1 - Learning Packet

Ateneo de Zamboanga University
SCHOOL OF MANAGEMENT AND ACCOUNTANCY

ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session
DOCUMENT ACCIST1 – Accounting Information System Learning Packet

COVERAGE Introduction to Accounting Information System
WEEKS COVERED Week 1
PREPARED BY Julius M. Apeluddin, C.P.A.
INTENDED LEARNING OUTCOME - At the end of these learning units, the learners shall:
1. Explain the nature, scope and importance of AIS.
2. Understand the relevance of accounting information system
3. Differentiate Accounting and Management Information system
LEARNING CONTENT
1. Information System
a. Definition
b. Channel of Information Systems (Manual and Computer-based)
c. Framework of Information Systems
2. Accounting Information Systems (AIS) and the accountant’s role:
a. Nature, scope and importance of AIS
b. Accountant’s role:
o As users of AIS
o As auditors of AIS
o As consultants of AIS
3. Timeline of the evolution of the information system over businesses:
a. Manual Process Age
b. Computer-Assisted Age
c. Enterprise-Wide IT Applications Age
d. Future of Accounting
C HA PT ER 1
What is a system?
A system is a group of two or more interrelated components or subsystems that serve a

common purpose. For many, the term system generates mental images of computers and
programming. In fact, the term has much broader applicability. Some systems are naturally
occurring, whereas others are artificial. Natural systems range from the atom—a system of
electrons, protons, and neutrons—to the universe—a system of galaxies, stars, and planets.
Elements of a System
1. Relatedness
Although each part functions independently of the others, all parts serve a common
objective. If a particular component does not contribute to the common goal, then it is
not part of the system.
2. Components
These are parts comprising a system. For example, a yo-yo carved from a single piece of
wood and attached to a string is a system. Without the string, it is not a system.
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All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
3. Subsystems
The distinction between the terms system and subsystem is a matter of perspective. For
our purposes, these terms are interchangeable. A system is called a subsystem when it
is viewed in relation to the larger system of which it is a part.
4. Purpose
The objective the system is functioning for. Systems are usually reiterative and would
always arrive to the purpose for which the system exists for. A system must serve at least
one purpose, but it may serve several. Whether a system provides a measure of time,
electrical power, or information, serving a purpose is its fundamental justification. When
a system ceases to serve a purpose, it should be replaced.
Properties of a System
1. System Decomposition
Decomposition is the process of dividing the system into smaller subsystem parts. This
is a convenient way of representing, viewing, and understanding the relationships
among subsystems.
2. System Interdependency
A system’s ability to achieve its goal depends on the effective functioning and harmony
between subsystem. If a vital subsystem fails, the whole system may not achieve its
purpose.
To illustrate, we may refer to an automobile unit as a system of its own. When decomposed, it
comprises of multiple subsystems – each a system on its own serving its own purpose but at the
same time interdependent with other subsystems to serve the ultimate purpose of an
automobile unit.
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What is an information system?
The information system is the set of FORMAL PROCEDURES by which data or information
are collected, processed into information, and distributed to users. Thus, an information
system is something that is being PERFORMED OR PROCESSED to achieve a purpose.
You experience various information systems in your day-to-day life. Even your daily routine
by itself is an information system. Even this class. But as accountants, we are more interested
in information systems that are installed to FACILITATE / MANAGE the accounting process.
Which data or information is being processed?
The information system accepts input, called transactions, which are converted through
various processes into output information that goes to users. Transactions fall into two
classes: financial transactions and nonfinancial transactions.
Key terms:
a. Transaction
A transaction as an event that affects or is of interest to the organization and is processed
by its information system as a unit of work.
b. Financial Transaction
A financial transaction is an economic event that affects the assets and equities of the
organization, is reflected in its accounts, and is measured in monetary terms. In other
words, those events that we write journal entries for.
c. Non-financial Transaction
Nonfinancial transactions are events that do not meet the narrow definition of a financial
transaction. For example, adding a new supplier of raw materials to the list of valid
suppliers is an event that may be processed by the enterprise’s information system as a
transaction.
Channel of Information System for the Accounting Process
Information Systems may either be processed or performed manually or through computer-

based tools or processes. Being in the new millennium, our generation is experiencing the
great effort of moving everything from the manual and physical systems to the digital
platforms like doing our groceries, paying for bills, buying food, and hailing public
transportation.
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Framework for Information System
For the accountants, two broad classes of systems emerge from the decomposition: the
accounting information system (AIS) and the management information system (MIS). Keep
in mind that the illustration below is only a conceptual view; physical information systems
are not typically organized into such discrete packages. More often, MIS and AIS functions
are integrated to achieve operational efficiency.
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C HA PT ER 2
What is the Accounting Information System (AIS)?
AIS subsystems process financial transactions and nonfinancial transactions that directly
affect the processing of financial transactions.
Per IAS 1, current assets when the asset is not restricted to settle a liability for more than
twelve months after the end of the reporting period. Being a commonly known current asset,
we then define Cash as a financial asset that is readily available for unrestricted use. Any
money then that is not readily available for unrestricted use may not be classified as cash.
Three Major Subsystem of Accounting Information System (AIS)
1. Transaction Processing System (TPS)

