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20 PART I Ov

erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

r
esour
ces.Forexample
,acc
ount
ingmonitor
sandrecor
dsthemo vementofr
awma t
eria
lsi
ntoproduc
ti
on
a
ndthes al
eo ffi
nis
hedgoodstocus
tomers.Account
ingauthor
ize
sp ur
cha
sesofra
wma t
eri
al
sandt h
e
di
sbur
semento fc
ashpayment
stovendor
sa ndemployees
.Accounti
ngsuppor
tst
hesefunc
ti
onswithin-
f
ormat
ionb utdoe
snotact
ive
lypar
ti
ci
pateinthephys
icalac
ti
vit
ies.

THEI
NFORMATI
ONTECHNOLOGYFUNCTI
ON
Ret
urni
ngtoFigure1-8,t
h ef
ina
lareatobedi
scuss
edistheITfunct
ion.Li
keaccount
ing,t
heITfu nc
ti
on
i
sassoc
iat
edwi t
htheinformat
ionres
ourc
e.It
sacti
vit
ie
sc a
nb eorga
nizedinanumberofd i
ff
erentways.
Oneextr
emes t
ruct
ureisthecent
ral
ize
dd a
taproc
essi
ngapproach;a
ttheothe
rextr
emei st
hed i
stri
bute
d
dat
aprocess
ingapproa
c h.Mostorgani
zat
iona
lstr
uctur
esfal
ls omewherebet
weentheseextre
me sand
embodyele
me nt
sofboth.

Ce
ntr
ali
zedDa
taP
roc
ess
ing
Undert
hecentr
aliz
eddat aproce
ssngmo
i de
l,al
ldat
ap roce
ssi
ngi sperf
ormedb yoneormo r
ela
rgec om-
put
ershous
eda tac ent
ralsit
ethatserveuser
sthroughouttheo rga
nizat
ion.Figur
e1 -
9ill
ust
rate
st hi
s
appr
oachinwh i
chI Tactivi
ti
esareconsoli
dat
eda ndma nageda sas har
edo r
g a
niza
tionre
sour
ce.En d
us
erscompet
efortheseresour
cesontheb as
isofneed.TheITf uncti
onisusual
lytre
atedasacostcent
er
whoseoper
ati
ngc os
tsarecharge
db acktotheendusers.Figur
e1 -10showstheITa re
asofoper
a t
ionin
moredet
ai
l.Theseincl
uded at
abas
ea dmini
str
ati
on,dataproc
essing,andsyst
emsd evel
opmenta
ndma i
n-
t
enance
.Thek e
yf unc
ti
onso feac
ho ft
h es
eareasar
ed escr
ibe
dn ext.

DATABASEADMI NISTRATI ON.Ce nt


ral
lyorga
niz
edcompanie
sma i
ntai
nthei
rd atares
our
cesina
ce
ntr
alloc
ati
ontha
tisshare
db ya l
lenduser
s.Inthi
sshar
edd a
taarr
angement
,as pecia
linde
pendent
gr
oup—d a
taba
seadmini
st
rat
ion—heade
db ythedat
abas
eadmini
st
rat
orisr
espons
ibl
ef orthes
ecur
it
ya nd
i
ntegr
it
yoftheda
tabas
e.Wee xplor
ethedat
abaseconc
eptandt
heroleofthedat
abasea dmi
nis
tr
atori
n
Chapt
er9.

FIG U RE

1
-9 CENTRALI
ZED DATA PROCESSI
NG APPROACH

Mar
ket
i
ng

Fi
nance

I
TSer
vices Pr
oduc
ti
on

Dat
a
Di
st
ri
but
i
on

I
nfor
mat
i
on
Ac
count
ing
CostChar
geback
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 21

FIG U R E

1
-10 ORGANI ON OFI
ZATI TFUNCTI N A CENTRALI
ON I ZED SYSTEM

Busi
ness
Or
gani
zati
on

Computer
Mar
ket
i
ng Pr
oduc
ti
on Fi
nanc
e
Serv
ices

Systems Database Dat


a
Development Administ
rat
ion Pr
oces
sing

NewSystems Systems Dat


a Data Computer Data
Devel
opment Mai
ntenanc
e Cont
rol Conv
ersi
on Oper
ati
ons Li
brary

DATAPROCESSI NG.Th ed ataprocessi


n gg roupma nagest
h ec omp uterresourc
esu se
dt op er
formt he
day-
to-da
yp roc e
ssingo ftransact
ions.Itma yc onsis
tofthefoll
o wingf unc t
ions:dat
ac ont
rol,dataconver-
si
on,comp uterop era
tions,andt hedatalibr
a ry.
Datacontrolgro upshav eallbutdisappearedfrommo der
no r
g anizat
ions.Trad i
t
ional
ly,thi
sfun ct
ionwa s
r
esponsi
bleforr e
c eiv
ingb atchesoftransact
iond o c
ume nt
sforproces s
ingf rome ndusersandthend is
trib
ut-
i
ngc omputero utput(d oc
u mentsa ndrepo r
ts)ba cktotheu s
ers.To dayt hisfuncti
onisu sual
lya ut
oma ted
anddis
tri
butedb ackt othee ndu s
ers.Someo rga
n iza
ti
onswi t
ho lderlegacys yst
ems ,ho
we ver,ma yst
illuse
adatacontr
o lgrou pa sal i
ais
onb e
twe enthee ndu serandd at
ap rocessing.Th ed a
tac onver
sionfunc t
ion
t
rans
crib
estran sa
c t
iond at
af roms ource(pape r
)d ocumentstodigit
alme dia(ta
peo rdis
k )sui
tableforcom-
put
erprocessi
n gb ythec entr
alcomp uter,wh i
chi sma na
gedb ythec omp ut
ero per
ati
onsg r
o up.Accoun t
ing
appl
ica
ti
onsa reu sual
lyr u
na ccordingtoas tri
ctsc he
dulethati
sc ontro
ll
e db ythec e
ntr
al computer.
Thed at
al ibra
ryi sar oomo ft
ena dja
ce nttoth ecompu t
ercentertha tprovidessaf
es tor
agef ortheo f
f-
l
inedatafil
es,s ucha sma g ne
tictapesa ndr emov abl
ed i
skp ac
k s.Ad atalibr
arianwhoi srespon s
ibl
ef or
t
hereceipt
,s t
o r
ag e,ret
rieval
,an dcu st
odyo fdatafil
esco nt
rol
sa ccesst othelibrar
y.Th elibr
arianissues
t
apestoco mpu tero pera
torsa ndtakesc ust
od yo ffil
eswh enpro cessi
ngi sc omp l
ete
d.Th emo vetor e
al-
t
imep roc
essinga ndd i
rectaccessfil
es( dis
c uss
e dinCh apt
er2 )h asredu cedore l
iminate
dt hero l
eo fthe
dat
alibr
ari
a ninmo sto r
gan i
zat
ion s
.

SYSTEMSDEVELOPMENTAND MAI NTENANCE.Th einf


ormati
onn ee
d sofuse
rsar
eme tby
t
wor el
ate
df unc
tions
:syst
emsdevel
opmen tandsyst
emsmaint
enance
.Th efor
me rgr
oupisre
spons
ibl
e
fora
nal
y z
inguserneedsandf
ordesi
gni
ngn ews ys
temst
osati
sf
ythoseneeds
.Th epa
rti
ci
pant
sins
ystem
deve
lopmenti
ncludesyst
emsprof
ess
iona
ls,enduser
s,ands
take
holde
rs.

S
yst
emsprofes
si
onalsi
ncl
udesy
st
emsanal
yst
s,dat
aba
sedes
ig
ners
,andpr
ogra
mme r
swhod
esi
gn
a
ndbui
ldt
hesys
te
m. S
yst
emspro
fes
si
onal
sgat
herf
act
sabou
ttheuse
r’
spro
ble
m, an
aly
zet
hef
act
s,
a
ndfo
rmul
ateasol
ut
io
n.Thepro
ducto
fthei
ref
for
tsi
sanewinf
ormat
io
nsys
tem.
Endusersar
ethos
eforwhomthes
ys
temi
sbu
il
t.
Theyar
eth
emana
ger
swhor
ece
iv
erepo
rtsf
rom
th
esys
temandtheope
rati
onsp
ers
onne
lwh
owor
kdir
ect
l
ywit
hth
esy
st
emaspa
rtoft
hei
rdail
y
re
spo
nsi
bil
it
i
es.
22 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

St
akeholdersar
eind
ivi
dua
lsi
ns
id
eorout
si
dethefi
rmwhoha
veani
nte
res
tinthesy
st
embuta
ren
ot
en
dusers
. Theyi
nc
lu
dema n
age
ment,
int
er
nala
ud i
to
rs,a
ndc
ons
ul
tan
tswhoove
rsees
yst
ems
de
vel
opmen t
.
Oncean ews ys
temh a
sbeend esi
gnedandimplement
ed,thesyst
emsma i
nte
nanc
eg r
oupa s
sumes
r
espons
ibi
li
tyforkeepi
ngitc
urr
e ntwit
huserneeds
.Ov e
rthecours
eo ft
hesyst
em’sl
ife(of
tens
ever
al
ye
ars
),bet
ween8 0and90per
centofit
stot
alcos
twillbea
ttr
ibut
abl
etomaint
enanc
eact
ivi
ti
es.

Di
st
ri
but
edDa
taP
roc
ess
ing
Analter
n at
ivetothecentr
ali
zedmo delistheconce
pto fdi
stri
buteddatapr ocess
ing(DDP) .Thetop i
cof
DDPi sq uit
eb road,t
ouchingons uchr e
lat
edtopicsasen d-
usercomp ut
ing,comme r
cia
ls of
tware,net-
worki
n g,ando f
ficeaut
oma t
ion.Simplystat
ed,DDPi nvolvesreorga
nizi
ngt heITfun c
ti
oni nt
os mallin-
f
ormationp roce
ssingunit
s( I
PUs)thata r
ed i
st
ribut
edtoe ndu se
rsandp l
ac edundertheircontr
ol.IPUs
mayb ed i
str
ibut
eda cc
ordingtobusine
ssfuncti
on,geographi
clocati
on,orbo t
h.Anyo ralloftheITa ct
iv-
i
ti
esre pre
sentedinFi gur
e1 -10ma yb ed i
st
ri
buted.Figure1-11s howsap oss
ibl
en ewo r
ganiza
tional
st
ruc
turefollowingthedist
ri
buti
ono fal
ld at
aproces
singtaskstotheend-us
e rar
eas.
Noticet ha
tthec ent
ralITf unct
ionh asbeeneli
mi nat
edf r
omt heo rga
n iz
ati
ons tr
ucture
.Individual
oper
ati
on alarea
sn owp er
formt hi
srole.Inrec
entyears,DDPh asbecomea ne c
o nomicando pera
tional
f
easi
bili
tyt ha
th asrevol
uti
onize
db usi
ne s
so pe
rat
ions.Howe ver
,DDPi sami xedb a
go fa dva
ntagesand
di
sadvantages.

DISADVANTAGESOFDDP.Wes houldbearinmi ndthatthedis


advan ta
geso fDDPmi ghtal
sob e
desc
ribedasth eadvant
agesofacentr
ali
zedapproach.Thed isc
uss
ionfoc usesoni mpor
tantissue
sthat
car
ryc ont
rolimpli
cat
ionstha
taccount
ant
ss houl
drecogniz
e .Thelos
so fco nt
rolisoneofthemo stseri
-
ousdisa
d va
ntagesofDDP.Ot he
rpotent
ialpr
oblemsincludetheine
ffi
cientu s
eo fres
ourc
e s
,thedestr
uc-
t
iono faudi
ttrail
s,ina
dequat
esegr
egati
ono fduti
es,anincrease
dp ot
enti
a lforprogra
mmi ngerror
sa nd
sys
temsfail
u r
es,andthela
ckofst
andards
. Spe
cif
icprobl
emsa r
eexaminedi nthefol
lowingsect
ion.

FIG U RE
ORGANI ONALS
ZATI TRUCTUREFORA DI BUTED PROCESSI
STRI NG SYSTEM
1
-11

Busi
ness
Or
gani
zati
on

Mar
ket
i
ng Fi
nance Admi
ni
st
rat
ion Pr
oduc
ti
on

Manager Manager
T
reasur
er Cont
rol
l
er
PlantX Pl
antY

I
nfor
mat i
on I
nformati
on I
nfor
mat i
on I
nfor
mation I
nformati
on I
nfor
mation
Proces
sing Processi
ng Proces
sing Proc
essing Processi
ng Proc
essing
Unit(I
PU) Unit(I
PU) Unit(I
PU) Unit(I
PU) Unit(I
PU) Unit(I
PU)
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 23

Mismana g
eme ntoforganiz
ati
on-wideres
ources.Somea r
guethatwheno rg
ani
zat
io
n-wid
e
r
es
ource
se x
cee
dat hre
shol
damount,s
ay5p e
rcen
tofthetota
lopera
ti
o nsbudget
,the
yshou
ldbecon
-
t
ro
lle
dan dmoni
toredcen
tra
ll
y.I
nfor
matio
nproce
ssi
ngser
vice
s(suc
ha scompu t
erope
rat
io
ns,pro
-
g
ramming,dat
aconver
si
on,anddat
abasemanage
me n
t)repre
sentasi
gnifi
ca
n texp
endi
tu
reformany
o
rgani
zat
ions
.Thoseoppo
sedtoDDPa r
g u
ethatdi
st
ri
b u
ti
n gre
spons
ibi
li
tyforthes
eres
our
ceswil
l
i
nev
it
ablyle
adtothei
rmismanage
mentandsubop
ti
ma lut
il
izat
io
n .
Hardwareandsoft
wareincompa ti
bil
it
y.Dis
tr
ib
u t
i
ngthere
spo
n s
i
bil
it
yfor
ha r
dwareandso
ft
ware
pu
rcha
sest
ou s
ermana
gementcanres
ult
inunco
ordi
nat
edandpoor
lyco
ncei
ve
dd ec
is
io
ns.Wo r
ki
ngin
de-
pe
ndent
ly
,deci
si
onmake
rsmays e
tt
leondi
ssi
mil
arandinc
ompat
ibl
eoper
ati
ngsy
ste
ms,tech
nol
ogypl
at
-
f
orms,
spr
eadshe
etpr
ogr
ams,wordproc
ess
ors
,anddat
abasepa
ckag
es.Su
chhardwar
ean ds
oft
ware
i
ncompa
ti
b i
l
it
ie
scande
grad
ean ddi
srupt
commu n
ic
ati
onsbet
weenor
gani
zat
io
nalunit
s.

Redundantt
ask
s.Auto
nomo uss
yst
emsdev
el
opmentac
tiv
it
i
esdi
st
ri
but
edthr
ough
outt
hefi
rmcanresu
lt
i
neachus
erar
ear
ei
nve
nti
ngt
h ewheel
.Fore
xampl
e,app
li
cati
onpr
ogr
amscr
eate
dbyoneuse
r,whi
chcou
ld
beus
edwit
hli
t
tl
eorn
ochangeb yot
her
s,wi
l
lbere
desi
gnedfr
omscr
at
chrat
hert
hanshar
ed.Li
ke
wise
,
dat
acommont
omanyuse
rsma ybere
cre
ate
dfore
achIPU,res
ul
ti
ngi
nah i
ghle
vel
ofdat
aredund
ancy
.
Consoli
dati
ngincompati
bleacti
vi
tie
s.Thedi
st
ri
bu t
i
onoftheITfunct
io
ntoindi
vidua
luserare
as
r
esul
tsi
nthecr
eati
onofmanyve
rysmal
lunit
sth
atma ynotp
ermitt
hen ec
ess
aryse
parat
io
no fi
ncom-
pat
ib
lefu
nct
ions
.Forex
ampl
e,wit
hinasin
gleI
PU,thesamepers
onma yprog
rama ppl
i
cat
ions
, p
er-
f
ormp r
ogr
amma in
ten
ance
,ente
rtran
sact
i
ondatai
ntotheco
mp ute
r,andoper
atetheco
mp u
ter
eq
uipment
.Thi
ssit
uat
io
nrepre
sent
safundamen
tal
viol
ati
onofi
ntern
alcont
rol
.

Hir
ingqua l
i
fie
dpr ofe
ssional
s.End-
use
rma na
ger
sma ylac
ktheknowl
edgetoeva
luat
ethetec
hni-
ca
lcre
denti
al
sandrele
vantexp
eri
enc
eofcandi
dat
esappl
yi
ngforapos
it
ionasac o
mp u
terpr
o f
es
si
onal
.
Al
so,i
ftheorg
ani
zati
onaluni
tint
owhic
han ewemplo
yeeisent
er
ingi
ssmall
,theopport
uni
tyfo
rper-
so
nalgr
owth,c
onti
nuin
ged uc
ati
on,a
ndpromoti
onmaybel i
mit
ed.Fo
rthes
er e
asons
,IPUma nage
rs
so
me t
i
mesexper
ien
ced i
f
fi
cult
yatt
rac
ti
nghig
hlyqua
li
fi
edperso
nnel
,whi
chincr
easest
heris
ko fp
ro-
gr
ammingerr
orsandsys
temsfai
lu
res
.

Lackofstandards.Bec
aus
eofthedis
tri
but
ionofr
es
ponsi
bi
li
tyi
ntheDDPe nv
ir
onment,s
tan
dard
s
f
ordevel
opi
nganddo c
ument
i
ngsys
tems,cho
osi
ngpro
gra
mmi ngla
nguag
es,ac
quir
in
gh a
rdwareands
oft
-
war
e,andeval
uat
ingperf
or
mancemayb eune
venl
yappl
i
edorn on
exi
st
ent
. Oppone
ntsofDDPa r
gue
t
hattheri
sk
sa s
soc
iate
dwit
hthedes
ignandopera
ti
onofadataproc
es
si
ngs y
st
ema r
ema detol
er
abl
e
on
lyif
suchsta
ndardsar
econs
is
te
ntl
yappli
ed.Thi
sre
qui
resth
a ts
tan
dardsbeimpos
edcent
ral
ly
.

