CH 2 - Fundamental Concepts of the AIS

Batch Processing Disadvantages

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

Ethical consideration of AIS

1. Accountants should be aware of opportunities for unethical behaviors within the various business processes. 2. As a company chooses features and options for its accounting information systems, the importance of monitoring those systems should not be overlooked as a factor in decision making

Online & Real-time Processing Advantages

1. As data is entered in real time, the system checks for input errors, thus correcting any errors immediately. 2. Information is provided to users on a timely basis, without the time lag inherent in batch systems. 3. All files are constantly up to date 4. The business processes are integrated into a single database so that a single system is achieved.

There are 2 types of Processing methods

1. Batch Processing 2. Online and Real-Time Processing

Difference between a chart & diagram

1. Both are pictures 2. But Chart is Bigger than a Diagram meaning more symbols. 3. Diagram are usually 1 page long 4. Chart can be several pages

Disadvantages of the Legacy System

1. Costly to maintain, both in terms of money and time 2. Often lack up-to-date supporting documentation 3. May require old hardware to maintain the system, but the old hardware may have become obsolete and hard to find. 4. Not usually user-friendly, such as Microsoft Windows or Apple's Mac OS 5. Tends to use old programming language that fewer programmers are familiar with 6. Often difficult to make them Web-friendly or User-friendly 7. Difficult to integrate when companies merge or acquire other companies.

Batch Processing Advantages

1. Efficient for large volumes of similar transactions 2. Audit trail is maintained because there are very well defined beginning and ending period. 3. Generally use less costly hardware and software 4. Hardware and software are not as complicated as on-line systems. 5. Generally easier to control than other type of computerized systems. 6. Personnel become specialized and efficient in processing routine batch transactions.

Online & Real-time Processing Disadvantages

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

Advantages to Modern, Integrated Systems

1. Lowest Cost 2. Shorter implementation time 3. Fewer bugs

What are the 3 types of Accounting Information System

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

There are 5 types of documentation techniques used in organizations that are Pictorial Representations:

1. Narrative = Written document about a process 2. System Flowchart = Picture of what happens inside the system (Computer) once you hit the enter key. 3. Data flow diagram = Picture of how data is moving. [Raw] [How it moves] [Picture]

There are several input methods used in businesses:

1. Source document and keying 2. Bar Codes 3. Point of Sale Systems 4. Electronic Data Interchange (EDI) 5. E-Business and E-Commerce

Advantages of the Legacy System

1. The system is customized to meet specific needs of the organization 2. Often supports unique business processes not found in generic accounting software 3. May contain invaluable historical data that may be difficult to integrate into a new system 4. Well supported and understood by existing personnel

There are 4 general categories of Outputs

1. Trading partner documents = Documents that are exchanged between trading partners such as invoices, checks, and statements. Trading partners are like clients and vendors. 2. Internal documents = Receiving reports, production routing documents, production scheduling documents. 3. Internal reports = Any type of reports provided to internal managements, such as AR Aging report 4. External reports = Usually financial statements such as Balance Sheet, Income Statement, Statement of cash flows.

Client-Server computing

2 types of computers networked together to accomplish application processing. The Server is usually a large computer that contains the database and many of the application programs. Client is usually the PC computers. Main characteristics of client-server computing are: 1. Client and server computers are networked together 2. The system appears to users to be one integrated whole 3. Individual parts of processing are shared between the server and client. 4. The client computer participates in the processing or data manipulation in some meaningful way.

Free Test Answer 2PTS What is the best way to document a system?

A System Flowchart

Cloud Computing

A more centralized approach to IT, and the cause of the movement away from the client-server approach.

Pictorial Representation

A picture of drawing or an illustration showing a certain process.

General Ledger

Details of every accounts used in the organization's accounting system is recorded here. Transaction summaries are posted to the General Ledger from the General Journal.

E-Business and E-Commerce

E-Business related to all forms of online electronic business transactions and processing. E-Commerce is a type of E-Business that is specific to consumer online buying and selling.

Special Journals

Established to record specific type of transactions.

Legacy Systems

Existing system already operating within an organization. Often based on old technology that the company has invested a lot of money in and the technology is entrenched into the organization system.

Electronic Data Interchange (EDI)

Intercompany, computer-to-computer transfer of business documents in a standard business format. EDI transmits documents such as purchase orders, invoices, payments.

Narrative Advantages and Disadvantages

Main Advantage 1. Grammar, Punctuation, Format Main Disadvantage 1. There are people that do not read well so it could be hard to read the narrative. Writer may misinterpret the process and write a flawed narrative. 2. The longer the narrative the more complicated it becomes When should you do a narrative? 1. Training new staff 2. SOP 3. For auditors 4. To document simple straightforward processes

Subsidiary ledgers

Maintain detailed information regarding routine transactions, with an account established for each entity. For example, the accounts receivable ledger maintains all detailed information regarding customer purchases, payments, and balances due.

Point of Sale System

Method of using hardware and software that captures retail sales transactions by standard bar coding.

Manual AIS systems

Most large or mid-sized companies use computerized accounting systems rather than manual, but even so their systems may still have part of their processes that involve manual records. For example, even if the calculation and printing of payroll checks are computerized, the timesheets must be completed by hand. Manual systems are generally used by small organizations. But since even large companies have manual processing components, it is important to understand the process of Manual AIS Systems. Entirely manual systems would require the following documents: 1. Source document 2. Turnaround document 3. General ledger 4. General journal 5. Special journals 6. Subsidiary ledgers

Modern, Integrated Systems

New programs sold by software development companies that are more user friendly than legacy accounting systems.

Online and Real-time Processing

Online Processing = Transactions are not grouped into batches, rather, each transaction is entered and processed individually. Some Online Processing systems are also Real-Time Processing systems Real Time Processing = Transaction is processed immediately, and in real time, so that the output is available immediately.

Turnaround document

Output of the accounting system that is later returned, potentially with extra information, to become an input in a different part of the accounting system. For example, credit card statements sent to cardholders are the output of the bank's accounting system. When customers return the statement to the bank with payment, the statement becomes an input document.

General Journal

Place of original entry for any transactions that are not recorded in the special journal. Used to record non-routine transactions and adjusting and closing entries.

Bar Codes

Printed code consisting of a series of vertical, machine-readable, rectangular bars and spaces that vary in width and are arranged in a specific way to represent letters, numbers, and other human-readable symbols. Bar codes are read and decoded by bar code scanners

Source Document

Record that captures the key data of a transaction.

Batch Processing

Requires similar transactions to be grouped together for a certain period and then processed together as a batch.

Sometimes companies don't completely replace Legacy systems with modern systems, instead, they may use Screen Scrapers or Enterprise Application Integration

Screen scrapers, or frontware, add modern, user friendly screen interfaces to legacy systems. Enterprise Application Integration helps bridge legacy systems to new modern hardware and software systems and interfaces.

Source document and keying

Taking data from the source document and keying it into the system