== = = = = =
....... _.=,.~-
Review of docu1nentation ~ jl.\\ ~ ) ~,.u;\_y• I
- -··----
Strategic systems plan ,..hill
' ... ~ ~
~\ ~ I .&..b.;.

Syste1n constraints r\J;.!ll .)~

System developer r1.1;ill1 _;.,ho
Tentative project budget ~_j.o t.Jfo ~jly.
Unauthorized access ~c.~' ..;P J~_,ll

============~~~============
 CHAPTER7
Systet11s Design

Learning Objectives:
After studying this chapter, the student
should be able:
~ Discuss the conceptual systeins design
process and the activities in this phase,
• Explain the physical systerns design
process and the activities in this phase.
Chapter ·.7 · : Systems Design

Chapte·r · 7
Systems Design ·

-t/1- Introduction:
Accountants must understand the entire systems
development process, as they are involved in it in several
ways:
• As users helping to specify their needs,
e As me1nbers of the development team, and
o As auditors after the system is complete.
Accountants should help keep the project on track by
evaluating and measuring benefits, monitoring. costs, and
ensuring that the project stays on schedule.
Effective systems analysis and design can ensure that
developers correctly define and business problem and
design the appropriate solution. As discussed in chapter 3,
systems analysis is a crucial phase in the systems
development life cycle, whose goal is to define the new
system's requirements. This chapter discusses phase 2, and
phase 3: conceptual syste1ns design and physical systems
design.

~======~~~~========
Chapter 7j iJl'
·:Systems Design

· /2- Conceptual Systems Design:

In the conceptual syste1ns design phase, the
developer creat~s a general frame\vork for implen1enting
.user requirements and s0lving problems identified in the
analysis phase. As shown in figure 4-1, there are three main
steps in conceptual systems design:
(1) Evaluating design alternatives,
(2) Preparing design specifications, and
(3) Preparing the conceptual systems design.

Evaluate Prepare - Prepare

Design .A.:· design . _...
,.
conceptual
. -r Systems design
Alternatives specifications
report

. . Figure (7/1)
Steps in Conceptual Systems.Design Phase.
This section explains these steps in more detail.
1!211- Evaluate Design Alternatives:
There are many ways to design an AIS, so accountants
and·others.
Involved 1n syste1ns design must continually make
.
design decisions. There are many different ways that a

~======~€V~=======
 Chapter · 7 :Systems Design
w ..

company ca_n approach the system de,.re1opment process. It

could.purchase software frorn a vendor, ask that the in -
·house information systems staff develop the software
request that the people who are going to use the system
design it, or hire an outside company to develop and manage
the information system. The company could modify,
enhance, or replace existing software or completely
reengineer all of its business processes and develop software
to support these ne\v processes.
The design team should identify a. variety of design
alternatives ~d evaluate each with respect to the follo-wing
standards:
(1) Ho\v well it meets organizational and system objectives,
(2) How well it meets user needs,
(3) Whether it is economiCally feasible, and
(4) What its advantages and disadvantages are.
· Software is the set of programs that control the
operations performed by the computer equipment. Once
the design team identifies the necessary features for the -
system, they choose one of four alternative sources for the
software. In this section the four alternative sources for the
software will be discussed in tnore detail as tallows:

============~~~============
 Chapter :7 ·: Systems Design

(J)In-House Developntent:
With this alternative, the organization's own
employees \¥rite the computer. programs required by the
system. A large system contains many programs·, and
numerous users or programmers are added to the design
terun to complete in-house development.
Sometimes ~he chief information officer (CIO) also uses
contract programmers. Contract programmers are
. employees of another firm who work for the organization
only for the duration of the project. Using them is
smnetimes an efficient way to supplement the MIS
programming staff.
In-house development has the advantage that the
project team controls development of the program. Thus,
the program specifically meets the organization's needs,
and the system is more acceptable to the users who work
with it. However, for accounting applications other sources
are ordinarily less expensive.
(2) Software Development Companies:
Some companies are in the business of producing and
s~lling software packages. These packages are computer
progra1ns that provide cmn1nonly needed applications,

============9~F============
 1
-
C hapttr
b 3. :0"'

such :1s payroll~ )n."·entory, or ge-neral ledger applications.

C' £:.
.)ott\vare aeve
' 1opment. cornpames
. ernp 1o·y systen1s analysts

and programn1ers to develop packages, and a sales staff to

n1arket them. They n1ay sell s-oft\vare directly to an }..1IS
department or through computer stores or software brokers.
Packages are designed to satisfy the needs of many
organizations, so an-y· package probably 1s less
acceptable to users than a system developed in-house.
Because a package 1nay be sold to hundreds ()r thousands t:!f

buyers, each shares in its development costs. Thus, the cost

of obtaining a package is much less than the costs of in-
house development.
(3) Cotnputer Manufacturers:
Most 1nanufacturers of cmnputer equipment also
produce and sell software. This software is intended for
use on the Inanufacturer's product !ine and includes both
application progra1ns and systen1 software. System
software provides basic functions that control the computer
and its peripheral dr;viccs. It includes:
• Operating systems that schednlc the operations ofthc
c01nputcr, fde 1nanagement programs that control data
storage, and
 Chapter • 1 ·~ Systems Design

Utility progrmns that perfonn frequently needed

functions, such as sorting or printing files.
In some cases, systenis'software is available only from. a
manufacture, while the manufacturer's applications
software con1petes with that of software development
_companies. Some systems software is necessary for the
equip1nent to function; its costs are part of the initial
acquisition costs of t."'le system.
· . (4). User's Group:
-A users' group 1s s club formed by individuals and
organizations that own a particular· brand of equipment
or software. Members of the group exchange software at
l~w cost, exchange· device, and . frequently publish
newsletters or. operate computerized bulletin boards. A
computerized bulletin board consists of an operating
computer connected to a telephone line. Anyone can call
the telephone number of the bulletin board on a computer
modem and leave or receive message. Members frequently
exchange programs in this way.

In the early days of.management information systerns,

users' groups were valuable as a sonrce of business
application progrmns. Today, users' groups primarily

============~.~~============
 Chapter 1 ·: Systems Design
c;::zeams:zca w c ~rmt~
==

benefit users of s1nall con1puters. If you own a personnel

computer, joining a users' group prov"ide you with an ··.:..

inexpensive source of programs ·and advice.

During evaluating design alternatives, the design
team chooses between in-house development and buying
software packages fro1n a source external to the
organization. This is an example of make-or-buy decision
that you study in managerial and cost accounting courses.
Table ("111 ), sul1111larizes five considerations in choosing
between in-house development or an external software
. package.
Table (J/1)
-Consideration on the Make-or-Buy Decisions for Software.·
Consideration In-house ~xternalpaclcage
*User . -Programs customized -Users adapt to
Acceptance to users' preference. requirements of
externally written
program.
*Required -No modification - Modifications may be
Modification required. necessary to make
software acceptable.
*Installation - Measured in months - Measured in weeks or
Time or years. months
*Quality of Time pressures may - Documentation
Instruction disco~rage preparation available for review
Manuals of good documentation. prior to purchase.
*Installation - Costly, all costs - Less costly,
Cost absorbed by one system. developmental costs
absorbed by many
systems.

======~~~=======
 Once a design alternative has been selected, the design
team develops_ the conceptual design specification
. . . .
for
outputs, data, processes, inputs, and policies.
(l)Outputs:
When the proposed syste1n n1ust provide new or
different information, the design tean1 must determine
both the form and the information content of outputs. When
the infonnation content· does not change, the team
determines only the form of the output
(a)Information. content:

A new_ system is proposed for one of three reasons:

.
(1) To satisfy a new information requirement,
(2) To solve a problem with an existing system, or
(3) To implement a new technology.
When a new system is developed to satisfy a new
reportip.g requirement, the information it provides is
unavailable from the existing system. The design tea~

ensures th~t the new system's outputs provide information

to satisfy the requirement. For example, in designing a
cost accounting system, the. tea.ln 1nay decide that an output
should summarize the cc:>sts of products for a sp~cific b~tch
of widgets produced under government contract

================~~F================
Chapter f :Systems Design

If a proposed systern is to solve a problem with an

existing system, the information content of system outputs
may change to correct to conect the problen1. For
example, a billing system may provide inadequate audit
traiL In creating a new billing system the design team.
includes new information on its outputs that allow an
auditor to trace individual transactions into the account.
If the reason for the system is to implement a new
technology, the information content of its outputs need to
change. In this case, the outputs may take anew form.
(b) Form of Outputs: -
When selecting the form of the outputs, the design
team decides how the information ~hould be ·presented.
. . '

This may be in the form of:

• Reports printed routinely, or
• It may be a computer terminal display that a clerk
uses for data entry.
Sometimes the design team creates a system that
produces reports or display on ad hoc, or as-needed, basis.-
The· syste1n does not provide outputs :foutinely but rather
allows a manage or user to obtain them On request. For a
routine output, the design team must decide how frequently

==========~~F_==========
 Chapter 1 '; Systems Design

to produce it. They give each report or display a unique

nmne and identifying nurnber and decide who in the
organization receives it. \\'hen the purpose of system
develop1nent is to i1nplement a new technology, the form of
system output sometimes changes even though its
information content does not.
(2) Data:

His system's data records provide the infonnation

contained in reports or displays. After determining the
information content of systems outputs, the design team
· identifies the data necessary to produce them.

/
The design team updates the data models produced
during systems analysis. They develop the models in more
detail . and may decide that additional data entities are
required beyond those identified earlier. They also identify
the desired attributes for each data entity.
A data attribute is a characteristic that describes a
data entity in some way of interest to the user of the
system. For example, one example of an entity
CUSTO:rviER. Characteristics of CUSTOJVIER that are of
interest included, name, number, address, credit limit, and
account balance. The design team identifies these as
attributes of the CUST011ER entity during the conceptual
design.

==============~.~F=============
 Chapter1 _.:Systems Design
~~~~~"""""""'~~·~-~~wa~~~~~..~~.~"

At this point in the SDLC, the design team nmkes the

preliminary decisions about which data files are required,
which storage mediurr1 to use, and how to organize the data.
(3) Processes:

The ·working papers produced during the

conceptual syste1n design identify the processes required
by the system. These processes may be manual procedures
or computer programs.
During systems analysis, the study team produces
proce'ss models to show existing processes. During the
conceptual system design, the design team uses these as a
basis. ~or process models to show how the proposed system
. will work. When the organization uses a structured design
methodology, they describe processes with data flow
diagrams.
This allows the design team to concentrate on the
logical processes independent of the technology used in
implementing them. In other organizations, the design tean1
develops system flowcharts to show the sequence of
processes and how they produce the reports and displays
·from source documents and data records.
The design tea1n also determines those measures
necessary to provide good internal control in the proposed
system.

============~·~F=============
 Chapter
~li'r2"'U5"01T
1 ·: Systems Design
~ s ES E

(4) Inputs:
Inputs to the systen1 provide the sources of the data
contained in systen1 files. Com1nonly used inputs include
forms such as sales orders, requisitions, and payroll
timecards. Syste:ms users' record on these forms
information describing accounting transactions. The
System converts this information into computer-readable
fonn and summarizes it in data files.
Systems analysts call these forms source documents
because they provide the source for all data items used by
the system. Somethnes transactions are entered directly
into a system without using a document. This occurs. for
example, when a computer tenninal is also a cash register
in a point-of-sale system.
During the conceptual, system design, the design tea1n
identifies:

e Each source docu1nent with a .name and form number,

e Where it originates.
• Estiinates its volu1ne,
• How its information is converted into computer-
readable fonn and,
• May also identify n1ethods of data entry that do not
use source documents.

============~~F============
 Chapter -.._-1.-::.-: Systems Design

4-2-3: Prepare the Conceptual Syste~us Design Report:

.lL\t the end of the conceptual design phase, a conceptua]
system design report is prepared to (1) guide physical
· systems design activities, · (2) communicate hovv
management and user information needs will be met, and
(3) help the stee~ing connnittee assess system feasibility.
The main co1nponent is a description of one more
recommended system designs. This description contains the
contents of each output, database, and input; processing
flows and the relationships mnong the programs, files,
inputs, and outputs; hardware, software, and resource
requirements; and_ audit, control, and security processes and
procedures. Any assumptions or unresolved problems that
may affect the final syste1ns design should be discussed.
1/3: Physical Systems Design:
During the physical systems design phase, the company
detennines how the conceptual AIS design is to be
implemented. Physical design translates the broad, user-
oriented AIS requirements of conceptual design into
-
detailed specifications that are used to code and test the
computer programs. As shown in Figure (4/2) physical
system design phases include designing output, creating

============~~F============
Chapter 7 ·: Systems Design

files and databases, designing input, vvriting cmnputer

programs, developing procedures, and building controls into
the new AIS. The following subsections describe these
activities in detaiL

-
Physical Systems
/
Design

~ ! .f, ! ! ~
Output File and Input 1 Program Procedures Controls
design database
desig.Jl
design I design design · design·

Figure ( '1/2)
Physical Systems Design

-1-3-1: Output Design:

The objective of output design is to determine the
nature, format, content, and timing of printed reports,
documents, and screen displays. Output usually fits into one
of the following four categories:
1 - Scheduled reports have a prespecified content and
format and are prepared on a regular basis. Examples
include tnonthly performance reports, weekly sales
analyses, and annual financial statetnents.

=============i9[~F===========
 2 -·Special-purpose analysis reports have no prespecified
content or format and are not prepared on a regular
schedule. They are prepared in response to a management
request to evaluate an issue, such as· which of three new
products would provide the highest profits.
3 - Triggered exception reports have a prespecified
content and format but are prepared· only in response to
abnormal conditions. Excessive absenteeisn1, cost overruns,
inventory shortages~ and situations requiring irmnediate
corrective action trigger such
,..-:.
reports.·
· · 4 - Demand reports have a prespecified content and format
but are prepared only on request. Both triggered exception
reports and demand reports can be used effectively to
facilitate the management process.
AIS developers prepare an output sample and users
evaluate it to ensure that it is complete, relevant, and useful.
Unacceptable output is modified and reviewed as many
times as necessary to ·make it acceptable. To avoid the
expense and time delays resulting from changes made later
in the SDLC, many organizations require users to sign a
document stating that the form and content are acceptable.

==============9~~=============
Chapter · 1 ··: Systems Design

· /3/2: File and Database Design:

It is ilnportant that various con1pany units store data in

co1npatible formats to help avoid the problem A'T&T faced:
23 business units and a jumble of incompatible system. It
was difficult for some of the units to share e-mail with other
units. Perhaps more importantly, the-business units did not
·maintain customer records in formats that allowed them to
be easily -shared. AT&T undertook a five-year project to
create a "single vie~vv" of each customer so that customer
data could be shared across all business units.
·1/3/3: Input Design:
System designers must identify the different types 9f
data input and optimal input methods. Two types of data
lnput, forms and computer screens.
1/3/4: Program Design:
Program development ts one of the most time-
consuming activities in the SDLC. Programs should be
subdivi_9ed into small, well-defined modules to reduce
complexity and enhance reliability and modifiability, a
process called structured progrmnming. Modules -should
interact with a control module rather than with each other.
To facilitate testing and 1nodification, each tnodule should
have only one entry and exit point.

====================~~F===================
 Chapter . -1 ... ·: Systems Design

-!/3/5: Procedures Design:

Everyone vv-ho interacts 'With a newly designed AIS
needs procedures that a,nswer the who, wh~t, when, where,
why, and ho\V · questions related to all . AIS activities.
Procedures _should cover ·input preparation, transction
processing, error detection and . con-ection, controls,
reconciliation of balances, database access, output
preparation and distribution, and computer operator
instructions. Procedures may take the fron1 of system
manuals, user instruction classes, training materials, or
online help screens. Development teams, users, or teams
representing both groups may write procedures.
1/3/6: Controls Design.: The often-heard computer adage
11
garbage in, garbage out" emphasizes ~hat . improperly
-controlled input, processing, and database functions produce
· _ information of little value. Controls 1nust be built into an
AIS to ensure its effectiveness, efficiency, and accuracy.
They should minhnize .e1rors and detect and correct them
when they_ do occur. Accountants play a vital role in this
area.
.1/4: Physical Systems Design Report:
At the end of this phase, the team prepares a physicaL
systems design report that summanzes what was
acc6mplished and serves as the basis for 1nanage1nent' s
decision whether or not to proceed to the implementation.
phase.

==================~····~F==================
 ~
Chapter 1 ··: Systems Dcsigrt
8 *'~7a32 i&'L2J tilfhC' a Wl:l

Key Terms
Conceptual systems design .~ ~~~ ~·.o~~n
r--· -
Control and security.· c.)A~\ .J ~ti)l ~~.
measures
Database design w tldl .. 1..
~· oJcl!
~
~.o•o:::~l

Decision support capabilities ) _;ill ~J u~ts..al

Design alternatives . r~a .All\ Jjl~

Detailed design specifications A..!~I 1 a9il\

~
r. ail\ uti....ol _JA
I4 •

Evaluating design alternatives f' ..lA'."~{ll\ Jjl~ ~fo

File management programs w\..9.WI ;;)_jl ~~Y.
General design considerations ~WI f"JA • .o. lll wi.J~I
General ledger application rWI _j·tw~l (~u.F.rlj;j) ~
....
Jn-house development ;;~I ~b ~_,.b:lll
Integrated systern J.a~ r\J;j
Operating systems ~~~
• *
Operationally, feasible ~ l 17· ..."~II
4.J.
.. .,.
, · .JI ~ c..S .h..a
~Ull l).Q JO
• ~,

Output ·design w4.y;....JI ~· a'l

Physical system design ~ tj_jWI ~ •a ..ll\

Preparing a conceptual ~ ~_,i.J\ ~· a ..lll ~.fo J\.k.l

systems design report
Preparing design r-:~·"' ..,..,ll wti..:ai.JA Jl.k.l
specification~---
~emote batch processing ~. ()C
. ~lc. ~l.J
. . ~~
~

Security 1neasures l_>A~\ ~~

Chapter •1 ·: Systems Design tEl L !17!iEI&S.IiiG51!i!!li...i & ZC£ &a

Service bureau ~~~~.~I

- ---
Software brokers ~6J\ [..AI Y. oY-'l~
-- -
Standard format I.?.J~ ~
Tax benefits ~y..a (y\~) ~~
Technically feasl.ble "
(~ill\ ~t.\1 l.JA) ~ c.j~?J'
Technological obsolescence ~_,1_,.lSJ.ll r~ti:ill
Timesharing services :UWjl\
... ~0 ~~ w~~

Top-down pattern Ji.}:(~\ LJ-4 ~ ~~

============~~F=============
 CHAPTERS
Systems Implementation
and Operation

Learning Objectives:
i\"'\er
... studying this chapter, the student
should be able:
• Discuss the ~ystems implementation
and conversion process and the activities
in this· phase.
• Discuss the systems operation and
· maintenance process and the activities in
this phase.
 Chapter 8 · : Systems Implementation and Operation
'V!?!! ' i£ ~ -n;pp"j"'£ :a& ~ -+

Chapter: 8
Systems Implementation and Operation
B/1- Introduction:
The previous chapters focused on the flrst ttlfee phases
of the systems development life cycle (SDLC). This chapter
·will present the last two phases of the SDLC, systetns
implementation and systems operation.
In the implementation phase, a project team create~· n
working system from the detailed specifications produced
during the physical design. The oper3.:tion phase consists of
the time period in which the system is used to process
accounting data. It represents the objective of the system
development process.
fj.J2- Systems Implementation:
Systems implementation phase is the period of time
during which a working system is produced and placed in
operation. Implementation begins when the information
systems steering committee accepts the detailed-
specifications produced during physical design phase. It
ends with the acceptance of the system by management as
an operational success The information system steering

==========~==========
 Chapter -8 .:: Systems Implementation and Operation

connnittee appoints a project team to complete

implernentation. This project team consists of n1embers .•
of the design · team, programmers, documentation
· specialists, and data entry clerks.
As shown In figure (i/1), implementation phase
consists of the following five activities:
1- Implementation plan,
2- Site preparation,
3-Select and train personnel,
4- Complete documentation,
5- Test system.

•
.. ~
Prepare site,
install and test ~
Complete
documentation ..
hardware r--.
Implementation
planning ~ .-.. Conversion
'

r--.
Select and train
--+ personnel • Test
system r.

Figure (S/1)
Systems Implementation

=============~==============
 Chapter jf : Systems Implementation and Operation

These activities are discussed in this section.

111211= Implementation Plau:R:fling:
An . implernentation plan consists of imple1nentation
· tasks, expected completion dates, cost estimates, and the
person or persons responsible for each task. The plan
specifies when the project should be complete and when
the AIS is operational. The implementation team should
· identify risk factors that decrease the likelihood of
· successful implementation, and the plan should contain a
strategy for coping with each of the identified factors.
AIS changes may require adjustments to a company's .
existing organizational structure. New departments may be
created and existing ones eliminated or reduced in the size.
The structure and status of the data processing department
itself may change.
8!212- Site Preparation:
Frequently a new system requires the acquisition of
additional computer equipment and software. The
design team selects their sources during the systems-
design phase and place orders for equipment and software.
The implementation project tean1 then begins equip1nent
installation, putting in place the equipment and software so

============~============
Chapter 8' :Systems Implementation and Operation

that testing and conversion activities can occur. Smnetimes

the temn 1nust prepare a site for the equipment before
installing it.
For example, a mainframe computer may require
extensive changes, such as additional electrical outlets, data
com.Inunications facilities, raised tloors, humidity controls,
special lighting, and air-conditioning. Security measures,
such as fire protection and an emergency power supply, also
may be necessary. Space is needed for equipment, storage,
and offices. Site preparation is a lengthy process and should
begin well in advance of the installation date.
B/2/3- Select and Train Personnel:
In some system development projects, training begins as
soon as a conceptual systems design is completed, and it
may continue into the operations phase. Most training,
hovvever, occurs after the completion of the design phase
and prior to testing of the system.
Employees can be hired from outside the company
or referred internally. Hiring from within is less costly,
1nore effective. alternative, because employees already
understand the firm's business and operations.
Transfening employees who are displaced as a result of the
new systen1 could boost employee loyalty and morale.

============~F===========
Chapter 8 : Systems Implementation mad Operation
~~~~~~~.z;s~~m:::zt:t&S!WJJI£&:13E.!I&lo~

