CHAPTER 29

Presented by: Merrill O. Saflor, 5-BSA

 - refers to the orderly arrangement of procedures, personnel, records, equipment, and devices utilized
for a logical and orderly gathering, processing and reporting of financial and other information
essential to the efficient conduct and evaluation of the activities of a business enterprise.

- is the information subsystem within an organization that accumulates information from the entity’s
various subsystems and communicates it to the organization’s information processing subsystem.

Enterprise-wide in formation system – is the combination of procedures, personnel, records, equipment

and devices that a business uses to meet its need for financial data.
System Consultants – help with issues concerning information systems such as
purchase of computers or choosing programs.

Management Consultants – evaluate the efficiency and effectiveness of an existing

accounting information system.

Information System Auditors – concern themselves with analyzing risks associated with
computerized information systems.
 The basic objective of an accounting system is to collect,
process and provide financial information needed by
management and other interested parties in conducting and
evaluating the business activities.
1. Procedures
2. Statement of accounting policies and standards
3. Records and reports
4. Bookkeeping system
5. Personnel
6. Equipment and devices
1. Compatibility to the company’s organization.
2. Provision of necessary reports.
3. Provision for controls.
4. Adequacy of provision for audit trail.
5. Presence of qualified and competent personnel.
6. Simplicity, flexibility, and favorable cost/benefit relationship.
 COMPUTERIZED SYSTEM MANUAL SYSTEM

1. Start with the account balances in the ledger at the 1. Same.

beginning of the period.
2. Analyze and classify business transaction by type. Access 2. Analyze and journalize transactions as they occur.
appropriate menus for data entry.
3. Computer automatically posts transactions as a batch or 3. Post journal entries to the ledger accounts.
when entered on-line.
4. The unadjusted balances are available immediately after each 4. Compute the unadjusted balance in each account at the end
posting. of the period.
5. The trial balance, if needed, can be accessed as a report. 5. Enter the trial balance on the work sheet, and complete the
work sheet.
6. Enter and post adjusting entries. Print the financial 6. Prepare the financial statements. Journalize and post the
statements. Run automatic closing procedure after backing up adjusting entries. Journalize and post the closing entries.
the period’s accounting records.
7. The next period’s opening balances are created automatically 7. Prepare the post-closing trial balance. This trial balance
as a result of closing. becomes step 1 for the next period.
 Design of Accounting Reports
They should provide information that will enable management to:
1. Evaluate operating performance and position.
2. Pinpoint operating problems, deficiencies, inefficiencies and opportunities.
3. Evaluate alternative courses of action in quantitative terms with recommendations as to the best
procedure.

 Design of Procedures
Procedures – steps or action taken to carry out some function or part of the system. They indicate
what work is to be done, who shall do it and when it should be done. Procedures should
1. Be consistent
2. Consider the company’s organizational structure.
3. Accomplish their objective efficiently and economically.
4. Provide for the necessary management and internal control requirements.
5. Be interrelated with other company procedures.
6. Consider the capabilities and limitations of the personnel.
7. Be flexible to accommodate normal variations in the worksheet.
 Classification and Coding of Accounts
The primary function of a chart of ledger accounts is to clarify and summarize the mass of
detailed transactions in a concise form to facilitate the preparation.
Basic principles to be observed in assigning a chart of accounts
1. The number of the accounts in the chart should be adequate to provide information needed for
various financial reports needed and to absorb all possible types of transactions that may
transpire.
2. An account should contain only one kind of data.
3. The nature and purpose of the account should be clearly indicated in the account name or title.
4. The accounts should be so arranged to facilitate the preparation of the reports.
5. Legal requirements affecting the company should be considered.
6. Control of operation as well establishing accountabilities should be considered in breaking
down the assets, liabilities, expenses and reserve accounts.
 Design of Ledgers
The primary function of ledger accounts is to classify and summarize the mass of detailed
transactions into a concise and useful form suitable for the preparation of financial statements and
reports. The chart of accounts that should be used in order to attain the above-mentioned objective
must
1. Be adequate to provide the information needed for various reports an statements.
2. Contain only one kind of data.
3. Be arranged to facilitate economical and speedy preparation of report.
4. Clearly indicate and describe the data contained in it.
5. Be useful in establishing accountability and control.
6. Conform to any laws and regulations affecting the company.
 Design of Journal
Journals are used to show all information about a transaction in one place, to provide a
chronological record of transactions and to facilitate posting of transactions to the ledger.
Principles to be observed in designing the journal are:
1. Special Journals, when appropriate, should be used to record repetitive transactions of the
same class or nature.
2. General journal is used to record those transactions that can not be entered in the special
journal.
3. Specific column headings for most frequently used account should be written in advance.
4. “Sundry accounts” column should be provided for by classifying and posting accounts not
provided for by special columns.
5. Economical and efficient recording of transactions should be facilitated.
 Design of Forms
Business forms are used to provide a historical record of completed transactions as well as a
means of transmitting information for journalizing such transactions. They also fix responsibility
for the initiation, recording and completion of business transactions.
Principles should be observed in designing business forms
1. Be properly identified.
2. Be serially numbered if accountability is necessary.
3. Carry necessary instructions.
4. Logically arrange data.
5. Facilitated the recording of data.
6. Provide for all necessary signatures together with dates, title and other identifying data.
7. Consider internal control requirements.
 Management Information System
 Transaction Processing System
 Office Automation System
 Decision Support System
 Spreadsheet Programs
 Artificial Intelligence
 PURCHASING SYSTEM
- is concerned with the ordering of goods and services, monitoring of purchase orders,
and processing of receipts.
 ACCOUNTS PAYABLE SYSTEM
- deals with the processing of vendors’ invoices, payments, and adjustments to the
vendors’ accounts as well as the maintenance of EDP subsidiary records for the vendors.
 PAYROLL SYSTEM
- handles the calculation of gross pay including overtime pay, deductions, and net pay.
- maintains a cumulative file of employees’ pay and deductions for preparation of
reports to management and government agencies, such as the BIR and SSS.
 BILLING SYSTEM
- calculate the amount to be billed to the customers and generate sales invoices.
Purchasing System Accounts Payable System
Payroll System Billing System
 ACCOUNTS RECEIVABLE SYSTEM
- monitors the processing of credit sales, collections, and adjustments to the
customers’ accounts, and maintains the customers’ subsidiary records.
 INVENTORY SYSTEM
- keep track of the movements of inventory system and keep track of the
movements of the inventory and calculate the inventory value using the standard,
average, first-in first-out, or some other costing method.
 GENERAL LEDGER SYSTEM
- processes all accounting entries.
Accounts Receivable System Inventory System
General LedgerSystem
 Word Processing Software
- provides the ability to draft text directly on a video screen and to make changes easily
and quickly.
 Graphic Packages
- enable users to display financial and other information in easy-to-understand graphical
and pictorial forms.
 Desk-top Publishing Packages
- enable users to format and print professional-quality newsletters and other textual
products.
 Office Automation Packages
- allow users to perform housekeeping functions that improve overall clerical
productivity.
 Message-oriented Packages
- enable users to transmit various forms of information to
geographically dispersed locations.
 Integrated Packages
- combine two or more software packages and provide inter-
faces among them.
 Data Bank Services
- permit subscribers to have access to specialized external data
bases.
Characteristics of DSS
1. They support management decision-making
2. They solve unstructured problems.
3. They allow “what-if” questions.
4. They are many different problems.
5. They have user-friendly interface.

