The Information System: An Accountant’s Perspective

The Information System: An Accountant’s Perspective

Data Sources
Data sources are 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. Examples include the

sale of goods and services, the purchase of inventory, the receipt of cash, and the disbursement of cash (including payroll). Internal financial transactions involve

the exchange or movement of resources within the organization. Examples include the movement of raw materials into work-in-process (WIP), the application of

labor and overhead to WIP, the transfer of WIP into finished goods inventory, and the depreciation of plant and equipment.

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. Should transaction errors pass through data collection undetected, the

system may process the errors and generate erroneous and unreliable output. This, in turn, could lead to incorrect actions and poor decisions by the users. Two

rules govern the design of data collection procedures: relevance and efficiency. The information system should capture only relevant data. A fundamental task of

the system designer is to determine what is and what is not relevant. He or she does so by analyzing the user’s needs. Only data that ultimately contribute to

information (as defined previously) are relevant. The data collection stage should be designed to filter irrelevant facts from the system. Efficient data collection

procedures are designed to collect data only once. These data can then be made available to multiple users. Capturing the same data more than once leads to data

redundancy and inconsistency. Information systems have limited collection, processing, and data storage capacity. Data redundancy overloads facilities and

reduces the overall efficiency of the system. Inconsistency among redundant data elements can result in inappropriate actions and bad decisions.

Data Processing
Once collected, 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.

Database Management
The organization’s database is its physical repository for financial and nonfinancial data. We use the term database in the generic sense. It can be a filing cabinet or

a computer disk. Regardless of the database’s physical form, we can represent its contents in a logical hierarchy. The levels in the data hierarchy—attribute, record,

and file—are illustrated in Figure 1-6.

Data Attribute. The data attribute is the most elemental piece of potentially useful data
in the database. An attribute is a logical and relevant characteristic of an entity about which the firm captures data. The attributes shown in Figure 1-6 are logical

because they all relate sensibly to a common entity—accounts receivable (AR). Each attribute is also

Part I

Overview of Accounting Information Systems 

The Information System: An Accountant’s Perspective

The Information System: An Accountant’s Perspective


Centralized Data Processing Approach



IT Services



Data Information Accounting Cost Chargeback

control group as a liaison between the end user and data processing. The data conversion function transcribes transaction data from source (paper) documents to digital media (tape or disk) suitable for computer processing by the

central computer, which is managed by the computer operations group. Accounting applications are usually run according to a strict schedule that is controlled by the central computer. The data library is a room often adjacent to

the computer center that provides safe storage for the offline data files, such as magnetic tapes and removable disk packs. A data librarian who is responsible for the receipt, storage, retrieval, and custody of data files controls

access to the library. The librarian issues tapes to computer operators and takes custody of files when processing is completed. The move to real-time processing and direct access files (discussed in Chapter 2) has reduced or

eliminated the role of the data librarian in most organizations.

Systems Development and Maintenance. The information needs of users are met by
two related functions: systems development and systems maintenance. The former group is responsible for analyzing user needs and for designing new systems to satisfy those needs. The participants in system development

include systems professionals, end users, and stakeholders. Systems professionals include systems analysts, database designers, and programmers who design and build the system. Systems professionals gather facts about the

user’s problem, analyze the facts, and formulate a solution. The product of their efforts is a new information system. End users are those for whom the system is built. They are the managers who receive reports from the system

and the operations personnel who work directly with the system as part of their daily responsibilities.


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