Supports the daily business operations with numerous reports, documents, and
messages for users throughout the organization.
The TPS deals with business events that occur frequently. In a given day, a firm may
process thousands of transactions. To deal efficiently with such volume, similar types of
transactions are grouped together into transaction cycles.
2. General Ledger (GLS) and Financial Reporting Systems (FRS)

Produces the traditional financial statements, such as the income statement, balance
sheet, statement of cash flows, tax returns, and other reports required by law. Also
facilitates the closing and opening of the accounting books for a calendar or fiscal year.
3. Management Reporting System (MRS)

Provides internal management with special-purpose financial reports and information
needed for decision making such as budgets, variance reports, and responsibility
reports.
General Transaction Cycles in Businesses
In your Accounting Principles, you have learned that the primary objective of Accounting is
to provide data-driven services to businesses resulting in meaningful quantitative
information, primarily financial in nature, that is intended to be useful in making economic
decisions.
This data and quantitative information are all derived from transactions. As such, it is only
proper for us to get accustomed with general transaction cycles that are relevant in various
business types and industries.
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1. Revenue Cycle
This cycle contains all processes that will be processed by a business in order to generate
revenue (which may be in sale of goods, or revenue from the performance of services)
to the eventual collection of the cash relating to the earned revenue. Below is the typical
process flow for the revenue cycle.
As this is transactional in nature the revenue cycle is supported by the TPS. Typically,
the following subprocesses are noted for the revenue cycle:
a. Sales Order Processing

The majority of business sales are made on credit and involve tasks such as
preparing sales orders, granting credit, shipping products (or rendering of a
service) to the customer, billing customers, and recording the transaction in the
accounts (accounts receivable, inventory, expenses, and sales).
b. Cash Collection or Receipt

For credit sales, some period of time (days or weeks) passes between the point of
sale and the receipt of cash. Cash receipts processing includes collecting cash,
depositing cash in the bank, and recording these events in the accounts (accounts
receivable and cash).
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2. Expenditure Cycle
This cycle contains all expenditures (or cash disbursements) that will be typically
incurred by a business in order to maintain and support its operations. Expenditures
come in various form such as the acquisition or purchase of supplies or materials,
equipment and properties, through settlement of utilities, company salaries and wages
all in exchange for cash.
As this is transactional in nature the revenue cycle is supported by the TPS. These are
the subcomponents of the expenditure cycle.
a. Purchases/accounts payable system

This system recognizes the need to acquire physical inventory (such as raw
materials) and places an order with the vendor. When the goods are received, the
purchases system records the event by increasing inventory and establishing an
account payable to be paid at a later date.
b. Cash disbursements system

When the obligation created in the purchases system is due, the cash disbursements
system authorizes the payment, disburses the funds to the vendor, and records the
transaction by reducing the cash and accounts payable accounts.
c. Payroll system
The payroll system collects labor usage data for each employee, computes the
payroll, and disburses paychecks to the employees. Conceptually, payroll is a special-
case purchases and cash disbursements system. Because of accounting complexities
associated with payroll, most firms have a separate system for payroll processing.
d. Fixed asset system.

