Information- Business resource, vital for Distinguish between financial and nonfinancial

survival of business organization transactions. Give three examples of each

Four levels of activity in the pyramid. Financial transaction- Affects assets and
Horizontal vs Vertical flows equities of organization. Example use of
equipment depreciation, payment of bond
1. Operational personnel payable, receipt cash from customer
2. Operation management
3. Middle management Non-financial transaction-Do not meet the
4. Top management meaning of Financial transaction, adding new
supplier in a list, book checked by student in
Comment on the level of detail necessary for library, status reports in research projects.
operations management, middle management,
and stockholders. AIS VS MIS

Operations management- Highly detailed AIS is a financial transaction, non financial

information to run day to day business transaction and financial transaction.
processes and operations Accountants may greater responsibility sa AIS.
While MIS non financial transaction lang ang
Middle management- much more detailed prinoprocess outside the scope of AIS. Example,
information to plan and control operation marketing, production and inventory
Top management- highly aggregated and management.
follows prescribed by SEC and GAAP Discretionary reporting-report siya naginagamit
Horizontal Flows- supports day to day ng management na kung saan yung company ay
operations hindi obliged sa law, regulation and contract
provide.
Vertical flows- Upward flows, which
summarized information to managers, Down TPS VS FRS VS MRS
ward flows, which instructions, quotas, budgets. Transaction processing system-converting
SYSTEM VS. SUBSYSTEM economic events into financial transaction sa
accounting records.
Ang system tinatawag na subsystem pag
navieview ito ng larger system, and subsystem GLS/ Financial reporting system-communicates
is called system when it is focus to attention. user to external uses, mga user dito ay no
choice or few choices sa information na
SYSTEM DECOMPOSITION VS. SYSTEM naproprovide.(non-discretionary)
INTERDEPENDENCY
Management reporting system-Info needed
System decomposition- Dividing systems into para mamanage yung business. Mga
smaller subsystem parts. organization can choose what information to
choose and how to present it.
System interdependency- is the interaction
between subsystem. Pag isa nagfail fail na Do you think transaction processing systems
lahaat. differ significantly between service and
manufacturing industries? Are they equally
Relationship between, data, information and,
important to both sectors?
information system.
They differ in types of data elements:
Data are the raw materials that are collected,
transform in to information, and distributed to Manufacturing firm- collect data regarding
users. The procedure is called Information amount of scrap generated at a particular
system. workstation.

Transaction-affects interest to the organization, Service firm- collect data regarding on hours
processed by information system. spent by staff to verify cash balances.

FINANCIAL VS NON FINANCIAL TRANSACTION

Discuss the difference between the financial Files- complete set of records of an identical
reporting system and general ledger system class. Example mga AR records, sa AR files.

FRS- Communicates information from the GLS 3 fundamental tasks of database management
to the external users
1. Storage- yung mga new record inistore
GLS- summarizes all of the transaction cycle niya sa proper location
activity, and general journal entries. 2. Retrieval- locating the existing records.
3. Deletion- permanently removing of
redundant records.
Discuss the differences between internal and Information generation- compiling, arranging,
external users of information and their needs formatting and presenting information to users.
and demands on an information system.
Historically, which type of user has the firm Characteristics of good, useful information
catered to most?
1. Relevance- dapat may purpose
End users 2. Accuracy-free from errors
3. Completeness- dapat walang kulang
1. External users- 4. Summarization-nakasummarize accdng
Trading partners- customers and sa needs ng users
suppliers 5. Timeliness – not more than a day old
Stakeholders- stockholders, investors,
tax authorithies. Examine Figure 1-5 and discuss where and how
2. Internal users- management at every problems can arise that can cause the resulting
level. information to be bad or ineffective

The internal users are very important to If the data collected is not accurate, and not
efficiently and effectively operate and plan correctly enters, then the resulting information
for future. will not be accurate.

DATA VS INFORMATION What is feedback and how is it useful to

information system?
Data-facts may or may not processes, no
direct effect sa user Feedback- output that is sent back to the
system as source of data. It can be use to adjust
Information-Causes user to take action, it is the system processes.
a processed data.
Stewardship means, and role of information
Data sources- system
1. Internal sources- involve Stewardship is responsibility of management to
movement within organization. properly utilize resources of the firm. Role of
2. External sources- exchanges with information provide management a report to
other business and individuals better manage resources.
outside the firm.

