TOPIC 1

• The Information System: An Accountant's Perspective

  
• Information Environment


  Information is a business resource. Information flows to decision makers and other users to meet internal needs. Information also flows out from the organization to external users.
• Business Organization


  • Divided horizontally into several levels of activity: Business operations, Operations management, Middle management, Top management
• Information flows horizontally


  Supports operations-level tasks with highly detailed information about business transactions
• Information flows vertically


  Distributes information downward from senior managers to junior managers and operations personnel. Summarized information flows upward to managers.
• External Users


  • Trading partners
  • Stakeholders
• External users have unique information requirements that differ from management and operations users
• System


  A group of two or more interrelated components or subsystems that serve a common purpose
• Elements of a System


  • Multiple components
  • Relatedness
  • Purpose
• Information System


  The set of formal procedures by which data are collected, processed into information, and distributed to users
• Transaction


  An event that affects or is of interest to the organization and is processed by its information system as a unit of work
• Financial Transaction


  An economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms
• Nonfinancial Transaction


  An event that does not meet the definition of a financial transaction
• Accounting Information System (AIS)

  Processes financial transactions and nonfinancial transactions that directly affect the processing of financial transactions

  
• AIS Subsystems

  • Transaction Processing System (TPS)
  • General Ledger/Financial Reporting System (GL/FRS)
  • Management Reporting System (MRS)
• Transaction Processing System (TPS)


  Central to the overall function of the information system by converting economic events into financial transactions, recording financial transactions in the accounting records, and distributing essential financial information to operations personnel

  
• General Ledger/Financial Reporting System (GL/FRS)


  Measures and reports the status of financial resources and the changes in those resources, primarily to external users
• Management Reporting System (MRS)


  Provides the internal financial information needed to manage a business
• Management Information System (MIS)


  Processes nonfinancial transactions that are not normally processed by traditional AIS
• Transaction cycles


  The source of the accounting information system

  
• Updating the general ledger control accounts

  1. Summaries of transaction cycle activity are processed by the GLS

  2. Other, less frequent, events such as stock transactions, mergers, and lawsuit settlements, for which there may be no formal processing cycle in place, also enter the GLS through alternate sources
• FRS (Financial Reporting System)


  Measures and reports the status of financial resources and the changes in those resources
• Nondiscretionary reporting


  The organization has few or no choices in the information it provides, primarily to external users
• Discretionary reporting


  The organization can choose what information to report and how to present it
• Reports produced by the MRS

  • Budgets
  • Variance reports
  • Cost-volume-profit analyses
  • Reports using current (rather than historical) cost data
• Data


  Facts, which may or may not be processed (edited, summarized, or refined) and have no direct effect on the user
• Information


  Causes the user to take an action that he or she otherwise could not, or would not, have taken
• Information is determined by the effect it has on the user, not by its physical form
• External financial transactions


  Economic exchanges with other business entities and individuals outside the firm
• External financial transactions


  • Sale of goods and services
  • Purchase of inventory
  • Receipt of cash
  • Disbursement of cash (including payroll)
• Internal financial transactions


  Exchange or movement of resources within the organization
• Internal financial transactions


  • Movement of raw materials into work-in-process (WIP)
  • Application of labor and overhead to WIP
  • Transfer of WIP into finished goods inventory
  • Depreciation of plant and equipment
• Data collection


  • Ensure that event data entering the system are valid, complete, and free from material errors
• Relevance in data collection


  • The information system should capture only relevant data
• Efficiency in data collection


  • Capture data only once and make it available to multiple users
• Data processing


  Tasks range from simple to complex, such as mathematical algorithms, statistical techniques, and posting and summarizing procedures
• Database


  The organization's physical repository for financial and nonfinancial data
• Data attribute


  The most elemental piece of potentially useful data in the database
• Record


  A complete set of attributes for a single occurrence within an entity class
• Primary key


  A unique identifier attribute for a record