A firm’s fixed asset system processes transactions pertaining to the acquisition,
maintenance, and disposal of its fixed assets. These are relatively permanent items
that collectively often represent the organization’s largest financial investment.
Examples of fixed assets include land, buildings, furniture, machinery, and motor
vehicles.
Most medium and large companies use vouchers as part of their internal control over
cash disbursements. A voucher system is a network of approvals by authorized
individuals, acting independently, to ensure that all disbursements by check are proper.
Below is the typical process flow for the voucher system that provides formal
procedures in disbursement or payment of company purchases.
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The illustration below presents the interdependence of the transactional cycles with
each other:
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3. Financial Statements Closing Cycle
This cycle contains all processes that will be typically performed by a company to
summarize and report on the financial performance (which is determined in terms of
profit or loss), the financial position (which is determined by the ending balances of
assets, liabilities and equities), changes in equity, and cash flows for a particular period.
This is supported by the GLS and FRS as these performed on a period-ending basis and
relates to the reporting of the company’s books.
Importance of Distinguishing AIS from MIS
In future modules we are to discuss internal controls required to be implement to secure the
AIS of companies as SOX legislation. The legislation specifically requires that management
design and implement internal controls over the entire financial reporting process
(which is supported by AIS).
This includes the financial reporting system, the general ledger system, and the transaction
processing systems that supply the data for financial reporting. SOX further requires that
management certify these controls and that the external auditors express an opinion on
control effectiveness.
Because of the highly integrative nature of modern information systems, management and
auditors need a conceptual view of the information system that distinguishes key processes
and areas of risk and legal responsibility from the other (non-legally binding) aspects of the
system. Without such a model, critical management and audit responsibilities under SOX
may not be met.
What then is the relevance of AIS to us as accountants?
At its very core and definition, the accounting profession is heavily driven by information.
Thus, a heavy requirement on AIS knowledge is imposed to us as accountants in order to
perform our services in the most efficient and effective way possible.
The following roles may be undertaken by accountants to companies:
1. As Users
Once you’re out there deployed as an accountant in a company, you will realize that the
accounting function for most business and organizations are heavily reliant with
information systems (manual or computerized). As such we need to equip ourselves
with knowledge over various forms and media of AIS to as these systems process
financial transactions which impact is the primary source and driver of our function.
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2. As Auditors
Auditing is a form of independent attestation performed by an expert—the auditor—
who expresses an opinion about the fairness of a company’s financial statements. As
such, we need to be knowledgeable in AIS to manage our audits and make our
procedures suitable to the system employed by our clients.
3. As Consultants
Accountants can function as consultants for companies in setting up or upgrading their
current AIS. The accountant may help the company determine the nature of the
information required, its sources, its destination, and the accounting rules that need to
be applied and considered in a company’s AIS.
C HA PT ER 3
Timeline of Accounting Information System
Manual Process Model
The manual process model is the oldest and most traditional form
of accounting systems. Manual systems constitute the physical
events, resources, and personnel that characterize many business
processes. Traditionally, this model is driven by the physical task
of record keeping. Often, manual record keeping is used to teach
the principles of accounting to business students.
Computer-Assisted Age
1. Flat-file Model
The flat-file model describes an environment in which
individual data files are not related to other files. End users in
this environment own their data files rather than share them
with other users. Thus, stand-alone applications rather than
integrated systems perform data processing.
The flat-file approach is a single-view model. Files are

structured, formatted, and arranged to suit the specific needs
of the owner or primary user of the data.
2. Database Model
This approach centralizes the organization’s data into a
common database that is shared by other users. With the
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organization’s data in a central location, all users have access

to the data they need to achieve their respective objectives.
Enterprise-Wide IT Applications Age

1. REA Model
An accounting information system framework for modeling
an organization’s critical resources, events, and agents (REA)
and the relationships between them. Once specified, both
accounting and non-accounting data about R. E. and A. can be
identified, captured, and stored in a relational database.
REA is a conceptual model, not a physical system. Many of its

tenets, however, are found within advanced database
systems. The most notable application of REA philosophy is
seen in the proliferation of Enterprise Resource Planning
(ERP) systems.
Internet Web Age

1. Online or Web-based Accounting
From being installed in computer desktops, AIS becomes
accessible via web-based servers (through web browsers);
thus, effecting real-time transactions processing as the
channel is reduced via web.
2. Cloud-based Accounting
AIS becomes housed through an online platform housed in the
cloud. Regardless of the cloud set-up, part or in whole, the AIS
has dependence over a third-party cloud service provider.
FUTURE OF ACCOUNTING
1. Robotics Processing Automation
2. Machine Learning
3. Artificial Intelligence
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Impact of Information Technology on AIS
Manual System IT System

Input Data Source Documents Transaction File
Used to capture and formalize temporary file of transaction records
transaction data that the transaction used to change or update data in a
cycle needs for processing master file. Sales orders, inventory
receipts, and cash receipts are
examples of transaction files.
Journal Manually written in journal entry Usually pre-populated by the system

Entries books and posted to the ledger. based on the transaction file. Posting
of journal entries usually trigger
posting to the ledger account Master
Files maintained in the system.
Accounting 1. Journal Book Master Files