\\'hen users are not adequately trained~ the cornpany

·will not achieve the expected benefits and retun1 on its
investment. The hidden cost of inadequate training is that
users tum for help to coworkers who have mastered the
system resulting in less coworkers and increased company
costs.
Effective AIS training must consist of more than just
hardware and software skills. Employee must be
oriented to new policies and operations, and training
should be planned and scheduled so it occurs just before
systems testing and conversion. Two groups of employees
who benefit from training are the users and the computer
operations personnel.
1-User Training:
Users include the managers, supervisors, and clerks
who receive outputs from the system or provide inputs to it.
Members of the design team have primary responsibility for
user training, although they may receive help from
supervisors or outside consultants. User training relies-
heavily on the descriptions contained in the procedures
rnanual.

=========~=~=======
 Chapter. '8 : Systems Implementation and Operation
........

Men1bers of the design tearn teach users the non-

cmnputerized tasks required by the nev1 ·system. They
describe procedures for data entry and give instruction on
the use of outputs from the system.
2= Operating Training:
The project manager provides operations training for
employees directly involved in running the computer
equipment. They include:

@ Data entry clerks: they are the people who convert

accounting transactions into a computer. readable form
by the computer,
• Computer operators: They are people who work at
- a data· center and physically operate the computer and
its storage devices,
• Technical support personnel: They make repairs to
equipment or software when it malfunctions.
• Data control clerks: they distribute to users the
reports produced.
Many types of training programs are available to
companies, such as technical training from vendors, self-
study manuals~ computer-assisted instruction, videotape
presentations, role-playing, case studies, and experiinenting
" c
with the AIS under the guidance of experienced users.

==================~==================
Chapter. 8·. :.; Systems Implementation and Operation

:'~12/4- Complete Documentation:

Three types of documentation must be prepared for
new systems:
1- Development documentation:
It describes the new AIS. Development
documentation includes a system description; copies of
output, input, and file and database layouts; program
flowcharts; test results, and user acceptance forms.
_2- Operations documentation:
It includes operating schedules;_ files and databases
accessed; and equipment, security; and file-retention
requirements.
3- User documentation:
It teaches users how to operate the AIS. It includes a
procedures tnanual and training materials.
: J215- Test the System:
Another activity during the implementation phase is
testing. This activity follows programming and must
precede conversion, but it may proceed at the same time as-
some training tasks. Inadequate system testing is one of
the main reasons of system failure. Following are the three
common forms of testing:

==============~~============
Chapter 8 : Systems Implementation and Operation

1= Walk-tlJ_rough.:
They ar~ step-by-step reviews of procedures or progran1
logic. The development teatn and system users attend walk-
through early in the system design. The focus is on input~'.'

files) ~utputs, and data flows of the organization.

Subsequent walk~through, attend by programmers,
addres~ logical and structural aspects of program code.
2- Processing test transactions:
It determines .if a program operates as designed.
Valid and erroneous data are processed to determine if
transac~ions. are handled properly and errors are
detected and dealt with appropriately. To evaluate test
results, the correct syste1n response for each · test
transaction must be specified in advance.
3- Acceptance testing:
In many accounting applications, the output of one
program provides. an immediate input to another
program. For example, one progran1 may re-sequence a
batch of accounting transactions. This stored batch · of
transactions is then an input to another program that
prints a report listing them. Next, another program posts
each transaction to a ledger.

~=========~~==========
Chapter -g- : Systems Implementation and Operation
l e ~I

In systems terminology, these programs are tightly

coupled. It is not enough to knovv that each program
works properly; the projectteam must als.o 4etermine that
the entire series of programs functions as intended.
Acceptance testing uses copies of real transactions
and files rather than hypothetical ones. Users develop the
-
acceptance criteria and n1ake the fmal decisions whether to
accept the AIS.

B/3-Syste:u;ns Conversion:
Conversion is the process of changing from the old
system to the new one during the conversion activity, the
project team tests the new systep1 urider actual operating .
conditions. Conversion _ provides the team with the
opportunity to tnake final modifications to the system
before the organization relies on it for processing
accounting transactions. The project team completes three
tasks during conversion: data. conversion, volume testing,
and system changeover.
8/3/1- Data Conversion:
The first task in conversion is to change the data are
stored. The objective in data conversion is to maintain

==============~F=============
 Chapter S. : Systems Implementation and Operation
-
the accuracy and co1npleteness of existing data while
creating the new data entities required b~y the new systen.1.
The method for· doing this depends on technology used by
the old system.
So~etimes, the project team. converts from non-
computerized system to a computerized one. In this case,
the data used by· the old system are recorded on paper in
journals, ledgers, documents, and reports, which are stored
in filing cabinets. The project team changes this data into a
form that can be interpreted· by the computer equipment.
This me~hod of organizing the data in the new system is ·
consistent with the specifications created during system
design.
When the change from one computerized system to
another, the process of data conversion is usually quicker.
The project team writes computer programs to change data
from the old to the new system. The team in this case
verifies that the program create the new data records
· without losing computer records or altering their contents.
From an internal control standpoint, data conversion is
critical. Data contained in a new systetn tnay con1e from u
variety of sources in the old system, and some tnay be

====~=======(§9~===========
computerized 'While others are not. Vlhile others are not"
Thus, the process 1nay be a co:rnplex one. The project team

=====================~~~F===================
Chapter. g'- : Systems Implementation and Operation
~ &6 .. Sf !j$¢5$ !iii'R!< ill i5E1
-
· /3/3- System Changeoveft
After the new systerr1 has passed volume testing, the
project team m_akes it operationaL They call this task
system changeover. "The four common approaches to
change~ver are the direct approach, a parallel operation, a
pilot systen1 and system phase-in.
1~ Direct Conversion:
Direct conversion inunediately terminates the old AIS
when the ne\v one is introduced. Direct conversion is
appropriate wheri the old AIS have no value or the new one
is so different that comparisons between the two are
meaningless. It is a viable approach for noncritical
syste1n that involves simple processes and few people.
This approach is inexpensive. In most cases, howe~er,

unexpected problem surfaces during conversion. If this

occurs with direct conversion, the old system is not
available as a backup. The organization must_ function
without any system until the problem with the new one is
correcte~. Because an organization cannot afford to do
this for most accounting applications, the approach is
seldom used.

===================~~F_=================
 Chapter: '8 .-~ Systems Implementation and Operation "
~·~~t~.~~~~~~ ~·?=6"-~~--~~~~~

2- Parallel Conversion:
Parallel conversion operates the old and ne'N
systems simultaneously for a period of time. T~a:tn
members then compare the results. from both systems and
reconcile .any differences. If differences arise because ·the
ne\v system :fi:mctions in1properly, they correct it before the
organization becomes reliant on it. The old system
continues to operate as a backup.
Because parallel operation is the safest approach to
system conversion, it is also a cow_ffion one. But this
approach requires that all operations be performed twice:
once using the old documents, procedures, and programs,
and· once using the new ones. Often employees dread
parallel operation because it doubles their workload. If
they are already working at near capacity, parallel
operation require extended overtime· work. For this reason,
the organization may choose to hire temporary workers to
help the full-time employees.
3- Pilot System:
The project team may decide to implement the system
first within a limited segment of the organization, such as a
branch, depmi1nent, sales region, or a subsidiary. The temn

=============~====~~=====
Chapter· 8 :: Systems!mplemcntation and Operation

members correct the unexpected problems in this pil~t

systen1 before introducing the system throughout the

oigariization. In this way, the u,nexpected problelJl? affect
only a portion of the organization.
This approach localizes conversion problems and
allows training in a live environment. The disadvantages
are the long conversion tilne and the need for interfaces
between the old and· the new system, which coexist until
the location, have been converted.
4- Phase-in Conversion:
In some situations,_ the project team may choose to
gradually replace the old AIS with the new one. For
"example, the team can implement the inventory system, then
disbursements, followed by sales collections, and so forth,
until the whole system is functional. These gradual
changes mean that data processing resources can be
acquired over time.
Phase-in approach limits the problems that can
arise during conversion to those associated with the
current portion of the system. This makes it easier to
correct problems, and it helps control their impact.
However, the characteristics of 1nany systen1s do not allow

========~-~~=======
Chapter ff : Systems Implementation and Operation

phase-in. The disadvantages are the cost of creating the

temporary interfaces between the old and the nev; AIS and \l

the time required to rnake the gradual changeover.

814- Systems Operation:

The operation phase is the period of time during which
the system functions as a provider of accounting
information. As the last phase in the SDLC, it is the
objective of the system development process .. Accountants
are involved in three activities during the operation phase:
Post-implementation review, system tnaintenance, and
accounting for systems costs.
B/4/1- Post-Implementation Review:
The post-implementation re"View follows the completion
of a system development project. This analysis and
appraisal of the new system usually occurs about six
months after conversion. Its purpose is to determine if the
new system meets the objectives established for it during
systems analysis.
1- Responsibility for the review:
The infom1ation systetns steering committee appoints a
review team to conduct the post-implementation review.

==============~=.=============
"'h . temn
1 e revwv\r ' norm.a11y
l' consists
. o f. one or two sys t erns
analysts who participated in the developn1ent process
from syste1ns analysis through implementation. It should
also include so1neone impartial, who did not work on the
develo:pn1ent project. Smnetimes the comrnittee appoints
an internal auditor to the review teatn for this reason.
2- Procedures in the Review:
In its review, the tearn evaluates the outcom.e of the
system design project. Its members estimate the costs and
.benefits of the system and compare · them to· · those
predicted during development. They identifJ the source of
differences between actual and predicted costs. They
~determine the adequacy of the documentation provided by
the design team and the implementation project team. The
review team ·also evaluates user satisfaction with the
system, and the adequacy of its internal control.
a- Evaluating Costs and Benefits:
The first step in the in the review is to estimate the
costs and benefits of the system. The review team calculates
the initial costs of developing the system. Because the
s.yste1n has operated for several months, it also· develops
accurate estimates of ongoing costs and savings. The

==========~~~F=============
 Chapter~ i5 ·: Systems Implementation a:mi Operation

. :review· calculates these and compares them to the costs

and benefits projected during syste1ns analysis. This
provides the analyst with feedback concerning the
accuracy of the cost-benefit analysis that they performed
when determining economic feasibility. The feedback aids
them when performing another feasibility analysis for a
later project. Table 5-1, contains suchan evaluation of the
cost-benefit analysis.
The review team then determines why actual cost?
differ from predicted costs. Differences sometimes
arise from uncontrollable sources such as unexpected
price changes, policy changes, or changes in the
economic environment of the organization. In other
cases, differences originate from controllable sources
that include inaccurate estimates or inefficiencies in the
development process.

==~==========~==~==================
 Chapter · 8 : Systems Implementation and Ope1·ation

Table (8'/1)
Evaluation of Cost-Benefit Analysis

Esti!l);ated Actual,
'

Initial cost:
Installation L.E. 24,000 L.E. 40,000
Initial programming 144,000 170,000
Training and parallel system Cost 72,000 90}000
Total cost L.E. 240,000 L.E. 300,000
Annual operating costs and
saving
Salaries of computer personnel L.E. 208,000 L.E. 240,000
Power supplies 42,000 44,000
Computer rental 86,000 90,000
Total L.E. 336;000 L.E. 374,000
Less: Salary saving (534,000) (460,000)
Net cost saving L.E. 198,000 L.E. 86,000

b- Evaluating Documentation:
During the post-implementation review, the review team
evaluates the adequacy of the documentation for the new
system. Preparing adequate documentation during a project
is important because:
• . Auditors review documentation a",, a part of
operational and financial audits.

==================·~=================
 Chapter:· 8' ,-:Systems Implementation and Operation

@ Adequate documentation also aids systems analysts

when they investigate fhture problen1s with the system.
• Furthermore, an examination of docun1entation is an
efficient way. to begin the other procedures in the
post-implementation review.
In studying the phases of the SDLC, you have learned
about three types of documentation: Design documentation,
user documentation, and operations documentation.
c- Evaluating User Satisfaction:
The objective of a post-implementation review is to
determine whether a new system meets its objectives. An
effective way of doing this is to find out users' rea<?tions to
the system. In many cases, users initiated the development
process. Such a system cannot be considered a success
unless these users think that the objective of the system
has been tnet.
Commonly the review team determines user satisfac~ion
by conducting interviews with key users or supervisors
within the user department. If there are many users, the-
temn Inay develop questionnaires for this purpose.
Input from users during the review identifies
-shortcoming in the system design that are to be avoided in

==============~F=============
-
Chapter· 8 ~: Systems Implementation and Operation

later projects. Additionally, the team may identify problems

that can. be corrected easily by changes to the system's
· progratns or procedures.
d- Evaluating Internal Controls:
Frequently, the review team includes an auditor to
evaluate the effectiveness of internal control in the new
system. Auditor evaluates controls as a part of their
routine operational and financial audits~ However, by
examining them during the post-implementation review,
an auditor identifies material control weaknesses .before
they have a widespread effect on the accuracy of the
accounting records.
The review· team pays special attention to error
correction procedures in the new system. Errors may be
introduced into accounting· data either on. input, · as
trans,actions are recorded in computer-readable form, or
during processing by computer programs. Many control
measures, called detective controls,. are included in the
accounting system to identify this erroneous transaction
·before they are posted to ledgers. Error correction
procedures provide a method of correcting the erroneous
transactions and reentering them into computer processing.

==============.~F============
Chapter B- -= Systems Implementation and Operation

In revievving error correction procedures, the temn looks for

either of two possible occurrences. Son1ethnes these
procedures may identify excessive erroneous transactions,
which indicate to the auditor that additional preventive
controls are needed in the syste1n to stop these errors. On
the other hand, the system may identify few errors, which
may indicate that additional detective controls are needed.
3- Reasons for Performing Review:
There are four benefits from conducting a post·"
implementation review:
First, the review provides the design team with
information that could improve future projects. It
identifies shortcomings that can be avoided in future
deigns and improve the abilities of analysts to estimate
costs and benefits.
Second, the review occurs soon after conversion. If the
system has serious shortcomings, these can be corrected
promptly before excessive costs results.
Third, the ~owledge that a review will be performed
motives the n1embers of the design and project team.
They are more thorough in their tasks knowing th:1t a
review team will later examine their work.