ADVANTAGESOFDDP.Th emos
tcommonlyci
teda
dvant
agesofDDParerel
at
edtocostsa
vings
,
i
ncr
eas
edus
ersat
isf
act
ion,a
ndimpr
ove
do pe
rat
iona
lef
fic
ienc
y.Spec
ifi
cis
sue
sa redi
scus
sedinthe
f
oll
owi
ngs
ect
ion.

Cos treducti
ons .I
nthepast
,achi
evi
nge con
omiesofsc
alewa sthepri
nci
palj
usti
f
ica
tio
nf o
rthecen-
tra
liz
eda ppr
oach.Theecon
omicsofdatap r
oce
ssi
ngfavo
redlarge,ex
pensi
ve
,powerfu
l c
ompu t
er
s.The
widevariet
yofneedsth
atsuchcent
ral
iz
eds ys
temshadtosa t
i
sfycal
ledfo
rcompu t
er
sthatwerehig
hly
general
i
zeda ndemp l
oy
edcomplexoper
a t
ingsy
ste
ms.
Powerf
ulyeti
nexpen
si
vesmal
l-s
cal
ecomp ut
ersys
tems,whic
hc ancost
-e
ff
ec
ti
velype
rf
o r
ms pe
ci
ali
zed
f
u nct
io
ns,havechange
dtheecon
omicsofda t
aproc
ess
ingdramatic
all
y.I
na d
dit
io
n ,t
heunitco
stofdat
a
st
orage,whic
hwa sonc
ethejus
ti
fi
cat
ionforcons
oli
dat
ingdatainac e
ntra
llo
cat
ion,i
snolonge
rthepri
me
consi
der
a t
ion
.Mo reov
er,t
hemovetoDDPc anreduc
ecost
sint woothe
rareas
:(1)datacanbeente
red
ande di
t
e dattheIPU,thu
seli
minat
ingthecent
ral
iz
edtasksofd a
taconv
ers
io
na nddatacont
rol
;and
(2)appli
cati
oncomple
xit
ycanbereduce
d, whi
chintur
nred uc
esdevel
opmentandma i
nte
nancecos
ts
.
24 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

I
mpr ovedc ostcontrolre
spons i
bil
it
y.Ma nage
rsass
umetheres
pons
ibi
li
tyf
orthefi
nan
cialsuc
ces
s
o
ftheiroper
atio
ns.Thi
sr e
quir
esthatt
heybeproperl
yempower
edwit
htheau t
hor
it
ytomak edeci
si
ons
a
boutr e
sour
cesthati
nflue
ncethei
rover
alls
ucce
ss.Ther
efo
re,i
fi
nfo
rmati
on-
p r
oce
ssi
ngcap
a bi
li
tyi
s
c
ri
ti
cal t
othesucce
ssofab us
in
essoperat
i
on,thenshoul
dma n
agementno
tbeg i
ve
ncontr
oloverth
ese
r
eso
u r
c e
s?Thisarg
ume ntco
unte
rstheargumentpres
ent
edearl
ie
rfa
vori
ngthecen
tral
i
zat
ionoforga
ni-
z
ati
on-wideres
ources
.Propone
ntsofDDPa r
guethatt
hebenef
it
sfr
omimp r
ovedmanage
me ntatt
i
-
t
udeso u
twei
ght h
ea ddi
ti
onalc
ostsi
n c
urr
edfromd i
str
ib
uti
ngthe
seres
our
ces
.

I
mpr ovedusersati
sfacti
on.Perhapst
h emo s
toft
encit
edbenefitofDDPi simpro
vedusersat
i
sfa
c-
ti
on.Thi
sderi
vesf
romt hr
eearea
so fnee
dt hatt
ooo f
tengounsati
sfi
edinthecent
ral
iz
eda ppr
oach
:
(1)aspre
vi
ousl
ystat
ed,user
sdesi
retocontro
l t
hereso
urce
sthatinfl
uencethei
rprof
it
abil
i
ty;(
2)user
s
wantsys
te
msp r
o f
es
si
o n
als(an
aly
st
s, p
rogramme r
s,andcompute
ro perat
ors
)wh oareresp
onsi
veto
th
eirspe
ci
fi
csi
tuati
on;and(3)use
rswa nttobecomemo r
ea c
ti
velyinv
olv
edind ev
el
opingandimpl
e-
menti
ngthei
rownsyste
ms .
Propon
en t
sof DDPa rguet
h a
tprov
idingmo r
ecustomiz
edsupport

f
easi
bleonl
yinad i
st
ribu
tedenvi
ro
n ment
—h asdire
ctbenef
i
tsforu s
ermo r
aleandproduc
ti
vit
y.

Backup.Thefi
n a
largumentinfav
orofDDPi st
heabil
i
tytobac
kupcomput
ingf
aci
li
ti
est
oprot
ect
aga
ins
tp o
tent
ia
l di
sa
ster
ssuchasfi
res,f
l
oods,s
abot
age,
andeart
hqua
kes.Oneso
lut
io
nistobui
l
d
ex
ces
scapaci
tyi
n t
oeachIPU. I
fadis
aste
rd e
st
roy
sasing
lesi
te
,it
str
ans
act
ion
scanbeproc
ess
edby
th
eotherIPUs.Thi
srequi
rescl
oseco
o r
di
nati
onbet
weendeci
si
onmaker
stoens
ureth
atthe
ydonot
i
mp l
ementinc
omp a
ti
blehardwareandsof
twar
eatthe
irsi
te
s.

Th
eNe
edf
orCa
ref
ulAn
aly
sis
DDPc a
rri
esac er
tai
nleadi
ng-
edgep r
est
igev aluet
hat,duri
nga nanalys
isofitsprosandc ons,ma yover-
whel
mi mporta
ntconsi
der
ati
onsofeconomi cbenefi
tando pera
tiona
lfeasi
bil
it
y.Someo rgani
zationshave
madethemo vetoDDPwi t
houtfull
yc onsider
ingwh et
h e
rt hedist
ri
butedorgani
z a
ti
o nalstr
uc t
urewill
be
tt
erachievethe
irbus
ines
sobject
ive
s.So meDDPi nit
iat
iveshaveprovenineff
ect
ive,ande venc ount
er-
pr
oduct
ive,becaus
ed e
cisi
onma ker
ss awi nthesesy s
temsv ir
tuestha
twe remo resy mb ol
icthanr ea
l.
Bef
oretaki
ngs uc
ha naggr
ess
iveste
p,decisionma ke
rsshoulda s
sessthetr
ueme ri
tsofDDPf orthei
ror-
ga
niza
ti
o n.Account
ant
shaveano ppor
tuni
tya ndano bl
igat
iontop l
ayanimp ort
antroleinthisanalysi
s.

TheEv
olut
ionofI
nf
orma
ti
onS
yst
emMode
ls
Overthep a
st50y ears,an u mbero fdif
fer
entapproachesormo del
sh av
er epr
e s
ente
dAI S.Ea c
hn ew
modelevolvedbecauseo ft hes hor
tcomingsandl i
mitat
ionsofitsprede
cess
or.Ani nt
ere
sti
ngf ea
ture
i
nthisevolut
ionist ha
tthene westtec
h n
iquedoesn otimme di
at
elyrepl
aceoldermo del
s.Thus,atany
poi
ntintime,vari
ou sgenerationsofsyste
mse xis
ta cr
ossdiff
ere
ntorgani
zati
onsa ndma yevenc oexi
st
wit
hinasingl
ee nt
erpri
se.Th emo der
na udi
torneedstobefamil
iarwit
htheo pe
rati
onalfea
ture
so fal
lAIS
appr
oache
sthatheo rshei
sl ikel
yt oencount
er.
Th i
sb ookdeal
sextens
ivel
ywithfivesuchmo de
ls:manual
pr
ocess
es,fla
t-f
il
es yst
ems ,thed at
abaseapproa
ch,theREA( res
ource
s,event
s,a ndagent
s)mo del
,and
ERP(ente
rpri
seresourceplanning)syst
ems.Eachoftheseisbri
efl
yo ut
li
nedinthefoll
owingsect
ion.

THEMANUALPROCESSMODEL
Thema nualp r
ocessmo delisth eo l
destandmo sttradi
ti
onalf o
rm ofa ccount
ingsyst
ems.Ma nu
al
sys
temsco n
sti
tut
etheph ys
ica
levents,re
sourc
es,andp ers
onnelthatchar
act
eri
zema nybusi
nesspr
ocesses
.
Thi
si nc
ludessuchtask
sa so r
der-
takin
g,wa r
eho us
ingma te
ria
ls,ma nuf
act
uri
n ggoodsforsal
e,shi
p p
ing
goodst
oc ust
omers,a
ndp l
acingor
d e
rswithvendo r
s.Tra
dit
ional
ly,t
h i
smo de
lalsoi
nclu
desthephys
ica
l t
ask
ofre
cordkeepi
ng.Often
, manualr
ecordkeepi
ngi susedtotea
chthep ri
nci
ple
so fac
counti
ngtobusi
nessst
u-
dent
s.Howe ve
r,t
hisappr
o a
chissimplyatrai
ni
n gaid.Manualrec
o r
dsa r
eneveruse
dinp r
act
icet
oday.
Ne ve
rthe
less
,ther
ei sme r
itinstudyi
ngt hema nualproces
smo delbef
orema st
eri
ngc o
mp ut
er-
based
sys
tems.Fir
st,l
ear
ningma nuals
ystemsh e
lpsestabl
ishanimport
antlinkbet
we ent
heAI Scours
eando th
er
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 25

acc
ou nt
ingc ourse
s.Th eAI Scourseiso f
tentheo nl
ya cc
o unt
ingc ours
ei nwh ic
hs tudent
sseewh eredata
ori
ginat
e,h owt he
ya r
ec oll
ecte
d,andh owa ndwhe r
einfor
ma ti
onisu sedtosupportday-to-
dayo per
ati
o ns
.
Bye xamin i
ngi nf
orma t
ionflows,k e
yt asks,andtheu seo ftr
adit
ionala cc
o unt
ingrecordsintransac
tion
proc
essi
n g,thestudent
s’b ookke
epingfo c
usi str
ansfor
me dintoab usi
nessp r
ocessespers
pecti
ve.
Second ,thelogi
co fabusines
sp r
oc e
ssismo reeasil
yu nder
stoodwh enitisnotsh r
oudedbyt echnol
ogy.
Theinforma t
ionneededt otri
ggerands upportevent
ss u
cha ss e
lli
ng,wa reh
o us
ing,ands hi
ppingisfunda-
mentalandi ndependentofthetechnologythatu nder
li
esthein f
orma t
ionsystem.Fo rexample,as hi
pping
not
iceinformingtheb il
li
ngp roces
sth a
tap rodu c
thasb e
e nshippedservesthispurposewh et
heritispro-
ducedandp rocess
edma nual
lyordigi
tall
y.On cestudent
su nder
standwh attas
ksn ee
dt obep er
formed,they
ar
eb et
tere q
uippedtoe xpl
oredif
ferentandb et
terwaysofp erf
ormingthesetasksthr
o ughtechn
o l
ogy.
Finall
y ,ma nua
lp r
o ce
duresfaci
lit
ateund ers
tandi
nginternalcontr
ola ct
ivit
ies
,includi
ngs e
g r
egati
ono f
func
tions,sup e
rvis
ion,independentverif
icati
on,audittr
ails
,a nda c
cessc ont
rols
.Be causehuma nn a
ture
l
iesattheh eartofma nyinterna
lc ontr
olissues,wes houl
dn oto ver
lookt heimportanceofthisaspectof
t
hein f
orma ti
ons ys
tem.

THEFLAT-
FILEMODEL
Theflat
-f
ileapproachi smo stoftenassoci
atedwi thso-ca
l l
edlega cysystems.Th es
ea r
el ar
g ema i
nfr
ame
sys
temsthatwe reimp leme ntedi nthelate19 60sthrought he1 980s.Or gani
zati
onstod ays t
il
lu s
ethese
sys
temse xtensi
vel
y .Ev entual
ly,mo de
rnda t
a basema nageme nts yst
emswi l
lr e
placethe m,b utinthe
meanti
mea ccountantsmu stcon t
inuetod e
alwi t
hl egac
ys yste
mt echnol
o gi
es.
Thef l
at-f
il
emode lde scr
ibesa ne nvi
ronme ntinwh i
chi ndividualdatafil
esa r
en otr el
atedtoo t
her
fi
le
s.En du s
ersinth ise nvironme ntownt heird at
afil
esr at
he rthans har
et hem witho t
heru ser
s.Th us
,
st
and-a
lonea ppl
icat
ion srathert hanint
egrat
eds ystemsperformd at
ap r
oc e
ssi
n g.
Wh enmu lti
pleu sersn eedt hes amed at
af ord if
fer
entp urpo s
es,theymu s
to bt
ains eparat
ed at
as et
s
st
ruct
uredtoth ei
rsp ecifi
cn e e
d s.Figur
e1 -12illust
rat
esh owc u st
ome rsale
sd atamigh tbep res
entedto
t
hreediff
erentusersinad urableg oodsret
ail
in gorganiz
a ti
on.Th ea ccount
ingf unct
ionn eedsc us
tomer
sal
esdatao r
ganizedb ya ccoun tnumb erands truc
turedtos howo utst
andingb al
ances.Th isisusedfor
cust
omerb il
li
ng,ARma intenance,andf i
nancialstat
emen tpreparati
on.Ma rketi
ngn eedsc ust
ome rsal
es
hi
stor
yd at
ao rgani
zedb yd emo g ra
phickeys.Th eyu s
ethisf ortarget
ingn ewp r
o duc
tp r
o mo t
ionsandfor
sel
li
ngp roductupgrade s.Th ep roductservi
cesg roupn eedsc ustomers a
lesdatao r
g a
nizedb yp roduct
s
andstr
ucture
dt osho ws cheduleds er
vicedates.Suchinfo r
ma ti
o nisusedf orma ki
nga f
ter-sal
escontact
s
wit
hc us
tome r
stos ched ulepr e
v enti
vema i
ntenan c
ea ndtos ol
icitsal
eso fser
v i
ceagreeme nts.
Thed ataredundan cyd emo nstr
atedinthise xamp l
ec ontr
ib ut
est othreesignif
icantpro bl
emsi nthe
fl
at
-fi
leenvironment:dat as torage,dataupda ting,andc urrencyofi nformation.Thesea ndo t
herp r
ob-
l
emsa ss
ociate
dwi thf l
atf i
lesa redisc
ussedinth efoll
owin gsections.

Da
taS
tor
age
Aneffi
cie
nti
nfor
ma t
ionsys
temcapt
ure
sa ndstor
esdataonlyonceandmakesthi
ssingl
esourc
eavai
la
ble
t
oa l
luser
swhon ee
dit.I
nthefl
at
-f
il
eenv i
ronment,t
hisisnotpos
sibl
e.Tomeetthepr
ivat
ed a
tane
edsof
us
ers,or
gani
zat
ionsmu sti
ncurt
hecostsofb ot
hmu lti
plecoll
ect
ionandmu lt
ipl
estora
gep r
oce
dures
.
Somecommo nl
yu s
edd a
tamaybedupl
icat
edd ozens
,h undr
eds
,oreventhous
andsofti
me s
.

Da
taUp
dat
ing
Organi
zat
ionsh a
veag rea
tdealofda
tastor
edinfil
estha
trequi
reperi
odi
cupdat
ingtorefl
ectchange
s.
Forexample,achangetoacust
omer
’sn a
meo raddr
essmustberef
lec
tedi
ntheappr
opri
at
ema s
terf
il
es.
Wh e
nu ser
sk e
epsepara
tefi
les
,al
lcha
n ge
smu s
tbema des
epar
atel
yforeac
huser
.Thisaddssi
gnif
icant
ly
t
othetaskandthecostofdat
amanagement.

