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1. +Chapter One of information. More specifically, it is the study of complementary
A System: is a set of two or more interrelated components that
interact to achieve a goal.
Need of Accounting Information Systems: The priority of clear
information, quick accessing, retrieve the information, storing
information is day by day increasing. Because of that, achieving
the goals and objectives, to show sincerity, efficiency, and honesty
in front of the government, people it is necessary.
Basically, there are two types of essentialities for AIS:
1. Organization Essentialities:
a) Provide financial records to their bankers, government and
people in easy way.
b) Set of procedures require to meet all of their government
obligations, such as remitting sales, income, and payroll taxes.
c) Deciding for product prices to face competition effectively, earn
sufficient profit.
d) Knowing for credit extension, on what terms, and how to
accurately track what customers owe and have paid.
e) To Provide better training, hiring and supervising their
employees.
f) Keep the track of cash inflows and outflows f) Knowing for
appropriate product mix and showroom space for carrying
quantities etc.
2. Essentialities of Accountants:
a) accounting system and financial reporting
b) long term strategic planning
c) Managing the Accounting and financing
d) Internal consulting
e) short term budgeting
f). Financial and Economic analysis
g). Process Improvement
h). Computer systems and operations
i). Performance evaluation of the organization
j). Customer and product profitability analysis. etc.
Accounting information systems (AISs): stand at the crossroads of
two disciplines: ‘‘accounting’’ and ‘‘information systems.’’
Accounting information systems exists at the intersection of two
important disciplines:
1. Accounting
2. Information Systems
Accounting Information System: is a system that collects, records,
stores, and processes data to produce information for decision
makers.
Functions of AIS:
1.Collects and Store Data: It collects and store data about events,
resources, and agents.
2.Transformation of Data: It transforms that data into information
that management can use to make decisions about events,
resources, and agents.
3.Control: It Provides adequate controls to ensure that the entity’s
resources (including data) are: (a) Available when needed (b)
Accurate and reliable
4.Communiction: It communicate the information to
management and concerned parties who require the information.
2.Information System:
An information system (IS): is an organized system for the
collection, organization, storage and communication
networks that people and organizations use to collect, filter,
process, create and distribute data.
Data: is raw, unorganized facts that need to be processed. Data
can be something simple and seemingly random and useless until
it is organized.
Information: When data is processed organized, structured or
presented in a given context so as to make it useful, it is called
information.
A transaction: is an event that affects or is of interest to the
organization and is processed by its information system as a unit
of work.
In accounting Information System, Transactions are divided into
two categories:
a) 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.
b) Nonfinancial Transactions: Nonfinancial transactions are
events that do not meet the narrow definition of a financial
transaction.
Components of Accounting Information System:
1. Technology: Ability to plan and manage business operations
depends partly on knowledge of the technology available.
Technology provides the foundation on which AIS and business
operations rest.
2. Databases: It is important to understand the variety of
databases, both private and public; the quantity and type of data
available in these databases; and methods of retrieving those
data.
3. Reporting: To design reports generated by an information
system, the accountant must know what outputs are required or
are desirable.
4. Control: Control is the mean by which we make sure the
intended actually happens. Consider how much more difficult it
will be to control modern, complex business processes.
5. Business Operations: Organizations engage in activities or
operations, such as hiring employees, purchasing inventory, and
collecting cash from customers. An AIS operates in concert with
these business operations.
6. Events Processing: As organizations undertake their business
operations, events, such as sales and purchases, occur. Data about
these events must be captured and recorded to reflect and
monitor the business operations.
7. Management Decision Making: The information used for a
decision must be tailored to the type of decision under
consideration.
8. System Development and Operation: Choosing the data for a
report, designing that report, and configuring an enterprise
system are examples of systems development tasks that can be
accomplished by an accountant.
9. Communications: To present the results of their activities
effectively, accountants must possess strong oral and written
communication skills.
10. Accounting and Auditing Principles: To design and operate the
accounting system, an accountant must know the proper
accounting procedures and must understand the audits to which
the accounting information will be subjected.
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The AIS is composed of three major subsystems: 4. Justifiable reliance-The misrepresentation must have resulted in
A. The Transaction Processing System (TPS): It is a process/system justifiable reliance upon information, which caused someone to
which divides/classifies the all-financial transactions in to three act
cycles. These are: 5. Injury or loss-The misrepresentation must have caused injury or
• Revenue Cycle loss
• Expenditure Cycle There are two levels of fraud: (1) Employee Fraud and (2)
• Conversion Cycle Management Fraud.