========~~======
 Chapter : Systems Implementation and Operation

Finally, the review provides another opportunity to

evaluate the performance of MIS personnel. The
success of, future design projects depends on how
effectively their skills are utilized.
Although the procedures of the post- implementation
review consist of an examination of past actions, the
focus of the review is on the future. A review is successful
and worthwhile when it benefits future- system development
projects.
· /5-System Maintenance:
An activity that takes place .throughout the life of a
system is the maintenance of both computer equipment ~nd
'
computer software.
1- Equipment maintenance:
Equipment maintenance is an ongoing activil •, ·
performed by technical personnel. ·usually the MIS
department e1nployees · technical specialists for this
purpose. Somethnes the organization enters into contracts
with vendors to maintain selected pieces ofequipment for a
monthly fee. Accountants are only indirectly concerned
with equiptnent 1naintenance.

============~F========== ··~
Ch.r:1pter. ' .~: Systems !ir;i~pl£cme:ntatio:n ami Operation
~~~~'2!:-;.;:~·~~~--£?.,.~~~~~~

2- P:rogr:un (Softwa:ne) rnai:ntena:nce:

Accountants and other users frequently initiate
program n1aintenance~ These are the ·inevitable· minor
changes to existing systems during the operations phase.
Users submit requests for program maint_enance whenever
they identify hnprovements ·for the inputs, programs, or
outputs of a syste1n. Program maintenance also occurs when
a malfunction in an accounting system requires planned
changes.
Progrru:n maintenance can be classified into:
a- Planned System Improvements:
Users' needs for information change rapidly, and
accotmting syste1n rnust adapt to new information needs. As
users identify potential improvements, they submit program
change to the chief information officer (CIO); who refers the
request to the information systems steering committee. If the
user's change is a minor one, however, the CIO assigns it
to a maintenance programmer for implementation.
As you can see, the difference between a change thaf
requires a new system and one that requires only syste1n
maintenance is a matter of degree. A major change requires
a developn1ent project; a minor change requires

=========@),~========
Chapter . · : Systems Implementation and Opemtion

1naintenance. As a guideline, system maintenance changes

are those small enough to· be accomplished by one person
rather than by a project team.
b- Unplanned Changes:
During the implementation phase the project team
tests each· individual program and then tests the entire
program operating together. Ideally, they test every logic
path in every program and every possible type of transactions.
In reality, complete testing is difficult to ac~ieve.
Sometimes the project ·team overlooks a possible
combination of events or an unusual type of tran:::.action, and
the system is incapable of processing it. When occurs, ~
'
program, a program in the system terminates abnormally,
and the system does not produce the desire output.
Computer operators then call a maintenance prograrmner to
modify the program. This unplanned maintenance is common
in new systems; occasionally it is necessary even after a
system has been operational for many years.

===============~F==============
Chapter - · ~~ Systems lmpiemeliltation :ffind Operation
~~~ ....§:b~b-~~~!!~~~~~~~

Key Terms
""""'""
fActual hnplementa;-- ~~ ~}i:t,l\
- --
Authority structures UJ..JI JS~
----
Backup and recovery
measures
Bench-marks
-

Computer operator
. "'\J.JI :;jtc1a .1:.~·~n ~~.Sa ) .JE't.:w. •

. . ·- - ~y U"F.~ I
~WI J;~
-
Control techniques and .6..:ti)I wly \.»l.J ~LJ
procedures.
_..__ .· . ·
Data secunty prov1s1ons ~ tlull
<-J ~- · \ wLbt..ib,.\
(.).4 . "'

Documentation standards ~ :.~\

l9-F
. k-.
..»;
-
Documentation tasks· .. :._;JI f"~
~
"
Final systems design ~ ~4=JI r¥''Q..)n
Financial budget UW\·:u·1~1
~ .)

F onnal conversion plan ~

~ .) ~.._p-l.. ..b.:i..
Implementation activities ) 1s·t)ll 4..b:J
Implementation plan \Jqf,l\ ~

Implementation tasks ~~~

.. f"
Internal audit department ~1.)}1 41yJ) ~
Job perfonnance standards .. )I
4.iJ.; y I~ ~ 6..4
Major info1mation system wlA~I ~c) ~L}:I\ w\~1-
chancres
-b

Operating budget (4~~ .~u) ~)-~ :Ujly

Operation phase ~\ 4..b.y
- -

=============~~============
 --...__,----------··-·----·
Prior phases (~):il) ~}ll ~\_;.JI
1-· -·- 1--"----------------·-----
· Site preparation ci_,.J! ..ll.!ic1
Social systen1
System 1naintenance
System modific~tion
System-related resources rU2:JL.4.h.u
.~ · -\I ..l.J.r--
I · -'I
Systen1s implementation
Tecb.nical system

=============~F============
P AR'f 111: .Accounting In.f~'lrmati.on.
Systems Applications:
CHAPTER 9: The Revenue cycle: Sales
and Cash Collections.
CHAPTER 10: The Expenditure Cycle:
Purchasing and Cash Disbursements

·.Chapter 11: The Production Cycle.

Chapter :12: ·General Ledger and Reporting
Cycle.
 CHAPTER9
The Revenue Cycle: Sales and
Cash Collections

Learning Objectives:
After studying this chapter, the student
should be able:
• Describe the basic business activities
· and related i-nformation processing operations
·perforn1ed in the revenue cycle ..
• _Discuss the key decisions that need to be
-n1.ade in the revenue cycle, and identify th~
information needed to 1nake those decisions.
• Identify major threats in the revenue cycle
and evaluate the adequacy of various control
procedures for dealing ''\lith those threats.
Chapter ·f .: The Revenue Cycle: Sales and Cash. Collections

.Chapter 9
· The Revenue Cycle: Sales and Cash
Collections
Introduction:
Most organizations generate their revenues through the
sale of products aild I or the provision of services. The
activities that relate to the generation of revenues constitute
. .
the revenue cycle. The -revenue cycle is one of the principle
transaction cycles that interacts with and provides basis
inputs to the general ledger and financial reporting system.

9/I- Definition and Nature of the Revenue Cycle:

The revenue cycle is a recurring set of business
activities and related information· processing operations ·
associated with providing goods and services to customers
· and collecting cash in payment for those sales.

==========~~F===========
Chapter .5 .::: The Revenue Cycle: Sales and Cash Collections '··

Deposits Bank

Inquiries

Orders General
Payment ledger and
reporting
system

Responses- to inquiries

Invoices
Information Human
Information
about goods about goods resources
available available management
payroll cycle
Expenditure Production
cycle cycle

Production and
purchasing needs
(back orders)

Figure (9/1) diagram of the Revenue Cycle.

·;9/2- Objectives of the Revenue Cycle:

The revenue cycle primary objective is to proyide the
right product in the right place at the right time for the right

================~~~===============
Chmptcr 9. :: 'fhe Revtm~e Cyde: Sales and c~sh CoHectiuns

price. Other detailed objectives of the re·venue

include:
1- Verif.y that custmners are worthy of receiving credit,
2- Ship the goods or perform t.~e service by a greed on
dates,
3- Bill for products or services in a timely and accurate
manner,
4- Record and classiiy. cash receipts promptly and
accurately,
5- Post sales . and cash receipts to proper Customer's
accounts in the accounts receivable ledger,
6- Safeguard products (until shipped) and cash (until
deposited), and,
7- Prepare all needed documents and financial and
managerial reports related to the goods or services.

fJ/3- Revenue Cycle Sources of Input:

. ~)

Custorr1er provide the primary data input to the revenue

cycle. Custo1ners initiate both the sales and the cash receipt _
..

transactions. At"so, when defective or incorrect products ate

shipped, custo1ners start the sales returns and allowances
process. Other sources of data inputs include sales ·persons,

= ======== ----,(U;)}===========
~
 Chapter .~. :: The Revenue Cycle: Sides 1md Cash CollectiQns
.·
..

the customer credit records, the inventory records, the

finish~d goods warehouse, the shipping departn1ent, and the
common earner.·

.}4- Relationships with·othe:r Accounting Cycles:

Information about the revenue cycle acti·ifities flow to
other accounting cycles (through centralized datab(lse). For
example:
s The expenditure· cycle and production cycle u0e
information about sales transactions to start the
purchase or production of additional inventory to meet
demand.
•Ill! The human resources managen1ent payroll cycle uses
information about sales to calculate sales commissions
and bonuses.
• The general ledger and reporting system uses
information produced by the revenue cycle to prepare
financial statements and performance reports.

·~/5- Revenue Cycle Business Activities:

There are four basic business activities performed in the
revenue cycle (Figure 6-2):-

========~~~==========
 Chapter ~ ·: The Revenue Cycle: Sales and Cash Collections

lnqulries
. Sal~s 9rde~ · .
Resp<?ns~ to inquiries
Sales order

lnformolion
about
goods
ovailoble Inventory

Expendit~e Produdion _Customer

cycle cyde

Bock
orders

Padcina slip Poc:kinS $lip

Customer .....r~-----.-:-..;....._,.,..;...; Carrier -~ . • . :::J,
SiH of lading BilhlliWng:

lnvoic~

Payments

Bonk
t---- Ca$h r~eipjs. ··. ··'.:

S!ofemenls· General ledger ·

and·
reporting. system

Figure (9/2) data flow diagram of the revenue cycle

==========~~IF===========
 Chapter 9 .: The n.evcuue Cydf;: Sales and Cash Conections

Sales order entry"

1- Shipping.
2- · Billing.
3- Cash collections.

9/5/1- Sales Order Entry:

·The.revenue cycle begins with the receipt of order from
· customers. The sales order department performs the sales
order entry process. Figure -3 shows that the sales order
entry process consists of three steps:
1- Taking the customer order.
2- Checking and approving customer credit.
·3- Checking inventory availability.
Figure 6/3 also includes another important event, that is:
responding to customer inquires.

============~~F=============
Chapter Six: The Revenue Cycle: Sales and Cash Collectio_ns
= = ~= !Ai:::SW:

Inquiries

I
Sa~s
Order
/

I~eP··l Billing Warehouse Purchasing

Figure (9/3) data flow diagram: sales order entry

Y/5/1/1- Taking Customer Order:

Customer order data are recorded on a sales order
document. The sales order contains information about the
items numbers, quantities, prices, and other tenns of sale.
The docu1nent is usually on electronic from displayed on a_
computer screen.

================~~~F================
 C ustOJTler oraers can bJe rece1ve
. d 1n
. un1erent
..:i" .:'+. •
1
ways: n1
store, by 1naH, by phone over a web- site, or by a sales
1

person in the field.

Companies can use Information Technology to hnprove
the effi~iency and effectiveness of the sales orderly entry
process. Examples of using IT include:

1- Customers enter sales order data then1selves. The

customer niarks iterns numbers artd quantities on
preprinted order forms that on optical character
recognition (OCR) device can read.
2- Web- sites provide a way to auton1ate sales order entry.
Online order information can be automatically
·' transferred to the warehouse to generate picking and
shipping processes.
3- Use of interactive sales order entry system (called
choice boards). It allows customers to customize
products to meet their needs at the right price.
This approach helps to increase sales and improves
company cash flow in to\V ways:
• Sales are built- to- order which leads to less
inventory and less capital tied in inventory.
• Co1r1panies collect all or part of the price In
advance.

==================~~~~==================
 Chapter :9~ :.: The Revenue Cycle: Sales and Cash CoHec~~ons
;j'IWtl....,. ~"=~~ E U m':; Mi4ZU ililiJQ 4£0ttill,.~

4- Use Electronic Data Interchange (EDI) to link directly

with customers. This way customers would send their
orders directly to supplier's sales ofder system in a fonn
that would eliminate the need· for· data entry. The
customer provides the supplier with access to data from
the custo1ner's~point- of- sale (PO) system. The POS
system tracks what inventory is sold. The supplier uses
that data to 1nonitor customer's inventory levels and
automatically starts replenishment when inventory falls
to specified levels. This system _is called vendor-
Managed- Inventory (VMI).
Regardless of how customer orders are received, the
following edit checks must be performed to ensure complete
accuracy:
• Validity checks of customer account and inventory
items numbers, by comparing them to information in
the customer and inventory master files.
• A completeness test to make sure that all necessary
information is available.
• Reas.onableness tests that compare the quantity being
ordered to past history for that item and customer.

============~~F============
Perfonning such test~; on-~ line makes it easy to correct
n1istakes on line saies.order entry also increases ciccuracy by
reducing data items that must be manually entered.

9/5/1/2- C:redit App:rovai:

1v1ost Business-· to business sales are mode on Credit.
Credit sales should be approved before they are processed.
For existing c·ustomers with 'Well- established paynient
history, approving customer credit involves checking the
custorners .master file to verify the account exists; identify
the customer's credit limit (maximum allowable debt
account balance), and verifying that the amount of the sales
order plus the current account balance does not exceed the
credit limit. If the new order does not cause the customer's
account balance to exceed the credit limit, then the order is
accepted. This process can be automated, which increases
efficiency and reduces the opportunity for errors.
If the sales order would cause the customer's account
balance to exceed the Credit limit, then an E-Mail or Instant
Message can be sent to the credit manager to decide whether
to approve or reject the order.

========~~F=========
CJ/5/1/3- Checking Inventory Availability:
The objective here is to detennine if there is sufficient
inventory available to fill the order, so that customer cap be
informed of the expected delivery date.
If sufficient inventory is available to fill the order, the,
sales· order is completed and the shipping, inventory control,
and billing .departments are notified of the sale and on
acknowledgment may be sent to the customer.
If there is :n0t sufficient inventory on hand to fill the
order, a back order fot those items rnust be issued. In
manufacturing c0mpanies, issuing a back order involves
notifying the production department to stat the production of
the requested items. In merchandising companies, the
purchasing department would be notified about the need to
order (Purchase) the required items.
Once the inventory availability has been determined,
the systein then creates a picking list that indicates the items
and quantities of each item that the customer order. The
picking list authorizes the inventory control function to send-
the goods to the shipping depalitnent.
Traditionally, the picking list is a paper document.
Nowadays, it is often on electronic frmn that 1nay be

================~~F=================
Chapter·~·: The Revenm~ Cycle: Sales and Cash Collections

displayed on portable device or on 1nonitors built into

forklifts. To improve efficiently, the picking list 1nostly,.
shows the items ·by the sequence in which they are stored in
the warehouse.

9/5/1/4;. Responding to Customer Inquiries:

Sales order entry process also includes responding to
customer inquiries. Sometimes these inquires are before the
order, and usually they occur after orders have been placed.
Responding to customer inquiries is very important ~
Many companies use special software package, called·
customer Relationship Management (CRM) to SUPP?!i
'customer service process.·
CRM system help organize detailed information about
custotner for more efficient and more personalized service.
For example, information about customer preferences and
·transactions history can be used to suggest other products
the customer may want to consider. The objective of CRM
:is to going customer's loyalty.
Many customer inquiries are routine. Therefore,
companies can us information technology (IT) to automate

==========~~===========
the resnonse to cornmon c1uestions, such as auestions about
.!. . s. .

$account balance and order status.

V\7eb- sites. provide a cost- effective method. Web-sites
enable customer to use personalized Identification numbers
(Pass- -words) to directly access their account infonnation
and check on the status of orders.
V'-leb-sites designed to provide customer service should
include a feature to enable customers to obtain real-tin1e
expert assistance and advice in relation to non routirie
questions.

9/5/2- Shipping: '·

The second basic activity in the revenue cycle is filling

the custon1er order and shipping the merchandise. Figure -4
shows that this activity consists of two steps:-
1 - Picking and packing the order, and,
2- shipping the order.
The warehouse and shipping departments perform these
activities.
9/5/2/1- Pick and Pack the order:
The picking list printed by the sales order entry starts
the pick and pack process.

===============--=~F==========
 -~--¥··-··~--------~-------·-·~----~--':"-'- . . . .--.. .-.
l~Ji<i'~;&~~~~~~r,c;-,.;-..;t.~k~t-:'a::.-~~'-!.~::;.t.:.~""'~-s.z::r-.:.<:.;-~:r.=!l~~~.t;::.;.~'t~T.:.:~~-.;M3'/"f."::C~:<.>.-,-.!X•'-.::.-.<-::::!0.-;.;.-::.~1:.--'i:'.;~~~-:-~-.;.~~·:'d..~~
...,~------·~~~-~-·-------~~~-----~---~""~="-"---~~-·-~-

Sales Order
·{\1 - - - - - ' - - -

Sales Order
Shipments

Billing of Lading
Packing Slip Goods Packing
Slip Bill of Lading
Billing and
Accounts
Carrier
Receivable
..-

Figure (9/4) data flow diagram shipping

Warehouse workers use the picking list to identify

iten1s and qum~tity of each product to remove from
inventory. Warehouse workers record the quantities of each
iten1 actually picked, either on the picking list itself, if a
paper docmnent is used, or by entering the data into the
systern if electronic forms are used. The n1crchandise is then
transferred to the shipping department.

===========,~l============ ~.
 Many companies have made major investments in
automated warehouse systen1s consisting of computers, bar-
code scanners, conveyer belts, and communication
technology. The goods are to reduce the time and cost of
moving inventory into and out of"the ~Narehouse and also
hnproving the accuracy of perpetual inventory syste1ns.

9/5/2/2- Ship the Order:

The shipping department compares the physical count
of merchandise ·with the quantities indicated on the copy of
the picking list and with quantities indicated on the copy of
the sales order that was sent directly to shipping :fi-om sales
·order entry. After correcting any discrepancies (Missing or
wrong items), the shipping department enters the cortect
quantities shipped on the packing slip.
After the shipping clerk counts the goods delivered
from the. Warehouse, the sales order number, item(s)
number( s), and quantities are. entered using online terminals.
This process updates the quantity -on- hand in the inventory
master file. It also produces a packing slip and multiple
copies of the bill of lading.