Cur
renc
yofI
nf
orma
ti
on
I
nc ont
rastt
otheprobl
emo fpe
rfor
mingmu l
ti
pleupda
tesi
stheprobl
emo ff
ail
ingtoup da
tea
llt
heuse
r
f
il
esa f
fect
edb yachangei
ns t
at
us.Ifupda
teinf
ormat
ioni
sn otpr
operl
yd i
sse
mi na
ted,t
hechangewi
ll
notberef
lec
tedins
omeu se
rs’dat
a,r
esul
ti
ngindeci
si
onsbas
edo nout
date
dinformat
ion.
26 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

FIG U RE

1
-12 FLAT-
FILEMODEL

Us
er St
and-
AloneAppl
i
cat
ion Us
er-
OwnedDat
aSet
s

CustomerData
(
CurrentAccount
s
Rec ei
vabl
e)

Ac
count
ing Bi
ll
ing/
Accounts
Rec
eivabl
eSys t
em Sal
esI
nvoi
ces

Cas
hRec
eipt
s

CustomerDat
a
(
His
tori
c/Demogr
aphi
c
Or
ientat
i
on)
Pr
oduc
tPromot
i
on
Mar
ket
ing Syst
em

Sal
esI
nvoi
ces

Cust
omerDat a
(
Hist
ori
c/
Product
Ser
viceSchedul
i
ng Or
ient
ati
on)
Pr
oduc
tSer
vic
es Syst
em

Pr
oductSer
vic
es
Schedul
e

Ta
sk-
Dat
aDe
pen
denc
y
Anotherprobl
emwi t
ht heflat
-f
il
ea pproa
chist heu ser
’sinabi
li
tytoo bt
ai
na ddi
ti
onalinf
ormati
ona shis
orhern e
edsc hange.Th i
sp robl
emi scall
edt ask-datadependency.Theu se
r’sinf
ormati
ons e
tisc on-
st
rai
nedb ytheda t
athatheo rsheposses
sesan dcon t
rol
s.Usersactinde
pendent
lyrat
herthanasme mbers
ofau s
ercommu ni
ty.Insucha nenv i
ronment,itisveryd i
ff
icul
ttoestabl
is
hame chani
smf ortheformal
sha
ringo fdata.Th e
refore,newi nfor
ma ti
onne edstendtob es a
tis
fie
dbyp r
ocuri
ngne wd atafil
es.
Thistakesti
me ,inhibit
sp erfor
ma nce,addst od ataredundancy,anddrivesdatama nage
me ntcosts
evenhigher
.
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 27

F
latF
il
esLi
mitDa
taI
nte
gra
ti
on
Thefla
t-fi
leapproachisas i
ng l
e-vi
e wmo del
.Filesarestructure
d ,forma tt
ed,an darra
ng e
dtos uitthespe-
ci
fi
cn eedso ft
h eown erorp r
imaryu s
ero fthed at
a.Su chs t
ructu r
ing ,howe ver,maye xcl
uded at
aa t
tri
-
but
esthatareu s
e f
ultoo t
heru s
ers,thusp r
eventingsuccess f
ulintegra t
iono fdataa c
rosstheorga ni
zati
on.
Forexamp l
e,becaus et
hea c
c ount
ingf uncti
oni stheprima ryu s
ero fa ccountingd at
a,the
sed ataareoften
ca
p t
ured,formatted,andstoredtoa ccommo datefinanci
a lreportinga ndg enerall
ya ccept
eda c c
o unt
ing
pr
inci
ples.Th i
ss t
ructur
e,howe ver,ma yb euselesstoth eo r
g a
n izat
ion’so ther(nonaccount
ing )usersof
ac
counti
n gd at
a( GAAP) ,sucha sthema rket
ing,finance,p r
o ducti
o n,a nden gi
n e
eringfuncti
o ns.These
us
ersarep r
esentedwi t
hthreeopti
o ns:(1)don otusea c
c ounti
n gd atatos upportd e
cisi
ons;(2)ma nipula
te
andma s
sag etheexisti
ngd a
tas t
ructuretosu i
ttheiruniquen eeds ;or( 3)obtaina ddi
ti
onalprivatesetsof
t
hed at
aa ndincurthecostsando perat
ionalproblemsa ssociat
edwi t
hd at
are dundancy.
Inspit
eo ftheseinher
entlimit
ations,ma nylargeorganizati
o nss t
il
l useflatfi
lesforthei
rge nerall
edger
andotherfinanci
als ys
tems.Mo stme mb e
rso fthed at
ap r
o c
e s
sin gc ommu ni
tya ss
ume dthatth eendo f
t
hec e
nturywo ulds eetheendo flegacys yste
ms .Inste
ad,c orpora t
eAme r
icainv e
stedbil
lionso fdolla
rs
makingtheses yst
emsy ear-
2 000(Y2 K)c omp liant
.Le gacys ystemsc onti
n uetoe xi
stbecau s
et heya dd
val
ueforthe i
rusers,andtheywi l
ln otb erepl
acedu nti
lth eyc e
as etoa ddvalue.Student
swh oma yh ave
t
owo rkwi t
ht hes
es yst
emsinp racti
ces houldbea wareo ftheirkeyf ea t
ures.

THEDATABASEMODEL
Ano r
ga ni
za t
ionca nov erc
o met heprob l
emsa s
sociat
edwithf l
atf i
lesb yimpleme nt
ingt hedatabase
modeltod atama nagemen t
.Figure1 -
13i l
lustr
ateshowt hi
sapp r
oac hcentr
ali
zestheo rganiza
tion’
sd at
a
i
ntoac ommo ndatabasethatissharedb yo t
h e
ru se
rs.Withtheorga ni
zati
on’sda t
ainac ent
ralloc
a t
ion,
al
lusersh avea cc
e s
st ot hedatatheyn e
e dtoa chi
evetheirrespecti
veo bje
cti
v es
.Ac c e
sstot heda t
a
r
esourc
ei sco nt
rol
ledbyadat abasemanag ementsyste
m( DBMS) . TheDBMSi sas pe
cialsoft
wa r
es ys
-
t
emt hatisp r
ogramme dt ok nowwh ichd ataelementseachuserisa ut
h or
ize
dt oaccess.Th euser’
spro-
gra
ms e ndsr eque
stsfo rd at
at otheDBMS,wh i
chv al
idate
sa nda ut
hori
zesa ccesst othed ataba
se
i
na cc
ordanc ewiththeu ser’
slevelofa uthori
ty.Iftheuse
rrequestsd at
athatheo rshei snota ut
hori
zed
t
oa cce
ss,th erequestisd eni
ed.Clearl
y ,theo rgani
zat
ion’
sp r
o c
edu resforassi
g ni
ngu serauthori
tya r
e
animport
a ntcontr
olissueforau di
tor
stoc onsider.
Themo st s
tri
kingdif
ferencebetweenthed ata
basemod ela
ndtheflat-f
il
emo delisthepooli
ngo fdataint
o
acommo nd ata
basethatallorga
n i
zati
onalusersshare.Wit
ha c
cesstothef u
lldomaino fent
itydata,chan
ges

FIG U R E

1
-13 DATABASEMODEL

I
ntegrat
ion
User UserVi
ew Software Shar
edDat
abase

Cust
omerSal es
(
Cur r
ent
Account
ing
Ac count
s
Receivabl
e)

Cust
omerSales D CustomerDat a
(
Hist
ori
c/ B Sal
esInvoices
Mar
ket
i
ng
Demographi
c M CashRec ei
pt s
Or
ient
ati
on) S ProductService
Schedule
Cust
omerSal es
Ot
herEnt
it
yDat
a
Pr
oduc
tSer
vices (
Hist
oric
/
Product
Or
ientat
i
on)
28 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

i
nuse
rin
for
matio
nn e
edscanbesa
ti
sfi
edwitho
utobt
ain
inga
ddi
t
ion
alpr
ivat
ed at
aset
s.Use
rsarecons
tr
aine
d
o
nlybyt
heli
mita
ti
onsofth
ed a
taavai
la
blet
otheent
i
tyandt
hel
egi
ti
macyofthei
rneedtoac
cessit
.Thro
ugh
d
atas
har
ing
,thefo
ll
owingtr
adi
ti
onalpr
oble
msa s
soc
iat
edwi
tht
hefl
at
-f
il
eapp r
oachmaybeo v
e r
come:

El
iminat
ionofdataredundancy
.Eachdat
aele
mentisst
ore
do nl
yonc
e,the
reb
yeli
minat
ingdat
a
re
dunda
ncyan
dr ed
uci
ngdatac
oll
ec
ti
onandsto
rag
ecost
s.Fore
xample
,cust
omerdat
aexi
stonlyo
nce,
buti
ssh
aredbyacc
ount
i
n g
,marke
ti
ng,andpr
oduc
tser
vi
cesuse
rs.
Toa c
compl
is
hthis
,th
ed a
taa r
e
st
ore
dinagener
icf
ormatt
hatsu
ppor
tsmult
i
pleus
ers
.

Si
ngl
eupdate.
Beca
useeac
hdat
ael
emen
texi
st
sinon
lyo
nepl
ace
,itr
equi
re
son
lyas
in
gleu
pda
te
pr
oce
dur
e.Th
isre
duc
esth
etimea
ndco
stofk
eep
ingt
hedat
aba
sec
urre
nt.
Curr
entval
ues.
As i
ngl
echa
ngetoadata
baseat
tr
ibut
eisa
uto
mati
ca
ll
ymadeav
ai
la
blet
oal
luse
rs
oft
heat
tr
ibu
te.Fo
rexampl
e,acu
sto
meraddres
sch
an g
eisi
mmedi
at
el
yref
l
ect
edi
nthemar
ket
i
ng
andpr
odu
ctse
rvi
cesv
ie
wswhenthebi
ll
i
ngcle
rkent
ersi
t.
Fla t
-f
ilea ndearlyd at
abases yst
e msa recall
edt ra
di ti
onalsystems .Withi
nt hi
sc ontex
t,thetermt radi
-
t
iona lme ansth a
tth eo rgani
z a
tion’si nf
o r
ma t
ions ystemsa ppli
cations(it
sp rogr
ams )fun c
ti
o nin de
p e
n-
dentl
yo fe acho t
herratherthana sani ntegr
atedwh ol
e .Earl
yd atabasema nagementsystemswe r
ed esi
gned
t
oin ter
faced i
rect
lywi the x
ist
ingf l
at-fi
lep r
ograms.Th u s
,wh enano rganiza
ti
onr epl
aceditsflatfi
leswitha
dat
ab ase
,itd i
dn otha vetospe ndmi ll
ionso fdoll
arsrewr i
ti
ngi t
se xis
tingprogr
ams .Indeed,earl
yd ata
b a
se
appli
c a
ti
o nsperfor
me de ssent
ial
lyth esamei ndependen tfunc
ti
o nsasth ei
rfl
at-
fil
eco unt
erpart
s.
Ano t
herf act
orth atlimit
edi ntegrati
o nwa sthestru c
turedd at
a basemo del
so fthee r
a .Th es
emo del
s
werei nf
lexibleandd idn otp ermitth edegreeo fdatas har
ingt hatisfoundinmo dernd at
aba s
es yst
ems .
Wh ereasso mede greeo fint
eg r
ationwa sachievedwi ththi
sty peo fdatabas
e,thep r
ima r
ya ndi mme diat
e
advan t
agetot heorgan i
zati
onwa sther educti
onind ataredund ancy.
Tr ueintegrati
on,h owe ver,wo uldn otb epossibl
eu nt
ilthea r
rivalofther el
atio
na lda t
aba semo de.
l
Thisflexibl
ed atabasea pproachp e
rmi tsthed e
signo fintegr
ateds yst
e msapplic
ati
o nscapableo fsupport
-
i
ngt hein f
o r
ma ti
onn eedso fmu lti
pleu sersfromac o mmo ns etofintegrat
eddatabas etable.
s Wes hould
not
e ,howe ver,thatther el
ati
o nalda t
a bas
emo delme relypermitsintegrat
iontoo ccur;inte
gr a
tionisn ot
guaranteed.Po orsy st
emsd esignc ano ccurund e
ra nymo d el
.I nf ac
t,mo storganizat
ionst odayt hat
emp l
o yar elat
ionald at
ab as
er una pp l
icati
onsthata retradi
ti
o nalind esi
gna ndd on otma kef ulluseof
re
lationaltechnology.Th etwor ema iningmo delstob ed i
scussed(REAa ndERP)e mp l
oyr el
a t
ionaldata
-
basetechno l
og ymo reeffect
ively.

THEREAMODEL
REA i sana cc
ountingfra
me workformo de l
ingano rganiz
ati
on’scri
ti
calres
o ur
ces,event
s,anda gent
s
(
REA)a ndt herel
ati
o ns
hipsb e
tweenthem.On ces peci
fie
d,botha c
counti
nga ndn onacc
o unti
ngd at
a
aboutthe
sep henomenac a
nb eidenti
fi
ed,captured,andstore
dinar el
ati
onaldata
base.Fromthisreposi
-
t
ory,userviewscanb econstr
uct
edthatme ettheneedsofa l
luse
rsintheorgani
zati
on.Thea va
i l
abi
li
tyof
mult
ipleviewsa l
lowsflexi
bleuseoftrans
ac t
ionda t
aandp ermit
sthedevelopmentofAISt hatpromote,
r
atherthaninhi
bit
,integr
ati
on.
3
Th eREAmo de
lwa sproposedin1982a sat heoret
icalmodelforacc
ounti
n g.Ad vanc
esind atab
ase
t
echnologyh avefocusedreneweda t
tent
iono nREAa sap r
act
icalal
ter
nati
vetot hecl
assi
ca ccounti
ng
f
rame work.Thefoll
owings umma r
ize
sthek eye l
ementso ft
heREAmo dels
.

Re
sour
ces
Economi
cres
ourc
esar
etheass
etsoft
heor
ganiza
ti
on.Theyar
edefi
nedasobj
ect
sthata
rebo t
hscar
ceand
und
ertheco
ntr
oloft
heente
rpr
ise.Th
isde
fin
iti
ondepar
tsfr
omthetra
dit
ion
almo de
lbecauseitdoe
sn o
t
i
ncl
udeAR.Ana c
coun
tre
ceiva
bleisa
nar
tif
actre
cor
du s
edsimpl
ytostor
eandtr
ansmitda
ta.Beca
useiti
s

3W.E.McCar
thy,‘
‘TheREAAccount
ingModel
:AGe ne
ral
iz
edFr
ame
wor
kfo
rAc
coun
tingSy
ste
msi
naSha
redDa
taEn
vir
on-
men
t.
’’Th
eAccounti
ngRev
iew(
July1982
):554
–57.
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 29

no
tanes
sent
ia
lel
ementoft
hesy
ste
m,itdoesnotneedt
obein
clu
dedinthedat
aba
se.I
nst
ead,ARv a
lue
s
a
rede
ri
vedfr
omthedi
ffe
renc
ebe
tweensa
lestoc
u s
tomer
san
dthecas
hrec
eive
dinpaymentofsa
les
.
Ev
ent
s
Economice
ventsar
ephenome
nathataff
ectchang
esinres
ource
s.Th e
yc anr
esul
tfromacti
vit
ie
ssuchas
produ
cti
on,e
xchan
ge,co
nsumpt
ion,
an ddi
str
ibu
ti
on.Econ
omiceve nt
saret
hecri
ti
cali
nfor
mati
one l
emen
ts
ofth
ea c
count
ings
yst
ema n
dshoul
db eca
pture
dinahighl
yd e
tai
ledfor
mt opr
ovid
ear i
chdat
abase.
Ag
ent
s
Eco nomicage ntsa r
ei ndi
v i
du a
lsandd epart
me nt
sthatpart
ici
pateina nec onomicev ent
.Th eya r
ep ar
ti
es
bothinsideando u t
sidetheo r
g ani
zati
onwi t
hd is
cret
ionar
yp owertou seord i
spo s
eo feconomicr es
ources
.
Exa mplesofag entsincludesalescle
rks,product
ionwo r
kers,s
hippingclerks,cust
ome rs
,a ndvendors.
TheREAmo delrequir
e sthataccounti
ngp henomenab echaract
eri
zedi nama nnerconsist
entwiththe
developme nto fmu lti
pleu se
rvi ews.Bu si
nessdatamu stnotbep refor
ma tt
edo ra rt
if
icia
llyco ns
trai
ned
ands houldreflectallrel
ev antaspect
so ftheunderl
yingeconomi cevents.Ass uch,REAp roceduresand
databasesar
es tructuredaroun deventsrat
herthanaccounti
nga r
tifa
ctssuc hasjournals
,ledgers,chart
sof
accounts,andd ou bl
e -
entr
ya c count
ing.Un dertheREAmo del,businesso r
gan i
zat
ionspr epa
ref i
nancia
l
st
ateme ntsdir
e ct
lyfromt hee ventdatabase
.Th efol
lowingsalesandc ashreceipt
se vent
sf orah ypot
heti
-
calret
ailerc
a nb eu s
e dtoill
us t
rat
ethein he
rentdi
ffer
encesbetweenc l
a s
sicandREAa ccounti
ng :

Se
pt.1:So
ld5uni
tsofpr
odu
ctX21@$30peruni
tand1
0u ni
tso
fpr
odu
ctY33@$20perun
itt
o
cu
sto
me rS
mith(
Tota
l s
al
e¼$ 35
0).
Theun
itco
stof
thei
nve
nto
ryi
s$16and$12
,re
spe
ct
iv
el
y(To
tal
CGS¼$ 200
).