B. The General Ledger/Financial Reporting System (GL/FRS): A. Following are the kinds of Employee Fraud:
prepares the traditional financial statements, such as the income 1. Inventory theft
statement, balance sheet, statement of cash flows, tax returns, 2. Cash receipts theft
and other reports required by law. 3. Accounts payable fraud
C. The Management Reporting System (MRS): It prepares special- 4. Payroll fraud
purpose financial reports and information needed for decision 5. Expense account fraud
making by the management. These special reports are budgets, B. Management Fraud:
variance reports, and responsibility reports. 1. Increase stock price
There are Three transaction cycles process most of the firm's 2. Enhance chances for promotion, or avoid firing or demotion
economic activity: 3. Increase compensation
1. Expenditure Cycle 4. Delay cash flow problems or bankruptcy
2. Conver-sion Cycle Three categories of fraud schemes according to the Association
3. Revenue cycle of Certified Fraud Examiners:
These cycles exist in all types of businesses—both profit-seeking A. Fraudulent Statements:
and not-for-profit seeking. B. Corruption
The term “Ethics” is derived from the Greek word ethos which C. Asset Misappropriation
mean custom, habit, character or disposition. A. Fraudulent Statements: Fraudulent statements are associated
Meaning of Ethics: Broadly speaking, ethics is a branch of with management fraud. All fraud involves some form of financial
philosophy which seeks to address issues related to concepts of misstatement.
right and wrong. B. Corruption: There are four principal types of corruption:
Therefore, business ethics is a set of moral principles or values. i. Bribery: Bribery involves giving, offering, soliciting, or receiving
Ethical issues in business can be divided into four areas: things of value to influence an of-ficial in the performance of his
1.Equity: executive salaries, comparable worth, product pricing… or her lawful duties.
2.Rights: corporate due process, employee health screening, ii. Illegal Gratuities: An illegal gratuity involves giving, receiving,
employee privacy, sexual harassment, diversity, equal offering, or soliciting some-thing of value because of an official act
employment opportunity, whistle blowing… that has been taken.
3.Honesty: employee and management conflicts of interest, iii. Conflicts of Interest: occurs when an em-ployee acts on behalf
security of organization data and records, misleading advertising, of a third party during the discharge of his or her duties or has
questionable business practices in foreign countries, accurate self-interest in the ac-tivity being performed.
reporting of shareholder interest... iv. Economic Extortion: Economic extortion is the use (or threat)
4. Exercise of Corporate Power: political action committee, of force (including economic sanctions) by an individual or
workplace safety, product safety, environment issue, divestment organization to obtain something of value.
of interest, corporate political contributions, downsizing and plant 3. Asset Misappropriation
closures… i. Making charges to expense accounts to cover theft of asset
Following are the main computer ethics issues: (especially cash)
• Privacy ii. Lapping: using customer’s check from one account to cover
• Security—accuracy and confidentiality theft from a different account
• Ownership of property iii. Transaction fraud: deleting, altering, or adding false
• Artificial intelligence transactions to steal assets
• Misuse of computer Objectives of Internal Control:
Fraud: denotes a false representation of a material fact made by 1. Safeguard assets of the firm
one party to another party with the intent to deceive the other 2. Ensure accuracy and reliability of accounting records and
party. information
According to common law, a fraudulent act must meet the 3. Promote efficiency of the firm’s operations
following five conditions: 4. Measure compliance with management’s prescribed policies
1. False representation - false statement or disclosure and procedures
2. Material fact - a fact must be substantial in inducing someone Internal control consists of five components:
to act 1. The control environment,
3. Intent -Intent to deceive must exist 2. Risk assessment,
3. In-formation and communication,

4. Monitoring,
5. Control activities.
1. The Control Environment: Integrity and ethics of management,
Organizational structure, Role of the board of directors and the
audit committee, Management’s policies and philosophy,
Delegation of responsibility and authority, Performance evaluation
measures, External influences—regulatory agencies
Policies and practices managing human resources
2. Risk Assessment: Identify, analyze and manage risks relevant to
financial reporting, Changes in external environment, Risky
foreign markets,
Significant and rapid growth that strain internal controls, New
product lines, Restructuring, downsizing, Changes in accounting
policies
3. Information and Communication:
Identifies and records all valid transactions, provides timely
information in appropriate detail to permit proper classification
and financial reporting, accurately measures the financial value of
transactions, accurately records transactions in the time period in
which they occurred
4. Monitoring: The process for assessing the quality of internal
control design and operation, Separate procedures—test of
controls by internal auditors
Ongoing monitoring, computer modules integrated into routine
operations, management reports which highlight trends and
exceptions from normal performance
5. Control Activities: Control activities can be grouped into two
distinct categories: (A) in-formation technology (IT) controls and
(B) physical controls.
