INFORMATION SYSTEM- processes data and transactions to provide users with the

information needed to plan, control and operate an organization.

In accounting information system, the main output is typically in the form of

financial statements. Business transactions data (input), once processed, would
become meaningful financial information (output) that are contained in the set of
reports called financial statements. A company’s management must decide whether
to process accounting data manually or electronically (i.e., use of computers).
Adequate knowledge on data processing along with cost-benefit considerations are
usually required to make such a decision.

MANUAL SYSTEM vs COMPUTER SYSTEM

Manual accounting systems have in most circumstances been replaced by
computerized accounting information systems of various types, although portions of
many systems remain manual. Computer processing tends to reduce or eliminate: (!)
computational errors (2) errors in processing routine transactions (when fraud is not
involved). Systems conversion- from manual to computer- may be done through the
following:
 PARALLEL CONVERSION- operation of the old and new systems simultaneously
until the new system is operating as expected. This conversion is considered low
risk.
 DIRECT CONVERSION- immediate conversion to the new system throughout the
organization
 PILOT CONVERSION (modular, phase-in conversion)- conversion to a new or
modified system by module or segment (e.g. one department or branch of a
company at a time).
 PROTOTYPE CONVERSION- developing and putting into operation successively
more refined versions of the system until sufficient information is obtained to
produce a satisfactory design

SYSTEMS DEVELOPMENT
A system development cycle usually involves the following sequential steps:
 SYSTEM ANALYSIS- process of determining user problems and need surveying
present system, analyzing facts, and developing the logical requirements of a
proposed system.
 SYSTEM FEASIBILITY STUDY- determines the technical, operational, and economic
viability of the proposed system
 SYSTEM DESIGN- process of developing specific specifications for hardware,
software, manpower, data resources, and information products required to
develop a system. System design determines how information requirements by
an entity will be met. The three major activities involved are:
o User interface design: how users will interact with the system to meet their
needs
o Data design: how data as input to the system will be organized
o Process design: formulation of processing steps
 SYSTEM IMPLEMENTATION- involves training and educating system users, testing
and follow-up.
 SYSTEM MAINTENANCE- process of monitoring, evaluating and modifying a
system as needed

GENERAL TYPES OF COMPUTER SYSTEM

TRANSACTION PROCESSING SYSTEM
This involves the daily processing of transactions (e.g. airplane reservation
systems, payroll recording, cash receipts and disbursements)
MANAGEMENT REPORTING SYSTEM
This is designed to help with the decision making process by providing access to
computer data.
  MANAGEMENT INFORMATION SYSTEMS- systems designed to provide past,
present and future information for planning, organizing and controlling the
operations of the organization
 DECISION SUPPORT SYSTEMS- computer-based information systems that combine
models and data to resolve non-structured problems with extensive user
involvement.
 EXPERT SYSTEMS- computer systems that apply reasoning methods to data in a
specific relatively structured area
 EXECUTIVE INFORMATIONS SYSTEMS- computerized systems that are specifically
designed to support executive work.

COMPUTER-RELATED TERMINOLOGIES
TYPES OF COMPUTERS
 SUPERCOMPUTERS, MAINFRAME COMPUTERS and MINICOMPUTERS- extremely
powerful, high-speed computers used for extreme high volume and/or complex
processing needs
 MICROCOMPUTERS (e.g., personal computers, laptop computers)- small
computers, such as those in many homes and businesses.
 PERSONAL DIGITAL ASSISTANTS (PDA) – mobile, handy computers

COMPUTER HARDWARES (PHYSICAL EQUIPMENT)

 CENTRAL PROCESSING UNIT (CPU)- the principal hardware components used to
fetch stored instructions and data, decode the instructions, and carry out the
instructions. The CPU is usually composed of the following:
o ARITHMETIC/LOGIC UNIT- performs mathematical operations and logical
comparisons
o PRIMARY MEMORY(storage)- active data and program steps that are
being processed by the CPU. It may be divided into RAM (random-access
memory) and ROM (read-only memory). Application programs and data
are stored in the RAM at execution time.
o CONTROL UNIT- interprets instructions and coordinates input, output and
storage devices.