S
ept
.30
:Re
cei
ve
d$2
00c
ashf
ro
mcu
sto
merS
mit
hona
cco
unt
,ch
eckn
umb
er45
1.
Infl
at-
fi
leornon-
REAd at
abas
es ys
tems,t
hetwoeventswouldb erec
o r
dedinas e
tofcl
assi
ca c
count
s
l
ikethoseshowninFi gur
e1 -
14.Th i
sinvol
vessumma ri
zingthee vent
st oaccommodatetheaccount
s
tr
u ct
ure
.Ho weve
r,t
hed et
ail
softhetr
ansa
cti
onsarenotcapt
uredu nde
rthisappr
oach.
AnREAa ccount
ingsyst
em wouldcapt
urethes
etra
n s
a c
tionsinas e
riesofrel
ati
ona
ld at
abas
et a
ble
s
t
hatemp ha
sizeeve
ntsrat
herthana c
count
s.Thisisi
ll
u s
trat
edi nFigure1 -
15.Eachtabl
ed ea
lswitha

FIG U R E

1
-14 CLASSI
C ACCOUNTI
NG RECORDSI
N A NON-
REASYSTEM

Account
sRecei
vabl
eFi
le

Cust
omer Cust
omer
Number Name Debi
t Cr
edi
t Bal
anc
e

23456 Smi
th 350 200 150

CostofGoodsSol
dFi
le

Acct
Number Debi
t Cr
edi
t

5734 270

Sal
esFi
le

Acct
Number Cr
edi
t

4975 350
30 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

FIG U RE

1
-15 EVENT DATABASEI
N AN REASYSTEM

CUSTOMERTabl
e
(
PK)

Cust Cr
edi
t Bi
l
li
ng
Num Name Addr
ess T
elNum Li
mit Date Anni
ver

23456 Smi
th 125El
m St
.,Ci
ty 610-
555-
1234 $5,
000 12 12/
9/89

I
NVOI
CETabl
e
(
PK) (
FK)

I
nvoi
ce I
nvoi
ce Shi
p Cust
Num Date Dat
e T
erms Car
ri
er Num

98765 9/
01/
09 9/
03/
09 Net30 UPS 23456

LI
NEI
TEMTabl
e
(
PK) (
FK)

Pr
oduct I
nvoi
ce Quant
Num Num Sold

X21 98765 5
Y33 98765 10

PRODUCTTabl
e
(
PK)

Pr
oduct Sale Unit Reor
der
Num Desc
ript
i
on Pr
ice Cost QOH Poi
nt

X21 Somet
hingorot
her $30 $22 200 50
Y33 Somet
hingel
se $20 $16 159 60

CASHRECTabl
e
(
PK) (
FK)
T
rans Cust Chec
k Check Dat
e
Num Num Num Amount Dat
e Post
ed

77654 23456 451 $200 9/


28/
09 9/
30/
09

s
eparat
ea spe
ctofthetr
ansa c
tion.Datapertai
n i
ngtothec ust
ome r
,theinvo i
ce,specifi
cite
mss ol
d,andso
oncanthu sbecaptur
edf ormu lti
pleusesa ndu ser
s.Thet a
blesofthed a t
abasea reli
nkedv iacommo n
a
ttr
ibut
esc al
ledpri
ma r
yk eys(PK)a ndemb eddedforeignkeys(FK)t hatpe r
miti nt
egrat
ion.Inc ont
ras
t,
t
hef i
lesinthet r
adit
ionalsystema reinde pendentofe achotheran dth uscann otaccommo dat
es uc
h
det
ail
edd at
ag at
heri
ng.Asar esul
t,tra
dit
io nalsyst
emsmu s
tsumma rizee ventdataatthel ossofpoten-
t
ial
lyimpo r
tantf
acts
.
Tradit
iona
la c
counti
ngr ecor
dsi ncl
udingjo ur
nals
,ledgers
,andc har
tsofa ccountsdon ot e
xistasphys-
i
calfi
lesortable
su nde
rtheREAmo del
.Fo rfinanc
ialre
p or
ti
ngp ur
p oses,viewso rimageso ftra
diti
onal
a
ccountingrecor
dsarecons t
ruct
edf r
o mthee venttabl
es.Forexample,thea mo untofSmith ’
sa c
countre-
c
eivabl
eb al
anceisder
ivedfrom[ to
talsal
es(Qu antsol
d*Sa lepri
ce)lesscashreceived(Amo unt
)¼3 50
200¼1 50]
.Ifneces
saryo rdesi
red,journalentr
iesandg ener
alledgeramo untsca nals
ob ed eri
vedfrom
t
heseeventtables
.Fore xamp l
e,theCo st
-o f
-Go ods-
Soldc ont
rolaccountb al
ancei s(Qua ntsold*Un it
c
o s
t)summe dforallt
rans
a ct
ionsfortheperiod.
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 31

REA isaconce
ptua
lmo de
l,notaphysi
calsys
tem.Ma nyofi
tstene
ts,howe
ver
,ar
efoundwithi
n
a
d va
nce
dd at
aba
sesys
tems.Themostnot
abl
eappli
cat
ionofREAph i
los
ophyisse
enint
hepr
oli
fer
ati
on
ofERPsyst
ems,whi
charedi
scus
sedint
hefol
lowi
ngs e
cti
on.

ENTERPRI
SERESOURCEPLANNI
NGSYSTEMS
Enterpris
er esourceplanning( ERP)i sani nf
ormati
ons ystem mo de
lt ha
te nabl
esa no r
g a
nizat
ionto
aut
oma teandi ntegr
ateitsk e
yb usines
sp r
o ce
sses.ERPb reaksd owntradit
ionalfunct
ionalbarri
ersby
fa
cil
it
a t
ingda t
as ha
ring,infor
ma t
ionflows,andtheint
roducti
ono fcommo nb usi
n e
sspract
icesamo ngal
l
orga
nizati
onalu ser
s.Th eimp l
eme nt
ati
ono fanERPs ystemc anb eama ssi
veu ndert
akingthatcanspan
seve
raly e
ars.Be c
auseo fthecomp le
xityandsizeofERPs ,fewo r
ganizat
ionsarewill
ingo rablet
oc om-
mitthen ece
s s
aryfinancialandp hysi
calresour
cesandin curtheris
ko fd e
velopinganERPs ys
temin-
house.Hence,v i
rt
uallyallERPsa recomme rci
alproduc
ts.Therecognizedleade
rsinthema rketareSAP,
Oracl
e ,J.
D.Ed wards&Co .,andPe opl
eSof
tInc.
ERPp ackagesaresoldtoc li
entorgani
zati
onsinmo dulestha
tsu ppor
tstanda
rdp roc
esses.Somec om-
monERPmod u l
esinclude:
AssetMa na
geme nt
Fi
nan ci
alAccounti
ng
Huma nRe s
ources
Indust
ry-
Speci
ficSolut
ions
Pl
antMa int
enance
Product
ionPla
nn i
ng
Qualit
yMa nagement
Sal
esa ndDist
ri
b ut
ion
Inve
n t
oryMa na
g ement
On eo fthep roble
mswi t
hs ta
n da
rd iz
e dmo du l
esist hattheyma yn otalwa ysme ettheo rganiz
a t
ion’
s
exactn eeds.Fo rexample,atex t
il
ema nufacturerinInd i
aimp leme nt
e danERPp ackageo nlytod iscove
r
t
hate xtensive,u ne
x pec
ted,ande xpens i
v emo difi
cati
on sh a
dt ob ema detot hesy st
em.Th eERPwo ul
d
nota l
lowt heu sertoa s
signtwod i
ff
e rentpri
c estothes ameb olto fclot
h .Thema nufac
turerc har
ge done
pri
cef ord ome sti
cc onsump t
ion,b uta nothe
r( fourti
me shigher)f orexp ort
edp roducts.Th atparti
cula
r
ERPs yst
e m,h owev e
r,providedn owa yt oassigntwop r
icestoth esamei temwh il
ema intaini
n gana cc
u-
ra
tei nventoryc ount.
Or gan i
zationsthatho petos uccessful
lyimp leme ntanERPwi l
ln eedtomo difytheirb usi
n e
ssp roc
-
ess
e stos uittheERP,mo di
fyt heERPt os uitthei
rb usiness
,o r,mo relikely,mo dif
yb ot
h .Often,addi
-
t
iona lsoftwa r
ea pp l
ica
tionsn eedt ob ec on necte
dt ot heERPt oh andleu niqueb usinessf unct
ions,
part
icularlyindu s
try-
specif
ictasks.Th esea ppli
c a
ti
o ns,ofte
nc alledb ol
t-ons,aren otalwa ysd es
ignedto
commu nicatewi t
hERPp ackages.Th ep r
o ce
s sofcreatingah ar
mo ni
ou swh olec anbeq uitecomp lexand
some ti
me sfa i
ls,r
esult
ingins ignif
icantlossestot heorga ni
zati
on .ERPp ackagesa reenormo uslye xpe
n-
si
ve, butthes avingsineffi
cienci
essh ouldb es i
gnifi
can t
.Organiza t
ionma nagemen tshoulde xer
cis
eg reat
car
ei nd ecidingwh ich,i
fan y,ERPi sb estforthem.
Th ee v ol
u t
iono finf
orma t
ions ys
te msmo delsoutl
in e
di nthiss ec
tionp rovidesaf r
ame wo rkformu ch
ofthema ter
ialcontai
nedi nthisbook .Ch apt
e r
s2t hrough8d ealwi t
hbu sinessp r
o ce
sses,securit
y,fraud,
controls
,a ndav a
riet
yo fotherissue
sr elate
dt otradit
ional(ma nual,flat
-f
ile,ande arl
yd atabase)syst
ems .
Chap ter
s9t hrough1 2e xaminea dvancedd atabasesy st
ems ,theREAmo d e
l,ERP,a ndo thereme rgi
ng
t
ech nologies.

TheRol
eoft
heAc
count
ant
Thefina
lsect
ionofthi
schapt
erdeal
swi t
htheaccount
ant
’srel
at
ions
hiptotheinf
ormat
ions
yst
em.
Account
ant
sar
ep r
ima
ril
yinvol
vedi
nthre
ewa ys
:ass
yste
mu ser
s,des
igne
rs,a
ndaudi
tor
s.
32 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

ACCOUNTANTSASUSERS
I
nmo stor
ganiz
ati
ons,t
hea ccount
ingfunct
ionisthesi
n gl
elar
gestuserofIT.Al lsys
temsthatproce
ssfi-
nanci
altrans
act
ionsimpacttheac
cou nt
ingfunc
tioninsomewa y.Ase ndusers,account
antsmustprovi
de
aclearpict
ureofthe
irneedstothep r
ofess
ional
swhod e
signthei
rsystems.Fo rexample
,theac c
ountant
mustsp e
cif
ya c
counti
ngru l
esandtechnique
stob eused,int
erna
lc ont
rolr
equ i
rements,andspeci
alalgo-
r
ithmss uchasd e
preci
ati
onmo dels.Thea cc
ountant
’sp ar
ti
cipa
tionins ys
temsd evelopmentshouldbe
act
iverathe
rthanpassi
ve.Thep r
inci
palcauseofd e
signerr
orsthatre
sulti
ns ystemfail
ureistheabsen
ce
ofuserinvol
vement.

ACCOUNTANTSASSYSTEM DESI
GNERS
Ana ppre
c i
ati
ono fth eac c
o unt
ant’sresponsi
bili
tyfors ys
temd es
ignr equir
esah ist
o r
icp ers
pecti
vet ha
t
predat
est hecomp uterasab us
inessinformati
ontool.Tradit
ionall
y,a ccount
antshaveb eenre s
ponsibl
efor
keya spectsofthei nformations ys
tem,i ncl
udingassessi
ngt heinfo r
ma t
ionn ee
d sofu sers,defi
ningthe
contentandf or
ma tofo ut
p utrepor
ts,specif
yingsourcesofdata,sel
ec t
ingtheappropriat
ea ccount
ingrules
,
andd et
ermi ni
ngthec ontrolsnecess
aryt opres
ervetheintegr
it
ya nde ffi
ciencyoftheinforma t
ionsyst
em.
Thesetradit
ionalsystemswe rep hysical
,observa
ble,andu namb iguous.Thep roc
e duresforproces
sing
i
nfo r
ma ti
o nwerema n ual,andtheme d i
umf ortra
nsmitti
nga nds t
oringd at
awa spaper.Wi ththearri
valof
t
hec omp u t
er,comp uterp r
o gr
amsr eplacedma nualprocedures,andp aperrecordswe res t
oredd i
git
all
y.
Ther oleaccountantswou l
dp la
yi nthisn e
we rab e
camet hesu bje
c tofmu chc ont
rove r
sy.La cki
ngc om-
puterskil
ls,accountantswe rege ne
rallyuncert
ainabou tt
heirstatusandu nwill
ingtoe xpl
orethiseme r
g-
i
ngt echno l
ogy.
Man ya ccoun
tantsreli
n quis
hedt he
irtradi
ti
o na
lresponsibi
li
tiestothen ewg enera
tionofc omp ut
erpro-
fe
ss i
onalswh owe r
ee me rgingintheiro r
ganizat
ions
.Co mp ut
erp rogramme rs
,oftenwi t
hn oa ccoun
tingor
businesstrai
ning,assume df ul
lr e
spon si
bil
it
yf orthed es
igno fAI S.Asar esul
t,ma nys yste
msv iolat
ed
accountingp r
inci
plesa ndl acke
dn ece s
sarycontrol
s.La r
ges yst
emf ai
luresandc omp ute
rf ra
udsma rked
t
hisp eri
odi naccountingh i
s t
ory.Byth emi d-
1970s,inresponsetot heseprobl
ems ,t
h eaccou nt
ingprofes
-
si
o nbeg a
nt oreass
esst heac c
oun t
ant’
sp rof
essi
onalandl e
galrespon si
bili
ti
esforcomp uter
-basedsystems.
Today,wer ecog ni
zet hattherespon s
ibi
lit
yforsystemsd esi
g nisd ivi
dedb et
we ena ccountant
sandI T
profes
siona l
sasf oll
ows :th eaccountingfuncti
oni sresponsi
b l
ef orth econceptuals ys
tem,a ndtheI T
functi
oni srespons
iblefo rthephysicalsyst
em. Toill
ustra
tethed is
tinct
ionb et
we encon ce
p t
u a
landp hysi
-
calsystems,considerthef oll
owinge xamp l
e:

Th
ecred
itdep
art
mentofar
eta
ilb
usi
nes
sre
qui
resi
nf
ormat
i
onabo
utdel
in
quenta
cco
untsfr
omt
he
ARdepar
tment
.Thi
sin
for
mati
onsup
por
tsd
eci
si
onsmadeb
yth
ecre
ditmana
gerr
egar
di
n gt
hec
red
it
-
wo
rth
ine
ssofc
ust
omers
.
Thedesignoftheconceptualsys
temi nvol
vesspecif
yingthec r
it
eri
afori de
nti
fyingdeli
nquentcust
om-
er
sandtheinformati
ont ha
tneedstob ere
p or
ted.Theaccountan
td et
erminesthenatureoftheinfor
ma t
ion
r
equir
ed,it
ssources,i
tsdest
inat
ion,andtheaccounti
ngrulestha
tn eedtob eappl
ied.Thephysicalsys
tem
i
stheme di
uma ndme thodforcapt
uringandpresent
ingtheinfor
ma t
ion.Thec omputerprof
essi
onalsdet
er-
minethemo steconomicalande f
fect
ivetechnolog
yf oraccomp l
ishi
ngt hetask
.He nce,syst
emsd esign
s
houldbeac o l
labor
ati
vee f
fort
.Becauseo ft
heu nique
n e
sso feachsystema ndthes us
cepti
bil
ityofsys-
t
emstos e
riouserr
oran devenfraud,t
heaccountant
’sinvolv
eme ntinsyste
msd esi
g nshoul
db ep er
vasi
ve.
I
nlate
rchapters
,wes halls
eethatt
hea ct
ivepart
ici
pati
ono faccount
antsiscri
ti
caltothesyst
em’ss uc
cess.

ACCOUNTANTSASSYSTEM AUDI
TORS
Audit
ingisaformo findepe
ndentatt
est
at
ionp er
for
me dbya nexp e
rt—theaudit
or—wh oe xpr
esse
sa n
opi
nionaboutthefai
rne
sso fac ompany’
sf i
nanci
alstat
ements
.Pu bl
icconfi
denceinther e
li
abil
it
yo f
i
nter
nall
yproducedfi
nanci
alsta
tementsr
estsdir
ect
lyo nthei
rbeingvali
dat
edb yanindependentexpe
rt
audi
tor
.Thisser
vicei
so f
tenref
erredtoastheatt
estfuncton.Au
i ditor
sformthei
ro pi
nionsbasedona
sys
temat
icproc
esstha
twillbeexpl
a i
nedi
nCh apte
r15.
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 33

Bot
hint
ernalandext
erna
laudi
torsconducta
udit
s.Ext
ernala
uditi
ngisoft
encal
le
dindependenta
u di
t-
i
ngbecaus
ec ert
if
iedpubl
icaccount
ing( CPA)fi
rmsthatareindepende
ntofthecli
entorgani
zat
ion’
s
mana
gementperf
ormthem.Exter
nalau di
tor
srepr
ese
ntt
hei nt
ere
stsofthi
rd-
par
tyst
akehol
dersi
nt heor-
ga
niz
ati
on,suc
ha sst
ockhol
der
s,cr
ed i
tor
s,andgover
nmentagenci
es.

Ext
erna
lAud
iti
ng
His
tori
call
y,theext
erna
la c
count
ant’
srespons
ibi
li
tyasasyst
emsaudiorwa
t sli
mitedtothea tt
estf
unc-
t
iond e
scri
bedp r
evi
ously.I
nrecentyea
rsthi
sr ol
ehasbee
ne xpa
ndedbyt hebroa
d e
rc onc
ep tofassur
-
ance
.Th eBigFourpubli
caccount
ingfi
rmsh a
ven owre
namedthei
rtr
adit
ionala
uditfunc
tionsassur
ance
se
rvic
es.

ASSURANCE.As s
ur ances ervi
cesa r
ep rof
essionalser
vices,incl
udingthea t
tes
tf unct
ion,thatare
des
ignedtoimprovetheq u a
li
tyo finf
ormati
on,b ot
hf i
nanci
alan dnonf
inanc
ial
,usedb ydecis
ionma ker
s.
Forexample,acli
entma yc ont
ractassur
anceservic
e st
oo bt
aina nopi
nionastothequali
tyorma rke
tabi
l-
i
tyofap roduct
.Alte
rnatively,acli
entmayn eedinformat
iona boutt
hee f
fi
ci
encyo fap r
oducti
onp r
ocess
ortheef
fect
ivenes
so ftheirnet
wo rksecur
it
ys yste
m. Ag r
aya reaofoverl
apexis
tsbetweenassura
ncea nd
cons
u l
ti
ngservi
ces,wh i
c hauditor
smu stavoi
d.Th eywe r
eo nceall
owedtop r
ovideconsult
ingser
vicesto
audi
tcli
ents
.Th i
sisn owp rohi
b i
tedunderSOXl e
gisla
ti
on.Th eseis
suesar
ediscuss
edinlaterchapt
ers.

ITAUDI TING.I Tauditngi


i susua
ll
yp erf
ormedasp a
rtofabroade
rf i
nanci
alaudi
t.Theorgani
zat
ional
unitre
sponsi
bleforconduct
ingITa udi
tsma yfal
lundertheass
uranc
es er
vice
sg r
oupo rbeindependent
.
Typ i
cal
lytheycarr
yan ames u c
ha sITRi skMa na
geme nt
,Inf
ormationSyst
emsRi skMa nagement,or
GlobalRiskMa nage
me nt
.TheI Taudit
o rat
tes
tstotheeff
ect
ivene
sso facli
ent
’sITco nt
rol
stoestabl
ish
t
heirdegreeofcomp l
ia
ncewi t
hp re
scri
be dst
andar
ds.Becausemanyo fthemo der
norgani
zati
on’sinte
r-
nalcontr
olsarecomputer
ized,theITaud i
tma ybeal ar
gep or
ti
ono ftheover
allaudi
t.Wee xamineI T
contr
ols,r
isks
,andaudit
ingis
su e
sinCha pte
rs15,16,and17.