A. IT Controls: It relate specifically to the computer environment.
There are two types of IT controls.
1. General controls: It relate to the entity wide computer
environment
2. Application controls: It ensure the integrity of specific systems
B. Physical Controls: It is primarily relating to human activities.
There are six types of physical controls.
A. Transaction Authorization
B. Segregation of Duties
C. Supervision
D. Accounting Records
E. Access Control
F. Independent Verification
Chapter Two
the revenue cycle: the revenue cycle is the direct exchange of
finished goods or services for cash in a single transaction between
a seller and a buyer. More complex revenue cycles process sales
on credit.
This time lag splits the revenue transaction into two phases:
(1) the physical phase: involving the transfer of assets or services
or goods from the seller to the buyer.
(2) the financial phase: involving the receipt of cash by the seller
in payment of the account receivable.
Revenue cycle activities/components can be divided into three
categories:
1. Sales Order Procedures
2. Sales Return Procedures
3. Cash Receipts Procedures
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1. Sales Order Procedures: Sales order procedures include the
following activities:
i. Receive Order: The sales process begins with the receipt of a
customer order indicating the type and quantity of merchandise
desired.
ii. Check Credit: Before processing the order further, the
customer's creditworthiness needs to be established. The
circumstances of the sale will determine the nature and degree of
the credit check.
iii. Pick Goods: The receive order activity forwards the stock
release document (also called the picking ticket) to the pick goods
function, in the warehouse. This document identifies the items of
inventory that must be located and picked from the warehouse
shelves.
iv. Ship Goods: Before the arrival of the goods and the verified
stock release document, the shipping department receives the
packing slip and shipping notice from the receive order function.
The packing slip will ultimately travel with the goods to the
customer to describe the contents of the order.
v. Bill Customer: The shipment of goods marks the completion of
the economic event and the point at which the customer should
be billed.
the billing function performs the following record keeping-
related tasks:
- Records the sale in the sales journal.
- Forwards the ledger copies of the sales order to the update
accounts receivable task.
- Sends the stock release document to the update inventory
records task.
vi. Update Inventory Records: The inventory control
function updates inventory subsidiary ledger accounts from
information contained in the stock release document.
vii. Post to General Ledger: By the close of the transaction
processing period, the general ledger function has received
journal vouchers from the billing and inventory control tasks and
an account summary from the AR function.
2. Sales Return Procedures: Following activities are required for
sales return procedures:
i. Prepare Return Slip: When items are returned, the receiving
department employee counts, inspect, and prepare a return slip
describing the items.
ii. Prepare Credit Memo: Upon receipt of the return slip, the sales
employee prepares a credit memo. This document is the
authorization for the customer to receive credit for the
merchandise returned.
iii. Approve Credit Memo: The credit manager evaluates the
circumstances of the return and makes a judgment to grant (or
disapprove) credit. The manager then returns the approved credit
memo to the sales department.
iv. Update Sales Journal: Upon receipt of the approved credit
memo, the transaction is recorded in the sales journal as a contra
entry.
v. Update Inventory and AR Records: The inventory control
function adjusts the inventory records and forwards the credit
memo to accounts receivable, where the customer's account is
also adjusted.

vi. Update General Ledger: Upon receipt of the journal voucher
and account summary information, the general ledger function
reconciles the figures and posts to the following control accounts.
3. Cash Receipts Procedures: The sales order procedure described
a credit transaction that resulted in the establishment of an
account receivable. Cash receipts procedures apply to this future
event. Following are activities in these procedures:
i. Open Mail and Prepare Remittance Advice: A mail room
employee opens envelopes containing customers' payments and
remittance advices. Remittance advices contain information
needed to service individual customers' accounts. This includes
payment date, account number, amount paid, and customer
check number.
ii. Record and Deposit Checks: A cash receipts employee verifies
the accuracy and completeness of the checks against the prelist.
iii. Update Accounts Receivable: The remittance advices are used
to post to the customers' accounts in the AR subsidiary ledger.
iv. Update General Ledger: Upon receipt of the journal voucher
and the account summary, the general ledger function reconciles
the figures, posts to the cash and AR control accounts, and files
the journal voucher.
v. Reconcile Cash Receipts and Deposits: Periodically (weekly or
monthly), a clerk from the controller's office reconciles cash
receipts and deposits.