Books Record of a chronological entry. A master file generally contains
account data. The general ledger and
2. Ledger Book subsidiary ledgers are examples of
Book of accounts that reflects the master files. Data values in master
financial effects of the firm’s files are updated from transactions
transactions after they are
posted from the various journals.
Concept Notes:
1. Product Document
The result of transaction processing rather than the triggering mechanism for the
process. For example, a payroll check to an employee is a product document of the
payroll system.
2. Turnaround Document
product documents of one system that become source documents for another system. A
turnaround document contains important information about a customer’s account to
help the cash receipts system process the payment.
3. Reference File
Stores data that are used as standards for processing transactions. For example, the
payroll program may refer to a tax table to calculate the proper amount of withholding
taxes for payroll transactions.
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4. Archive File
Contains records of past transactions that are retained for future reference. These
transactions form an important part of the audit trail. Archive files include journals,
prior period payroll information, lists of former employees, records of accounts written
off, and prior-period ledgers.
5. Data
Data are facts, which may or may not be processed (edited, summarized, or refined) and
have no direct effect on the user.
6. Information
Information causes the user to take an action that he or she otherwise could not, or
would not, have taken. Information is often defined simply as processed data.
Information is determined by the effect it has on the user, not by its physical form. For
example, a purchasing agent receives a daily report listing raw material inventory items
that are at low levels. This report causes the agent to place orders for more inventory.
7. Data Sources
Financial transactions that enter the information system from both internal and external
sources. External financial transactions are the most common source of data for most
organizations. These are economic exchanges with other business entities and
individuals outside the firm.
8. Data Collection
Data collection is the first operational stage in the information system. The objective is
to ensure that event data entering the system are valid, complete, and free from material
errors. In many respects, this is the most important stage in the system.
9. Data Processing
Data usually require processing to produce information. Tasks in the data processing
stage range from simple to complex. Examples include mathematical algorithms (such
as linear programming models) used for production scheduling applications, statistical
techniques for sales forecasting, and posting and summarizing procedures used for
accounting applications.
10. Data Attribute

An attribute is a logical and relevant characteristic of an entity about which the firm
captures data.
11. Record
Record is a complete set of attributes for a single occurrence within an entity class. For
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example, a particular customer’s name, address, and account balance is one occurrence
(or record) within the AR class
12. File
A file is a complete set of records of an identical class. For example, all the AR records of
the organization constitute the AR file.
Data Hierarchy:
13. Database
In simple terms, a database is the entire collection of such files.
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AD D I TI O NAL RES O U R C ES
Documentation of Accounting Information Systems
A written description of a system can be wordy and difficult to follow. Experience has shown
that a visual image can convey vital system information more effectively and efficiently than
words. Accountants use system documentation routinely, as both systems designers and
auditors, the ability to document systems in graphic form is thus an important skill for
accountants to master. Five basic documentation techniques are introduced in this section:
data flow diagrams, entity relationship diagrams, system flowcharts, program flowcharts,
and record layout diagrams.
Data Flow Diagrams (DFD)
The data flow diagram (DFD) uses symbols to represent the entities, processes, data flows,
and data stores that pertain to a system. DFDs are used to represent systems at different
levels of detail from very general to highly detailed. At this point, a single-level DFD is
sufficient to demonstrate its use as a documentation tool.
Entity Relationship Diagrams (ERD)
An entity relationship (ER) diagram is a documentation technique used to represent the

relationship between entities. Entities are physical resources (automobiles, cash, or
inventory), events (ordering inventory, receiving cash, shipping goods), and agents
(salesperson, customer, or vendor) about which the organization wishes to capture data. One
common use for ER diagrams is to model an organization’s database.
System or Process Flowchart
Flowchart is the graphical representation of the physical relationships among key elements
of a system. These elements may include organizational departments, manual activities,
computer programs, hard-copy accounting records (documents, journals, ledgers, and files),
and digital records (reference files, transaction files, archive files, and master files). System
flowcharts also describe the type of computer media being employed in the system, such as
magnetic tape, magnetic disks, and terminals.
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Ateneo de Zamboanga University

SCHOOL OF MANAGEMENT AND ACCOUNTANCY

DOCUMENT ACCIST1 – Accounting Information System Learning Packet

A system is a group of two or more interrelated components or subsystems that serve a

What is an information system?

Which data or information is being processed?

Channel of Information System for the Accounting Process

Information Systems may either be processed or performed manually or through computer-

Framework for Information System

What is the Accounting Information System (AIS)?

Three Major Subsystem of Accounting Information System (AIS)

1. Transaction Processing System (TPS)

2. General Ledger (GLS) and Financial Reporting Systems (FRS)

3. Management Reporting System (MRS)

General Transaction Cycles in Businesses

a. Sales Order Processing

b. Cash Collection or Receipt

a. Purchases/accounts payable system

b. Cash disbursements system

d. Fixed asset system.

3. Financial Statements Closing Cycle

Importance of Distinguishing AIS from MIS

What then is the relevance of AIS to us as accountants?

The following roles may be undertaken by accountants to companies:

Timeline of Accounting Information System

Manual Process Model

The flat-file approach is a single-view model. Files are

organization’s data in a central location, all users have access

Enterprise-Wide IT Applications Age

REA is a conceptual model, not a physical system. Many of its

Internet Web Age

Impact of Information Technology on AIS

Manual System IT System

Journal Manually written in journal entry Usually pre-populated by the system

Accounting 1. Journal Book Master Files

10. Data Attribute

Documentation of Accounting Information Systems

Data Flow Diagrams (DFD)

Entity Relationship Diagrams (ERD)

An entity relationship (ER) diagram is a documentation technique used to represent the

System or Process Flowchart

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