I
nte
rna
lAu
dit
ing
Inte
rnalaudit
ingi sana ppr
aisa
lf unct
ionh ousedwi t
hintheorganizati
on.Interna
la udit
orspe r
forma
widerangeofa ct
ivit
iesonbe ha
lfo ftheorganiz
ati
on ,i
ncludi
ngc ondu c
tingfinancia
lstate
me ntaudit
s,
examini
nga no perat
ion’
sc ompli
a ncewithor ga
nizati
onalpoli
cies,revi
ewi ngtheo rga
nizati
on ’
scom-
pli
ancewithlega lobl
igati
ons,evaluat
ingo pera
tionaleff
ici
ency,detecti
n gandpu rsui
ngf ra
u dwi t
hin
t
h efi
rm,andcon ducti
ngI Taudit
s. Asyouc ansee,thetas
ksthatexternalandinter
n alaudi
torsperf
orm
aresimi
lar
.Thef eat
urethatmos tclearl
ydi s
ti
nguishesthetwog roupsi stheirre
s pect
iveco ns
tit
uen-
cies
.Exter
nalau dit
orsrepre
sentthird-
partyoutsi
de r
s,whereasint
e r
nala udi
torsrepres
entthei nt
eres
ts
ofma na
geme nt
.

S
umma
ry
Thef i
rstsecti
onof thischap terint roducedba sics yste
msc on- focus e
donf unc t
ionalsegment a
tiona st hepr e
domi nant
ceptsandpr esentedaf rame wor kf ordisti
nguishingb e
tween me thodofs tructuri
ngab usinessande xami ne
dt hef unctions
acc
ount i
ngi nformati
ons ystemsa ndma nageme nti nformati
on ofat ypicalma nufacturi
ngfirm.Thes e cti
onpr esent e
dt wo
sys
tems .Thisdisti
ncti
oni sr el
ate dtot hetype soft ransact
ions gene ralme thodsofor ganizi
ngtheI Tf unction:thec ent
raliz
ed
the
s esystemspr ocess.AISa pplicationsproce ssfinan c
ialt
rans- appr oacha ndt hedistri
buteda pproach.
act
ions,a ndMI Sappl
icati
on spr oc essnonfi
na ncialtransact
ions. Thet hi rdsectionreviewe dthee volutionof AISmode l
s.
Thes ecti
ont henpr es
e ntedag e ne r
a lmodelfora c counti
ngin- Eachne wmode levolve
dbe causeof th eshor t
c omi ngsand
f
orma ti
ons ys
tems .
Th emod elisc ompos edoff ourma j
ortasks l
imita t
ionsofi tspr e
de c
e s
sor.Asn e wa ppr oachese v
olved,
tha
te xi
s ti
na llAISapplic
ations: datac ol
lect
ion, da t
apr ocess- howe ver,thepr edecessororl egacysy st
emsof te
nr emained
i
ng,databa s
ema nag
eme nt
,a ndin forma t
iong ene r
a ti
on . i
ns e rvi
ce. Thu s,
a tanypointintime ,va r
iou sgener at
ionsof
Thes econds ecti
one xami ne dt her e
lat
ions hipbe t
we e
n systemsc oexistacrossdif
ferentor ga
ni zati
onsa nde venwi t
hin
organi
zat i
onal s
truct
ur eandt hei nfor mati
ons y st
e m. It asing l
ee nterprise.Fiv
eAI Smode l
swe ree xamine d.
34 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

Thefi
na l
sectionoft hi
sc ha
pterexamine
dt hr
eerolesof Audit
ingisanindepende nta t
tes
tati
onpe rf
orme dbythe
a
cc ounta
ntsas( 1)usersofAI S
,(2)desi
gner
sofAIS,and( 3) audi
tor,whoe xpres
se sanopi ni
ona boutthefai
rnessofa
a
u dit
orsofAIS. I
nmos torgani
zati
ons,t
heaccounti
ngfunc t
ion company ’
sfi
nanci
alstateme nts.
Bothe xter
nalandinter
nal
i
sthes i
nglela
rge stuse
roft heAIS.TheITfuncti
onisrespon- audi
torsconductITa udit
s. TheITa udit
oratt
eststothe
s
iblefordesi
gnin gthep hys
ical
syst
em, a
ndthea c
counti
n g eff
ect
ivenessofacli
ent’sITc ontrol
st oest
abl
is
ht hei
rdegre
e
f
unc t
ionisrespons i
bl
ef orspeci
fyi
ngtheconcept
ualsys
tem. ofcompliancewit
hp rescribedstandards.

Ke
yTe
rms
accoun ti
ngi nforma t
ions ystems(AIS)(3) general mode lforv i
ewingAISappl
icat
ions(10
)
agents( 29) i
nd epend ence( 19)
assura nces e r
v i
ces(33) i
nforma t
ion(11)
att
e s
tf unc tion( 32) i
nforma t
ionflows( 4)
auditi
ng( 32) i
nforma t
iong ene rati
on( 13)
auditor( 33 ) i
nforma t
ions ystem( 7)
backbon es ystems( 15) i
nte r
na laudit
ing( 33)
centra li
zedda taproce s
s i
ng(20) ITa udit
ing(33)
conce pt uals y
st em(32) l
e g
a cysys t
ems( 25)
currenc yofi nformation( 25) ma nageme ntinfor ma ti
ons ys
tem(MIS)(9)
data( 11) ma nageme ntr ep orti
ngs yst
em(MRS )(9)
datac ol l
ection( 12) nonfinanc i
altrans acti
ons(7)
datapr oces si
ng( 12) phy s
icalsystem( 32)
datas our ce s(11) REA( 28)
datas tor age(25) rel
a t
iona ldat
ab asemode l
(28)
dataupda ting( 25) rel
iabil
ity(19)
databa se( 12 ) resou rces(28)
databa sema nag ement(13) segme nts(15)
databa sema nag ements ystem(DBMS )(2
7) stakeholders(5 )
databa semode l(27) subsystem( 5)
databa set ables(28) system( 5)
dis
trib utedda taproce s
s i
ng(DDP)( 22) systemde vel
op me ntli
f
ec ycl
e(14)
endus ers( 10) task-
da tadepe nde nc y(26)
enterpr iser esou rc
epl anning(ERP)(31) tradi
ngpa rt
ner s( 5)
events( 29) tradi
tiona ls
ystems( 28)
feedba ck( 14) transacti
on( 7)
fi
nanc ialtransa cti
on( 7) transacti
onpr oc e ssi
ngsy s
tem(TPS)(9)
fl
at-f
il
emod el(25) turnkeys ystems( 15)
gener al l
edg er/fi
nanci
a l
r eporti
ngsystem(GL/
FRS
)(9) vendor -supporte ds yst
ems( 15)

Re
vie
wQue
sti
ons
1.Wh atar
ethefourlev
elsofacti
vi
tyinth epyr
amid 5.Wh ati
stherel
ati
onshi
pamon gdat
a,i
nf
ormat
ion,
re
p r
esent
ingthebusi
nessorgani
zat
ion?Disti
n- andaninf
ormati
onsyst
em?
gui
shbetweenhori
zontalandvert
icalf
lowsof 6.Dist
ing
uis
hb e
tweenAISa ndMIS.
i
nformati
on.
7.Wh atar
ethethreecyc
lesoftr
ansac
ti
onproc
ess
-
2.Dist
ing
uis
hbe t
we e
nn at
uralandart
ifi
ci
a ls
yst
ems. i
ngsyste
ms?
3.Wh atar
etheelementsofas y
ste
m? 8.Wh ati
sdis
cret
ionar
yreporti
ng?
4.Wh ati
ssyst
emd ecomposit
ionands ubsys
tem 9.Whata
rethecha
rac
ter
is
ti
csofg
oodorus
eful
i
nterde
pendency?Howa retheyrel
ated? i
nf
ormat
ion?
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 35

10.Wh atru l
esg over
nd atac ol
lection? 23.Dis
ti
n g
uis
hb etwe enthec entral
iz
e dandd i
str
ib-
11.Wh atar ethelevel
sof d a
tah i
e rarchy? ut
eda ppr
oach estoor ga
nizingtheITfu nct
ion.
12.Wh atar ethethreefund ame ntaltas
k sof dat
ab a s
e 24.Wh ati
stheroleoft hed a
tac ontrolgroup?
manag e
me nt
? 25.Wh ati
sdist
ributedd at
ap rocessi
ng?
13.Wh atisfee dbac
ka ndhowi situ se
fulina ninfor - 26.Wh atar
ethea dv a
n t
agesan ddisadva
nta g
esof
mati
ons yst
em? di
str
ibut
edd atap r
oc es
sing?
14.Wh atar ethefundame ntalob j
ec t
ivesof al
linf
or - 27.Wh att
ypesof tasksbecomer edundantina
mati
ons yst
ems ? di
str
ibut
edd atap r
oc es
singsystem?
15.Wh atd oesstewardshipme ana ndwh atisitsr ole 28.Wh ati
safla
t-fi
lesystem?
i
na ninforma ti
onsystem? 29.Wh atar
ethet hreeg ener
a lproblemsa ss
ocia
ted
16.Dis
tinguishb et
we enres ponsi
b i
lit
y,au t
hor i
ty,an d wit
hd at
aredu ndancy?
acc
ou ntabil
it
y .Whichflowu pwa rdan dwh i
c hf l
ow 30.Defi
netheke ye l
eme nt
sof theRE Amod el.
down wa rd?
31.Wh ati
sanE RPs yste
m?
17.Dis
tinguishb et
we enturnk ey,ba c
kbon e,and
32.Wh att
hreerole sareplayedb yaccountantswit
h
vendor-suppor t
edsystems .
re
specttothein f
orma t
ions yste
m?
18.Li
stea c
hof thefunct
ional a
re asandt heirsub-
33.Defi
netheterma t
testf
uncti
o n
.
f
unctions.
34.Defi
netheterma ss
urance.
19.Wh ataret herole
sof in
t e
r n
al a
n de xt
e r
na la
ud i
t ors
?
35.Whati
sITaudi
ti
ng?
20.Wh atist heroleofad atabasea dministr
a t
or?
36.Di
st
ing
uis
hbetweenconc
ept
uala
ndphy
sic
al
21.Namet h ethr e
emos tc ommonwa y
st os eg
me n t
s
yst
ems.
anorg a
n i
zati
on .
22.Wh atist heroleofthea ccoun ti
ngfu nct
ionina n
org
a ni
za t
ion?

Di
scus
si
onQue
sti
ons
1.Discussthed i
fferencesbetwe enintern a
lan d 8.Di
scus
showtheele
me nt
sofef
fi
ci
enc
y,ef
fect
iv
e-
externalusersof i
nforma t
iona ndth ei
rn eedsand ne
ss,
andfl
exi
bi
li
tyar
ecruci
alt
othedes
ignofan
dema ndsona ni nf
orma ti
ons ystem. Hist
or i
cal
ly
, i
nf
ormati
onsy
ste
m.
wh i
cht y
peof userhast hefirmc a
te r
e dtomos t? 9.Discu sswh atisme an tbythes tateme nt
, ‘
‘The
2.Comme ntont hel e
v elofde ta
ilnecessaryfor accou ntingsystemi sac oncept ual
flowof i
n f
orma-
operati
on sma nageme nt,middlema n age
me nt,and t
iont h atrepresentst hep hysi
calfl
owsof pe r
son-
st
oc khol
de r
s. nel,rawma terial
s,ma chinery,andc ashthr ough
3.Disti
nguis
hb e t
we enfinancialandn onfi
nanc i
al t
h eor ganizati
on.’’
tr
ansacti
on s.Giveth r
e eexa mplesof each. 10.Discu sstheimp ortan ceof a
c countingindep en-
4.Wh yh avere-en g
ineeringeffort
sb eenma deto denc eina ccountingin f
orma ti
ons ystems .Givean
i
ntegrateAISa ndMI S? examp l
eof wh eret hisconcep tisi
mp or t
ant( us
e
ane xamp leoth erth aninventoryc ontrol)
.
5.Doy out hinktransacti
onp roc e
ssings ys
temsd i
ff
er
si
gnif
ic
a nt
lyb etweens erviceandma nufact
u r
ing 11.Discu sswh yitiscru cia
lthatinternalaud i
tors
i
nd us
tries
?Ar et heyeq ual
lyimp ortanttob oth repor tsolel
yt ot heu ppermos tlevelof man ag
e-
sect
ors? me nt( ei
thertot hec h i
efexecutiveoffi
c erort he
auditc ommi tt
e eof theb oardof direct
or s)andan-
6.Discussthed i
fferenceb et
we ent hefinanci
al
swe rton oot he rgroup .
report
ings yst
e ma ndg enerall
ed g
ers ystem.
12.Con trastc e
ntraliz
e dd at
ap rocessi
n gwithd i
st
ri
b-
7.ExamineF ig
u re1-5a ndd i
scu s
swh e reandh ow
utedd a t
ap rocessi
n g.Howd ot her ol
esof sy
stems
proble
msc ana r
isethatc anc a
useth er e
su l
ti
ng
professionalsande n du s
e r
sc hange?Wh atd oyou
i
nforma t
iont ob ebadori n ef
fecti
ve.
t
h i
nkt hetrendi stod ay
?
36 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

13.Discusshowc oncep t
ualandp hysi
c al
syst
e msd i
f- custome r
si nal ocalc
ommu nityn e
e dsasystem
f
era ndwh i
chfunc t
ionsarer e
spon sibl
efore achof tom a
nage it
s af
fai
rs.
thesesys
t ems . Ama j
oroil comp anywi t
hd i
v erseh ol
dings
,
14.I
fa c
cou ntantsarevieweda sprov i
d er
sof i
n f
orma- co mplexoilleases,andesoteric a
cco unt
ing
ti
on, t
henwh yaret heyconsult
e da ssys
temu s
ers practi
cesn eedsas yst
emt hatc anc oordinat
eits
i
nt hesystemsd evelopme ntproce ss? ma nyenterpr i
ses.
15.Doy oua greewi ththestatemen t
, ‘
‘Theter mIT Amu nic
ipalgov ernmentn e
e dsas ystemt ha
t
audi
torsh ouldb econ s
ideredob solet
eb ecauseit compl i
eswi thstandardgover nme ntaccounti
ng
i
mp li
esad i
st
incti
onb etwe enregularauditorsand practi
cesb utcanb eintegr
atedwi t
hot herexis
t-
audi
torswh oexa minecompu terizedAIS’’
?Wh y ingsyste
ms .
orwh yn ot? 19.TheRE Amod el i
sb ase
dont hep remisethat
16.Wh ataret hep ri
ma ryreasonsfors egment i
ng ‘
‘busi
ne s
sd a
tamu stnotb epreforma ttedora r
ti
fi
-
organi
zations? ci
all
yc onst
raineda ndmu stref
lec tall
r el
evant
17.Wh yisitimp ortanttoorg ani
zati
on al
lyseparat
e aspect
soft heu nde r
lyi
nge c
onomi ceve nt
s.’
’Wh at
theaccou nti
ngfun c
tionfromot he rfunct
ionsof doesth i
sme ana ndh owisitapp li
ed?
theorganizati
on? 20.ERPs yst
emsa rec omp osedof ah i
g hl
yi nt
egrat
ed
18.Wh ati
sthemo stl
ike
lysys
tema cqui
siti
onme thod— setofstanda
r di
ze dmod ules.
Di scussth e
i
n-house,
tu rn
k ey
,backbone,orvendor -
supported
— advantag
esan dp otenti
aldis
advan tage
sof t
his
f
ore ac
ho fthefol
lowingsi
tuati
ons? approach.
Aplumbi
ngsuppl
ycompanywit
h1 2employ
ees
t
hatsel
l
ssta
ndar
dp roduc
tst
owh ol
esal
e

Mul
ti
pl
e-
Choi
ceQue
sti
ons
1.Wh i
chof thef oll
owingisNOTaf i
nanci
al 4.Theobj
ect
ive
sof t
hedatacol
le
ctionact
iv
it
yof
tr
ansact
ion ? theg
enera
lmodelforAccount
ingInf
ormati
onS
ys-
a.p urc
ha seof products te
msa r
etocoll
ectdat
athata
re
b.cashr ece ipts a
.r eleva
n ta ndredundant
.
c.u pdat
ev ali
dv endorfil
e b.eff
ici
enta ndob je
cti
ve.
d.saleof inven tory c
.e ffi
ci
enta ndr edunda
nt.
2.Thefoll
owi n ga r
es ubsyst
emsof theAc count
ing d.eff
ici
enta ndr el
evant
.
I
nformationS ystem,EXCE PT 5.Wh i
chof th efoll
owingi
sNOTac
harac
ter
is
ti
cof
a.Tr ans
a ctionP rocess
ingSystem. e
ffe
ctiveinforma t
ion?
b.Hu ma nRe sou rc
esSystem. a
.r eleva
n ce
c.Ge nera lLe dger/
Financi
alReporti
ngS ys
tem. b.accuracy
d.Ma nage me ntRe porti
ngSystem. c
.s umma r i
z a
tion
3.Wh i
chof thef oll
owingisNOTap urposeofthe d.precis
ion
Trans
a c
tionP roc e
ssi
ngS ys
tem? 6.Wh i
chof th efoll
owingi
sNOTada
taba
seman-
a.ma naginga n dreporti
ngont hes t
atusoffi
nan- a
geme nttask ?
c
iali
nv estme n t
s a
.r etri
eval
b.con verti
n ge conomice vent
sintofinanc
ial b.storage
t
ransaction s c
.s umma r i
z a
tion
c.d i
str
ibut i
n ges s
enti
alinf
orma t
iontoop erat
ions d.deleti
on
pe
rson ne ltos upportthei
rd a
il
yop erat
ions
d.record ingfina nc
ialt
ransa
c t
ionsintheaccount
-
i
ngrec ord s
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 37