Revenue Cycle Controls: Generally, six classes of internal control
activities that guide in designing and evaluating transaction
processing controls. They are:
• transaction authorization,
• Segregation of Duties
• Supervision
• Accounting Records
• Access Control
• Independent Verification
the expenditure cycle: the objective of the expenditure cycle is to
convert the organization's cash into the physical materials and the
human resources it needs to conduct business.
There are two processes that constitute the expenditure cycle for
most retail, wholesale, and manufacturing organizations. These
are (1) Purchases and Cash Disbursements Procedures (2) Payroll
Processing and Fixed Asset Procedures
1.Purchases Processing Procedures: Following activities are
performing in the Purchases Processing Procedures:
i. Monitor Inventory Records: When inventories drop to a
predetermined reorder point, a purchase requisition is prepared
and sent to the prepare purchase order function to initiate the
purchase process.
ii. Prepare Purchase Order: The prepare purchase order function
receives the purchase requisitions, which are sorted by vendor if
necessary.
iii. Receive Goods: The next event in the expenditure cycle is the
receipt of the inventory. Goods arriving from the vendor are
reconciled with the blind copy of the PO. The purpose of the
blind copy is to force the receiving clerk to count and inspect
inventories prior to completing the receiving report.
iv. Update Inventory Records: Organizations uses different
inventory valuation methods, so updating an actual cost inventory
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ledger requires additional financial information, such as a copy of
the supplier’s invoice when it arrives.
v. Set Up Accounts Payable: Finally, the AP clerk summarizes the
entries in the purchases journal for the period (or batch) and
prepares a journal voucher for the general ledger function.
vi. Post to General Ledger: The general ledger function receives a
journal voucher from the AP department and an account
summary from inventory control.
The cash disbursements system: processes the payment of
obligations created in the purchases system. The principal
objective of this system is to ensure that only valid creditors
receive payment and that amounts paid are timely and correct. It
performs the following activities:
i. Identify Liabilities Due: The cash disbursements process begins
in the AP department by identifying items that have come due.
Each day, the AP function reviews the open AP file (or vouchers
payable file) for such items and sends payment approval in the
form of a voucher packet (the voucher and/or supporting
documents) to the cash disbursements department.
ii. Prepare Cash Disbursement: The cash disbursements clerk
receives the voucher packet and reviews the documents for
completeness and clerical accuracy. clerk prepares a check and
records the check number, dollar amount, voucher number, and
other pertinent data in the check register, which is also called the
cash disbursements journal.
iii. Update AP Record: Upon receipt of the voucher packet, the AP
clerk removes the liability by debiting the AP subsidiary account
or by recording the check number and payment date in the
voucher register.
iv. Post to General Ledger: The general ledger function receives
the journal voucher from cash disbursements and the account
summary from AP. The voucher shows the total reductions in the
firm’s obligations and cash account as a result of payments to
suppliers. These numbers are reconciled with the AP summary,
and the AP control and cash accounts in the general ledger are
updated accordingly.
Expenditure Cycle Controls: This section describes the primary
internal controls in the expenditure cycle. It includes the following
steps
1. Transaction Authorization: It include:
• Purchases Subsystem
• Cash Disbursements Subsystem
2. Segregation of Duties: It include:
• Segregation of Inventory Control from the Warehouse
• Segregation of the General Ledger and Accounts Payable
from Cash Disbursements
• Inspection of Assets
• Check the theft of Assets
3. Accounting Records: The control objective of accounting
records is to maintain an audit trail adequate for tracing a
transaction from its source document to the financial
statements. The expenditure cycle employs the following
accounting records: AP subsidiary ledger, voucher register,
check register, and general ledger.
4. Access Controls: In the expenditure cycle, a firm must
control direct and indirect access to physical assets such as

cash and inventory. These control concerns are essentially
the same as in the revenue cycle.