======~~€V~========
Chapter 9 ·. : The Revenue Cycle: Sales and Cash Collections

The packing slip (it 1nay be a copy of the picking list)

lists the quantity and description of each ite1n included in
the shipment.
The bill of lading is a legal contract that defines
responsibility for the goods in transit. It identifies the
carrier, source, destination, and any special shipping
instructions, and it indicates who (customer or vendor) 1nust
pay the cost of transportation.
A copy of the bill lading and the packing slip
accompany the shipment.
The shipping department keeps a copy of the bill of
lading to track and confrrm the transfer of goods to the
carrier. Another copy of the bill of lading and the packing
slip are sent to the billing department to indicate that the
goods have been shippe<:f and that an invoice should be
-
prepared and sent to the customer. The carrier also keeps a
copy of the bill of lading for its records.
9/5/3- Billing -.
The third basic activity in the revenue cycle involves
billing customers. Figure (6/5) shows that this activity
involves two tasks:-
1- invoicing.

========~~~=======
 • accounting
tne . .,.depart1nent.

r Sales f- Sales order ......--'""~ Packing slip

I order · -----~ ~ 3:1" \~--
Lentry J lnvmcmg Bill of lading
Shipping JI
Sales
- Llnvoice

General Customer Sales Customer

,ledger and
reporting 1
System I Monthly
statements

Mailroom

Figure (9/5)
Data flaw diagran1: Invoicing and accounts receivable

. 9./5i3/1- Invoicing: .
the billing activity is an inforn1ation processing activity-
that Sli.tnn1arizes information from the sales order activity
and the shipping activity. It requires information fr01n the
sales departn1ent about prices and any special sales terms

-~
========l~--
infonnation from tbe shipping depart:rnent about the items
and quantities shipped.
Th~ basiC docu1nent produced in the billing process. is
the sales invoice, which notifies customers of the runounts
to be paid and where to send payment.
Usually, a paper invoice i~ mailed to customers. On the
other hand, information technology opportunities costs
associated 'Nith billing. Sending invoices to cu~tomers via
EDI (Electronic Data Interchange)is faster and cheaper than
1nailing paper documents
Another method; companies can provide their business
customers with access to a web site at which they can view
~ccounts and make.electronic payments.
Businesses may encourage their customers to sign up
for online billing and payment using the Internet, EDI
invoices and online bill payment benefit both sellers and
customers by reducing time and costs associated with
processing paperwork.
If both companies have a well designed online systems,
it may be possible to make an agreement in which buyer
will n1ak~ the payment with a specified number of after
receiving the goods. The seller sends an E-1nail to mortify

========~~~========
Chapter 9 : The Revenue Cycle: SaJes and Cash CoHect~ons

the buyer when the goods are shipped and the custon1er
sends an electronic a know lodgment when the goods are
recetve.

9/5/3/2- Maintain Accounts Receivable:

The accounts receivable function performs two basic
tasks:-
• debit customer accounts for sales made to them, based
on the information on the sales invoice.
• ·Credit custom.ers accounts when payments are receives ..
There are two \Vays to maintain accounts receivable:
* open invoice tnethod.
* balance- forward method.
The two methods differ in terms of:
a- when customers make payments,
b- how those paytnent are applied to update the accounts
receivable master file, and
c- the fonnat of the monthly statement sent to custmners

1 - The open invoice method

Customers pay according to each invoic.e.
Usually, 1\vo copies of the invoice are sent to the customer.
The customer is told to return one copy with the payn1ent.

============~~F============
Chapter '9 -: The Revenue Cycle: Sales a:nd Cash CoU~diom;

This copy is a turnaround document called the remittance

advice. Custon1er payments are the applied against specific
Invoices.
The·advantage of the open invoice method include:-
a- offer_ing cash discounts for early payments, since each
invoice is individually tracked.
b - leads to more unifonn flow of cash collection through
the month.
The main disadvantage of tills methods is the additional
effort required to keep infonnation about each invoice for
each customer"
. .
As a results, the open- invoice method is used by
business who sell to ·other business, so that the nun1ber of
transactions (and invoice) is ·small and the value of each
transaction is high.

2 - The balance forward ntethod:-

In this method, customer pay according to the amount
shown on a monthly statement. The nionthly Statement lists
all transactions, including both sales and payments, that
occurred during the past month and informs customer of
.
their current account balance. The monthly statement

============~~F~============
 remittance ad·vice, with their payment Pay1nents are applied

invoices. This method is suitable for cornpanies that have

large nun1ber of crwto:m.ers who ~make r.aany sn1aH purchases
each tnonth~ such as credit cards companies. For those
cornpanies, this method is rnore efficient and reduces. costs.
- It is also more convenient for the custoraer to rnake one
n1onthly payn1ent.

9J5l4- Cash Collection:

The final step in the revenue cycle is cash collection.
For internal control purposes, there are more than one
method to process cash collections.
One method, (when the custotner payment with the
remit tan advice arrive at the mailroom) is to have 1nailroom
personnel prepare a remittance list and send it to accounts
receivable to credit the accounts of the concerned
custo1ners. The rmnittance list is a document that identifies
the names and a~nounts of all custmners payn1ents.

~====~~~~====~~=
Chapter .·9 . : The Revenue Cycle: Sales and Cash Collections

Another n1ethod is to set up a lock box arrangement

with a bank. A Lock box is a postal address to which
customers send their payment,s. The bat?k takes the checks
• J :

from the office box and deposits them to the company's

account. The bank then sends the remittance advices and
photo· copies of all checks to the company. Under an
electronic lock box method, the bank electro11ically sends
the company information about the: customer account and
amount paid as soon as itreceives and scans those checks.
This method makes· it faster for the company to. credit
customer's accounts before the photocopies of t~e checks
arnve.
With Electronic Funds Transfer (EFT) and electronic
bill payment services, customers end their payments to the
company's bank and avoid the delay associated with mailing
the payment. But, the company still needs to receive data
about the payment such as the invoice (s) number (s) against
which the payment is made. See Figure (6-6).