 SECONDARY STAGE
o MAGNETIC TAPE (or cartridge)- cheapest type of storage available. A
primary medium for backing up random-access disk files.
o MAGNETIC DISKS- those for microcomputers are referred to as “hard disks”
or “hard drives”
o RAID (Redundant array of independent/inexpensive disks)- a way of
storing the same data redundantly on multiple magnetic disks
o COMPACT DISKS (CD)- small, easily transportable
o FLOPPY DISKS- small, easily transportable disks commonly known as
“diskettes”
o ZIP DISKS- similar to floppy diskettes, but with much greater storage
capacity
o OPTICAL DISKS- use laser technology to store and read data
o FLASH DISKS- use universal bus port (USB) to store and read data, with
much greater capacity

 INPUT DEVICES
o ONLINE ENTRY
1. VISUAL DISPLAY TERMINAL- uses keyboard to directly enter data
into computer
2. MOUSE, JOYSTICK, LIGHT PENS- familiar devices that allows data
entry
3. TOUCH-SENSITIVE SCREEN- allows users to enter data from a menu
of items by touching the surface of the monitor
 o TURNAROUND DOCUMENTS- documents that are sent to the customer
and returned as inputs (e.g., utility bills)
o AUTOMATED SOURCE DATA INPUT DEVICES
1. MAGNETIC TAPE READER – a device capable of sensing
information recorded as magnetic spots on magnetic tape.
2. MAGNETIC INK CHARACTER READER (MICR) – device that reads
characters that have been encoded with a magnetic ink (e.g.,
bank check readers.)
3. SCANNER- a device that reads characters on printed pages
4. AUTOMATED TELLER MACHINE (ATM)- a machine used to execute
and record transactions with financial institutions.
5. RADIO FREQUENCY DATA COMMUNICATION- using radio waves
to directly input data
6. POINT-OF-SALE (POS) RECORDERS- devices that read price and
product code data
7. VOICE RECOGNITION- understands spoken words and transmits
them into a computer
8. ELECTRONIC COMMERCE AND ELECTRONIC DATA INTERCHANGE-
involves one company’s computer communicating with
another’s computer. For example, a buyer is sending via a
computer purchase orders to a supplier

 OUTPUT DEVICES
Many automated source data input devices and electronic
commerce/electronic data change devices are capable of outputting data
(“writing” in addition to “reading”) and therefore become output devices as well
as input devices
o MONITORS- visually display output
o PRINTERS- produce paper output
o PLOTTERS- produce paper output of graphs
o COMPUTER OUTPUT TO MICROFILM- makes use of photographic process to
store output
 Related terminologies
o ONLINE- equipment in direct communication with and under the control
of the CPU
o OFFLINE- equipment not in direct communication with the CPU
o CONSOLE- a terminal used for communication between the operator and
the computer (e.g., the operator of a mainframe computer)
o BUFFER- a temporary storage unit used to hold data during computer
operations
o MIPS- millions of instructions per second; a unit for measuring the execution
speed of computers.

COMPUTER SOFTWARES (PROGRAMS THAT CONTROL HARDWARES)

 SYSTEM SOFTWARE
o OPERATING SYSTEMS- manage the input, output, processing and storage
devices and operations of a computer (e.g., Windows, Bista, Linux, Unix).
o UTILITY PROGRAMS- handle common file, data manipulation and
“housekeeping” tasks.
o COMMUNICATIONS SOFTWARE_ controls and supports transmission
between computers, computers and monitors, and accesses various
databases.

INFORMATION SYSTEMS
 APPLICATIONS SOFTWARE - programs designed for specific uses or “applications”
» Word processing, graphics, spreadsheets, and database systems (e.g., Word,
Excel)
» Accounting softwares:
 1) LOW - END — all in one package, designed for small organizations.
2) HIGH - END - ordinarily in modules (e.g., general ledger, receivables).
3) ENTERPRISE RESOURCE PLANNING (ERP) - designed as relatively complete
information system “suites” for large and medium size organizations (e.g., human
resources, financial applications, manufacturing, and distribution). Examples of
major vendors are SAP and Oracle.

Advantages of ERP: integration of various portions of the information system, direct

electronic communication with suppliers and customers.
Disadvantages of ERP: complexity, costs, integration with supplier and customer system
may be more difficult than anticipated.