7.Whenv i
ewe df
romt hehighe
sttomos
tele
ment
al b.fi
xe dasset
s,accou ntspayabl
e,cas
hd isbur
se-
l
evel
,thed atahi
e r
archyi
s me nts,andcostac counti
ng
a.at
tribute,record,f
i
le. c
.p ur
c has
ing,
ca s
hr eceipts
,accountspayabl
e,
b.record, a
ttr
ibute,
key. cashd is
bursemen ts,andpayrol
l
c.fi
l
e, record,att
ri
bute. d.inventorycon t
rol,cashreceipt
s,accounts
p a
yable,cas
hd is
b ursements,andpayroll
d.fi
l
e, record,key.
e
.i nventorycon tr
ol ,costaccounti
ng,
e.key,record,fil
e.
accou ntspayabl
e ,cashd i
sbursement s
,and
8.WhichisNOTa naccount
ant’
spri
mar
yrol
eini
n- p a
yroll
f
ormations y
stems?
13.Wh i
chs t
a t
eme ntbestd escr
ibestheiss
u eofdi
s-
a.sys
te mu ser t
ribut
edd ataprocessing(DDP) ?
b.sys
te ma udi
tor a
.Th ece nt
ral
iz
e dan dDDPa pproachesare
c.sy st
emde s
igner mu tuall
yexclusi
ve; anorgani
zati
onmu s
t
d.sys t
emp rog ra
mme r choos eonea pproa chortheother.
9.Wh ichof thef oll
owingi sNOTa nobj ec
tiveof all b.Th eph i
losop h yandob jectiveoft heorganiz
a-
i
nforma ti
ons y
s t
ems ? ti
o n’
s ma nage m entw il
lde t
e rm i
n e t
he extentof
DDPi nt hef i
rm.
a.su ppor tforthes tewa r
d shi
pfu n cti
onof
ma nageme nt c
.I nami nimu mDDPa rr
an geme nt,onlydata
inputandou tputared i
stribute d, l
eavi
ngt he
b.su ppor tforma n a
geme n tdecisionma king
tasksof datac on tr
ol,datac on ve rs
ion,databa
se
c.su ppor tf
ort hed a
y-to-dayop erationso fthefi
rm ma nageme n t,andd atap rocess i
n gtob ecen-
d.a l
lof thea bovea reob jecti
ves tral
lyma na ge d.
10.Wh ichof thefollowingb estd escribest hea c
tivit
ies d.Th egreates td i
sadvantageof at otal
lydis
trib-
ofthema teri
alsma nageme ntfunc tion ? utede nviron me ntisthatt hed istri
bu t
edi nf
or-
a.p urcha si
ng,rece i
vi
ng ,andinve ntor ycon t
r ol m ati
on pro ce ssi
ng unitl
o cati
o ns are una
b l
e t
o
commu nicatea ndcoor di
n atet he i
racti
viti
es.
b.r ecei
vin g
, s
a l
es,dis
tribution,an dp urcha s
ing
e
.Al thou g
hha rd ware( sucha sc omp u t
ers,
c.r ecei
vin g
, s
torag e,
p urcha s
ing
, an da ccount s
databases tor age,andinpu t/
ou tp utterminal
s)
payable
canb ee ff
ec ti
ve l
yd is
tri
b uted,t hes ys
tems
d.p urcha si
ng,rece i
vi
n g,ands t
or age developme nta ndma i
nten ancet asksmu st
e.p urcha si
ng,storage,andd i
str
ib ution rema i
nc en trali
zedf orb ett
e rc on t
roland
11.Wh ichof thefollowingb estd escribest hea c
tivit
ies eff
ici
en cy.
ofthep rod ucti
onf uncti
on ? 14.Wh i
chof thef ollowin gisad is
a dvant ag
eof dist
ri
b -
a.ma i
nten ance,inventoryc ontrol, andp rodu c- ut
ed datapro ce ssi
ng?
t
ionp lann i
ng a
.E n d-
userin v olveme ntins ys
te msop erat
ionis
b.p rodu cti
onp l
anning,qua l
it
yc on trol,ma nufac- decrease d.
t
u ri
ng, andc ostaccou nti
n g b.Di s
ruption sd uet oma inf
r amef a i
luresare
c.q uali
tyc ontrol,prod ucti
onp l
a n ning,ma nufac- increased.
t
u ri
ng, andp ayroll c
.Th epote ntialforh ardwar ea nds oftware
d.ma i
nten ance,produ cti
onp lann i
n g,st
or age,and incom pati
b il
ity a
c r
o ssthe orga nizat
ion i
s
quali
tyc ontrol increased.
e.ma n uf
a ct
u r
ing,quali
tyc on t
rol
, an dma i
n te
n ance d.Th etimeb etwe enp rojectre qu estandcomp le-
ti
oni sincre ased.
12.Wh ichof thefollowingb estd escribest hea c
tivit
ies
ofthea ccou nt
ingfu nct
ion ? e
.Al lof t
hea bov ea r
ed isadvanta ges.
a.inve ntoryc ontrol,accoun t
sp ay able,f
ixed
as
sets, andp ayroll
38 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

Pr
obl
ems
1.
USERSOFI
NFORMATI
ON 5.I
NFORMATI
ONSYSTEM
Cl
ass
if
ythef
oll
owi
ngus
ersofi
nfor
mat
iona
sei
the
r: CATEGORI
ZATION
I—i
nte
rnalus
er Cl
ass
if
ythef
oll
owi
ngi
te
msa
sei
the
r:
T—ext
ernalus
er:t
radi
ngpar
tne
r TPS—t
rans
acti
onp r
ocess
ingsys
tem
S—ext
ernalus
er:s
take
hol
der FRS—f
inanc
ialre
porti
ngsyst
em
a
.I nt
erna lRe venueServi
ce MRS—ma nage
me ntr
eport
ingsys
tem
b.Inve
n toryc ont
rolma na
g e
r a
.Va ri
ancereport
s
c
.Bo ardo fdire
ctors b.Sal
eso r
dercapt
ure
d.Custome rs c
.Ba la
nceshe e
t
e
.Le ndin gi ns
ti
tut
ions d.Budgets
f
.Se curi
t iesandExc hangeCommi
ssi
on e
.Pu rcha
seorderpre
p a
rat
ion
g.Stoc
k ho lder
s f
.Ta xret
urns
h.Chiefe xe c
uti
veo ff
ice
r g.Sal
essumma rybyp r
oductli
ne
i
.Su ppliers h.Cashdisbur
sementspre
parat
ion
j
.Bo nd ho l
d er
s i
.An nualrepor
tprepar
ati
on
j
.I nvoi
ceprepar
ati
on
2.
SUBSYSTEMS k.Cost-
volume-pr
ofi
tanalys
is
Uset
h ehumanb odysyst
emt oil
lust
ratethec onc
ept
s
ofsys
temd ecomposi
ti
ona nds ubsys
temi nter
depen- 6.FLAT-
FILEVERSUSDATABASE
de
ncy.Draw ahier
arc
hica
lchartsimil
artot heonein
MODEL
Fi
gur
e1 -
2andd i
scus
stheint
erde
pendencie
s .
Out
li
nethet
radi
ti
onalpr
obl
emsas
soc
iat
edwi
tht
hefl
at
-
f
il
emo de
ltha
tarere
sol
vedbyt
hedat
abas
emode
l.
3.ACCOUNTINGINFORMATI
ON
SYSTEM MODEL 7
.ORGANI
ZATI
ONFUNCTI
ONS
Examinet
hedia
gra
mb elowanddete
rminewh a
tesse
n- Base
do nFi gur
e1-8,dr
aw adia
gra
mo ff
uncti
ona
l
t
ia
lme cha
nis
mismiss
ing.Onceyouhaveide
nti
fie
dthe
se
gme nt
sforano i
lcompanyt
hathast
hefol
lowi
ng
mis
singel
ement
,di
scus
sitsi
mpor
tance oper
ati
ons:
a
.Ah e
a do ff
iceinNe wYo r
kCi t
yresponsi
blefor
Database i
nter
n at
ionalan dn ati
onalma r
keti
ng, a
cquis
it
iono f
Management
l
easesan dcontracts,andc or
porat
ereport
ing.
b.Twoa utonomo u sregionalfa
cil
iti
esinTu l
sa,Okla-
homa,an dNe wOr leans
, Louis
iana.Thes
efacili
ti
es
ar
erespo nsi
blefo ro i
lexplor
ati
on,dril
li
ng,refi
ning,
Data Dat
a I
nfor
mation st
ora
g e,andt hed i
stri
butionofpetr
oleump roduct
s
Coll
ect
ion Pr
oces
sing Generat
i
on
t
oc orporat
es e
rv icestat
ionsthr
ougho utt
hecou nt
ry
andabroad.

4.ACCOUNTINGINFORMATI ON 8
.ORGANI
ZATI
ONFUNCTI
ONS
SYSTEM &MANAGEMENT Bas
edonFigur
e1 -
8,drawad iagr
amo ff
uncti
onals
eg-
ment
sforama nuf
actur
ero fdi
versi
fi
edproduct
s.The
INFORMATIONSYSTEM FEATURES ge
nera
lcha
rac
ter
ist
icsofthefi
rma r
easfol
lows:
Li
sts
omeAI SandMI Sinfo
rmati
onfr
omwh i
chsa
les
peo-
pl
ema ybe
nefi
t
.Clearl
yi n
dica
tewhet
h e
rtheinf
ormat
ion a
.Th eor
gani
zat
ionproduc
esthreeunrel
atedpr
oduct
s:
i
te
mwo ul
dbeano u
tputofatr
adi
ti
onal
AISo rMISsys
tem. l
awnandgarde
n f
urni
turefors
a l
e i
n homei
m -
pr
ove
me ntc
ente
rsanddepart
me ntst
ores
;pla
sti
c
Fi
nal
ly
,di
scu
sstheben
efi
tsofint
egr
at
ingthi
sin
for
mati
on.
CHAPTER 1 TheI
nfor
mat
ionS
yst
em:
AnAc
count
ant
’sPe
rsp
ect
iv
e 39

pac
kagingp r
oduc t
sforthee l
ectroni
csan dme di
cal exi
st
s.Wh atprobl
emsdoy out
hinkr
esul
te
dfromth
is
suppl
yindust
ries;andp aperproduct
s(fo rexample
, communic
ationgap?Wh a
tdoyouthi
nkyoucandoto
pl
ates
,cups,andn apkins)fort
hef as
tfo odindust
ry. hel
pc l
oset hegape ve
nmor ewh e
ny ouente
rthe
b.Alt
houghthema nufac
turingfaci
li
tie
sa relocat
ed workf
orce
?
wit
hinas i
ngleco mplex,noneo ft
heth r
e eproduct
s
sha
resthesames uppli
e r
s,cust
ome rs,orp hys
ical 11.
CHARACTERI
STI
CSOFUSEFUL
pr
oducti
onlines.
c
.Theo rgani
zati
on ’sfunct
ionalacti
vit
iesin c
lude
I
NFORMATION
des
ign,product
ion ,di
str
ibuti
on,ma r
keting,fi
n a
nce, Allre
cordsinafil
emu s
tbeu ni
quel
yi dent
if
iabl
einat
humanresource
s ,anda c
coun t
ing. l
eastoneat
tr
ibute
,wh i
chisit
sprimar
yk ey.Drawingon
yourgene
ralknowledgeofaccount
ing,i
denti
fythepri
-
9
.FUNCTI
ONALSEGMENTATI
ON marykeyforthefol
lowingtype
so fac
c ount
ingre
cord
s.
Toill
ust
rat
e,thef
irs
t r
ecor
disdoneforyou.
Thecur
rentor
g aniz a
ti
o nstructureo fBlueSk yCo mpany,
amanufac
tur
ero fs ma l
l s
a i
lboats,isp r
esentedb elow. RecordType Pr
imar
yKe
y
Requi
red AccountsReceivabl
e Cus
tome
rNumb
er
a.Wh atoper
a ti
o nalp r
ob l
ems( forexamp l e,i
n e
ffi
- AccountsPayabl
e
cie
ncy,err
o rs,f r
aud)d oy out hinkBl ueSk ycould Inve
ntory
experi
encebe ca useofth i
ss tructur
e? CustomerSalesOrders
b.Drawan ewd ia gr
amr eflectinga nimp rov edstr
uc- Purc
ha s
eOr de
rstov endor
s
tur
ethatsolve sthep r
o blemsy o uiden t
i f
ied.Ifnec- Ca shRe ce
ipt
s( c
h e
cks)fr
om
ess
ary,youma yad dupt ot won e
wp os i
tions
. cus
tome r
s
CashDi s
burse
me nts(c
hecks)
Pr
esi
dent
t
ov endors
Emp l
oyeePayrollEarni
ngs
VP VP r
ecords
Pr
oducti
on Mar
ket
ing

In
ventor
y Product
ion Sal
es Fi
nanci
al 12
.DATAATTRI
BUTES
Management Foreman Manager Manager
Dra
wingf r
omy ourbasi
caccount
ingknowle
dge,l
ist
I
nvent
ory Product Cash t
her e
leva
ntd a
taatt
ri
but
estha
tc onst
it
utet
hereco
rd
As
semb
ly
Warehouse Sales Recei
pts
t
ypesbel
ow.Ident
if
ywh i
cha
tt
ribut
eisthepr
imar
ykey
Cost Credi
t Ac
counts f
orthere
cord.
Pur
chasi
ng
Ac
count
ing Approv
al Recei
vabl
e

I
nvent
ory Cus
tomer Cash
AccountsPayabl
er e
co r
d
Ti
mek
eepi
ng Di
sbur
sement
s
Control Bi
ll
ing
Inve
ntoryrecor
d
Payr
oll Account
s CustomerSalesOrdersrec
ord
Pr
oces
sing Pay
able
Purc
ha s
eOr der
stov endor
s
CashRe ce
ipts(c
hecks)fromcus
tomer
s
1
0.COMMUNI
CATI
ONS
Emp l
oyeePa yr
ollEarni
ngsre
cords
Befor
ethemi d-
1970s,syst
e msp r
ogra
mme rsandb usi
-
ness
peopl
e( i
ncl
ud i
nga ccounta
nts)didnotc ommu ni
-
ca
tewe llwi t
ho neano t
her.Th ep r
ogrammerswe re 13.DI STRIBUTEDDATAPROCESSI NG
cr
it
ici
zedfo rusingtoomu chj ar
gon,andthebu s
ines
s- Expl
ai
nwh yano r
gani
zat
ionwou
ldchoo
setoin
sta
lla
peopl
ewe rec ri
tici
zedforn otadequat
el
ye xpress
ing
di
st
ri
but
edins
tea
dofacent
ral
iz
edcomp
ute
ren
vir
onment
.
t
heirneeds.Effort
sh avebe enma detoov e
rcomet hi
s
commu ni
cationg ap,butro omf orimprovements t
il
l
This page intentionally left blank
chapt
er
2
I
ntr
oduct
iont
o
Tr
ansa
cti
onProc
ess
ing
hapter1i n t
ro ducedt het r
a nsacti
onp r
oc ess
ing
sys
tem( TPS)a sa na cti
vit
yc onsi
s t
ingo ft hr
ee

cyc
C
l
e,thee x
ma
pe
j
n
o
d
rs
i
tu
u
r
b
ec
sy
y
s
c
t
l
e
e
msc
,an
a
dth
l
le
ec
dc
on
y
v
c
e
l
r
e
s
s
i
:t
onc
her
ycl
e
ev
.
en
Ev
u
e
e
n
t
hou ghe achc yclepe rformsd i
ffer
e ntsp eci
fict as
ksa nd
support
sd iffe
rento bjecti
v e
s ,theys harecommo ncha r
acter
-
i
sti
cs.Fo re xamp le,allth r
e eTPSc yclesc apt
u refinancial
t
ransact
ion s
,rec or
dt hee ffectso ftra
n s
ac t
ionsina cco unt
ing
r
eco r
ds,a ndp r
o vi
dei nforma tiona bouttransactionstou ser
s
n
n Le
arn
ingOb
jec
ti
ve
s
i
ns upporto fthei
rd ay-to-daya ctivit
ies
.Ina d di
tion,transac
-
t
ionc yclesp r
od ucemu c ho ft her awd ataf rom wh i
ch Af
ters
tudy
ingt
hisc
hapt
er,y
ous
houl
d:
man a
g e
me n treportsa ndf in a
n cialstat
eme ntsa red erived. n Unde r
standt hebr oa dobj e
ctiv esof
Becauseo ft hei
rf inanciali mp acto nth efirm,t ransact
ion transacti
onc ycles.
cycl
esc o mma ndmuc ho ft h ea ccoun t
ant’sp r
ofessiona
l
n Rec ogniz
et hetypesoft r
a nsa ctions
at
tent
ion.
Th ep urposeo fth i
sc h apterist op r
e s
en tso mep reli
mi- proc es
sedbye achoft het hre et rans-
nar
yt opi
c sthatarec ommo nt oa llthr
eet r
ansac t
ionp rocess
- actionc y
c les.
i
ngc y c
les.I ns ubsequ entc hap t
e r
s,wewi lld rawh eavi
ly n Knowt heba si
ca ccount ingr ec ords
f
romt hisma t
eri
ala swee xa min etheind i
vidua lsubsystems usedi ntra nsacti
onpr oce ss
ings ys-
ofeachc yc l
ei nde tai
l.Th isc ha pt
eriso rganiz edintof i
ve tems .
majorsections.Th efirstisa no ve r
viewo ftrans ac
tionp r
oc- n Unde r
standt her el
ations hipbe twe e
n
ess
ing.Th issecti
o nd efinest heb roado bj
ectiveo fthet hr
ee traditi
ona la ccounti
ngr ecordsa nd
t
ransact
ionc yc
lesa nds pe c
ifiesth erolesoft heirindividual theirma gne ti
ce quivalentsi nc om-
subsyst
ems .Th es econ ds ectiond escri
b esther e
lat
io ns
hip pute r
-base ds yst
ems .
amo ngac c
o unti
ngr eco rdsinf ormi nga na udittrai
li nboth n Bef amili
a rwi ththedoc ume nt a ti
on
man uala ndc o mpu ter-
ba s
e ds yst
ems .Th et hir
ds ect
ion technique sus edforr epres e
nt ing
examinesd o c
u mentationt echniq uesuse dtor ep r
esents ys
- ma nua landc omput er-ba seds ys-
t
ems .Th iss ecti
o np resentss everald ocume n t
ati
ont e
ch- tems .
ni
qu esforma nualan dc omp uter-baseds yst
ems .Th ef our
th
n Unde r
standt hedi f
ferenc esbe twe en
sec
tiona ddressesc omp ute
r-ba seds yst
ems .Itr eviewst he
f
u ndamen t
alf eat
u r
e so fb atcha ndr eal-
ti
met echnologi
es batc handr eal-
timepr oc essinga nd
andth e
irimpl icati
onf ortransa cti
onp rocessing.Th ef inal thei mpac toft hesetec hnolog i
e son
transacti
onpr oce s
sing.
sec
tione xami nesd a t
ac odings cheme sa ndt h e
irr olein
t
ransact
ionp r
ocessing. n Bef amili
a rwi thda t
ac oding
sche mesus edina ccount ingi nfor-
ma tionsy stems .
42 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

