CHAPTER 3:

SYSTEMS CONCEPTS
AND ACCOUNTING
J.L. Boockholdt, Ph.D., C.P.A.,
C.M.A.
By: Dyah Nirmala A.J., M.Si.
INTRODUCTION
Accounting processes offer mechanisms for
recording and summarizing accounting
information, and they provide both top-
down and bottom-up information flows.
This chapter explores the theoretical basis
for these processes. Some relevant concepts
from systems theory are described and
applied to the processing of accounting
information. This will provide a framework
for the study of accounting information
systems.
SYSTEMS THEORY
Characteristics of Systems
A set of parts coordinated to accomplish
a set of goals.
• Component parts, or those tangible
features that can be seen.
• A process, whereby the parts are
coordinated in a defined way.
• Goals, or those objectives toward which
the component parts are coordinated.
Subsystems & Supersystems
The parts of a system may themselves constitute
different systems, each having all of a system’s
characteristics. Lower-level systems are called
subsystems, each of which also represents a
process whereby component parts are coordinated
to achieve a set of goals.
Although a subsystem’s goals are different from
those of the higher-level system, they should be
consistent with them. A subsystem is also part of a
higher level supersystem, or a system of systems.
Boundaries and Interfaces
• The boundaries help to identify the
system’s component parts.
• Interface is the connection between two
systems occurring at the boundaries of
the systems.
• Decoupling is a feature that sometimes
exists at systems interfaces, allowing the
systems to operating independently.
Types of Systems

Closed Systems

Relatively
Closed Systems
Types of
Systems
Open Systems

Feedback
Control
Systems
Closed System
• A system totally isolated from its
environment.
Relatively Closed System
• A system that reacts with its environment
in a known, controlled way.
Open System
• A system in which its interaction with its
environment is not controlled
Feedback Control System
• A system in which a portion of its output
is returned as an input.
ACCOUNTING INFORMATION
SYSTEMS
Accounting as a System
• A well-designed accounting system is an
example of a relatively closed system.
• This system has processes that convert
inputs into outputs and utilizes internal
controls to limit the effects of its
environment on the system.
The Accounting Process as a
Relatively Closed System
Subsystems of the Accounting
System.
• The accounting system is a supersystem
consisting of a responsibility accounting
system and a transaction processing system.
• The transaction processing system is composed
of transaction cycle subsystems.
• A transaction cycle is a system composed of
subsystems that are application systems. Each
is an example of an accounting information
system.
Transaction Cycles (1)
• Revenue Cycle. Accounting transactions
resulting from economic events that
produce revenue for the accounting
entity.
• Expenditure Cycle. Accounting
transactions caused by the economic
events necessary to acquire material and
supplies for the accounting entity.
Transaction Cycle (2)
• Conversion Cycle. Accounting
transactions recorded when converting
purchased inventory into salable finished
products.
• Financial Cycle. Accounting transactions
that record the acquisition of capital from
owners and creditors, and the use of that
capital to acquire property necessary for
generating income.
• Boundaries separate system from the other systems in
its environment.
• Interfaces provide means of interaction with the
environment. It is a link at which a transaction exits
one system and enters another. E.g. General ledger
accounts, documents, computer records, etc.
• Decoupling allows individual application systems to
operate independently, so that an output of one system
does not immediately become an input to another
system.
• Sample Case: purchase order is an interface that
provides decoupling between the purchasing &
receiving system.
ACCOUNTING AS A
SUBSYSTEM
Decision-Making Activities
• The goal of any part of the information
system is to help the decision-making
process.
• Analyzing decision-making activities
helps us to understand the role of the
subsystems that make up the information
system.
 Str
ate
gi
c
Pl
an
Management
ni
Control
ng

Operational Control

Decision-Making Hierarchy
Managerial Activity Level by Robert Anthony
Strategic Planning

The process of deciding on the objectives

of the organization, on changes in the
objectives, on the resources used to obtain
these objective, and on the policies that are
to govern the acquisition, use, and
disposition of these resources.
Management Control

The process by which managers assure that

resources are obtains and used effectively
and efficiently to accomplish the
organization’s objective.
Operational Control

The process of assuring that specific tasks

are carried out effectively and efficiently.
Decision Problems and the
Activity Level
• Unstructured Problems
– Many alternatives available, but little
guidance concerning the best one to pursue.
• Structured Problems
– Specific tasks, with clear directions about
how to carry out each task.
• Semi Structured Problem
– A set of objectives, and some freedom in
choosing how to attain them.
Decision Problems &
Managerial Activity Levels
Operational Management Strategic
Control Control Planning
Structured • Accounts • Responsibility • Tanker fleet
payable accounting mix
• Cash • Warehouse
disbursement and factory
location
Semi structured • Inventory • Budget • Mergers and
control preparation acquisitions
• Production
scheduling
Unstructured • Cash • Personnel • New products
management management • R&D planning
A Spectrum of Management
Information Needs
The Systems Approach
1. Identify the problem. Evidenced by decision-
making situation.
2. Define the objective. Develop a clear
understanding.
3. Explore alternative solutions. Identify both
quantitative and qualitative costs and benefits.
4. Take a broad viewpoint. Examine the system
as a whole rather than its subsystems.
5. Obtain varied perspective. Using a project
team encourages creative solutions.
Question A
1. What is definition of a system?
2. What are the inputs to an accounting
information system? The processes? The
outputs?
3. How can you characterize the decision
problems that commonly face top
management? Middle management?
Operating management?
Question B
1. How does a system differ from a supersystem?
From a subsystem?
2. How does a system boundary differ from a
system interface?
3. Accounting information systems are more
standardized that other information systems.
At which decision levels are these systems
most useful? Which decision problems do
accounting system address?
Question C
1. Which four systems are recognized by
systems theory? Of these, which is the
most common in your environment?
2. What is the purpose of decoupling?
3. What are the steps in the systems
approach to problem solving?
Question D
1. What are several concepts from the
theory of systems you have learned?
2. What are the three components of an
accounting information system?
3. What are the levels in management’s
hierarchy of decision-making activities?
What are the distinction between them?
General Questions
• Mention several concepts from the theory of
systems you have learned.
• How the concepts that your have mentioned
above can be applied to the processing of
accounting transactions.
• Define the systems that include accounting
information systems.
• Give an example of a problem that can be
reviewed using system approach. (Don’t use the
example I have described)