WOLLO UNIVERSITY COLLAGE OF BUSINESS AND ECONOMICS DEPARTMENT OF ACCOUNTING AND FINANCE DISTANCE MODULE FOR DEGREE PROGRAM ACCOUNTING INFORMATION SYSTEMS (ACFN3181) Prepared By: Kedir Seid (MSc.) Editor: Habtamu Gemeda (PhD Candidate) Contents CHAPTER ONE ......................................................................................................................................... 5 ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW ......................................................... 5 1.1. The Information Environment ..................................................................................................... 5 1.1. 1. What is System? ................................................................................................................... 6 1.1.2. An Information Systems Framework ...................................................................................... 8 1.1.3. AIS Subsystems ................................................................................................................... 10 1.1.4. A General Model for AIS..................................................................................................... 11 1.1.5. Information System Objectives ......................................................................................... 15 1.1.6. Acquisition of Information Systems .................................................................................. 16 1.2. Business process and information needs .................................................................................. 16 1.3. Uses of AIS .................................................................................................................................. 17 1.4. The Role of the Accountant ....................................................................................................... 20 Chapter Summary ................................................................................................................................ 22 Chapter Review Questions ................................................................................................................... 24 CHAPTER TWO ...................................................................................................................................... 28 OVERVIEW OF BUSINESS PROCESSES ........................................................................................... 28 2.1. Business Processes and Events .................................................................................................. 28 2.2. Identifying events in business process ...................................................................................... 29 2.2.1. The Expenditure Cycle ..................................................................................................... 29 2.2.2. The Conversion Cycle ....................................................................................................... 30 2.2.3. The Revenue Cycle ............................................................................................................ 30 2.3. Organizing data in AIS: The data (transaction) processing cycle ............................................. 31 2.3.1. Data input ........................................................................................................................... 32 2.3.2. Data storage ....................................................................................................................... 33 2.3.3. Data processing .................................................................................................................. 36 2.3.4. Information output ............................................................................................................ 38 2.4. Types of Files and Data .............................................................................................................. 39 2.4.1. The Manual Process Model ................................................................................................ 39 2.4.2. Computer-Based Systems ................................................................................................. 40 2.5. Enterprise resource planning (ERP) systems ............................................................................. 41 Chapter summary ................................................................................................................................... 45 Chapter Review Questions ................................................................................................................... 47 CHAPTER THREE .................................................................................................................................. 51 THE SYSTEM DEVELOPMENT PROCESS ....................................................................................... 51 3.1. System Development and Documentation: Tools and Techniques ............................................ 51 3.1.1. Basic Documentation Tools .................................................................................................... 55 3.1.1.1. Data Flow Diagrams (DFDs) ............................................................................................... 55 3.1.1.2. Flowcharts ............................................................................................................................ 61 3.2. System Development Processes ................................................................................................ 69 3.2.1. The Systems Development Life Cycle (SDLC) ............................................................... 70 3.2.2. The stages of system development cycle .......................................................................... 72 3.2.2.1. Phase one: Systems Strategy ........................................................................................ 73 3.2.2.2. Phase 2: Project Initiation ............................................................................................ 78 3.2.2.3. Phase 3: In-House Systems Development ................................................................... 82 3.2.2.4. Phase 4: Commercial Packages.................................................................................... 82 3.2.2.5. Phase 5: Maintenance and Support ............................................................................. 82 3.2.3. The Accountant’s Role in Managing the SDLC ................................................................. 83 3.2.3.2. The Accountant’s Role in Systems Strategy ............................................................... 84 3.2.3.3. The Accountant’s Role in Conceptual Design ............................................................ 84 3.2.3.4. The Accountant’s Role in Systems Selection .............................................................. 84 Chapter summary ................................................................................................................................. 85 Chapter Review Questions ................................................................................................................... 87 CHAPTER FOUR ..................................................................................................................................... 91 RELATIONAL DATABASES ................................................................................................................. 91 4.1. Database Systems ........................................................................................................................... 91 4.1.1. The Manual Process Model .................................................................................................... 91 4.1.2. The Flat-File Model .......................................................................................................... 91 4.1.3. The Database Approach ................................................................................................... 93 4.1.4. The Database Management System ................................................................................. 94 4.2. Database Design Process .......................................................................................................... 95 4.3. The Relational (REA) Database Model ................................................................................... 98 Chapter Summary .............................................................................................................................. 102 Chapter Review Questions ................................................................................................................. 103 CHAPTER FIVE .................................................................................................................................... 106 TRANSACTION CYCLES AND ACCOUNTING APPLICATIONS .............................................. 106 5.1. The Revenue Cycle ....................................................................................................................... 107 5.1.1. Overview of Revenue Cycle Activities ........................................................................... 107 5.1.2. Revenue Cycle Controls .................................................................................................. 113 5.2. Physical Systems ...................................................................................................................... 115 5.2.1. Manual Systems..................................................................................................................