5. Independent Verification: It includes -
• Independent Verification by Accounts Payable
• Independent Verification by The General Ledger Department
Payroll Cycle Activities: Following are the payroll activities
1. Update payroll master file: Updating the payroll master file
includes changes such as i) new hires, ii) terminations iii)
changes in pay rates, and iv) changes in discretionary
withholdings
2. Validate time and attendance data
3. Prepare payroll: Procedures i. The payroll transaction file is
sorted by employee number. ii. The sorted time-data file is
then used to prepare employee paychecks. iii. Next, all payroll
deductions are summed and the total is subtracted from gross
pay to obtain net pay. iv. Once net pay is obtained, the year-to-
date fields for gross pay, deductions, and net pay in the payroll
master file are updated.
v. Finally, the payroll registers and employee paychecks are
printed.
The payroll register is a report that lists each employee’s
gross pay, payroll deductions, and net pay.
4. Disburse payroll: The following procedures are followed: i.
Once pay slips have been prepared, the payroll register is sent to
the accounts payable department for review and approval.
ii. A disbursement voucher is then prepared to authorize the
transfer of funds from the company's general checking account to
its payroll bank account. iii. The disbursement voucher and payroll
register are then sent to the cashier.
iv. The cashier reviews the payroll register and disbursement
voucher and then prepares and signs a check transferring funds to
the company's payroll bank account. The cashier also reviews/
signs, and distributes the employee paychecks. v. The payroll
register is then returned to the payroll department.
5. Disburse payroll taxes and miscellaneous deductions. Payroll
is an AIS application that is processed in the batch mode.
Payroll controls/ control of payroll frauds:
i. transaction authorization: It helps to prevent:
a. Terminated employees from receiving checks
b. Wage rates from being improperly changed for current
employees
ii. Segregation of Duties: Timekeeping and personnel functions
should be separated
iii. Supervision: It need to monitor employees to ensure they are
not “clocking in” for one another
iv. Accounting Records: Audit trail of accounting records is
required and includes the audit of the following documents:
• time cards
• job tickets
• disbursement vouchers
• labor distribution summary
• payroll register
• subsidiary ledger accounts
• general ledger accounts
v. Access Controls: It need to prevent employees from having
improper access to:
accounting records, such as time cards which can be altered
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unsigned checks
vi. Independent Verification: It includes:
• verification of time cards
• distribution of paychecks to authorized employees
• verification of accuracy of payroll registers by A/P dept.
• G/L dept. reconciles the labor distribution summary and
the payroll disbursement voucher
fixed asset procedures: are the property, plant, and equipment
used in the operation of a business. The process involves three
categories of tasks:
1. Asset Acquisition
2. Asset Maintenance
3. Asset Disposal
The Conversion Cycle/Production Cycle:
A company's conversion cycle transforms (converts) input
resources, such as raw materials, labor, and overhead, into
finished products or services for sale.
Four basic activities in the production cycle are as follows:
1 Product design
2 Planning and scheduling
3 Production operations
4 Cost accounting
1. Product Design: The first step in the production cycle is product
design. The objective of this activity is to design a product that
meets customer requirements for quality, durability, and
functionality while simultaneously minimizing production costs.
The product design activity creates two main documents: 1 Bill of
materials 2 Operations list
2.Planning and Scheduling: The second step in the production
cycle is planning and scheduling.
The objective of this step is a production plan efficient enough to
meet existing orders and anticipate short-term demand without
creating excess finished goods inventories.
Methods of Production Planning:
- Manufacturing resource planning (MRP-II): It is an extension of
materials resource planning that seeks to match existing
production capacity and raw materials needs with forecasted sales
demands.
- Just-in-time (JIT) manufacturing systems:
The goal of JIT is to minimize inventories of raw materials, work in
process, and finished goods.
3.Production Operations: is the actual manufacture of products.
Every firm needs to collect data about the following four facets of
its production operations:
• Raw materials used
• Labor-hours expended
• Machine operations performed
• Other manufacturing overhead costs incurred
4. Cost Accounting: Objectives of the cost accounting system
• To provide information for planning, controlling, and
evaluating the performance of production operations
• To provide accurate cost data about products for use in
pricing and product mix decisions
• To collect and process the information used to calculate
the inventory and cost of goods sold values
Methods of cost accounting used in production cycle:

1.Job-order costing: Job-order costing assigns costs to specific
production batches or to individual jobs.