AnOv
erv
iewofTr
ans
act
ionP
roc
ess
ing
TPSa
ppl
ic
ati
onspr
oce
ssf
ina
nci
alt
rans
act
ions
.Af
ina
nci
alt
rans
act
ionwa
sde
fine
dinCha
pte
r1a
s

Anec
onomi
cev
entt
hataf
fe
ct
sth
eas
se
tsa
nde
qui
ti
eso
fth
efi
rm,
isr
ef
le
ct
edi
nit
sac
cou
nts
,an
dis
mea
sur
edinmone
tar
yte
rms.
Themo stcommo nfinanci
altrans
a c
ti
on sareeconomice xchangeswit
hexter
nalpart
ies
.Th es
einclude
t
hesaleofg oodsors e
rvices
,thep urcha
seo finvent
o ry,thedisc
hargeoffina
ncia
lo bl
iga
tions
,an dthe
r
ecei
ptofcasho naccountfr
omc us
tomers.Financ
ialtransac
tionsal
soincl
udecert
ai
ninter
naleventssuch
a
sthed e
preci
a t
ionoffixedasset
s;theappli
cati
ono fl
a bor,ra
wma t
eri
als
,andoverhea
dtot heproduct
ion
pr
ocess
;andth etr
ansfe
ro fi
nve nt
oryfromo nedepart
me nt t
oa not
her.
Fi
nancia
lt r
ansact
ionsa r
ec ommo nb usines
se vent
st hatoccurregul
arl
y.Forinst
ance,thousa
n dsof
t
rans
acti
onso fap a
rti
culart
y pe(sa
lestoc ust
omers)ma yo ccurdail
y.Tod ea
leffi
ci
entl
ywi thsuchv ol
-
ume,busi
nessfir
msg roupsimila
rtypesoft r
ansac
ti
o nsintotra
nsact
ioncycl
es.

TRANSACTI
ONCYCLES
Thre
et ra
nsact
ioncycl
esproce
ssmo stofthefi
rm’seconomicact
ivi
ty:theexpe
ndit
urecycl
e ,t
hec onv
er-
si
oncyc l
e,andthereve
nuecycle.Thesecycl
ese xi
sti
nalltype
so fbusi
n e
sse
s—b ot
hp rof
it-
seekingand
not
-f
or-prof
ittype
s.Forins
tance
,e ver
yb usi
ness(1)i
ncursexpe
nd i
tur
esinexchangeforresource
s(ex-
pendi
turecycl
e),(2)pr
ovide
sv alueaddedthroughit
sproduct
so rser
vices(c
onver
sioncy cl
e),and(3)
re
cei
ve sreve
nuefromo ut
si
desou r
ces(re
venuec yc
le)
.Figur
e2 -
1s howstherel
at
ionshi
po fthe
s ecyc
les
andtheresour
cefl
owsb e
tweenthem.

FIG U RE

2
-1 RELATI PBETW EEN TRANSACTI
ONSHI ON CYCLES

Labor
Cust
omer
s
hedGoods
Cash

Mat
eri
als
Cash
s

Phys
ical
Plant
ni
Fi

Ex
pendi
tur
eCyc
le Conv
ers
ionCy
cle Rev
enueCyc
le

Subs
yst
ems Subs
yst
ems Subs
yst
ems

Purc
hasing/
Ac count
sPay
abl
e Produc
ti
onPlanni
ngandCont
rol Sal
esOrderProcess
ing
CashDisbursements CostAccount
i
ng CashRecei
pts
Payr
oll
Fi
xedAss et
s

Fi
nis
hedGoods

Cash
CHAPTER 2 I
ntr
odu
cti
ont
oTr
ans
act
ionP
roc
ess
ing 43

Th
eExpe
ndi
tur
eCy
cle
Bu s
in e
s sa c
tivi
ti
esb eginwitht heacquis
iti
ono fma t
eri
als,proper
ty,andlaborine xcha
ngef orcash—the
expendi turecy c
le.Figure2-1s howstheflowo fcashf r
o mtheo rgani
zati
ontot hevari
ousp rovider
sof
t
h esereso urce
s.Mo stex pendi
turetransa
cti
onsa rebasedo nac r
editre
lati
onshi
pb etweenthetradingpar
-
t
ies.Th ea c
tualdis
bu rs
eme nto fcashtakesplaceatsomep oi
ntafte
rthereceiptofthegoodso rservi
ces.
Da yso re venwe eksma yp assb et
we enthes
et woevents.Th us
,fromas ys
temsp ers
pecti
ve,t
h istr
ansac
-
t
ionh ast wop ar
ts:ap hysicalcomp onent(t
hea cqui
siti
ono ftheg oods)andaf inanci
alcomp onent(t
he
cashd isb ur
sementt othes upp l
ier
).A separat
es ubsys
temo fthecyclep r
ocesse
se achcompo n e
n t
.The
ma j
o rsub syst
emso fthee xpend i
turecycl
ea r
eo utl
inedhe r
e.Be c
a us
eo ftheexte
n toft
h i
sbod yo fmate
-
r
ial,twoc hapt
e r
sared evote
dt othee xpendi
turecycl
e.Pu rchas
es/APa ndcashd i
sburs
eme nt
ss yst
emsa r
e
t
h etopicso fCh apt
er5 .Payrollandf i
xedassetsyst
emsa reexaminedinCh apter6.

Purchase
s/ac
countspa
yablesys
tem.Thi
ssys
te
mr e
cog
niz
esthenee
dtoacqu
ir
ephys
i
cali
nve
nto
ry
(s
uchasrawmate
ri
als
)an
dp l
ace
sanord
erwit
htheve
ndor
.Wh entheg
oodsar
erec
ei
ve
d,thepu
r-
cha
sess
yst
emreco
rdst
heev
entbyi
ncr
eas
ingi
nve
nto
ryandes
tab
li
shin
ganacco
untpa
yabl
etobepai
d
atalat
erdat
e.
Cashdis
bur
sement
ssy
ste
m.Wh e
ntheobl
i
gat
io
ncrea
tedinthep
urch
ase
ssys
te
misdue,t
hec
ash
di
sbu
rse
ment
ssy
st
emaut
hor
iz
est
hepa
yment
,di
sbu
rse
sthefu
n d
stothev
endo
r,andr
eco
rdst
he
t
rans
act
io
nbyre
duc
in
gth
ecas
handac
cou
ntspa
yab
leac
count
s.
Payr
olls
yst
em.Thepayr
ol
lsys
temcol
le
ct
sla
borus
ageda
tafo
reache
mplo
yee,
comput
est
hepay
rol
l
,
anddi
sbu
rse
spay
chec
kst
otheemploy
ees
.Conc
ept
ual
l
y,pa
yro
lli
saspe
ci
al
-c
asepur
chas
esa
ndcas
h
di
sbu
rse
mentss
ys
tem.Be
caus
eofacco
unti
ngc
ompl
exi
ti
esa
sso
ci
ate
dwit
hpayr
oll
,mostf
i
rmsha
vea
se
par
ates
yst
emforpa
yro
llpr
oce
ssi
ng.

Fi
xedass
etsyst
em.Af i
rm’sfi
xe
da s
se
tsys
temproc
ess
est
ran
sac
ti
onsp
ert
ai
ni
ngtot
heacqu
is
it
ion
,
mai
nte
nanc
e,anddi
spos
alofit
sfi
xedas
set
s.Thes
earer
ela
ti
ve
lype
rmane
nti
te
mstha
tcol
le
cti
ve
lyof
-
t
enrep
res
entt
heorga
niz
ati
on’sl
arge
stf
ina
ncia
lin
ves
tment
.Ex
ample
soff
ix
edas
se
tsi
ncl
udela
nd,
bu
il
din
gs,
furn
it
ure,
ma c
hine
ry,andmoto
rvehi
cl
es.

Th
eCon
ver
si
onCy
cle
Theconv ersionc ycleisco mpose doftwoma jorsubsyste
ms :theprodu ct
ionsystema ndthecostaccount
-
i
ngs yst
em. Th ep rod uct
ionsy s
temi nvo l
vesthepl a
n ni
ng,scheduling,andc ont
rolofthep hysi
calproduc
t
t
hroughthema nufacturi
ngp rocess.Thisincludesd et
ermini
n grawma ter
ialre
q ui
remen t
s,aut
ho r
izi
ngthe
worktob ep erforme da ndther el
easeo frawma teri
al
si nt
op roducti
o n,andd i
recti
ngt hemo vementof
t
hewo r
k-in-p r
o cessthroughi t
sv ariousstageso fma nufa
cturing.Th ec os
tac c
oun t
ings ys
tem mo ni
tor
s
t
heflowo fco sti
n formati
onr el
a t
edt oproducti
o n.Inf
orma t
ionthissystempr oducesisusedforinvent
ory
va
luat
io n,b udg et
ing ,costco nt
rol,p e
rformancer eport
ing,a ndma n agementd ec
isions,sucha smake-
or
-buyd ecisions.Wee xami netheb asi
cfeaturesofthesesystemsinCh apt
er7.
Ma nufactu r
ingf irmsc onvertr a
w ma teria
lsin t
of i
nishe
dp r
od uct
st hroughforma lconversi
onc yc
le
ope
rati
o ns.Th ec on vers
ionc ycleisn otusuall
yf ormalando bservableins e
rviceandr et
ail
ingesta
blis
h-
ments
.Ne vertheless,thes
ef i
rmss til
len ga
g einco nver
sionc ycl
ea ct
iviti
esthatcul
mi nat
ei nthedevel
op-
mento fas alab l
ep ro duc
to rservice.Th e
sea cti
vit
iesincludether eadyingofp roduct
sa ndservic
esfor
marketandt h eallocati
onofr esou r
cess uchasd epreci
ati
on,b ui
ldinga morti
zati
on,andp repai
de xpens
es
t
othep rop e
ra c c
ou ntingperiod.Ho wev er
,u nl
ikema nufact
u r
ingf i
rms,me rchandi
singc ompaniesdonot
pr
ocessthe s
ea ct
ivit
iesthroughf ormalc onvers
ionc ycl
es ubsys
tems.

Th
eRe
ven
ueCy
cle
Fi
rmssel
lthe
irfi
nis
hedgoodstocus
tome
rsthrought
here
venuecyc
le,whi
chinvol
vespr
oce
ssi
ngcas
h
sa
les
,cr
edi
tsale
s,andt
herec
e i
ptofca
shfol
lowingacr
edi
tsal
e.Re
venuecycl
etr
ansac
ti
onsal
soha
vea
44 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

phys
ica
landafina
nci
alc
omponent
,whi
charepr
oces
sedse
parat
el
y.Thepr
ima
rys
ubs
yst
emsoft
her
eve
-
nuecyc
le,whi
charet
het
opi
csofChapt
er4,a
rebr
ief
lyout
li
nedbel
ow.

Sal
esorderproces
si
ng.Themajo
ri
tyofbu
si
nes
ssal
esar
ema d
eoncredi
tandinv
ol
vetas
kssuc
has
pr
epar
in
gsale
so r
der
s,g
rant
i
ngcre
dit
,sh
ippi
ngp
roduc
ts(o
rrend
eri
ngofaser
vi
ce)t
othecus
tomer
,
bi
ll
i
ngcust
omers,
andre
cor
dingt
hetr
ansa
cti
oni
ntheacc
ount
s(ac
cou
ntsre
cei
vab
le,i
nve
ntor
y,
ex
pens
es,a
ndsales
).

Cashr
ecei
pts.Fo
rcr
edi
tsal
es
,someperi
odofti
me(day
sorweeks
)pas
sesbet
wee
nthepo
into
fsal
e
an
dther
ecei
ptofc
ash
.Cashre
cei
ptspr
oce
ss
ingi
nclu
desco
ll
ect
i
ngcas
h,depo
si
ti
ngca
shint
hebank
,
an
drec
ord
ingthe
seev
ent
sint
heaccou
nts(a
ccou
ntsre
cei
vab
leandc
ash)
.

Ac
count
ingRe
cor
ds
MANUALSYSTEMS
Thi
ssect
iondescr
ibesthepurposeofe
acht ypeofaccounti
ngrecodu
r sedint
rans
act
ionc
ycl
es.We
be
ginwit
htra
dit
ionalre
cordsusedinmanualsys
tems(document
s,j
ourna
ls,a
ndle
dgers
)andt
henexa
m-
i
nethe
irmagnet
iccount
erpa
rtsi
nc omput
er-
b a
sedsys
tems.

Doc
ume
nts
Ad oc
ume ntpr
ovide
sevidenc
eofaneconomi
ce ve
ntandma ybeusedtoi
nit
iat
etr
ans
acti
onpr
ocess
ing.
Somed oc
ume nt
sarear e
sul
toftr
ans
act
ionproce
ssing.I
nt hi
ssecti
on,wedis
cusst
hre
etype
so fdocu-
ment
s:sourcedoc
ume nt
s,pr
oduc
tdoc
uments,a
ndturnarounddocument
s.

SOURCEDOCUMENTS.Ec onomiceventsres
ultinsomed ocumentsbei
ngc r
eate
da tthebeginn
ing
(t
hesour
ce)ofthet
ransac
ti
on.Th es
earecall
edsourcedoc
ume nt
s.Sourcedocumentsareusedtocapt
ure
andfor
mali
zetrans
acti
ond a
tathatt
hetra
nsacti
oncyc l
eneedsf
o rproc
essi
ng.Figur
e2 -
2s howsthecrea
-
t
ionofasourcedocument
.
Theeconomicevent(t
hesale
)c a
usest
hes a
lescl
erktoprepa
reamu l
ti
par
tsale
so r
der,whichisf
ormal
evi
dencetha
tas al
eo ccur
red.Copiesofthi
ss our
ced oc
ume ntente
rthes a
lessyst
ema nda reusedto

FIG U RE

2
-2 CREATI
ON OFA SOURCEDOCUMENT

1
Customer
's Source
Order Document 2
Data
Sal
esOr
der 3
Coll
ect
ion

Sal
es
Syst
em
CHAPTER 2 I
ntr
odu
cti
ont
oTr
ans
act
ionP
roc
ess
ing 45

FIG U R E

2-
3 APRODUCT DOCUMENT

1
Source
Document 2
s
'
er Dat
a
3
som
t Col
l
ect
i
on Sal
esOr
der
Cuder
Or

Cust
omer

Bi
l
l Sal
es
Syst
em
Remi
tt
anc
eAdvi
ce

Produc
t
Document

c
onveyinf
ormat
iontova
riousf
unc
tions
,suchasbil
li
ng,shi
ppi
ng,a
ndAR.Thei
nfor
mat
ioni
nthes
ale
s
or
dert
ri
ggerss
peci
fi
cact
ivi
ti
esine
acho ft
hesede
part
me nt
s.

PRODUCTDOCUMENTS.Pr oductdocumentsarether
esul
toftr
ansa
cti
onproc es
singrat
hertha
nt he
t
rigger
ingmechani
smf ortheproc
ess.
Forex a
mp l
e,ap a
yrol
lchec
ktoane mpl
o ye
ei sap r
oductdocument
oft
h epayr
ollsys
tem.Figur
e2 -3ext
endstheexampleinFigur
e2-2toil
lus
tr
atethatthecust
omer’sbil
lis
aproductdocumentofthes a
lessyst
em.Wewi l
lstudyma nyothe
rexamplesofp roductdocumentsi
n
l
aterchapt
ers
.

TURNAROUND DOCUMENTS.Tur na r
ounddo cumentsareprodu
ctdocume nt
so fo n
es yst
emt h a
t
bec
omes ourc
ed oc
u me nt
sforanot
hersyste
m. Th i
sisil
lust
rat
edinFigur
e2 -
4.Thec us
tome rr
ecei
v esap er
-
f
orat
edtwo -
partbi
llorstat
ement.Thetopp ort
ionistheact
ualbil
l,a
ndtheb ot
tomp or
ti
oni stheremit
tance
adv
ice.Cust
ome r
sr emo vetheremitt
ancea dvi
cea ndret
urnittothecomp anya l
ongwi t
ht hei
rp ayme nt
(
typi
call
yac hec
k).At ur
narounddocume ntconta
insimporta
ntinfo
rmati
ona boutacust
o mer’saccountto
hel
pthecashrecei
ptss y
stemp r
ocessthepayme nt
.On eoftheprobl
emsd es
igner
so fcas
hr ecei
ptssyst
e ms
f
aceisma t
chi
ngc ustomerpayme n
tstothec o
rrectcus
tomeraccount
s.Prov
idi
ngth i
sneededinformati
o nas
aproduc
tofthesal
e ssyst
eme nsur
esaccuracywh enthecashrec
eipt
ssyst
emp roc
e s
sesi
t.