Other Decision Support Systems

Executive Information System (EIS) – systems that provide support for
strategic decisions made by an organization’s top management.
Group Decision Support System – DSSs developed for use by management
groups or teams.
Electronic Spreadsheet – is a multicolumn worksheet projected onto the CRT
screen of a computer system.
- allows accountants and others to work with a huge number of rows
and columns, to perform powerful computer-aided functions ad to store the
results in computer-readable files.
Characteristics of Electronic Spreadsheets
1. Display of data in a form that is familiar to accountants and other financially-
oriented persons.
2. Elimination of the onerous chore of manual calculating.
3. Instantaneous recalculations for changes in the assumed facts.
4. Templates which can be constructed or repeatedly used involving various
problems.
 - is an area of computer science concerned with designing
intelligent computer systems, that is, systems that exhibit the
characteristics associated with intelligence in human behavior
– understanding language, learning, reasoning, solving
problems and so on.

Most common applications of AI concepts

1. Expert Systems
2. Neural Networks
3. Case-Based Reasoning Systems
Expert Systems (ES) – are software programs using facts, knowledge, and reasoning
techniques to solve problems that typically require human abilities.
Steps in the Creation of an Expert Systems
1. Knowledge acquisition
2. Knowledge representation
3. Computational modeling
4. Model validation

Characteristics of Expert Systems

1. Expert systems rely on a rich base of specific knowledge about a problem.
2. Expert systems attempt to solve a problem using the “thought” processes used by an expert and
therefore make expert decisions.
3. Expert systems explain the reasoning process and allow for uncertainty.
4. Expert systems “learn”.
Components of Expert Systems
1. Knowledge database – contains procedural knowledge or rules that dictate
which actions to follow.
2. Inference engine – “drives” the expert system by deciding when to apply rules
and the order in which to apply them.
3. User interface – ability to distinguish problems that it can solve, problems that
are within its domain but for which it lacks sufficient information for solution.
Neural Networks (NN) – are software programs that solve problems by learning
from experience, by observing patterns in data and then by using this learning for
prediction purposes.
Components of Neural Network
1. Nodes
2. Connections

Characteristics of Neural Networks

1. Much historical data or examples are available for system training.
2. The data set may be incomplete or have errors, yet it describes specific examples.
3. Output is dependent on multiple, interacting parameters.
4. The function that would determine the output is unknown or would be too expensive to
discover.
Case-Based Reasoning Systems – are software programs that
reason by analogy and for problems that require humans to
search through historical data to find similar problems with
successful solutions.
COMPARISON OF INFORMATION AND KNOWLEDGE PROCESSING SYSTEMS
Fuzzy Logic Systems – a form of artificial intelligence, deal with
imprecise data and problems that have many solutions.

Genetic Algorithms – are problem-solving methods that use

evolutionary processes, that is, the model of living things
adapting through reproduction, mutation, and natural selection.

Intelligent Agents – are programs that apply a built-in or learned

knowledge base to execute a specific, repetitive, and
predictable task.