========~~F=========
Ch~pter '9 :.~ The Rev~nu.e Cyde: Sale§ and Cash CoUect~ons
~~~~~~~~~~~~~~~~~~

'Remittance data

L_____J
~-----___.., (EDI foxmat) r----·--·-··
1 Company.r----7
I 'A
Company
B
. . . . . . ., . I;-: ·.:·. . L ·-.:---'
_____ ! ____ ··-- ______ EDL __ -------------- -------- --·- --
1 D EFT
. j' 1
ayment
...

instruction I
1
Receipts
instruction

I
r---, ."
F 1u'"'dS

Cor.npany ~---"---7 Company

L~ban~ L..~-:---~ B'sbank
(ACH format)
FED1

l
1-:::-~~-~-~

t...,ompany 1
A__j
Company
B
----
·~
Remittance data ·~Remittance data
and payment and receipts
instruction instiuction

i
Company Company
A's bank / B's bank

Figure: (9/6) Nonintegrated and EFT

·9/6- Financial Electronic Data Inter Change (FEDI):

It integrates the exchange of funds (EFT) with the _
exchange of the payment data (EDI). As shown Figure
lo-vver part, the customer sends both payment data and funds
transfer together the seller receives both inforn1ation at the

==========~~{~'F==========
Chapter 9 .: T'he Revenue Cycle: Sales and Cash CoUectkms

sometime. Thus, FEDI completes the automation ofboth the

billing process and the cash collection process.

CJ/7- Control Objectives, threats, and Produces:

In the revenue cycle, a ·well designed AIS should
provide· adequate controls to ensure that the following
objectives are 1net:
1- All transactions are properly authorized.
2- All. recorded trepanations are valid (Actually occurred).
3- All Valid, authorized transactions are recorded.
4- All transactions are recorded accurately.
5- Assets (Cash, inventory, and data) are safeguarded from
loss or theft.
6- Business activities are performed efficiently and
effectively.
The following table lists the maJor threats in the
revenue cycle and the appropriate Control procedures that
should be adopted to overcome them.

~======~~p=========
Chapter 9 _: The Revenue Cyde: Saies and Cash CoUecti~ns
&?.S

Table (1)
Thereat and Controls in the Revenue Cycle.
Activit<; Threat Applicable Control Procedures
Entry 1- incomplete or Data entry edit checks
inaccurate customer
orders
2- Credit sales to Credit approval by cr4edit manager
customers with poor account balances
credit.
3 - Legitimacy of Signature on paper document digital ~·
. '
orders signatures and digital certificates for· e- i
I

business.
4- Stock outs, Inventory control systems, sales
carrying costs, and forecasts, periodic physical inventory
markdowns. counts.
5-Shipping errors; Reconciliation of sales order with
Wrong merchandise picking ticket and packing slip, bar code
Wrong merchandise scanners; data entry application controls
Wrong quantities
Wrong address
6-Theft on inventory Restrict physical access to inventory,
documentation of all internal transfers of
inventory; periodic pl1ysical counts of
inventory and reconciliation of counts
with recorded amounts; RFID and
barcode technology.

================~-·~~·=================
 Chapter :9 .: The Revenue Cycle: Sales and Cash Collections

Acc~unt""""'.i.·=C7·.U:-'.s.~tof. a'.~"'~·~~~s.re
1·

1 11 __ t;··· bill- f'""'~eparat10n

·'" 1 · of ana, b·-1·
,· ·
smppmg 11 mg .
~ functions, renumbering of all shipping
' docmuents and periodic reconciliation
with invoices; reconciliation of [picking
tickets and bills of lading with sales
orders.
. 8- Billing errors. Data entry edit controls, price lists .
9- Posting errors m Batch total; reconciliation of subsidiary
updating accbunt . accounts receivable ledger with general
receivable. ledger; monthly statements to customers.
I 0- theft of each Serrations of duties; minimization of
cash handling lockbox arrangement;
prompt endorsement and deposit of all
receipt; periodic reconciliation of bank
statement with records by someone not
involved in cash receipts processing.
11- loss, alteration, or Backup disaster recovery procedures;
·unauthorized access controls (Physical and logical)
disclosure of data proper systems configuration; encryption
data transaction controls.
12- Poor performance Preparation and review of performance
reports.

9/8- Reports and Outputs:

Outputs generated by the revenue cycle include both
financial and non financial reports, sales- related and cash-
related reports, daily and weekly and monthly reports,

================~~~F========~======
Chapter 9·:.: The Revenue Cycle: Sales and Cash CoUectiQns

hardcopy and softcopy report. All these reports may be

classified as operational listing and reports, inquiry screens,
and n1anagerial reports:
1 - Operational Listing and Reports:

a) The monthly statement is a listing of all outstanding

sales invoices for a customer.
b) The open order report lists sales orders that are not
completely shipping and billed.
c) Unbi11ed shipments report.
d) Late ship1nents report.
e) Back- order status report.
Also, there are various registers and journal that help
maintain audit trail.

f) The sales invoice register (sales journals) is a listing of

all sales invoices, arranged by sales invoice nu1nber.
g) The shipping register is a listing of all shipments,
arranged by shipping date.
h} The cash r~ceipts journal IS a listing of amounts
.received, arranged by date.
i) The account receivable aging schedule contains data-
about the status of the open balance of all credit
customers. It emphasizes those accounts that are
overdue.

============9~;F============
Chapter ·9 : The Revenue Cycle: Sales and Cash Collections

2- Inquiry screens:
If t..~e revenue cycle data is stored in on- line files, a
variety of inquiries can be made. Examples of screen
inquiries include:

a) Sta~us of customer's account receivable. This includes

the current balance and aging information.
b) The quantity of particular product on hand.
c) The dates when certain orders are expected to shipping.
d) The details of a single ·cash remittance or a batch of
remittances.
3- Managerial Reports:
The revenue cycle data base can provide a wealth of
!nformation to aid management in making decisions. • ·J·:ffut
reports and analyses include:

a) The accounts receivable aging schedule.

b) Performance reports that reflect, in terms of specit1c
measures such as value of each order, percentage of
days between the order data and shipping date.
c) Sales analysis reports reflect the relative effectiveness
of individual sales persons, sales regions, product lines,
custmners, and markets.
d) Cash flow statements provide the basis for developing
cash forecasts and budgets.

==================~~~=================
 Chapter --g :: The R.even.ue Cycle: Sales ~nd Cash Collecti-ons

Key Words
_. .....-..... ..........

I~
......... 4

To bill c.Jill..! .)~

Timely
- : I ~.., tj'-'Ji ~

To classify ~
..
Sl!~

----
Promptly 4.s:.~

I Accurately
-· -
(~)~~~

To post w\.:~1 ~l J=..->=

Safeguard ~ . u
4..1;56..J\.J~.

Primary ~Ji __,i ~~i

Cash receipt ~~~ ~ ~

Customer credit records ~W:,';/1

~ ~ ~~~ .
Sales order entry ~J~l\ .JA4 ~WI ww~\ ·JL;..~}
Sales order ~.J.fJ yl ) ~ \~ yl
B·lr
1 •.1ng w~l ~ ~\..kvJl .J;PI_,ill )~l

Interactive <)cw
Link .b.:~
Replenish ~~~)'\_,~_,Ail\~

Customers master file ~~ ~'y\WWI

Credit lin1it . ut.Ul)l\ ~;tl .AJI

1:---
Picking List LJ.A 4r-;;.~ ~ ~~ w~'ll ~ w\_g
~ ~ L-~ ~).b.JI ~\ c-" 0..?-JI

==============~~~F~==============
 Chapter '9 : The Revenue Cycle: Sales and Cash Collecti~ns

. --~~~

____ 1I,_,
· Inventory control function . _?..JI ~ ~1j
U-..9 • )I 4.iJ;
~ .5 I
Conveyer belt ~~~
1---
Discrepancy Li))~\

Inventory master file 0__,_?-JI w~) u3 y;...JI w~~ Ula

(~JSt)A

Bill of lading ~lo.Jy"19

Packing slip • ,.~

t~9J "'..? ' 6-XJ4::>-J~ rl:!
.. ~~
- ·u...o':ll
r.....g
w~

lg.~~~

To track cP1J
&.1 b..)y"'U
-
Sales invoice
Aclmowledgement ~I_,.JI -' rhJL. ..)lb.\
.

Monthly statement
!
1.:?~1 y~l u..:us
Electroriic Flinds Transfer .
w~-'_;s.ll Jl ~\71 ~..~..

================~~~=================
Contents:

preface. 0 • • ., • • 0 • Q 0 ••••• c 0 •••• e. ~ & •••••••• 0 •• 8 . . . . . . " e ••••• Ill' • • • 0 0" 1

PART 1: Conceptual Foundation of Accounting

Information Systems:

·CHAPTER 1: Overview of Accounting

. • I

Information SystemS .. e••···~~·••••••••••.···~···••••••••••••••• 7

Learning objectives ................. .... :..~·. .. . . . . ... . . . . . . .. . . 7

1/1- Introduction ••e·············•·······•t................... 9

1/2- Defining Basic Terms ............. ~ ............... ; ...... 9

. ·'f:• .

1/2/1- Accounting Concept ·············,~··················· 9

1/2/2- System Concept ... o •••••.•••••••••••••••••••••••••••••• 10

1/2/3~ Data .Concept ···························e:············ 11

1/2/4- Information Concept ..........•..................... 11

1/3- What an Accounting Information System Is (AIS) .. 13

1/4- Objectives and Users of Accounting Information

Systems (AIS) ................................................. 16

1/5- Accounting Information Systems Functions ........ 18

116- Resources and Components of AIS .................. 21

1/7- Providing Information for Decision Making ...... 22

117/1~ Decision Structure .......... . .: •................. 2~

1/7/2- I)ecis:ion Scope·····················~············ 24

118- Information Systems within a Firm .................. 25

1/8/1- Types 9flnformation Systems .................. 26

1/8/1/1- Management Infotmation Systems

(MIS) .. ~ ....................................... 26-

118/1/2- Decision Support System (DSS) ......... 27

1/8/1/3- Expert System (ES) ........................ 27

1/8/1/4- Executive Information System (EIS) ~.. 28

. .

1/8/2- Relationships between AIS & Other Component

Syste·ms ... ~ ................ ~ ................·.............. 28

Key Terms·································~················~···· 30
CHAPTER 2: Accounting Information Systems &

Business Activities ....... .. . . . . . . . . .. . .. . . 33

344
Learning Objectives . . . . . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . . .. . . . 33

2/1- Introduction ......................................... ~ ...... 35

2/2- Informati_on Needs & Business Activities ............ 35

2/2/l- Information Needs ........... •o o• 0 ••••• o . . . o•• . . . . . 36

2/2/2- Interactions with Internal & External Parties 37

2/3- BtiSiness Cycles •••••••••a.•G·····~~··~~···········~············ 39 .

2/4- Transaction Processing: The Data Processing Cycle 40

-2/4/1- Data -Input o•···~~~~···~······························" 42

2/4/2- Data Storage ·············~~········~~······· . ·············43

2/4/3- Data Processing ...... o. 0 ................ 0 .... o ••• o o 53

2/4/4- Information Output .o . . . . . . . . . . . . . . . . . . . . . . . . o . . . . . . 61

. .

· '2/4/4/1- Forms of Information Output ........ 0 .. 0 ... 61

2/4/4/2- Purpose of output o •••••••• 0 o.... o ooo ooooo63

0 0 0 .. 0

2/5- The Role Of-AIS .......................................... ..... 65

2/6- Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

CHAPTER 3: Systems Tools .. 0.0 . . . 0 . . . . . . . . . . . . . . . . . 0.00 . . . . . 69

Learning Objectives ................................... ·······~·· 69

345
3/1- Introduction ••o=ot•;oooe;oo"'ooli:IC;o••eooooee.<J" . . . . e;ooooooQ ... o . o a o e .. o&o 71

3/..'2 - nn.
1 ypcs' 01;;' S ys f..erns T oo. Js ..... , ................................ . "'71

3/2/1"'? Interviews ................................................. 71

3/2/2- Flowcharts .................................... .';....... .. 72

· 3/2/2/1- Flowchart Sym bois . . . . . . . . . . . . . . .. . . . . . . . . . . . .. . 72

3/2/2/2- Flowchart Types ................................. 76

3/2/3- Data Flow Diagrams .................................. 81

3/2/4- Other Systems Documentation . . . .. . . . . . . . . . . . . . 86

3/2/4/1-:- Entity-Relationship Diagrams .. . . . .. . 86

3/2/4/2- System Charts .... ... .. . . .. . . . . . .. . . . .. .. . .. 88

3/2/4/3- Decision Tables . . . . . . •. . . . . . . . . . . . . . . . . . . . . . . .. . 89

Key Terms ............·....................................... 93

Chapter 4: Information Systems and Computer

Te~hnology...................................... 95

Learning objectives . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . 95

4/1- Introduction ............................................. 97

346
 4/2- Physica.l Components of an Information System 97

4/3- Com.pol!ents-of a Cqmputer System .......... .'~ ... 99

4/3/1- Computer Hartdware .... oo . . . . . . . . . . . . . . . . . . . . . 99

:-•...
. . . .
::t/~1-
"-11 v -=. ...c-- - .
,. . QI!lPU.ter S0 f fWare
. •a•oao, •••• o.o•~···"··"'.•··~·"'···· 107
. . 4~-

4/4- The Imnact of Computers on Organizations ... 115

4/4/1- The I~pact o{..Computers on Managerial

..
Dec·ision Mal{i_·ng.~·······;t·····$······~····8······ 117

4/4/2- The Imp~ct of Colnputer~ on Accounting

Function ..... s·.~· •• lt· • • • • • • · • • • • • • • • • • • • • • • • • • • • • • • • e ·118

. Key Terms ••e•••••••••o•••••••••••o••···~··•••••••••••••••••• 120

PART 11: Developing Accounting Information

Systems ................. ~ ................•... 125

CHAPTER 5: Systems Develop_me"iit Process •... 127

Learning Objectives ............ --: ....: ................ 127

· 5/1- Introduction ··•s•·········D~······~··········•······129

5/2- The objective .of System Deyelo.pment . . . . . . 129

347
'
:' "•1 ,. .
..
5/4- Systems Development .................... '"..... 139

5/4/1- Reasons of Systems Development ...... 141

5/4/2- Systems Deve!opment Life Cycle ... ,. .... 141

5/6- Planning Systems Development ................. 150

5/6/1- Systems Development Plans ............... 151

5/6/2- Planning Techniques ....................... 152

Key Terms •••••••••••••••••.•••····~······~···•e•ee-•••••••••••155

CHAPTER 7: Systems Analysis ......•..............••. 157

6/1- Introduction "•l!••••••••••••••••••••••••••oeaa•o•••···~ 157

6/2- Systems Analysis Concept ........................ ;.157

6/3- Steps in Systems Analysis ........................... 158

6/3/1- Initial Investigation . ... ....... ... .. .. .. .. . .... 159

6/3/2- Systems Su rve)· . . . . . . . . . . . .. . . . . .. . . . . . . . . . . . I 60

6/3/3- Feasibility Study .............................. 171

6/3/4- Information Needs ~an·{! System

Rt•quirements ......... ~ ........................ 178

6/3/5- Systems Analysis Repprt . . .. .. .. .. . . . . .. . . 186

6/4- Outcomes of Svstems Analvsis. ., ...................... 186

~. ~

'· .

~C)J Ter111s .... "..........J·..... , ..... .. :jo. . . . . . . . . . . , .. ................ 1. gg

.

CHAPTER 7: Systems Design .... .-......................... 189

7/1-lntroduction ........................ ~ ...................... 189

7/2- Conccptua I Systems Design ............................ 190

7/2/1- Evaluate Design Alternatives .................... 190

7/2/2- Prepare System Design Specification .......... 196

7/2/3- Prepare the Conceptual Systems Design

Report .................................................. 2()1

7/3- Physical S)stems Design ................................... 201

7/3/1- Output Design.................................... 202

 -!i,.)J
. . ,.,·'"'- •f''l
; 1 t' <HHj 11-~ )-~ ta b ase- D estgn.........................
. 2(J4
·

7/3/3-lnput Dcsign ......................................... 204

7/3/4- Pt_·ogra m Design ..................................... 204

. 7/3/5- Procedures Design .................................. 205

7/3/6- Controls Dt~sign ...................................... 205

7/4- Physical Systems Design Report ................ ,....... 205

Ke~. l""et""lllS ••••••••••••••• •_••••..••••••••••••••••••••••••••••••••••••• .• 206

CHAPTER 8: Systems Implementation and Operation ...209-

8/1- IntroductiOn .. ~ ......................... -.................... 209

8/2- Systems Implementation ....................................209

8/2/1- lmplementa.tion Planning ........................... 211

8/2/2- Site Preparation ....................................... 211

~i2!3- Select and train Personnel .......................... 212

8/2/4- Complete Documentation ........................... 215

8/2/5- Test the System ........................................ 2 15

 8/3/3= Systern Conversion_..................................220

. 7
8/4/1- Post~Imph~mer!taJi~1p ~eview ...................... 223
;
: =-.t
t:
'·'
8/5- Svstems Maintenance ... ,.~~%~~
~
................................ 231
- ·r-~~
._:_~:.~~.,_;, ..
L ••

~ - -.:J!~:- l. .~ Aa
Key ferms"". ~ e·,;; o."."' ~ e ~ ~~ ~ ~ ~-
<» & II) a 0- .. :.~ ,.,,"_.~ Qo. Q o ...... Q. 6 ••• ~ ~ (iJ. ~ ....... 9 o. ~~~23~

. PART 111: Accounting Infonnation Systems

AJ)pJication6Qese••(joeo••••oz$o···•a-o••~•••••••••eo• 235

CHAPTER 9: The Revenue Cycle: Sales and Cash

Collection~~ o• • •• ~II ••••••• eo•• e•••e ••••••• 0. 237

911- Definition and Nature of the Revenue Cycle ...... 237

912- Objectives of the Revenue Cycle ....................... 238

9/3- Revenue Cycle Sources of Input ....................... 239

9/4- Relationship with other Accounting Cycle ......... 240

35t
· 9/5- Revenue Cyde Business Activities .................. 240

, 9/5/1- Sales Order En try ....... .,..................... 224

9/5/2- Shippingo~•~~~~eeg••~•0•••a••.••~•a•••~5•••G•e•e•• 249

~. 9/5/3- B·illingQ .... , c ~oo~ Q 9 •• e._ • • • e . Q •••• ~~-.- .•• ~-·:· ~ • e . o. a . o. o ~~ ~ 252

9/5/4- Cash Collection ....... o ••••••••••• o •• o •••••••••• 257

916~ Financial Electronic Data In,terchange ............. 259

917- Control objectives, threats, and Procedures ....... 260

918~ Reports and Outputs ........... u·····o••············· .. 262

Key Words. o o • • e a · .-.·• • • • • • • • • • • • • • • • • • o • • • • • • • • ., • • • • • • • • -• • • • • • • • 265

CHAPTER 10: The Expenditure CyCle: Purchasing a~d

Cash Disbursements ................... ; .. 267

10/1- Definition and Nature of the Expenditure Cycle 267

10/2- Objectiv.es of the Expenditure Cycle ............... 268

10/3- Expenditure Cycle Sources of Inputs .....•........ 269

10/4- Relationship with Other Accounting Cycles ...... 270

352
10/5- Expenditure Cycle Business Activities .............. 270

10/5/1- Order Goods .................................... 272

10/5/2- Receive and Ston3 Goods ..................... 277

10/5/3- Pay for Goods ................................... 281

10/6- Using Information Te([h:nology to Process Accounts

- ~ ·--·
Payabl~~·••••eeeo~oo~"'•~o·.:~oooe . o&oe'oeoo~oeee••eoc.ooooeoeeo 184
,_ .

1017- Control Obj~~tives, Tfuea-ts-,..and Procedures ..... 186

. . ... ~-

10/8- Reports.an~ -Other Ou:tputs.,., .. :.,-......... ...... .... 289

•
..l .;• .
..~

Key Words-a 0 v '0 8 •. :· 8. a,.:.. 8 e e.Q Q Gil.--~.•• e e ·.e.~ •• ~ ••• 0.

Q 0 •••••••••••••• • 293
. ~ ~--
...... _:___, .~

CHAPTER 11: Tbe- Production Cyct~~ .................... 295

'- .~. -~ _f?;~

11/l- Production Cycle Activities.~--~ •...................... 298

11/1/1- Product Design ....... ~-· .................. -.... 300

11/1/2- Planning and Scheduling ..........•....... 301

11/1/3- Production Operations ................ ~ .... 307

11/1/4- Cost Accounting........................... 318

.·
10/2- Types of Cost Accounting Systems ................ 311

10/3- Accounting for Fixed Assets ................•....... 312

1114- ·Information· Processing Procedures............ 314

11/4/1- Raw Materials Usage Data ............... 316

1114/2- Direct Labor Costs ........................... 317

11/4/3- Machinery and Equipment Usage ........ 318

11/4/4- Manufacturing Overhead Costs ........... 219

11/5- Control Objectives, Threats, and Procedures .... ~20

. .
Key VI ords ........................... 0 • • • • • • • • • • • • • • • • • • • • • • •••• 322

CHAPTER 12: General Ledger and Reporting Cycle 323

12/1- General Ledger and Reporting System

Activities................................................. 325

12/1/1- Update General Ledger..................... 327

12/1/2- Post Adjusting Entries ........................ 328

12/1/3- Prepare Financial Statements ............... 330

12/1/4- Produce Managerial Reports ................. 331

354
12/2- Control Objectives, Threats, and Procedures ...... 332

Key Tei. . ms ..... ~II 0 • •• "'. eeo. 0 II~ &000 • • • • • 0 ••••• 0 •• 0 •• 0 ee ~ •••••• 0 •••• ••o 334
 Workbook
For

Accounting Information Systems

Prof. Dr. Tarek Hassanain Ismail

Dr. Abdelati A. Abdoh Dr. Ahmed Sibai Qotb

Dr. Adel Azab Dr. Amr Nageeb

Dr. Waleed Ghoniem Dr. Karim Mansour

Dr. Eman Abdelwanis

2017- 2018
 Chapter One:

Overview of Accounting Information Systems

Q1: True or False:

1- A system is a set of two or more interrelated components

that interact to achieve a goal.

2- Goal conflict occurs when a subsystem achieves its goals

while contributing to the organization’s overall goal.

3- Goal congruence occurs when a decision or action of a

subsystem is inconsistent with another subsystem or the
system as a whole.

4- Data are facts that are collected, stored, and processed by

an accounting information system.

5- Data is information that have been organized and

processed to provide meaning to users.

6- Users can make better decisions as the quantity and

quality of information increase.

7- Information overload is costly.

8- Information overload is the benefit produced by the

information minus the cost of producing it.

9- The costs of information are the time and resources spent

collecting, storing, and processing information as well as
distributing data to decision makers.

2
10- Benefits of information are the time and resources spent
collecting, storing, and processing data as well as
distributing information to decision makers.

11- There are five characteristics that make information

useful and meaningful.

12- Information is relevant if it free from errors or bias, and

accurately represents the events or activities that it
measures.

13 Information is relevant if it increases uncertainty,

improves decision makers’ ability to make predictions,
and confirms or corrects their prior expectations.

14- Information is timely if it is provided in time for decision

makers to make decisions.

15 Information is understandable if it is does not omit

important aspects of the events or activities that it
measures.

16- Information is complete if it is presented in a useful and

intelligible format.

17- Information is verifiable if two knowledgeable people

acting independently would each produce different
information.

18- Information is accessible if it is available to users when

they need it and in a format they cannot use.

3
19- A very simple system using the very latest in computers
and information technology.

20- There are six components of an accounting information

system (AIS).

21- The primary aim of any AIS is to provide accounting

data to a wide variety of users.

22- Users of AIS may be classified into internal and external

users.

23- Data maintaining, it involves placing data in files or

databases.

24- Information generation includes interpreting, reporting,

and communicating information.

25- Decision making is a simple, multistep activity.

26- Decisions vary in terms of the degree to which they are

structured into: operational control, management control,
and strategic planning.

27- Semi-Structured decisions are characterized by

incomplete decision making rules and the need for
subjective assessments and judgments to supplement
formal data analysis.

28- Operational control relates to establishing organizational

objectives and policies for accomplishing those
objectives.

4
29- Management control relates to the effective and efficient
use of resources for accomplishing those objectives.

30- Strategic planning relates to the effective and efficient

performance of specific tasks.

31- The AIS is not the only system within a firm that is
concerned with data and information.

32- Management information system spans all the managerial

levels of a firm, ranging from the president to the lowest
supervisor.

33- Functional information systems are so-named because

they support key organizational functions.

34- A decision support system is a knowledge-based

information system that fully supports the making of
decisions.

35- An effective AIS performs key functions through three

stages (data input, data processing, and information
output) to transform data into information.

5
 Answers of Q1

NO. T or Wrong word(s) Correction

F
1- T - -
2- F Goal conflict Goal congruence
3- F Goal congruence Goal conflict