Data collection- First stage in information

system, to ensure data are valid. Distinguish responsibility, authority and
accountability. Which flow upward and which
Data processing- Pag nacollect na yung data eto flow downward?
na yung next stage.
Ang mga Authorative powers and responsibility
Database- physical repository of financial and nila na idistribute pababa yung goals and
non financial data. standard. While ang mga managers ay
Data attribute- useful data in database accountable na ipataas ang mga decisions and
actions nila.
Record- complete sets of attributes for single
occurrence. Example, name, address, account
balance.
Distinguish between turnkey, backbone, and Finance- manages financial resources, banking
vendor-supported systems. and treasury activities.

Turnkey systems- ready to implement system What is the role of the accounting function in
an organization?
Backbone systems- partially developed system .
Accounting function- role is to manage financial
Vendor-supported systems- custom systems information resources of the firm. Accountants
that are supported by commercial vendor. must capture and record business events and
Business segments- Managers within a financial impact next accounting distribute
segment, they can focus in which areas or transaction information to decision makers.
responsibility to achieve operating efficiency. Accounting independence- Accounting
What are the primary reasons for segmenting activities must separated and independent of
organizations? functional areas or to physical activities.

To promote internal efficiencies, and to be able Discuss the importance of accounting

to make best allocation of resources. independence in accounting information
systems. Give an example of where this
Name the three most common ways to concept is important (use an example other
segment an organization. than inventory control).

1. Geographic location- to gain resources, It is important that record keeping functions

markets, or line distribution. and physical resources are separate because it
2. product lines- companies produce high is crucial. Person na naka charge sa check
quality of products. receipt should not be allowed to reconciles to
3. Business Function- organization the sales record to cash deposits, because the
specializes responsibility based on tasks cash receipt clerk can steal money.

Material management- plan and control Why is it important to organizationally

materials inventory of company separate the accounting function from other
functions of the organization?
1. Purchasing- order inventory from
vendors Accounting function must remain independent,
2. Receiving- accepting inventory so that the protection of the firm’s assets and to
ordered by prurchasing have minimum possibilities for theft.
3. Stores- physical custody received
and releasing resources. Distinguish between the centralized and
distributed approaches to organizing the IT
Production- activities occur conversion cycle in function.
which raw materials used to create finish
products. Centralized data processing- all data processing
are performed by one or more large computer
1. Production planning- scheduling flow of housed at a central site that served users.
materials, labor, machinery to
efficiently meet the production needs. Distributed Data processing- reorganizing IT
2. Quality control- ensure finished product function into small processing units.
meets firms quality standards IT Function- Associated with information
3. Maintenance- keeps manufacturing resource.
facilities running in order
Database administrator- Nagmamanage sa
Marketing- deals with strategic problems, Database administration, responsible for
advertising and market research. security and integrity of database.
Distribution- critical step, damage or customer What is the role of the data control group?
dissatisfaction
Data control group- liaison between the end
Personnel- recruiting, training counseling user and data processing personnel. Receives
evaluating. user input and distribute output to the users.
Iniscan muna nila yung accuracy and Manual process model- oldest and most
completeness bago idistribute sa data entry traditional form of accounting system, teach the
personel. principles of accounting to business students.

What is distributed data processing? What is a flat-file system?

Data processing- manages the computer Flat-file system- individual data files are not
resources used to perform the day to day related to other files, end users in this
processing of transactions. Data control, data environment own their data files rather share
conversion, computer operation and data them with other users.
library.
What are the three general problems
Data control group-responsible for receiving associated with data redundancy?
batches of transaction documents between end
a. increased data storage since the same data is
user and data processing.
stored in multiple files
Data conversion- transaction data from source
b. increased data updating since changes must
documents (paper) to digital media (tape or
disk) be made to multiple files

c. possibility of noncurrent data caused by

Data library- safe storage for the offline data
files. failure to update.