 Related terminologies
» COMPILER — Produces a machine languages object program from a source
program language.
» MULTITASKING. ~ the simultaneous processing of several jobs on a computer.
» MULTIPROCESSING - simultaneous execution of two or more tasks, usually by two or
more CPUs that are part of the same system.
» PROTOCOL - rules determining the required format and methods for transmission
of data.
» OBJECT PROGRAM - the converted source program that was changed using a
compiler to create a set of machine readable instructions that the CPU
understands.
» SOURCE PROGRAM - a program written in a language from which statements are
translated into machine language object program; computer programming has
developed in “generations.”
1st generation: Machine language (combinations of 1’s and 0's meaningful to the
computer).
2nd generation: Assembly language (e.g., Fortran).
3rd generation: “High-level” programming languages (e.g., C++, Java).
4th generation: An “application specific’ language usually built around database
systems. (e.g., an instruction might be Extract 2/ Customers where “Surname” is
Lee)
5th generation: A relatively new and developing form that includes visual or
graphical interfaces used to create source language ‘that is usually compiled
with a 3°° or 4 language compiler.
» DEBUG - to find and eliminate errors in a computer program.
» DESK CHECKING - review of a program by the programmer for errors before the
program is un and debugged on the computer.
» EDIT —to correct input data prior to processing
» LOOP —- a set of program instructions performed repetitively until all of the
data have been processed.
» PATCH - a section of coding inserted into a program to correct a mistake or to
alter a routine
» RUN – a complete cycle of a program including input, processing and output.

METHODS OF PROCESSING
BATCH vs. ONLINE REAL-TIME
 BATCH PROCESSING
» Transactions flow through the system in groups of like transactions (batches). For
example, all cash receipts on accounts receivable for a day may be aggregated
and run as a batch.
» Ordinarily leaves a relatively easy-to-follow audit trail.

 ONLINE REAL-TIME (also referred to as direct access processing)

» Transactions are processed in the order in which they occur, regardless of type.
» Data files and programs are stored online so that updating can take place as the
edited data flows to the application.
 » System security must be in place to restrict access to programs and data to
authorized persons.
» Online systems are often categorized as being either online transaction processing
systems (OLTP) (e.g., airline reservation systems, bank automatic teller systems, and
Internet Web site sale systems) or online analytical processing systems (OLAP).
» OLAP techniques are used as decision support systems and for data mining.
DATA MINING - using sophisticated techniques from statistics, artificial intelligence
and computer graphics to explain, confirm and explore relationship among data
ARTIFICIAL INTELLEGENCE (AI) - computer software designed to help humans make
decisions using a computer to quickly solve a problem that a human could
ultimately solve through extremely detailed analysis.
EXPERT SYSTEM (one form of AI) - a computerized information system that guides
decision processes within a well-defined area and allows decisions comparable to
those of an expert.
Expert knowledge is usually modeled into a mathematical system.
EXAMPLE: An expert system may be used by a credit card department to
authorize credit card purchases so as to minimize fraud and credit losses.

CENTRALIZED, DECENTRALIZED or DISTRIBUTED

 CENTRALIZED - processing occurs at one location
 DECENTRALIZED - processing (data) is cone (stored) on computers af multiple
locations.
 DISTRIBUTED - transactions for a single database are processed by batch or
online at various sites.

METHODS OF DATA STRUCTURE

Data Organization For Computer Operations
 BIT - a binary digit (0 or 1) which is the smallest storage unit in a computer.
 BYTE - a group of adjacent bits (usually 8) that is treated as a single unit by the
computer.
 CHARACTER - a letter, number, or other symbols; ordinarily printed as a symbol
(e.g. “a” or “,”).
 ALPHANUMERIC - alphabetic, numeric, and special characters (e.g., pluses,
minuses, peso signs, etc.)
 FIELD - a group of related characters (e.g., a social security number). |
 RECORD - An ordered set of logically related fields. (e.g., payroll data regarding
a single employee including the social security number field and others).
 FILE - a group of related records arranged in sequence. (e.g., all weekly pay
records year-to-date)
 MASTER FILE - a file containing relatively permanent information used as a source
of reference and periodically updated with a transaction file (e.g., permanent
payroll records).
 TRANSACTION FILE - a file containing current transaction information used to
update the master file (e.g., hours worked by employees during the current
period used to update the payroll master file).