4- T
5- F Data Information
Information Data
6- T - -
7- T - -
8- F Information Value of information
overload
9- F Processing Processing data
information
10- F Benefits of Costs of information
information
11- F Five Seven
12- F Relevant Reliable
13- F Increases Decreases (reduces)
14- T - -
15- F Understandable Complete
16- F Complete Understandable

6
17- F Different Same information
information
18- F Cannot use Can use
19- F Simple Complex
20 T - -
21- F Data Information
22- T - -
23- F Data maintaining Data storing
24- T - -
25- F Simple Complex
26- F The degree to which Their scope
they are structured
27- T - -
28- F Operational control Strategic control
29- T - -
30- F Strategic planning Operational control
31- T - -
32- T - -
33- T - -
34- F A decision support An expert system
system
35- T - -

7
Q2: Multiple Choice:
1- ……. is a set of two or more interrelated components that
interact to achieve a goal.
(a) data (b) information (c) system (d) accounting
2- Several kinds of data need to be collected in business, such
as facts about …….. .
(a) people (b) resources (c) activities (d) all the
above
3- …….. is the benefit produced by the information minus the
cost of producing it.
(a)information (b) useful (c) value of (d) none of
overload information information the above
4- The value of information is the benefit produced by the
information ………. the cost of producing it.
(a) minus (b) plus (c) divided by (d) multiplied by
5- The major benefit of information is …………….
(a) a (b) (c) A better (d) all the
reduction of improved ability to plan above
uncertainty decisions and schedule
activities
6- Which of the following is not a characteristic that make
information useful:
(a) it is (b) it is (c) it is (d) it is
unreliable timely relevant understandable

8
7- Information is …….. if it free from errors or bias, and
accurately represents the events or activities that it measures.

(a) relevant (b) reliable (c) complete (d) verifiable

8- Information is ……. if it reduces uncertainty, improves

decision makers’ ability to make predictions, and confirms or
corrects their prior expectations.

(a) relevant (b) reliable (c) timely (d) accessible

9- Information is ……… if it is does not omit important

aspects of the events or activities that it measures.

(a)understandable (b)complete (c) relevant (d) accessible

10- Information is ……. if it is presented in a useful and

intelligible format.

(a) relevant (b) reliable (c) complete (d) understandable

11- Information is …….. if two knowledgeable people acting

independently would each produce the same information.

(a) complete (b) relevant (c) verifiable (d) reliable

12- Information is …….. if it is available to users when they

need it and in a format they can use.

(a) accessible (b) complete (c) relevant (d) reliable

13- Information is …….. if it is provided in time for decision

makers to make decisions.

(a) reliable (b) timely (c) relevant (d) verifiable

9
14- Which of the following is a function of an AIS?

(a) support decision making by internal decision makers

(b) fulfill obligations relating to stewardship

(c) information generation

(d) support the day-to-day operations

15- Which of the following is not an objective of an AIS?

(a) support the day-to-day operations

(b) information generation

(c) fulfill obligations relating to stewardship

(d) support decision making by internal decision makers

16- The data collection function performed during …… stage.

(a) Data (b) data (c) (d) all the

input processing information above

output

17- The data maintenance function performed during … stage.

(a) Data (b) data (c) information (d) none of

Input processing output the above

18- …………… function involves steps like the following:

data classifying, data transcribing, data sorting, data batching.

(a) data (b) data (c) data (d) data

collection management maintenance control

10
19- ……………, it consists of accessing and extracting data
either for further processing or for reporting to users.

(a) data (b) data (c) data (d) none of

retrieving maintaining storing the above

20- ………… are repetitive, routine, and understood well

enough that they can be delegated to lower-level employees in
the organization.

(a) structured (b) semi- (c)unstructured (d) strategic

decisions structured decisions planning
decisions
21- ………… are nonrecurring and nonroutine.
(a)structured (b) semi- (c)unstructured (d)operational
decisions structured decisions control
decisions

22- …………. relates to the effective and efficient

performance of specific tasks.

(a)operational (b)management (c)strategic (d)unstructured

control control planning decisions
23- …………… relates to the effective and efficient use of
resources for accomplishing those objectives.
(a)operational (b)management (c) strategic (d) structured
control control planning decisions

11
24- ……….. relates to establishing organizational objectives
and policies for accomplishing those objectives.
(a)operational (b)management (c) strategic (d) structured
control control planning decisions
25- ……….. is a computer-based information system that aids
managers in making ad hoc decisions that involve significant
uncertainty.
(a) MIS (b) ES (c) AIS (d) DSS
26- ……….. is a knowledge-based information system that
fully supports the making of decisions.
(a) MIS (b) ES (c) AIS (d) DSS
27- ……….. provides executives with information that is
tailored to the needs and interests.
(a) MIS (b) ES (c) EIS (d) DSS
28- Which of the following steps is not related to the data
collection function?
(a) Data classifying
(b) Recording the data onto forms
(c) Validating and editing the data
(d) Capturing the transaction data

12
29- Which of the following steps is not related to the data
management function?
(a) Data storing
(b) Data maintaining
(c) Data retrieving
(d) Capturing the transaction data

Answers of Q2:
1- C 15- B
2- D 16- A
3- C 17- B
4- A 18- C
5- D 19- A
6- A 20- A
7- B 21- C
8- A 22- A
9- B 23- B
10- D 24- C
11- C 25- D
12- A 26- B
13- B 27- C
14- C 28- A
29- D

13
 Chapter Two:

Accounting Information Systems and Business Activities

Q1: True or False:

1- The accounting information system interacts with many

external parties, as well as internal parties.

2 The accounting information system interacts with many

external parties, such as: management and employees.

3- The accounting information system interacts with many

internal parties, such as: customers, vendors, and
governmental agencies.

4- The accounting information system interacts with many

external parties, such as: management and employees,
as well as internal parties, such as: customers, vendors,
creditors, and governmental agencies.

5- The accounting information system interacts with

internal parties only.

6- A transaction is an agreement between two entities to

exchange goods or services or any other event that can
be measured in economic terms by an organization.

7- The basic exchanges can be grouped into four major

transaction cycles.

8- The financing cycle, where goods and services are sold

for cash or a future promise to pay cash.

14
9- The production cycle, where companies purchase
inventory for resale or raw material in exchange for
cash or a future promise to pay cash.

10- The human resources/ payroll cycle, where employees

are hired, trained, compensated, evaluated, promoted,
and terminated.

11- The revenue cycle, where companies sell parts of the

company to investors and borrow money, and where
investors are paid dividends, and interest is paid on
loans.

12- The operations performed on data to generate

meaningful and relevant information are referred to as
the information processing cycle.

13- Data processing cycle consists of five steps: Data input,

Data storage, Data collection, Data processing, and
Information output.

14- Data collection is the first step in the data processing

cycle.

15- In manual systems, transaction data is recorded in a

journal before it is entered into a ledger.

16- A general ledger is used to record infrequent or

nonroutine transactions, such as: closing entries.

15
17- The general ledger contains summary-level data for
every asset, liability, equity, revenue, expense account
of the organization.

18- The files used to store cumulative information are called

journals.

19- Coding is the systematic assignment of numbers or

letters to items to classify and organize them.

20- With block codes, items are numbered consecutively to

ensure that there will be no gaps in the sequence.

21- In sequence codes, two or more subgroups of digits are

used to code the item.

22- With block codes, blocks of numbers within a

numerical sequence are reserved for categories having
meaning to the use.

23- A chart of accounts is a list of all general ledgers

accounts an organization uses.

24- The set of records that contains data about various

attributes of the same entity form a field.

25- A record is a set of related files.

26- A field is a set of related records.

27- A file is a set of related records.

28- A transaction file is conceptually similar to a ledger in

manual AIS.

16
29- A master file is conceptually similar to a journal in
manual AIS.

30- Master files are not permanent.

31- Master files store cumulative information about an

organization’s resources and agents with whom it
interacts.

32- Transaction files contain records for the individual

business transactions that occur during a specific fiscal
period.

33- Transaction files are permanent.

34- A database is a set of interrelated, centrally coordinated

files.

35- Updating as each transaction occurs is referred to as

batch processing.

36- Periodic updating of data is referred to as batch

processing.

37- Batch processing system is flexible.

38- Batch processing system is conceptually simple.

39- Batch processing system provides current data because

the results of processing are immediately available.

40- On-line, real-time processing system is more complex

to develop and maintain than other systems, and more
cheap to implement.

17
41- Batch processing system consists of four computer
programs: Validation Program, Sort Program, Print
Program, and Update Program.

42- The final step in the data processing cycle is

information output.

43- Documents such as checks and invoices are used

internally.

44- Documents such as receiving reports and purchase

requisitions are used internally.

45- Reports are prepared for both internal and external

users.

46- Reports are used by employees to make decisions and

design strategies for the business.

47- Two of the more important categories of financial

information produced by an AIS are financial
statements and managerial reports.

48- For evaluation purposes, an organization must

constantly monitor its progress so that problems that
arise can be corrected as soon as possible.

49- For control purposes, it is important for the AIS to store

information about both traditional financial measures
and operational data.

50- For planning purposes, management needs information

about such things as inventory status, sales forecasts.

18
Answers of Q1:
No. T or Wrong word(s) Correction
F
1- T - -
2- F external parties internal parties
3- F internal parties external parties
4- F external parties internal parties
internal parties external parties
5- F internal parties internal and external
parties
6- T - -
7- F four five
8 F the financing cycle the revenue cycle
9- F the production cycle the expenditure cycle
10 T - -
11- F the revenue cycle the financing cycle
12- F the information the data processing
processing cycle cycle
13- F five four
14- F data collection data input
15- T - -
16- F general ledger general journal
17- T - -
18- F journals ledgers
19- T - -

19
20- F block codes sequence codes
21- F sequence codes group codes
22- T - -
23- T - -
24- F records fields
a field a record
25- F a record a file
files records
26- F a field a file
27- T - -
28- F transaction file master file
29- F master file transaction file
30- F not permanent permanent
31- T - -
32- T - -
33- F permanent not permanent
34- T - -
35- F batch processing on-line, real-time
processing
36- T - -
37- F flexible inflexible
38- T - -
39- F batch processing on-line, real-time
system processing system
40- F cheap expensive

20
41- T - -
42- T - -
43- F used internally transmitted to external
parts
44- T - -
45- T - -
46- F employees managers
47- T - -
48- F evaluation purposes control purposes
49- F control purposes evaluation purposes
50- T - -

Q2: Multiple Choice:

1- The basic exchanges can be grouped into …….. major

transaction cycles.

(a) three (b) four (c) five (d) six

2- ………, where companies purchase inventory for resale or

raw material in exchange for cash or a future promise to pay
cash.

(a) The (b) The (c) The (d) The

production revenue expenditure financing
cycle cycle cycle cycle

21
3- ………, where goods and services are sold for cash or a
future promise to pay cash.

(a) The (b) The (c) The (d) The

expenditure financing production revenue
cycle cycle cycle cycle

4- ………, where raw materials are transformed into finished

goods.

(a) The (b) The (c) The (d) The

financing production revenue expenditure

cycle cycle cycle cycle

5- ……..., where employees are hired, trained, compensated,

evaluated, promoted, and terminated.

(a) The (b) The (c) The (d) The

human expenditure financing production
resources cycle cycle cycle
cycle

6- ……….., where companies sell parts of the company to

investors and borrow money, and where investors are paid
dividends, and interest is paid on loans.

(a) The (b) The (c) The (d) The

expenditure revenue financing production
cycle cycle cycle cycle

22
7- ………, where goods and services are sold for cash or a
future promise to pay cash.

(a) The (b) The (c) The (d) none of

financing expenditure production the above

cycle cycle cycle

8- The operations performed on data to generate meaningful

and relevant information are referred to as ……….. .

(a) the (b) the data (c) The (d) none

information processing production of the
processing cycle cycle above
cycle

9- Which of the following is not a step in the data processing

cycle?

(a) data (b) data (c) data (d) data

collection storage input processing

10- ………. is the first step in the data processing cycle.

(a) data (b) data (c) ) data (d) data

collection storage input processing

11- The files used to store cumulative information are called

……….. .

(a) journals (b) ledgers (c) chart of (d) none of

accounts the above

23
12- With …………., items are numbered consecutively to
ensure that there will be no gaps in the sequence.

(a) Block (b) Group (c) Sequence (d) none of

Codes Codes Codes the above

13- With ………., blocks of numbers within a numerical

sequence are reserved for categories having meaning to the
use.

(a) Block (b) Group (c) Sequence (d) none of

Codes Codes Codes the above

14- In …………., two or more subgroups of digits are used to

code the item.

(a) Block (b) Group (c) Sequence (d) none of

Codes Codes Codes the above

15-Which type of coding used in invoices and purchase

orders?

(a) Group (b) (c) Block (d) none of

Codes Sequence Codes the above

Codes

24
16- Which type of coding used in this diagram?
Account Code Account Type

001- 100 Assets

101- 200 Liabilities
201- 300 Owners’ Equity
301- 400 Revenues
401- 500 Expenses

(a) Block (b) (c) Group (d) none of the

Codes Sequence Codes above

Codes
17- Which type of coding used in this diagram?

Accounts

Assets 1 Liabilities 2

Fixed Assets 11 Current Assets 12

Lands 111 Building 112

(a) Block (b) Sequence (c) Group (d) none of
Codes Codes Codes the above

18- ………… is the physical space in which data values are

stored.

(a) file (b) record (c) database (d) field

25
19- The set of fields that contains data about various attributes
of the same entity form a …….. .

(a) file (b) record (c) database (d) none of the above

20- A ……….. is a set of related records.

(a) file (b) field (c) database (d) none of the above

21- A file is a set of related …………. .

(a) database (b) fields (c)records (d) none of the above

22- The set of …….. that contains data about various attributes
of the same entity form a record.

(a) databases (b) fields (c) files (d) none of the above

23- A ……… is a set of interrelated, centrally coordinated

files.

(a) fields (b) records (c) database (d) none of the

above

24- A master file is conceptually similar to a …….. in manual

AIS.

(a) (b) ledger (c) chart of (d) none of the

journal accounts above

25- A transaction file is conceptually similar to a …….. in

manual AIS.

(a) journal (b) ledger (c) chart of (d) none of the

accounts above

26
26- There are …….. different types of file processing.

(a) three (b) four (c) five (d) six

27- …….. means purging the vendor master file of all vendors
that the company no longer does business with.

(a) updating (b) changing (c) adding (d) deleting

28-updating as each transaction occurs is referred to as …….. .

(a) batch (b) chart of (c) captured (d) on-line,

processing accounts transaction real-time
processing processing processing

29- Periodic updating of data is referred to as ……….. .

(a) batch (b) chart of (c) captured (d) on-line,

processing accounts transaction real-time
processing processing processing

30- Reports are used by …….. to control operational activities.

(a) employees (b) managers (c) external (d) all the

users above

31- Reports are used by …….. to make decisions and design

strategies for the business.

(a) employees (b) managers (c) external (d) all the

users above

27
32- Reports are produced on a variety of bases, such as:

(a) On (b) On (c) On (d) all

regular basis exception demand the above
basis

33- For ………., management needs information about such

things as inventory status, sales forecasts.

(a) evaluation (b) control (c) planning (d) none of

purposes purposes purposes the above

34- For ………., an organization must constantly monitor its

progress so that problems that arise can be corrected as soon as
possible.

(a) evaluation (b) control (c) planning (d) none of

purposes purposes purposes the above

35- For ………., it is important for the AIS to store

information about both traditional financial measures and
operational data.

(a) evaluation (b) control (c) planning (d) none of

purposes purposes purposes the above

28
Answers of Q2:
1- C 19- B
2- C 20- A
3- D 21- C
4- B 22- B
5- A 23- C
6- C 24- B
7- D 25- A
8- B 26- B
9- A 27- D
10- C 28- D
11- B 29- A
12- C 30- A
13- A 31- B
14- B 32- D
15- B 33- C
16- A 34- B
17- C 35- A
18- D

29
 Chapter three: System Tools

Q1: True or False:

1- Members of a development team interview users of the

system evaluating existing systems, and when
identifying requirements for a new one.

2 Interview is an analytical technique used to describe

some aspects of an information system in a clear,
concise, and logical manner.

3- Interviewing is not an important skill for accountants to

develop.

4- Flowcharts can be divided into Document Flowcharts,

System Flowcharts, and Program Flowcharts.

5- System flowchart illustrates the flow of documents and

information among areas of responsibility within an
organization.

6- Document flowcharts depict the relationship among the

input, processing, and output of an AIS.

7- A program flowchart shows in detail each processing

step of a computer program.

8- A system flowchart is particularly useful in analyzing

the adequacy of control procedures in a system.

9- Document flowcharts that describe and evaluate internal

controls are often referred to as internal control
flowcharts.

30
10- Program flowcharts are an important systems, analysis,
design, and evaluation tool.

11- A data flow diagram (DFD) graphically describes the

flow of data within an organization.

12- A DFD is composed of three basic elements: Data

sources and destinations, Transformation processes, and
Data stores.

13- A DFD is used to document existing systems and to plan

and design new ones.

14- A data flows represents an organization or individual

that sends or receives data that the system uses or
produces.

15- A data flows represents the flow of data between

processes, data stores, data sources and destinations.

16- A data store is a temporary repository of data.

17- DFDs show the physical storage medium (such as: disk
or paper) used to store the data.

18- Processes represent the transformation of information.

19- Besides flowcharts and data flow diagrams, accountants

use other forms of documentation to describe accounting
information systems.

31
Answers of Q1:
No. T or F Wrong word(s) Correction
1- T - -
2- F Interview Flowchart
3- F not an important an important
4- T - -
5- F system flowchart document flowchart
6- F document flowcharts system flowcharts
7- T - -
8- F system flowchart Document flowchart
9- T - -
10- F program flowcharts system flowcharts
11- T - -
12- F three four
13- T - -
14- F data flows source or destination
15- T - -
16- F temporary temporary or
permanent
17- F show do not show
18- F information data
19- T - -

32
Q2: Multiple Choice:

1- Members of a development team interview users of the

system, ……… .

(a) evaluating (b) identifying (c)both a (d) none

existing requirements for a and b are of the
systems new one true above

2- ……… is an analytical technique used to describe some

aspects of an information system in a clear, concise, and
logical manner.

(a) interview (b) flowchart (c) both a (d) none of

and b are the above
true

3- , This symbol is referring to …………. .

(a) multiple (b) computer (c) online (d) document

copies of one processing keying
document

4- , This symbol is referring to …………. .

(a) multiple (b) computer (c) online (d) document

copies of one processing keying
document

33
5- , This symbol is referring to …………. .

(a) multiple (b) computer (c) online (d) document

copies of one processing keying
document

6- , This symbol is referring to …………. .

(a) multiple (b) computer (c) online (d) document

copies of one processing keying
document

7- , This symbol is referring to …………. .

(a) on-line (b) magnetic (c) computer (d) Online

storage tape processing keying

8- , This symbol is referring to …………. .

(a) on-line (b) computer (c) magnetic (d) Online

storage processing tape keying

9- Flowcharts can be divided into …….. types.

(a) two (b) three (c) four (d) five

34
10- A ………… illustrates the flow of documents and
information among areas of responsibility within an
organization.

(a) program (b) system (c) document (d) none of

flowchart flowchart flowchart the above

11- ………….. depict the relationship among the input,

processing, and output of an AIS.

(a) program (b) system (c) document (d) none of

flowcharts flowcharts flowcharts the above

12- A ………. shows in detail each processing step of a

computer program.

(a) program (b) system (c) document (d) none of

flowchart flowchart flowchart the above

13- A ……… is particularly useful in analyzing the adequacy

of control procedures in a system.

(a) program (b) system (c) document (d) none of

flowchart flowchart flowchart the above

14- ………… are an important systems, analysis, design, and

evaluation tool.

(a) internal (b) program (c) document (d) system

control flowcharts flowcharts flowcharts
flowcharts

35
15- Document flowchart shows …………………

(a) in detail (b) the flow of (c) the (d) all

each documents and relationship the
processing information among the above
step of a among areas of input,
computer responsibility processing, and
program. within an output of an
organization. AIS.

16- System flowchart shows …………………

(a) in detail (b) the flow of (c) the (d) all

each documents and relationship the
processing information among the above
step of a among areas of input,
computer responsibility processing, and
program. within an output of an
organization. AIS.

17- Program flowchart shows …………………

(a) in detail (b) the flow of (c) the (d) all

each documents and relationship the
processing information among the above
step of a among areas of input,
computer responsibility processing, and
program within an output of an
organization. AIS.

36
18- Which of the following is not related to input/ output
symbols?

(a) (b) (c) (d)

19- Which of the following is related to storage symbols?

(a) (b) (c) (d)

20- Which of the following is related to input/ output symbols?