2. Process costing: Process costing assigns costs to each process,
and then calculates the average cost for all units produced
The AIS is composed of three major subsystems:
1. The Transaction Processing System (TPS):
2. The General Ledger/Financial Reporting System:
3. The Management Reporting System (MRS):
The general ledger/financial reporting system (GL/FRS): which
produces the traditional financial statements, such as the income
statement, balance sheet, statement of cash flows, tax returns,
and other reports required by law.
Financial reporting system: is the process of producing
statements that disclose an organization's financial status to
management, investors and the government. These statements
are income statements, balance sheets, cash flow statement and
tax return etc.
The management reporting system (MRS): which provides
internal management with special-purpose financial reports and
information needed for decision making such as budgets, variance
reports, and responsibility reports.
Chapter Three
Data: It include raw fact, unprocessed fact and figures.
Base: Place where data stored.
Information: Data that has been interpreted and processed
Meaning of Database: A collection of data is referred to as
database.
DBMS: is a software that allows a computer to perform database
functions of storing, retrieving, editing, deleting and modifying
data into the database.
These programmes /software are: Oracle, Sybase, My SOL,
Microsoft SOL Server.
The person responsible for the database is known as database
administrator
DBMS is used in the following sector:
• Banking: all transactions
• Airlines: reservations, schedules
• Universities: registration, grades
• Sales: customers, products, purchases
• Manufacturing: production, inventory, orders, supply
chain
• Human resources: employee records, salaries, tax
deductions.
Advantages of a DBMS:
1. Improved Availability: One of the principle advantages of a
DBMS is that the same information can be made available to
different users.
2. Minimized Redundancy: The data in a DBMS is more concise
because, as a general rule, the information in it appears just once.
This reduces data redundancy, or in other words
3. Accuracy: Accurate: consistent, and up-to-date data is a sign of
data integrity.
4. Program and File Consistency: Using a database management
system, file formats and system programs are standardized. This
makes the data files easier to maintain because the same rules
and guidelines apply across all types of data.
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5. User-Friendly: Data is easier to access and manipulate with a
DBMS than without it. In most cases, DBMSs also reduce the
reliance of individual users on computer specialists to meet their
data needs.
6. Improved Security: Through the use of passwords, database
management systems can be used to restrict data access to only
those who should see it.
Disadvantages of a DBMS:
There are basically two major downsides to using DBMSs. One of
these is cost, and the other the threat to data security.
i. Cost: Implementing a DBMS system can be expensive and
time-consuming, especially in large organizations. Training
requirements alone can be quite costly.
ii. Security: Even with safeguards in place, it may be possible for
some unauthorized users to access the database. Once an
unauthorized user gets into the database, they have access to
all the files, not just a few.
Database Abstraction: Major purpose of DBMS is to provide the
users only that much information that is required by them
1. INTERNAL LEVEL (PHYSICAL LEVEL)
It describes how data are actually stored on the storage medium.
It is closest to database programmer.
Lowest level of database abstraction.
2. CONCEPTUAL LEVEL
It describes what data are actually stored in database.
It is closest to the database manager.
It is an intermediate level of database abstraction.
3.EXTERNAL LEVEL (VIEW LEVEL)
It describes the way in which the data are viewed by individual
user.
It is the level closest to the users.
There are three type of Data Models
1. Relational Data Model: the data is stored in the form of tables,
the user may insert new tuples(Rows), delete tuples, and modify
tuples.
2. Network Data Model: In this model data is represented by
collections of records and relationships among data are
represented by links.
Record: It is the collection attributes, each of which contains only
one data value
Link: It is an association between two record
3. Hierarchical Data Model: It is similar to that of Network Data
Model. The only difference is that hierarchical model; records are
organized as trees rather than arbitrary graph.
Some Basic Terminologies in Relational Data Model
Relation: A relation is a table i.e. data is arranged in rows and
columns.
Tuple: The rows of tables are generally referred to as tuples.
Attributes: The columns of tables are generally referred to as
attributes.
Degree: The number of attributes in a relation determine the
degree of the relation.
Cardinality: The number of tuples in a relation is called the
cardinality of the relation.
The REA (acronym for resources, events, and agents) model: is an
accounting framework for modeling an organization's critical
resources, events, and agents and the relationships between

them. Unlike some traditional accounting systems, REA systems
permit both accounting and non-accounting data to be identified,
captured, and stored in a centralized database.
The REA data model provides structure in two ways:
1.By identifying what entities should be included in the AIS
database
2. By prescribing how to structure relationships among the
entities in the AIS database.
