DATA

FLOWS,
ACTIVITIES
ACCOUNTING SYSTEMS
-

AND

STRUCTURE

OF

A transaction must first be recognized through observation,

notification, agreement, or judgment.
Upon recognition, the data that reflect the transaction must be
captured and input into the accounting system.
Transaction data are coded to relate them to accounts that serve as a
classification scheme for subsequent processing and reporting.
The accounts in the chart of accounts and the accounts in the various
subsidiary ledger master files provide the primary bases for classifying
transaction data.
The final resting place for transaction and other event data ordinarily is
an archive file. In such a file, the transaction awaits its eventual
destruction at a time governed by the companys retention policies or
by applicable legal requirements.
The flow of transactions and other events from their point of origin to
their final destination must be understood clearly by the users and
implementers of the AIS and by internal and external auditors whose
job is to ensure that the system is performing satisfactorily.

ACTIVITIES OF AN AIS
- An accounting system is a collection of activities that are designed to
produce and deliver information.
- The system is performing major activities: input (capture) data; process
data; store data, and output (communicate) data. In addition to these
major activities, an accounting system has support activities that
improve the quality of the major activities.
The support activities are manage people, manage technology,
and manage internal control.
- MAJOR ACTIVITIES:
1. Input (capture) data - an information processing activity that
captures and feeds transaction and other data into the accounting
system for processing.
Input is an interface between the users and the accounting
system.
The keyed data must be verified to ensure, to the extent possible,
that erroneous data will not be processed into erroneous output.
The verification may be performed by programmed error controls,
by visual checking, or by a combination of both.
2. Process data an information processing activity that transforms
data according to a prescribed set of instructions.
Basic types of processing:
a. Classification all transaction data are classified by the account
they affect. Classification is usually accomplished by transaction
coding.
b. Calculation, or computation data may be manipulated
mathematically

c. Comparison data elements may be compared to determine

whether they are similar.
d. Sorting consists of rearranging the records in a file into some
meaningful sequence, usually in either ascending or descending
order of a data element within the record.
e. Updating, or posting one of the most common processing
activities and plays a central role in most accounting subsystems.
f. Summarization, or aggregation data may be added to produce
a summary total.
g. Merging consists of combining two or more files into a single
new file.
h. File maintenance is a nonroutine process in which a user makes
changes directly to a master file.
3. Store data an information processing activity that provides for the
storage of data to accommodate the timing differences among the
input, process and output of the data.
Data that have been entered and processed at different times can
be accumulated and combined to produce types of output that
otherwise would not be possible if it was not for the storage
activity.
The stored data must be able to support an organizations
operations, mandatory external reporting requirements, and
management decision making.
4. Output (communicate) data an information processing activity that
retrieves, formats, and distributes data to users.
The second main interface between the users and the accounting
system.
The output may be a financial statement, a management report, a
document
The output medium may be paper, microfilm, a video screen
display, or possibly a voice synthesis
An important element of the output activity is the formatting of
the information for communication to the user. Information
formats are referred to as forms regardless of the medium.
The output of the accounting system must meet the organizations
and users information requirements. Meeting their requirements
is the chief justification for the investment in implementing,
maintaining, operating, and controlling the AIS. To this end, an
accounting system should not only provide useful information but
also provide it in a timely, effective, and easy-to understand
manner.
STRUCTURE OF AN AIS
a. Business process and subsystems:
- A business process is group of interrelated business events. The
business processes comprise the first, or most general, level of
subsystems in an AIS and are defined according to the types of events
they capture, process, store and communicate.

The four business processes that comprise an AIS:

1. Revenue process sometimes referred to as the selling or selling
and collection process, encompasses activities related to the
distribution of goods and services to customers and the receipts of
money in exchange for these goods and services.
The revenue process is typically broken down into its subsystems
Sales subsystem concerned with the sale of goods or
services for immediate delivery of goods or provision of
services
Sales order processing subsystem deals with the processing
of orders received from customers for subsequent delivery of
goods or provision of services
Shipping subsystem handles the retrieval of goods from the
warehouse and the preparation of the goods for shipment and
the accompanying paperwork.
Accounts receivable subsystem concerned with receiving
payment for goods and services sold to customers. It involves
preparing invoices and periodic customer statements,
maintaining records of customer balances and total
receivables, and collecting cash.
Sales analysis subsystem a decision support activity dealing
with the analysis of historical sales data to provide
management with information for marketing and similar
purposes.
2. Purchasing process sometimes called the expenditure,
procurement, or acquisition process, encompasses activities related
to the acquisition of goods and services and the disbursement of
money in exchange for these goods and services.
The purchasing process is typically broken down into its subsystems
Purchase order processing subsystem deals with the
issuance and tracking of purchase order to vendors, or
suppliers. It may be for goods or services.
Receiving subsystem refers to the receipt, inspection and
acceptance of goods delivered to the organization by the
vendors
Accounts payable subsystem concerned with paying for
goods and services purchased from vendors.
Payroll subsystem provides for the payment of wages,
salaries, and sales commissions to employees and the related
withholding of taxes and other deductions.
3. Inventory process depends on the nature of an organization. In
manufacturing and construction organizations, the inventory
process encompasses activities related to the transformation of raw
materials into finished goods, the accumulation of product costs and
the management of inventories. In merchandising organization, the
inventory process encompasses activities related to the
accumulation of product costs and the management of merchandise
inventories. In a service organization, the inventory process
encompasses activities related to the accumulation of the cost of

services and the management of parts and supplies inventory.

The inventory process is broken down into its subsystems depending
on the nature of the organization
Production control subsystem used in a manufacturing
organization. It handles the initiation of production orders in
the factory and the tracking and control of production
operations.
Inventory management subsystem refers to accounting for
raw materials, finished goods, merchandise and supplies
inventories
Cost accounting subsystem concerned with the
accumulation of product costs in manufacturing and
merchandising organizations or with the accumulation of the
costs of providing services.
4. Financial process commonly referred to as the general ledger.
Three types of entries are found in the financial process:
a. Data captured in and transferred from other processes to the
financial process
b. Transactions originally recorded in the financial process.
c. End-of-period adjustments required in the financial process.