(a) (b) (c) (d)

21- Which of the following is related to flow and

miscellaneous symbols?

(a) (b) (c) (d)

22- A DFD is composed of …….. basic elements.

(a) three (b) four (c) five (d) six

23- Data sources and destinations represented in a DFD by

……..

(a) (b) (c) (d)

37
24- Data flows represented in a DFD by ……..

(a) (b) (c) (d)

25- Transformation processes represented in a DFD by ……..

(a) (b) (c) (d)

26- Data stores represented in a DFD by ……..

(a) (b) (c) (d)

27- ………….. is a temporary or permanent repository of data.

(a) data (b) (c) data (d) data source

flows transformation store and destination

process

28- ……….. represents an organization or individual that

sends or receives data that the system uses or produces.

(a) data (b) (c) data (d) data

flows transformation store source and

process destination

38
29- Besides flowcharts and data flow diagrams, accountants
use other forms of documentation to describe accounting
information systems, such as …..…… .

(a) Decision (b) Entity-Relationship (c) (d) all

Tables Diagrams System the above
Charts
Answers of Q2:

1- C 16- C
2- B 17- A
3- D 18- B
4- A 19- D
5- C 20- A
6- B 21- C
7- B 22- B
8- A 23- D
9- B 24- B
10- C 25- C
11- B 26- A
12- A 27- C
13- C 28- D
14- D 29- D
15- B

39
 Chapter 5: System Development Process

Question 1: T or F

1 A successful accounting information system should be

developed within a reasonable amount of time

2 A successful accounting information system should be

developed within a little amount of time

3 A successful accounting information system has

internal controls that prevent and detect errors and
fraud.

4 A successful accounting information system has

internal controls that only prevent errors and fraud.

5 A successful accounting information system has

internal controls that only detect errors and fraud.

6 A successful accounting information system has

internal controls that prevent and detect errors only.

7 A successful accounting information system has

internal controls that prevent and detect fraud only.

8 Information is considered timely if it is available to its

users when needed for decision making.

9 Information is considered correct if it is available to its

users when needed for decision making.

10 Many large accounting information systems require

three or more years to complete.
11 Any new system should satisfy not only the current
needs of the company but also anticipated future needs.

12 Any new system should satisfy only the current needs

of the company.

13 Systems analysis is the process of examining an

existing information system and its environment to
identify potential improvements.

14 Conceptual systems design is the process of examining

an existing information system and its environment to
identify potential improvements.

15 During conceptual systems design, the company decides

how to meet user needs.

16 During physical systems design, the company decides

how to meet user needs.

17 Systems analyst prepares specifications that are used by

computer programmers.

18 The accountant prepares specifications that are used by

computer programmers.

19 Computer programmers write programs using the

specifications developed by the analysts.

20 Analysts write programs using the specifications

developed by the programmers.

21 Programmers modify and maintain existing computer

programs.

41
22 Analysts modify and maintain existing computer
programs.

23 External players Include customers, vendors,

independent auditors, and governmental entities

24 Internal players Include customers, vendors,

independent auditors, and governmental entities

The answer
No. T or F Wrong word(s) Correction
1 T
2 F Little reasonable
3 T
4 F only prevent prevent and detect
5 F only detect prevent and detect
6 F errors only errors and fraud
7 F fraud only errors and fraud
8 T
9 F Correct timely
10 T
11 T
12 F only the current Current and future
13 T
14 F Systems analysis
15 T

42
16 F physical systems conceptual systems design
17 T
18 F Accountant Systems analyst
19 T
20 F Analysts Programmers
programmers Analysts
21 T
22 F Analysts Programmers
23 T
24 F Internal External

Question 2: MCQ

No. Statement

1 Increase quality, quantity, and the speed with which

information can be accessed and processed referred to
as a(n)

a) competitive advantage

b) improved business process

c) productivity gain

d) technological change

43
2 What is the correct sequence of the phases in the
systems development life cycle?

a) conceptual design, physical design, system analysis,

implementation and conversion, and operations and
maintenance

b) conceptual design, system analysis, physical design,

implementation and conversion

c) system analysis, conceptual design, physical design,

implementation and conversion, and operations and
maintenance

d) system analysis, physical design, conceptual design,

and operations and maintenance

3 In which phase are the broad needs of the users

converted into detailed specifics that are coded and
tested?

a) conceptual design

b) implementation and conversion

c) physical design

d) systems analysis

44
4 In which phase are the new hardware and software for
a system tested?

a) conceptual design

b) implementation and conversion

c) operations and maintenance

d) physical design

5 Which group of individuals listed below can be the

most effective in generating employee support to the
development of an AIS project?

a) accountants

b) information systems steering committee

c) management

d) project development team

6 Which group listed below has responsibility for

ensuring that the new AIS will meet the needs of users?

a) accountants

b) the information system steering committee

c) the project development team

d) the system analysts and programmers

45
7 Who is responsible for preparing the specifications that
are used to create the programs?

a) management

b) programmers

c) systems analysts

d) the information systems steering committee

8 Whether systems changes are major or minor, most

companies go through a system development life cycle.
How many steps are there in this cycle?

a) 2

b) 3

c) 4

d) 5

9 One step in the systems development life cycle

identifies and evaluates design alternatives and to
develop design specifications. This step is called

a) Conceptual design.

b) Implementation and conversion.

c) Physical design.

d) Systems analysis.

46
10 In which step of the SDLC do all of the elements of the
system come together?

a) conceptual design

b) implementation and conversion

c) physical design

d) systems analysis

The answer
No. Answer No. Answer
1 A 6 D
2 C 7 C
3 B 8 D
4 B 9 A
5 C 10 B

47
 Chapter 6: System Analysis

Question 1: T or F

1. Initial investigation investigates each development

activity to define the problem to be solved

2. One objective of feasibility Study is to study the existing

system to gain a thorough understanding of how the AIS
work.

3. The objective of the systems survey is to develop a more

thorough feasibility, especially with respect to economic
costs and benefits.

4. The objective of the feasibility study is to develop a

more thorough feasibility, especially with respect to
economic costs and benefits.

5. One objective of Initial Investigation is to collect data

that identify user needs.

6. Legal feasibility determines if a proposed system change

could enable the system to meet its operating objectives.

7. One objective of systems survey Is to collect data that

identify user needs.

8. One objective of the feasibility study is to develop

working relationship with users and build support for the
AIS.

48
9. One objective of systems survey is to study the existing
system to gain a thorough understanding of how the AIS
work.

10. One objective of systems survey is to develop working

relationship with users and build support for the AIS.

11. Technical feasibility determines whether computer

software and equipment that allow implementation are
available.

12. Operating feasibility determines whether computer

software and equipment that allow implementation are
available.

13. Operating feasibility determines if a proposed system

change could enable the system to meet its operating
objectives.

14. Operating feasibility determines if the alternative can be

implemented within a reasonable period.

15. Economic feasibility determines whether the proposed

change will benefit the organization financially.

16. Operating feasibility determines whether the proposed

change will benefit the organization financially.

17. Legal feasibility determines whether the proposed

system will comply with all state laws and statutes, and
the company's contractual obligations.

49
18. Operating feasibility determines whether the proposed
system will comply with all state laws and statutes, and
the company's contractual obligations.

19. Time feasibility determines if the alternative can be

implemented within a reasonable period.

20. Operating feasibility determines if the alternative can be

implemented within a reasonable period.

21. The outcome of systems analysis will be “Do nothing” if

the Problem is not serious or resources are unavailable.

22. The outcome of systems analysis will be “design a new

system” if the Problem is not serious or resources are
unavailable.

23. The outcome of systems analysis will be “modify

existing system” if a less costly solution may provide
satisfactory results.

24. The outcome of systems analysis will be “Do nothing” if

a less costly solution may provide satisfactory
results.

25. The outcome of systems analysis will be “design a new

system” if the existing system cannot solve the problem.

26. The outcome of systems analysis will be “modify

existing system” if the existing system cannot solve the
problem.

50
 The answer
No. T or F Wrong word(s) Correction
1 T
2 F feasibility Study systems survey
3 F systems survey feasibility study
4 T
5 F Initial Investigation systems survey
6 F Legal feasibility Operating feasibility
7 T
8 F feasibility study systems survey
9 T
10 T
11 T
12 F Operating Technical
13 T
14 F Operating Time
15 T
16 F Operating Economic
17 T
18 F Legal
19 T
20 F Operating Time
21 T
22 F design a new system Do nothing
23 T
24 F Do nothing Modify existing system
25 T
26 F modify existing system Design a New System

51
Question 2: MCQ

1. In which phase of the systems development life cycle is

the feasibility study first performed?
a) conceptual design
b) implementation and conversion
c) physical design
d) system analysis

2. A federal law demands that certain information about

foreign customers should be maintained in the
information system. In which part of a feasibility study
should this requirement be considered?
a) economic feasibility
b) legal feasibility
c) operational feasibility
d) technical feasibility

3. The aspect that asks the question, "Can people use the
system and will they use it?" is called

a) economic feasibility.

b) operational feasibility.

c) scheduling feasibility.

d) technical feasibility.

52
4. Which of the following parts of a feasibility study is
generally considered the most important and is
frequently re-analyzed?

a) economic feasibility

b) operational feasibility

c) scheduling feasibility

d) technical feasibility

5. What is most difficult item to quantify when assessing

economic feasibility?

a) benefits

b) costs

c) Costs, benefits, and the payback period are all of

equal difficulty.

d) the payback period

6. During what step in systems analysis is an examination

made of each development activity to define the problem
to be solved?

a) information needs and systems requirements

b) the feasibility study

c) the initial investigation

d) the systems survey

53
7. What is the step in which analysts conduct an extensive
study of the present system to gain a thorough
understanding of how it works?

a) feasibility study

b) information needs and requirements

c) systems analysis report

d) systems survey

8. ………. determines whether computer software and

equipment that allow implementation are available.

a) Technical Feasibility

b) Operating Feasibility

c) Economic Feasibility

d) Legal Feasibility

9. ………. determines if a proposed system change could

enable the system to meet its operating objectives.

a) Technical Feasibility

b) Operating Feasibility

c) Time Feasibility

d) Economic Feasibility

54
10. .......... determines if the alternative can be implemented
within a reasonable period.

a) Operating Feasibility

b) Time Feasibility

c) Economic Feasibility

d) Legal Feasibility

11. ………. determines whether the proposed change will

benefit the organization financially.

a) Technical Feasibility

b) Operating Feasibility

c) Time Feasibility

d) Economic Feasibility

12. ………. determines whether the proposed system will

comply will all state laws and statutes, and the
company's contractual obligations.

a) Technical Feasibility

b) Operating Feasibility

c) Economic Feasibility

d) Legal Feasibility

55
13. The outcome of systems analysis will be ………. if the
Problem is not serious or resources are unavailable.

a) Design a New System

b) Do nothing

c) Modify existing system

d) None of the above

14. The outcome of systems analysis will be ………. if a

less costly solution may provide satisfactory results.

a) Design a New System

b) Do nothing

c) Modify existing system

d) None of the above

15. The outcome of systems analysis will be ………. if the

existing system cannot solve the problem.

a) Design a New System

b) Do nothing

c) Modify existing system

d) None of the above

56
 The answer

No. Answer No. Answer

1 D 9 B

2 B 10 B

3 B 11 D

4 A 12 D

5 A 13 B

6 C 14 C

7 D 15 A

8 A

57
 Chapter 7: System Design

Question 1 :T or F

1. One step of conceptual systems design is evaluating

design alternatives.

2. One step of physical systems design is Preparing design

specifications.

3. The design team should identify a variety of design

alternatives.

4. One standard of evaluating design alternatives is How

well it meets organizational and system objectives.

5. One standard of evaluating design alternatives is How

well it meets user needs.

6. One standard of evaluating design alternatives is

Whether it is economically feasible.

7. One standard of evaluating design alternatives is What

its advantages and disadvantages are.

8. Hardware is the set of programs that control the

operations performed by the computer equipment.

9. Software Development Company has the advantage that

the project team controls development of the program.

10. In-house development has the advantage that the

program specifically meets the organization's needs.

58
11. For accounting applications, In-house development is
ordinarily less expensive than other sources.

12. software packages are computer programs that provide

commonly needed applications

13. One application of software packages is payroll

application.

14. Software Development Companies are in the business of

purchasing and selling software packages.

15. Software package is more acceptable to users than a

system developed in-house.

16. Most manufacturers of computer equipment also

produce and sell software.

17. Some systems software is necessary for the equipment to

function.

18. The design team must determine both the form and the
information content of inputs.

19. The design team ensures that the new system's outputs
provide data to satisfy the requirement.

20. The design team decides how the information should be

presented. This should be in the form of Reports printed
routinely only.

59
21. In the conceptual systems design phase, the design team
makes the final decisions about which data files are
required, and which storage medium to use.

22. The system processes may be manual procedures or

computer programs.

23. The planning team determines those measures necessary

to provide good internal control in the proposed system.

24. Design team record on these forms information

describing accounting transactions.

25. The System converts the information into computer-

readable form and summarizes it in data files.

26. At the end of the conceptual design phase, a report is

prepared to guide physical systems design activities.

27. At the end of the conceptual design phase, a report is

prepared to communicate how management and user
information needs will be met.

28. At the end of the conceptual design phase, a report is

prepared to help the steering committee assess system
feasibility.

29. Conceptual system design phases include designing

output, creating files and databases, designing input, and
building controls into the new AIS.

60
30. Special-purpose analysis reports have a pre-specified
content and format and are prepared on a regular basis.

31. Scheduled reports have no pre-specified content or

format and are not prepared on a regular schedule.

32. Triggered exception reports have a pre-specified content

and format but are prepared only on request.

33. Demand reports have a pre-specified content and format

but are prepared only in response to abnormal
conditions.

34. It is important that various company units store data in

incompatible formats to help avoid the problem.

35. Two types of data input, forms and computer screens.

36. Input development is one of the most time-consuming

activities in the SDLC.

37. Program may take the form of system manuals, user

instruction classes, training materials, or online help
screens.

38. Procedures must be built into AIS to ensure its

effectiveness, efficiency, and accuracy.

39. the Design team prepares a conceptual design report that

summarizes what was accomplished and serves as the
basis for management`s decision.

61
 The answer
No. T Wrong word(s) Correction
or F
1. T
2. F physical conceptual
3. T
4. T
5. T
6. T
7. T
8. F Hardware Software
9. Software Development
F In-house development
Company
10. T
11. F less expensive more expensive
12. T
13. T
14. F purchasing producing
15. F is more is less
16. T
17. T
18. F Inputs outputs
19. F data information
20. Or a computer
F only
terminal display

62
21. F Final preliminary
22. T
23. F planning team design team
24. F Design team Systems users
25. T
26. T
27. T
28. T
29. F conceptual physical
30. F Special-purpose analysis
Scheduled reports
reports
31. F Special-purpose
Scheduled reports
analysis reports
32. Triggered exception
F Demand reports
reports
33. Triggered exception
F Demand reports
reports
34. F incompatible compatible
35. T
36. F Input Program
37. F Program Procedures
38. F Procedures Controls
39. F conceptual a physical

63
Question 2 :MCQ

1. What are the main steps in conceptual systems design?

e) Evaluating design alternatives,

f) Preparing design specifications, and

g) Preparing the conceptual systems design.

h) All of the above

2. In which phase the preparing design specifications are

performed?

a) conceptual design

b) implementation and conversion

c) physical design

d) system analysis

3. In which phase evaluating design alternatives is

performed?

a) physical design

b) conceptual design

c) implementation and conversion

d) system analysis

64
4. The design team should evaluate each design
alternatives with respect to:

a) How well it meets organizational and system objectives.

b) How well it meets user needs.

c) Whether it is economically feasible.

d) What its advantages and disadvantages are.

e) All of the above.

5. ……………….has the advantage that the project team

controls development of the program.

a) In-House Development.

b) Software Development Companies.

c) Computer Manufacturers.

d) None of the above.

6. Software packages are computer programs that provide

commonly needed applications, such as:

a) Payroll application.

b) Inventory application.

c) General ledger application.

d) All of the above.

65
7. The design team develops the conceptual design
specification for

a) outputs & inputs,

b) data

c) processes,

d) policies.

e) All of the above.

8. The design team must determine both the form and the
information content of ……...

a) outputs

b) inputs

c) data

d) policies

9. The design team decides how the information should be

presented. This may be in the form of:

a) Reports printed routinely

b) computer terminal display

c) A& B

d) None of the above

66
10. the design team makes the preliminary decisions about
a) Which data files are required.
b) Which storage medium to use.
c) How to organize the data.
d) All of the above

11. The ………..team determines those measures necessary

to provide good internal control in the proposed
system.
a) planning
b) Analysis
c) Design
d) None of the above

12. Commonly used inputs include forms such as …………

a) sales orders,
b) requisitions,
c) Payroll timecards.
d) All of the above

13. At the end of the conceptual design phase, a conceptual

system design report is prepared to…………….
a) guide physical systems design activities,
b) Communicate how needs will be met.
c) Help the steering committee assess system
feasibility.
d) All of the above

67
14. ……………. phases include designing output, creating
files and databases, designing input, writing computer
programs, and building controls into the new AIS.

a) conceptual design

b) implementation and conversion

c) physical design

d) system analysis

15. Output usually fits into one of the..............:

a) Scheduled reports.

b) Special-purpose analysis reports

c) Triggered exception reports

d) Demand reports

e) All of the above

16. ...................have a pre-specified content and format and

are prepared on a regular basis.

a) Scheduled reports.

b) Special-purpose analysis reports

c) Triggered exception reports

d) Demand reports

68
17. …………..have no pre-specified content or format and
are not prepared on a regular schedule.

a) Scheduled reports.

b) Special-purpose analysis reports

c) Triggered exception reports

d) Demand reports

18. .................have a pre-specified content and format but

are prepared only in response to abnormal conditions.

a) Scheduled reports.

b) Special-purpose analysis reports

c) Triggered exception reports

d) Demand reports

19. .............have a pre-specified content and format but are

prepared only on request.

a) Scheduled reports.

b) Special-purpose analysis reports

c) Triggered exception reports

d) Demand reports

69
20. It is important that various company units store data in
………………to help avoid the problem.

a) Incompatible formats.

b) compatible formats

c) organised formats

d) none of the above

21. Two types of……………….are forms and computer

screens.

a) Data input.

b) Data output

c) program

d) none of the above

22. ......................development is one of the most time-

consuming activities in the SDLC.

a) Data input.

b) Data output

c) program

d) none of the above

70
23. …………should be subdivided into small, well-defined
modules to reduce complexity and enhance reliability

a) Data input.

b) Data output

c) program

d) none of the above

24. …………. may take the form of system manuals, user

instruction classes, training materials, or online help
screens.

a) Procedures

b) controls

c) programs

d) none of the above

25. …………must be built into AIS to ensure its

effectiveness, efficiency, and accuracy.

a) Procedures

b) controls

c) programs

d) none of the above

71
26. ..........................serves as the basis for management`s
decision whether or not to proceed to the implementation
phase.

a) Conceptual systems design report

b) physical systems design report

c) system analysis report

d) none of the above

The answer
No. Answer No. Answer
1. D 14. C
2. A 15. E
3. B 16. A
4. E 17. B
5. A 18. C
6 D 19. D
7. E 20. B
8. A 21 A
9. C 22. C
10 D 23. C
11. C 24. A
12. D 25. B
13 D 26. B

72
 Chapter 8: Systems Implementation and Operation

Question 1: T or F

1. Site preparation is one of the activities of conceptual

design phase.

2. Conversion phase consists of the following five

activities: implementation planning, site preparation,
select and train personnel, complete documentation, and
test system.

3. Implementation plan consists of implementation tasks,

expected completion dates, cost estimates, and the
person or persons responsible for each task.

4. System changeover should be planned and scheduled so

it occurs just before systems testing and conversion.