J
our
nal
s
Aj ournalisarecor
do fac hronol
ogic
a lent
ry.Atsomep oi
ntinthet
ransact
ionproc
ess,whenallre
levant
f
actsa boutthetr
ansacti
ona reknown ,thee ve
ntisrecor
dedinaj our
nalinc hr
onologi
calorder
.Do cu
-
men tsarethepri
ma r
ys ourceofd at
af orj
ou r
nals
.Figur
e2 -5showsas al
eso r
derbeingrec
ordedinthe
s
ale sjour
nal(se
ethef ol
lowingd i
scussi
ono nspeci
aljour
nals
).Eachtra
n s
act
ionrequi
resasepara
tejour
-
nale nt
ry,ref
lec
ti
ngt hea ccount
saffe
c t
eda ndthea mount
stob edebit
eda ndcre
dite
d.Th e
reiso f
tena
t
imel a
gb et
we e
ni ni
tia
ti
n gat r
ansact
ionandr ecor
dingiti
nt heacc
ounts.Thejourna
lh ol
dsac omplet
e
r
eco rdoftrans
acti
onsa ndthusprovi
de same ansforpos
tingtoaccount
s.Therear
etwop ri
ma r
ytypesof
j
ou rnal
s:speci
alj
ou r
nalsandg ener
aljourna
ls.
46 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

FIG U RE

2
-4 ATURNAROUND DOCUMENT

1
Source
Document 2
s
'
er Dat
a
3
som
t Col
l
ect
i
on Sal
esOr
der
Cu der
Or

Cust
omer

Bi
l
l Sal
es
Syst
em
Remi
tt
anc
eAdvi
ce

1
Chec
k
1
Cash
Recei
pts
Syst
em
Remi
tt
anc
eAdvi
ce

SPECI ALJ OURNALS.Sp e


cialj
o ur
nal
sa r
eusedtorecordspec
ifi
cc l
assesoftr
ansact
ionsthatoccu ri
n
hi
ghv olume.Su c
ht r
ansact
ionsc a
nb eg r
oupedtogetherinas pec
ialjournalandprocesse
dmo ree ff
i-
ci
ent
lythanag enera
ljourna
l per
mits.Fi
gure2-6showsas pec
ialj
o ur
nalforrecor
dingsal
est r
ansacti
on s
.
Asy ouc ansee,t
hes al
esjournalprovi
desaspecial
izedfor
ma tforrecor
d i
ngo nl
ysalestrans
ac t
ions.
Atthee ndofthep r
ocess
ingp er
iod(mo nt
h,week,ord ay)
,ac l
erkpo st
sthea mountsi
nt hec ol
umn sto
t
heledgeraccountsindi
cat
ed( se
et hedis
cussi
ono fle
dge r
sinthi
sc hapte
r).Forexample,thetotalsales
wil
lbep oste
dt oaccountnumb er401.Mo storga
nizat
ionsuseseveralotherspe
cialjour
n a
ls,inc
lud in
g
t
hecashr ec
eipt
sjournal
,cashdisbur
sementsjour
nal,pur
chase
sjournal,andthepayrol
ljourna
l.

FIG U RE

2
-5 SALESORDERRECORDED IN SALESJ
OURNAL

Ec
onomi
cEv
ent Capt
ureEv
ent Rec
ordEv
ent

1
Sales Sales
Customer
's Order
Order Journal
CHAPTER 2 I
ntr
odu
cti
ont
oTr
ans
act
ionP
roc
ess
ing 47

FIG U R E

2-
6 SALESJ
OURNAL

I
nvoi
ce Acc
t. Debi
t Credi
t
Dat
e Cus
tomer Pos
t
Num. Num. Ac
ct.
Rec
.#102 Sal
es#401

S
ept
.1 Hewi
ttCo. 452
3 1
120 3
300 3
300
15 Acme Dr
ill
in
g 882
1 1
298 6
825 6
825
Oc
t.3 Bue
llCo
rp. 2
2987 1
030 4
000 4
000
10 Chec
kLtd. 6
6734 1
110 8
500 8
500

REGISTER.Th etermr e
gist
eriso ft
enuse dtod enot
ec e
rta
intypesofspeci
aljour
nal
s.Forexampl
e,
t
hepayrollj
ournali
soft
encall
edthep ayr
ollregi
ster
.Wea l
sousetheter
mr egi
st
er,howe
ver,t
od e
not
ea
l
og.Forex a
mp l
e,arec
eivi
ngregi
sterisalogo fallr
ecei
ptsofrawma t
eri
alsormerc
handi
seorder
edfr
om
ve
ndor
s .Simil
arl
y,ashi
ppingregi
st
e ri
salo gthatre
cordsalls
hipmentst
oc us
tomer
s.

GENERALJ OURNALS.Fi rmsusethegeneraljour


naltorecordnonrec
urri
ng,infreque
nt,andd i
ssi
mi-
l
artra
n s
act
ions.Forexamp l
e,weu sual
lyrecor
dp er
iodi
cd epr
eciat
ionandc l
osi
n ge nt
ri
esintheg ener
al
j
ournal
.Figure2-7showso nepagefromag eneraljour
nal.Notethatt
hec ol
umn saren ons
peci
fic,al
low-
i
nga nytypeoftr
ansact
iontoberecorde
d.Th eentri
esarerecor
d e
dc hr
onologi
call
y.
Asap ra
cti
calmatt
er,mostor
g a
niza
ti
onshavereplace
dtheirgener
aljo
urnalwit
haj ourn
alvouchersyst
em.
Ajourna
lvoucheri
sactual
lyaspeci
alsour
cedocume ntt
hatconta
insasingl
ejour
nalentryspeci
fyi
ngthegen-
er
alle
d g
eraccount
sthatareaf
fect
ed.Jou
rnalvouchersar
eu sedtorecor
dsumma ri
eso frout
inetr
ansact
ions
,
nonr
outi
netra
nsact
ion
s,adjus
ti
ngentr
ies
,andclos
inge nt
ri
es.
Th etot
alofj
ournalv
ouc h
ersproces
sedisequi
va-
l
entt
othege n
eralj
our
nal.Subse
quentcha
pter
sd i
scussth
eu s
eo ft
histe
chniqu
eintra
n s
actio
np r
ocess
ing.

L
edg
ers
Aledgerisab ooko faccountsthatr
efle
ctsthefinanci
aleffe
ctsofthef i
rm’str
ansact
ionsa f
terthe
ya r
e
post
edf r
omt hevariousjournal
s.Wh ereasjour
nalsshowt hec hr
on ol
ogic
aleffec
to fbusi
n es
sa ct
ivi
ty,
l
edgersshowa ct
ivi
tybya ccounttype
.Al edgerindic
atestheincr
eases,dec
rease
s,andc ur
rentbala
nceo f
eac
ha ccount
.Organiz
ationsusethi
sinformati
ontop re
p a
refinanc
ialst
a t
ements
,supportdai
lyo per
ati
ons,
andp r
epareint
erna
lrepo r
ts.Figur
e2 -
8s howsthef lowoff i
nancialinf
ormati
onf r
omt hes ourc
ed ocu-
mentstothejour
nalandintotheledger
s.
Therearetwob as
ictypeso fl
edgers
:(1)g e
neralle
dg e
rs,whichcontai
nthefir
m’ saccountinf
ormati
on
i
nthef or
mo fh i
ghlysumma r
ize
dc ont
rola c
counts,and(2)subsi
diaryledger
s,whichcontainthedeta
il
s
1
oft
hei ndi
vidua
laccountsthatcons
tit
uteap ar
ti
cul
a rcont
rolaccount
.

1Nota
llc
ont
rolacc
oun
tsint
hegene
rall
edge
rhavecorr
espondi
ngs
ubs
idi
arya
cco
unt
s.Ac
cou
ntss
ucha
ssa
lesa
ndc
asht
ypi
cal
ly
ha
venosup
po r
ti
ngdet
ai
lsi
nthefor
mofas ubs
idi
aryledger
.
48 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

FIG U RE

2
-7 GENERALJ
OURNAL

GENERALJOURNAL PAGE

POST.
DATE DESCRI
PTI
ON DEBI
T CREDI
T
REF
.

1 Se
pt.
1,2
009 De
pre
ci
at
io
nEx
pen
se 5
20 5000 1
2 Ac
cumu
lat
edDe
pre
ci
at
io
n 2
10 5000 2
3 3
4 S
ept
.2,
200
9 I
nsu
ran
ceE
xpe
nse 5
25 1200 4
5 P
rep
aidI
nsu
ran
ce 1
80 1200 5
6 6
7 S
ept
.3,
200
9 Ca
sh 1
01 1 1000 7
8 Ca
pit
alSt
oc
k 3
10 1 10 00 8
9 9
10 10
11 11
12 12

GENERALLEDGERS.Th egeneralledge
r(GL)s ummari
zestheact
ivit
yfore a
cho ftheorgani
zat
ion’
s
ac
count
s.Theg e
neralle
dgerdepar
tme ntupdat
esthe
serecor
dsfromj our
nalvouchersp r
epar
edfroms p
e-
ci
alj
our
n al
sando t
hersource
slocat
edt hr
oughouttheorga
nizat
ion.Thege ne
ralle
d gerpres
ente
dinFig-
ur
e2-9showst hebeginni
ngb a
lanc
e s,thechange
s,andthee ndi
ngb al
ancesaso fap art
ic
ulardat
efor
s
ever
aldif
fer
entaccounts
.
Theg e
neralledgerprovi
desas inglevaluefore a
chc ont
rolaccount,sucha sa ccount
sp a
yable
,
ac
count
sr ec
eivabl
e,a ndinvent
ory.Th i
sh ighl
ys ummariz
e dinfor
ma t
ioni ssuffi
cientforfina
ncia
l

FIG U RE
FLOW OFI ON FROM THEE
NFORMATI CE
CONOMI VENTTO THEGENERALLEDGER
2
-8

Jour
nal
Entr
y Pos
t
Sales Sales General
Customer
's
Order Journal Ledger
Order

Pos
t
ary
di
si
ub
eS er
l
ci
on dg
AccountsRec
eiv
abl
e ec alLe
Subsi
diary al
lyR ner
c Ge
i
Ledger i
rod to
Pe dger
Le
CHAPTER 2 I
ntr
odu
cti
ont
oTr
ans
act
ionP
roc
ess
ing 49

FIG U R E

2-
9 GENERALLEDGER

Ca
sh ACCOUNT NO.1
01

POST. BALANCE
DATE I
TEM DEBI
T CREDI
T
REF
. DEBI
T CREDI
T
Se
pt. 1
0 S1 3300 3300
1
5 S1 6825 10125
Oc
t. 3 S1 4000 14125
1
0 CD1 2800 11325

Ac
co
unt
sRe
ce
iv
abl
e ACCOUNT NO.1
02

POST. BALANCE
DATE I
TEM DEBI
T CREDI
T
REF
. DEBI
T CREDI
T
Se
pt. 1 S
1 1400 1400
8 S
1 2605 4005
1
5 CR
1 1650 2355

Ac
co
unt
sPa
yab
le ACCOUNT NO.2
01

POST. BALANCE
DATE I
TEM DEBI
T CREDI
T
REF
. DEBI
T CREDI
T
Se
pt. 1 P
1 2 0500 20500
1
0 CD1 2800 17700

r
eporti
ng,butitisnotuse
fulforsuppor
ti
ngd a
il
yb usi
nesso pe
rati
ons.Forexample
, f
orfi
nancia
lrepor
ting
pur
po s
es,thefirm’stot
alaccount
srecei
vablevaluemu stbep r
esentedasas i
nglefi
gureintheb a
lance
s
heet.Thisv a
lu eisobtai
nedf r
omt hea c
countsrecei
vab l
ec ont
rolaccountintheg e
neralledge
r.To
ac
tuall
yc ol
lec
tt hecashthi
sa ss
etrepr
esent
s,howe ve
r,thefirm mu s
thavec e
rta
ind e
tai
ledinfor
ma t
ion
aboutthecust
o mersthatthi
ss umma r
yf i
guredoesn otp rovi
de.Itmu s
tk now whichcustomersowe
money,howmu che a
chcustomerowes,whenthecu s
tome rl
astma depayment,whenthenextpaymentis
due,andsoon. Theaccount
srecei
vablesubs
idia
ryledgercontai
nstheseess
enti
aldeta
il
s.
50 PART I Ov
erv
iewofAc
coun
tingI
nf
orma
ti
onS
yst
ems

FIG U RE

2
-9 GENERALLEDGER(
cont
inued)

P
urc
has
es ACCOUNT NO.5
02

POST. BALANCE
DATE I
TEM DEBI
T CREDI
T
REF
. DEBI
T CREDI
T
Se
pt. 1 P1 2 0500 20500

SUBSI DIARYLEDGERS.Su bsi


diaryledger
sa r
ek eptinvariousaccount
ingd epar
tmentsofthef i
rm,
i
ncludi
n ginvent
ory,acc
ountspayable,pa yr
oll
,anda cc
o unt
sre c
eiva
ble.Thisse pa
rat
ionprovidesbett
er
cont
rolan ds
upportofop e
rat
ions.Figure2 -
10illus
tra
testhatthetot
alo facc
ou ntbal
ancesinas ubsidi
-
ar
yledg ershoul
deq ua
ltheb al
anceint hecorres
pondingg enera
lledgercont
ro lacc
ount.Th us
,ina ddi
-
t
iontop rovi
dingfinanci
alstat
eme ntinf
o r
ma t
ion,thegeneralledge
risame ch a
nismf orveri
fyingthe
over
allaccura
cyo faccounti
ngd atathats epa
rat
ea ccounti
ngd epar
tme nt
sh avep r
ocessed.An yevent
i
ncorr
ec t
lyrecor
dedinaj our
n a
lo rsubsidi
aryledgerwillcauseano ut
-of-
balancecondit
ionthatshould
bedetecteddur
ingtheg ene
ralledgeru pdat
e.Byp eri
od i
cal
lyr ec
oncil
ingsumma r
yb al
ancesfroms ub-
si
dia
rya ccount
s,jour
nals
,a ndcontrolaccounts
,thec omplet
en e
ssanda ccur
acyo ftrans
acti
onp roces
s-
i
ngc anb efor
ma l
lyassess
ed.

THEAUDI
TTRAI
L
Thea ccountingr ecordsd escri
bedp revious
lypro vi
d eanaudi ttrai lfortrac
ingt r
an sact
ionsf r
oms ource
documen t
st othef inancialstat
eme nts
.Oft hema nyp urpose
so fth ea u di
ttr
ail
,mo s timpo r
tanttoacco un-
t
antsisthey ear -e
nda ud i
t.Al t
hought hestudyoffinancia
laud i
tingf allsoutsi
det hesco peofth i
stext,the
fol
lowingt humb nai
lsk et
cho fthea udi
tp r
ocesswilld e
mo nst
rateth ei mp or
tanceoft heau di
ttrai
l.
Th eex t
erna lauditorperiodical
lyeva l
uat
esthefin anc
ialst
ateme ntsofp ubl
iclyh el
db usinessorganiza-
t
ionso nb eha l
fo fitss t
ockh older
sa ndo t
herinter
e st
edp ar
ti
es .Th ea udi
tor
’sr es
p onsibi
lit
yi nvol
v e
s ,in
par
t,there vi
e wo fse l
ecteda ccountsandtransac
tionstod et
ermi neth eirval
idit
y,ac curac
y ,andc omp l
e t
e-
ness
.Le t
’sa ssu mea na udit
orwi shestov er
ifythea ccur
acyofac lient’sARa spub li
shedi nitsannualf i
-
nanci
alsta t
eme nts
.Th ea uditorcant r
acetheARf igur
eo nth eb alan cesheettot heg eneralledgerAR
cont
rolac coun t.Thisb al
ancec anth e
nb ereconcil
edwi ththeto t
a lfo rtheaccountsr ec
eivablesu bs
idiary
l
edger.Ra thert hanexa mininge verytr
ansact
iontha taff
ecte
dt heARa ccount
,thea uditorwilluseas am-
pl
ingtech niquet oe xamin ear eprese
ntati
ves ubse
to ftrans
actions .Fo ll
owingt hi
sa p pr
o ach,theaud i
tor
canselectan u mb erofa ccoun t
sfromt heARs ubsi
d i
aryledgera n dtra c
etheseb ackt othes al
esjour nal
.
Fromt hes al
e sj our
nal,thea uditorcanidentif
yt hespecif
icso urced ocumentstha tinit
iat
edt hetransac-
t
ionsandp ul
lt hemf romt hef i
lestoverif
ythe i
rvalidi
tyanda ccura cy.
Th eau dito fARo ft
eni n c
ludesap r
ocedurec all
edc onf
irma tion.Th isinvolve scon t
actingselected
cust
ome rstod e t
erminei fth etransa
ctionsrecordedint hea ccou n t
sa ctua
ll
yt oo kp la
c ean dthatc us-
t
ome rsag reewi thther ecor de
db al
ance.Informationc ont
ain e
di ns our
ced ocu me nt
sa nds ubsidiary
account
se na blesthea uditortoid ent
if
ya ndl oc
atec ust
ome r
sc hose nforc onf
irma ti
on.Th er es
u l
tsfrom

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