DATA FILE STRUCTURE

 TRADITIONAL FILE PROCESSING SYSTEMS - each application program or system is
developed to meet the needs of the particular requesting department or user
group. For accounting purposes these systems are often similar to traditional
accounting systems, with files set up for operations such as purchasing, sales,
cash receipts, cash disbursement, etc. |
ADVANTAGES: currently operational for many existing systems; cost effective for
similar applications.
DISADVANTAGES: data files are dependent upon a particular application program
that must be developed individually; there is much duplication of data between
data files.
  DATABASE SYSTEMS
» DATABASE - a collection of interrelated files, ordinarily most of which are stored
online.
» DATABASE SYSTEM - set of hardware and software that allows the database(s) to
be implemented.
» DATABASE MANAGEMENT SYSTEM - software that provides a facility for
communications between - various applications programs (e.g., a payroll
preparation program) and the database (e.g., a payroll master file containing the
earnings records of the employees).
» STRUCTURED QUERY LANGUAGES (SQL) - the most common language used for
creating and querying relational databases
ADVANTAGES: data can be used relatively easily. by differing applications (data
independence); minimal data redundancy; sharing of data between individuals and
applications is relatively easy; reduced program maintenance; commercial
applications are available for modification to a company’s needs
DISADVANTAGES: need for specialized personnel with database expertise; costly
installation’ of : database; conversion of traditional file systems costly; comprehensive
backup and . recovery procedures are necessary.

COMPUTER NETWORKS
A NETWORK is a group of interconnected computers and terminals.
TELECOMMUNUCATIONS – the electronic transmission of information by a radio, fiber
optics, wire, microwave, laser, and other electromagnetic systems - has made possible
the electronic transfer of information between networks of computers. Common types
of computer networks are:
 LOCAL AREA NETWORKS (LAN) - privately owned networks within a single building
or campus of up to a few miles in size.
 METROPOLITAN AREA NETWORK (MAN) - a larger version of a LAN. For example, it
might include a group of nearby offices within a city.
 WIDE AREA NETWORKS (WAN) - networks that span a large geographical area,
often a country or continent. It is composed of a set of computers and
hardware/software for running user programs.

NETWORK-RELATED TERMS
 INTERNET - an international collection of networks made up of independently
owned computers that operate as a large computing network.
 FIREWALL - a method for protecting an organization’s computers and computer
information (e.g., database and e-mail system) from being tapped by
unauthorized outsiders.
 ROUTER - a communication interface device that connects two networks and
determines the best way for data packets to move forward to their destinations. :
 BRIDGE - a device that divides a LAN into two segments, selectively forwarding
traffic across the network boundary it defines.
 SWITCH - a device that channels incoming data from any of multiple input ports
to the specific output port that will take the data toward its intended destination.
 GATEWAY - a combination of hardware and software that links different types of
networks. (e.g., gateways between e-mail systems allow users of differing e-mail
systems to exchange messages.
 VIRUS - a program (or piece of code) that requests the computer operating
system to perform certain activities not authorized by the computer user.
Unexpected changes in, or losses of, data are common indication of the
existence of a virus on one’s computer.
 TROJAN HORSE- malicious, security-breaking program that is disguised as
something benign, such as a game, but actually is intended to cause
information technology damage.
 WORM - a program that propagates itself over a network, reproducing itself as it
goes.
  INTRANET - a local network, usually limited to companies that use internet-based
technology to communicate within the organization.
 EXTRANET — similar to an intranet, but includes an organization's external
customers and/or suppliers in the network.

COMMON COMPUTER NETWORK APPLICATIONS IN BUSINESS

 TELECONFERENCING - an electronic meeting conducted among several parties
at remote sites.
» ELECTRONIC COMMERCE - individuals and companies engaging In a variety of
electronic transactions (e.g., buy-and-sell, order placement) with computers and
telecommunications networks.
 ELECTRONIC FUNDS TRANSFER (EFT) - making payments (e.g., credit card and bills
payments) between two or more organizations or individuals electronically rather
than by using checks (or cash).
 ELECTRONIC DATA INTERCHANGE (EDI) - ‘the electronic exchange of business
transactions from one entity’s computer to another entity’s computer through an
electronic communications network.