5. Security measures such as fire protection and an

emergency power supply also may be necessary.

6. Development documentation is one of the types of

documentation must be prepared for new systems.

7. Operations documentation is one of the types of

documentation must be prepared for new systems.

8. User documentation is one of the types of documentation

must be prepared for new systems.

9. Adequate system testing is one of the main reasons of

system failure.

73
10. The project team completes data conversion, volume
testing, and system changeover tasks during operation
phase.

11. The objective in volume testing is to maintain the

accuracy and completeness of existing data while
creating the new data entities required by the new
system.

12. When the change from one computerized system to

another, the process of data conversion is usually slower.

13. In a data conversion, the project team executes the

system using actual inputs for a typical processing
period.

14. The purpose of system changeover is to determine how

well the system works under an actual processing load.

15. Parallel conversion immediately terminates the old AIS

when the new one is introduced.

16. Direct conversion is appropriate when the old AIS have

no value or the new one is so different.

17. Phase-in conversion is inexpensive. In most cases,

however, unexpected problem surfaces during
conversion.

18. Direct conversion operates the old and new systems

simultaneously for a period of time.

74
19. With Parallel conversion, The old system continues to
operate as a backup.

20. Parallel conversion is the safest approach to system

conversion; it is also a common one.

21. Direct conversion requires that all operations be

performed twice.

22. Parallel operates the system first within a limited

segment of the organization, such as a branch,
department, sales region, or a subsidiary.

23. The disadvantages of the Pilot System are the long

conversion time

24. Three activities during the conversion Phase are post-

implementation review, system maintenance, and
accounting for and systems costs.

25. During the procedures in the review, the project team

evaluate costs and benefits, documentation, user
satisfaction and internal controls.

26. An activity that takes place throughout the life of a

system is the conversion of both computer equipment
and computer software.

75
 The answer
No. T or F Wrong word(s) Correction
1. F conceptual design implementation
2. F conversion implementation
3. T
4. F System changeover Training
5. T
6. T
7. T
8. T
9. F Adequate Inadequate
10. F operation conversion
11. F volume testing data conversion
12. F Slower Quicker
13. F data conversion volume testing
14. F system changeover volume testing
15. F Parallel Direct
16. T
17. F Phase-in Direct
18. F Direct Parallel
19. T
20. T
21. F Direct Parallel
22. F Parallel Pilot System
23. T
24. F conversion Operation
25. T
26. F conversion System maintenance

76
Question 2: MCQ

1. ……………………. phase consists of the following

five activities: implementation planning, site
preparation, select and train personnel, complete
documentation, and test system.

a) system analysis

b) system design

c) implementation

d) conversion

e) None of the above

2. ……………………….. Consists of implementation

tasks, expected completion dates, cost estimates, and
the person or persons responsible for each task.

a) Implementation planning,

b) Select and train personnel,

c) Complete documentation,

d) Test system.

e) None of the above

77
3. ………………..should be planned and scheduled so it
occurs just before systems testing and conversion.

a) Site preparation,

b) Select and train personnel,

c) Complete documentation,

d) Test system.

e) None of the above

4. …………………. such as fire protection and an

emergency power supply, also may be necessary.

a) Security measures

b) Training

c) Development documentation

d) Operations documentation

e) None of the above

5. What are the types of documentation must be prepared

for new systems?

a) Development documentation

b) Operations documentation

c) User documentation

d) All the above

e) None of the above

78
6. …………….is one of the main reasons of system
failure.

a) Adequate system testing

b) Inadequate system testing

c) volume testing

d) None of the above

7. The project team completes data conversion, volume

testing, and system changeover tasks during
………………..phase.

a) system design

b) operation

c) implementation

d) conversion

e) None of the above

8. The objective in ……………is to maintain the

accuracy and completeness of existing data while
creating the new data entities required by the new
system.
a) data conversion,
b) volume testing,
c) system changeover
d) All the above
e) None of the above

79
9. When the change from one computerized system to
another, the process of data conversion is
usually..............

a) Slower

b) quicker

c) costly

d) All the above

e) None of the above

10. In a…………………, the project team executes the

system using actual inputs for a typical processing
period.
a) data conversion,
b) volume testing,
c) system changeover
d) All the above
e) None of the above

11. The purpose of ………………….is to determine how

well the system works under an actual processing load.
a) data conversion,
b) volume testing,
c) system changeover
d) All the above
e) None of the above

80
12. The four common approaches to …………..are the
direct approach, a parallel operation, a pilot system and
system phase-in.

a) data conversion,

b) volume testing,

c) system changeover

d) All the above

e) None of the above

13. ………………………..immediately terminates the old

AIS when the new one is introduced.

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

14. …………………..is appropriate when the old AIS

have no value or the new one is so different.
a) Direct conversion
b) Parallel conversion
c) Pilot System
d) Phase-in conversion
e) None of the above

81
15. …………………. is inexpensive. In most cases,
however, unexpected problem surfaces during
conversion.

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

16. With…... the old system is not available as a backup.

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

17. ........................operates the old and new systems

simultaneously for a period of time.
a) Direct conversion
b) Parallel conversion
c) Pilot System
d) Phase-in conversion
e) None of the above

82
18. With…... The old system continues to operate as a
backup.

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

19. ……………………is the safest approach to system

conversion, it is also a common one.

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

20. ......................requires that all operations be performed

twice

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

83
21. ...................operates the system first within a limited
segment of the organization, such as a branch,
department, sales region, or a subsidiary.

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

22. The disadvantages of the ……….. are the long

conversion time

a) Direct conversion

b) Parallel conversion

c) Pilot System

d) Phase-in conversion

e) None of the above

23. The project team may choose to gradually replace the

old AIS with the new one in the .................conversion.
a) Direct conversion
b) Parallel conversion
c) Pilot System
d) Phase-in conversion
e) None of the above

84
24. Three activities during the ............ phase: Post-
implementation review, System maintenance,
accounting for and systems costs.

a) system design

b) operation

c) implementation

d) conversion

e) None of the above

25. During the Procedures in the Review, The project team

evaluate..........

a) Costs and Benefits

b) Documentation

c) User Satisfaction

d) Internal Controls

e) All of the above

26. An activity that takes place throughout the life of a

system is the ………. .of both computer equipment and
computer software.
a) operation
b) implementation
c) conversion
d) System maintenance
e) None of the above

85
 The answer
No. Answer No. Answer
1. C 14. A
2. A 15. A
3. B 16. A
4. A 17. B
5. D 18. B
6. B 19. B
7. D 20. B
8. A 21. C
9. B 22. C
10. B 23. D
11. B 24. B
12. C 25. E
13. A 26. D

86
 Chapter 9: Revenue Cycle

Question 1: T or F

1) The revenue cycle primary objective is to provide the

right product in the right place at the right time for the
right price.

2) The expense cycle primary objective is to provide the

right product in the right place at the right time for the
right price.

3) The revenue cycle primary objective is to provide the

right product in the right place at the right time for the
highest price.

4) The four basic business activities performed in the

revenue cycle are: sales order entry, shipping, billing,
and cash collection.

5) The four basic business activities performed in the

revenue cycle are: sales order entry, shipping, billing,
and paying for goods.

6) The four basic business activities performed in the

expense cycle are: sales order entry, shipping, billing,
and cash collection.

7) The sales order department performs the sales order

entry process.

87
8) The warehouse and shipping departments performs the
sales order entry process.

9) The two steps of the filling customer orders and shipping

the merchandise activity are:

1) Picking and packing the order

2) Shipping the order

10) The two steps of the filling customer orders and shipping
the merchandise activity are:

1) Sales order entry

2) Shipping the order

11) The two steps of the filling customer orders and shipping
the merchandise activity are:

1) Picking and packing the order

2) Cash collection

12) Billing customers activity involves two tasks:

1) Invoicing
2) Updating accounts receivable

13) Billing customers activity involves two tasks:

1) Picking and packing the order

2) Updating accounts receivable

88
14) Billing customers activity involves two tasks:

1) Invoicing
2) Shipping the order

15) The final activity in the revenue cycle is cash collection.

16) The final activity in the revenue cycle is shipping the

order.

17) The first activity in the revenue cycle is sales order

entry.

18) The third activity in the revenue cycle is sales order

entry.

19) The second activity in the revenue cycle is shipping.

20) The fourth activity in the revenue cycle is shipping.

21) The third activity in the revenue cycle is billing.

22) The fourth activity in the revenue cycle is billing.

23) The fourth activity in the revenue cycle is cash

collection.

24) The third activity in the revenue cycle is cash collection.

89
The answer
No. T or F Wrong word(s) Correction
1) T
2) F expense revenue
3) F highest right
4) T
5) F Paying for goods Cash collection
6) F expense cycle revenue cycle
7) T
8) warehouse and
F sales order department
shipping departments
9) T
10) Sales order entry Picking and packing the
F
order
11) F Cash collection Shipping the order
12) T
13) Picking and packing Invoicing
F
the order
14) F Shipping the order Updating accounts receivable
15) T
16) F shipping the order cash collection
17) T
18) F third first
19) T
20) F fourth second
21) T
22) F fourth third
23) T
24) F third fourth

90
Question2 :MCQ

1. In the revenue cycle is, with whom is the primary

external exchange of information?

a) competitors

b) creditors

c) customers

d) marketing organizations

2. What is the primary objective of the revenue cycle?

a) to maximize revenue and minimize expense

b) to reduce outstanding accounts receivable

balances

c) to provide the right product in the right place at

the right time at the right price

d) to sell as much product as possible

3. Which of the activities listed below is not part of the

revenue cycle?

a) sales order entry

b) shipping

c) receiving

d) billing

91
4. Which of the following is not one of revenue cycle
business activities?

a) shipping

b) billing

c) general ledger

d) cash collections

5. Before the customer order is checked for inventory

availability, what step should be taken?

a) The customer's credit should be checked.

b) The sales order should be created.

c) Shipping should be notified of an order in

process.

d) A picking list should be generated.

6. Customer inquiries during the sales order process are

best handled by

a) a sales order and customer service person.

b) accounting personnel.

c) the credit manager.

d) A and C above

92
7. Once a customer order has been approved, which
document is produced next?

a) the sales invoice

b) the packing slip

c) the payment advice

d) the purchase order

8. The activities involved in processing customer orders

within the revenue cycle are known as the………..

a) sales order entry process

b) shipping order process

c) revenue process

d) marketing process

9. How credit approval is generally handled for well-

established customers with a documented payment
history?

a) specific authorization by the credit manager

b) routine approval is usually granted

c) a new credit application is taken

d) a formal credit check is made for each sale

93
10. When a customer pays off the balance on an invoice, the
transaction is credited to the ………. file.

a) customer master
b) sales transaction
c) cash receipts
d) All of the above are correct.

11. The activities involved in soliciting and processing

customer orders within the revenue cycle are known as
the ………..

a) sales order entry process

b) shipping order process

c) revenue process

d) marketing process

12. To ensure proper separation of duties the ………. makes

decisions concerning issuance of credit memos.

a) accounts receivable supervisor

b) warehouse manager

c) credit manager

d) cashier

94
 The answer
No. Answer No. Answer
1. C 7. B
2. C 8. A
3. C 9. B
4. C 10. A
5. A 11. A
6. A 12. C

95
 Cairo University Final Exam ( Examination form 1 ) Date : 12 / 6 / 2017
Faculty of commerce Subject : Accounting Information Systems Time : 11- 1 am
Arabic section ( ‫ متميزة‬،‫الفرقة الرابعة – المجموعة ) انتظام‬ 4 pages
Part one
Answer the following questions:
Question one: Determine whether the following statements are true or false:
1- In human resources cycle, employees are hired, trained, compensated, evaluated, promoted, and
terminated.
2- Information generation is an objective of an AIS.
3- Information is relevant if it is free from errors or bias.
4- A database is a set of interrelated, centrally coordinated fields.
5- Users can make better decisions as the quantity and quality of information decrease.
6- A document flowchart is particularly useful in analyzing the adequacy of control procedures in a system.
7- On-line processing system is more complex to develop and maintain than other systems, and more expensive
to implement.
8- Goal congruence occurs when a decision or action of a subsystem is inconsistent with another subsystem or
the system as a whole.
9- A general journal is used to record frequent or routine transactions.
10- The accounting information system is one of the systems within a firm that is concerned with data and
information.

Question Two: Choose the best answer for the following questions:
11- Data ………. consists of accessing and extracting data either for further processing or for reporting to users.
(a) maintaining (b) retrieving (c) storing (d) none of the above
12- The files used to store cumulative information are called ……….. .
(a) chart of accounts (b) journals (c) ledgers (d) none of the above
13- Reports are used by …….. to make decisions and design strategies for the business.
(a) managers (b) external users (c) employees (d) all the above
14-There are …………. characteristics that make information useful and meaningful.
(a) 4 (b) 5 (c) 6 (d) none of the above
15- Which type of coding is used in this diagram?
Accounts

Assets 1 Liabilities 2

Fixed Assets 11 Current Assets 12

Lands 111 Building 112

(a) Block Codes (b) Sequence Codes (c) Group Codes (d) none of the above
16- The first step in decision making is to ………. .
(a) identify the problem (b) collect and interpret information (c) select methodology (d) none of the above
17- For ………., management needs information about such things as inventory status and sales forecasts.
(a) control purposes (b) planning purposes (c) evaluation purposes (d) none of the above

18- , This symbol is referring to …………. .

(a) multiple copies of one document (b) online keying (c) computer processing (d) document
19- Information is ……….. if it is presented in a useful and intelligible format.
(a) relevant (b) reliable (c) complete (d) understandable

Form 1 (page 1 of page 4)

20- Data flows are represented in a DFD by ……..
(a) (b) (c) (d)

21- ………. are subsystems of management information system.

(a) decision support systems (b) expert systems (c) functional information systems (d) none of the above
22- Flowcharts can be divided into …….. types.
(a) two (b) three (c) four (d) five
23- Which of the following steps is related to data collection function?
(a) transcribing (b) merging (c) calculating (d) none of the above
24- A ……….. is a set of related records.
(a) field (b) database (c) entity (d) file
25- Which of the following is not related to input/ output symbols?
(a) (b) (c) (d)

26- Data maintenance function involves steps like ………. of data.

(a) batching (b) maintaining (c) capturing (d) validating
27- Periodic updating of data is referred to as ……….. . processing.
(a) on-line (b) batch (c) real-time (d) none of the above
28- Which of the following is related to storage symbols?
(a) (b) (c) (d)

29- …………. relates to the effective and efficient performance of specific tasks.
(a) management control (b) strategic planning (c) operational control (d) none of the above
30- A ………….. is a temporary or permanent repository of data.
(a) data source and destination (b) transformation process (c) data flow (d) data store
31- ……..… is the benefit produced by the information minus the cost of producing it.
(a) information overload (b) value of information (c) information generation (d) none of the above
32-Which type of coding is used in invoices and purchase orders?
(a) Block Codes (b) Group Codes (c) Sequence Codes (d) none of the above
33- An AIS includes many components such as……….
(a) activities (b) people (c) resources (d) all of the above
34- ………….. depict the relationship among the input, processing, and output of an AIS.
(a) system flowcharts (b) document flowcharts (c) program flowcharts (d) none of the above
35- ……….. provides executives with information that is tailored to their needs and interests.
(a) ES (b) EIS (c) DSS (d) MIS

36- , This symbol is referring to …………. .

(a) document (b) online keying (c) computer processing (d) multiple copies of one document
37- ………. decisions can be delegated to lower-level employees in the organization.
(a) semi-structured (b) unstructured (c) structured (d) none of the above
38- The ………….… cycle, where goods and services are sold for cash or a future promise to pay cash.
(a) revenue (b) production (c) financing (d) expenditure
39- A master file is conceptually similar to a …….. in manual AIS.
(a) journal (b) ledger (c) chart of accounts (d) none of the above
40- An effective accounting information system performs ………. key functions to transform data into information.
(a) 3 (b) 4 (c) 5 (d) 6

Form 1 (page 2 of page 4)

 Part Two
Question (1): True or False:
41- Economic feasibility determines if a proposed system change could enable the system to
meet its operating objectives.
42- Many people simply oppose any change in their work routines.
43- The project team must prepare a site for the equipment before installing it.
44- The objective of system survey is preparing a proposal to conduct systems analysis.
45- The purpose of volume testing is to determine how well the system works under a
hypothetical processing load.
46- Inputs to the system provide the sources of the data contained in system files.
47- Accountants commonly apply the system approach in the development of new
accounting information systems.
48- The system analyst uses interview as a guide to ensure that all necessary data are
gathered.
49- Demand reports have a prespecified content and format but are prepared only on
request.
50- System design may begin to implement a new form of technology.
51- During conceptual systems design, the company translates the user requirements of the
physical design into detailed specifications.
52- Examples of scheduled reports are annual financial statements.
53- Any accounting information system should satisfy the current and future needs of the
company.
54- The cost of obtaining a package is much more than the costs of in- house development.
55- The first task in conversion is to change the data are stored.
56- When selecting the information content of the outputs, the design team decides how the
information should be presented.
57- Equipment costs are an initial outlay cost if the system is rented or leased.
58- Members of the analysis team have primary responsibility for user training.

Question (2): Multiple Choice:

59- …….. documentation shows how computerized, and manual procedures interact.
A individual B organizational C processing D audit
60- Accounting information system should produce …………….. information.
A correct B timely C general D A+B
61- …… has the advantage that the project team controls development of the program.
A computer manufacturers B user’s group
C software development companies D In-house development
62- The ……. consists of the time period in which the system is used to process accounting
data.
A operation B conceptual design C implementation D physical design
63- …….. provides the design team with information that could improve future projects.
A System implementation B System maintenance
C Post- implementation review D System operation
64- The …………. facilitates the coordination and integration of information systems
activities.
A programmers B operators C accountants D steering committee
65- When the existing systems cannot solve the problem, the possible outcome of system
analysis is ……… .
A Do nothing B modify an existing systems
C design a new system D B+C

Form (1)- Page (3) of (4)

66- ……. documentation includes a system description; copies of output, input, and file and
database layouts; program flowcharts..
A Development B Operations C Users D All of the above
67- One of the reasons of systems development is system…………….. .
A integration B analysis C design D operation
68- Common constraints include: ……… .
A customer service B available technology
C recommendations of the new system D usefulness
69- …….. design is one of the most time consuming activities in the SDLC.
A file and database B input C program D output
70- The objective of …….. is providing management with findings of analysis phase.
A system analysis report B feasibility study
C system design D system operation
71- In the …… phase, a project team creates a working system from the detailed-
specifications produced during physical design phase.
A operation B implementation C conceptual design D None of the above
72- In the system …………… phase, all the elements and activities of the system come
together .
system implementation and system analysis
A B
conversion
C system design D system operation
73- ….. have a prespecified content and format and are prepared on a regular basis.
A Demand reports B Scheduled reports
C Special purpose analysis reports D Triggered exception reports
74- A feasibility study is prepared during systems ……. phase.
A analysis B design C operation D conversion
75- ……………., the company decides how to meet user needs.
A system operation B system analysis
C physical system design D conceptual system design
76- …… conversion operates the old and new systems simultaneously for a period of time..
A Pilot B Parallel C Direct D Phase- in
77- The design team develops system ….. to show the sequence of processes.
A flowcharts B operations C processes D All of the above
78- The ……. costs associated with hiring, training, and relocating staff.
A operating B hardware C human resource D software
79- Most training occurs prior to ….. of the system.
A implementation B operating C testing D designing
80- ……. that perform frequently needed functions, such as sorting files.
A File management programs B Utility programs
C Operating systems D None of the above

Good Luck……..

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