Elements of an REA Model:
Following are the elements of REA model:
R=Resources: Resources are things the company owns, controls,
sells, etc. These include the following:
Inventories
Cash (accounts at the bank)
Equipment
Property
E=Events: Events are transactions such as: Economic transactions,
Sales, Cash receipts, Purchases, Cash disbursements.
A=Agents: are People or Organizations, Employees, Customers,
clients, Suppliers, vendors.
It can be concluded that five forms of associations (minimum-
maximum cardinalities) are used when constructing the REA
model:
zero-to-one (0,1)
zero-to-many (0, M)
one-to-one (1,1)
one-to-many (1, M)
many-to-many (M, M)—rare
Advantages of the REA Model:
i. Elimination of non-value added activities: It helps managers to
identify non-value added activities that can be eliminated. It
increased productivity via elimination of non-value added
activities generates excess capacity
ii. Reduces multiple data collection and storage: Storing both
financial and nonfinancial data in the same central database
reduces multiple data collection, data storage, and maintenance
iii. Support decision making: Detailed financial and nonfinancial
business data supports a wider range of management decisions
iv. Competitive advantages from the REA approach can be see via
value chain analysis: Value chain analysis distinguishes between
primary activities (create value) and support activities (assist
performing primary activities).
Meaning of ERP System: Multi-module application software that
helps a company to manage the important parts of its business in
an integrated fashion.
Features of ERP System:
smooth and seamless flow of information across organizational
boundaries
standardized environment with shared database independent of
applications and integrated applications
Earlier Used Software:
1.ERM (Enterprise Resource Management) Encompasses
accounting, HR& material management
ERP = ERM + APPLICATIONS
2.MRP (Material Requirement Planning) This aim to keep right
inventories on hand
Importance of ERP:
7
• To integrate financial data and systems
• To standardize manufacturing processes
• To standardize HR information
• Timely availability of information.
There are three ways of organizing ERP:
1.Big Bang
2.Franchising Strategy
3.Slam Dunk
1.Big Bang: In this most ambitious and difficult of approaches to
ERP implementation, companies give up all their legacy at once
and implement a single ERP system across entire company.
Getting everyone to cooperate and accept a new software system
at the same time is a tremendous effort. Largely because no one
in the company has any experience of using it.
2.Franchising Strategy: It suits to large and diverse companies
that do not share many common processes
Independent ERP systems are installed in each unit, while linking
common processes across the enterprise
Systems link together only to share necessary information to get a
big picture across all business units
3.Slam Dunk: Generally smaller companies expecting to grow into
ERP
Focus is just on few key process.
Can be used as an infrastructure to support more diligent
installation efforts down the road.
MRP Systems: Computer technique for taking a product schedule
as I/P and generating works and purchase orders as O/P
MRP II Systems: Tended to be so wide in scope giving IT support
to all parts of manufacturing company.
1. ERP (Enterprise Resource Planning) Software Package: SAP
(System, Application & Products in Data Processing
2. Advanced Business Applications Program(ABAP): ABAP is the
programming language of SAP. It is design to be both platform and
data base independent
Electronic commerce: involves the electronic processing and
transmission of data. Activities, including the electronic buying
and selling of goods and services, online delivery of digital
products, electronic funds transfer (EFT), electronic trading of
stocks, and direct consumer marketing primarily the internet.
There are primarily five types of e-commerce models they are
explained as following:
1. Business to Consumer (B2C): B2C stands for Business to
Consumer as the name suggests, it is the model taking
businesses and consumers interaction. Online business
sells to individuals. The basic concept of this model is to
sell the product online to the consumers. It provides
direct selling through online.
2. Business to Business: It consists of largest form of E-
Commerce. This model defines that Buyer and seller are
two different entities. It is similar to manufacturer issuing
goods to the retailer or wholesaler.
3. Consumer to Consumer: It helps the online dealing of
goods or services among people. Though there are no
major parties needed but the parties will not fulfill the
transactions without the program which is supplied by
the online market dealer such as eBay and OLX is
provided the services to buy and sell 2nd hand goods.

4. A peer-to-peer (P2P): is a decentralized model whereby
two individuals interact to buy sell goods and services
directly with each other or produce goods and service
together, without an intermediary third-party or the use
of an incorporated entity or business firm.
5. Mobile-Commerce: It deals with conducting the
transactions with the help of mobile. The mobile device
consumers can interact each other and can lead the
business. Mobile Commerce involves the change of
ownership or rights to utilize goods and related services.
Advantages of E- Commerce:
• Access to a worldwide customer and/or supplier base.
• Reductions in inventory investment and carrying costs.
• The rapid creation of business partnerships to fill market
niches as they emerge.
• Reductions in retail prices through lower marketing costs.
• Reductions in procurement costs.
• Better customer service.
Disadvantages of E- Commerce There are two type of risk in E-
Commerce
Intranet Risks
Internet Risks
1. Intranet Risks: Intranets are used to connect employees within
a single building, between buildings on the same physical
campus(LANs), and between geographically dispersed
locations(WANs). Intranet risk may be in following form
i. Interception of Network Messages: The unauthorized
interception of this information like user IDs, passwords,
confidential e-mails, and financial data files by any employee on
the network is called sniffing.
ii. Access to Corporate Databases: Intranets connected to central
corporate databases increase the risk that an employee will view,
corrupt, change, or copy data.
iii. Privileged Employees: Information systems employees within
the organization are another group empowered with override
privileges that may permit access to mission-critical data.
2. Internet Risks: This risk is faced by the Consumer as well as the
Business
(a) Risks to Consumers:
Theft of Credit Card Numbers
Theft of Passwords
Consumer Privacy
Cookies and Consumer Security
(b) Risks to Businesses: These are followings
i. IP Spoofing: IP spoofing is a form of masquerading to gain
unauthorized access to a Web server and/or to perpetrate an
unlawful act without revealing one's identity.
ii. Denial of Service Attack: A denial of service attack (Dos) is an
assault on a Web server to prevent it from servicing its legitimate
users.
iii. Other Malicious Programs: Viruses and other forms of
malicious programs such as worms, logic bombs, and Trojan
horses pose a threat to both Internet and intranet users.
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Chapter Four
Systems Development Life Cycle: is the process for planning,
creating, testing, and deploying an information system. This is also
called Software Development Life Cycle.
Phases of Systems Development Life Cycle: Once the business
requirement is finalized than the next step will be the System
Development Life cycle or Software Development Life Cycle
There are six phases of system development life cycle. These are
as follows:
1. Feasibility Study
2. Analysis
3. Designing
4. Coding
5. Testing
6. Delivery and Maintenance
1. Feasibility Study: This is the first phase of SDLC. In this phase,
business analysis team collect information. There are several steps
involved in this phase. Business analysis team generally use one
formula to collect information. Formula is known as TELOS.
T=Technical Feasibility: As per the client requirement, the
company analysis that their software, hardware requirement as
well as staff member existed or not
E=Economic Feasibility: Company will look at the budget and
decide whether the budget is enough to complete the project or
not.
L=Legal Feasibility: As per the rule of cyber law, the project is
permissible or not
O=Operational Feasibility: Whatever the clients or users is
expecting operations, can the company developed or company
can explain.
S= Schedule: Within the time, whatever the client requirement
can be to deliver or not
2. Analysis: After the completion of first phase, Developer will find
d out the business requirement. All business requirement will be
writing in one document which is called Business Design
Document(BDD).
3. Designing: SRS document is an input document. Designing is
done in two level.
i. High level designing: It means main modules. It is done by
project manager.
ii. Low level designing: It means sub modules and child modules.
It is done by project leader.
This phase has a document. It is called Project Designing
Document(PDD). And it is input document for the next phase.
4. Coding: The Software development team are developing total
source code on specific technology like JAVA, DOT NET and PHP
etc.
Once they implemented source code on specific technology
successful then there will be build and build will be input for next
phase testing.
5. Testing: Build is the input for the testing team and testing phase
has its own life cycle. This is called Software Testing Life
Cycle(STLC).
STLC has six phases. These are as follows.
• Test Planning
• Test Designing
• Test Execution
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• Result Analysis
• Bug (Defect)Tracking
• Bug Reporting
6. Delivery and Maintenance: Delivery is process through which
the software will be handover to the client. Before handover the
software to client, there are two test. These test are known as
Alpha test and Beta test. It is known as user acceptance testing.
Alpha Testing: In this test one person of client company will come
to the software developing company for verifying their each and
every application are properly working or not in the developing
company location.
Beta Testing: This is the test made the client company by their
own team or by third party at their own company location. Once
both the test successfully completed, the delivery process will be
closed.