What are the advantages and disadvantages of

distributed data processing? Database model- Organization can overcome
problems associated with flat files by
The advantages of DDP are:
implementing this model.
a) cost reductions
Database management system- special
b) improved cost control
responsibility software system that is programmed to know
kung anong data elements each user is
c) improved user satisfaction
d) ability to back up computer authorized to access.
facilities

The disadvantages of DDP are:

a. potential mismanagement Define the key elements of the REA model.

of organization-wide
resources Resources- are the assets of the organization
b. hardware and software
Events- events that affect changes in resources
incompatibility
c. redundant tasks Agents- individuals and departments that
d. consolidating incompatible participate economic event.
activities
e. acquiring qualified What is an ERP system?
professionals
Enterprise Resource Planning- enables
f. lack of standards
organization to automate and integrate its key
What types of tasks become redundant in a business process. Breakdowns traditional
distributed data processing system? functional barriers by data sharing

Identical applications, the same data are being What three roles are played by accountants
collected and stored by different user areas. with respect to the information system?
Nagkakaroon ng data consistency problems pag
1. Accountants as a users- yung mga
di namanage ng maigi.
accountants nag proprovide sila ng mga
clear picture of their needs sa mga
nagdedesign ng systems.
 2. Accountant as a system designers- Discuss what is meant by the statement, ‘‘The
Accountants asses information needs of accounting system is a conceptual flow of
users, define reports, selecting information that represents the physical flows
appropriate accounting rules. of personnel, raw materials, machinery, and
3. Accountant as System Auditors- cash through the organization.’’
Auditing- Attestation performed by an
expert (auditor) who expresses about It means that accounting system is a
representation of operations of a firm.
the opinion about fairness of company
financial statements. Machines operate, workers perform duties,
raw materials transferred to finished goods
Define the term attest function. and cash flows are exchanged between
customers and supplier.
Attest function- performed by independent
accountant who expresses their opinion about
fairness of financial statements of the company.
Discuss why it is crucial that internal auditors
Define the term assurance. report solely to the uppermost level of
management (either to the chief executive
Assurance- professional services, like attest officer or the audit committee of the board of
function, to improve quality of information. directors) and answer to no other group.
Intended to help people make better decision
by improving information. Pag involve ang management levels, matatakot
ang mga internal auditor pag nagsabi sila about
What is IT auditing? ditto. Pero kailangan ireport ng mga internal
IT auditing- performed as part of broader auditor sa Board of directors ang mga ginagawa
financial audit. This fall under the assurance ng top management.
services group.

IT auditor- Attest the effectiveness of clients IT If accountants are viewed as providers of

controls. information, then why are they consulted as
Distinguish between conceptual and physical system users in the systems development
systems. process?

Discuss how conceptual and physical systems Kasi, sila yung nag ooversee sa data collection,
differ and which functions are responsible for at processing at the same time sila rin yung
each of these systems. nagproprovide sa mga system designers or
developers kung anong kailangan nila.
Conceptual system- logic and decisions rules to
be applied; accountants are important to design The REA model is based on the premise that
this system. ‘‘business data must not be preformatted or
artificially constrained and must reflect all
Physical System- represents accomplishing relevant aspects of the underlying economic
tasks; system designers dominate their task in events.’’ What does this mean and how is it
this system. applied?

What are the roles of internal and external The REA model requires that accounting
auditors? phenomena be characterized in a manner
consistent with the development of multiple
Internal auditors- appraisal function housed
user views not simply those of the accounting
within the organization, represent the interests
function. As such, REA procedures and
of management.
databases are structured around events rather
External auditor- represent third party outsiders than accounting artifacts such as journals,
ledgers, charts-ofaccounts, and double-entry
organization policies, detecting fraud within the accounting. Under the REA model, business
organization same lang sila ng ginagawa. organizations prepare financial statements
directly from the event database.
 3. Turnaround documents- product
document of one system that becomes
a source document for another system.

Journals- record of chronological entry

Chapter 2 Name the two types of journals.
Financial Transaction- economic events that 1. Special journals- specific classes of
affects the assets and equities of the firm transactions that occur high
What three transaction cycles exist in all frequency
businesses? 2. General journals- record
nonrecurring and infrequent
1. Expenditure cycle- Time lag between transactions.
two due to credit relations with
suppliers.
2. Conversion Cycle- production system Distinguish between a general journal and
and cost accounting system journal vouchers.
3. Revenue Cycle- time lag between two General journals- record nonrecurring and
due credit relations with customers. infrequent transactions.
Name the major subsystems of the Journal voucher- used as special source
expenditure cycle. Identify and distinguish document for transaction.
between the physical and financial
components of the expenditure cycle. Register- denotes certain type of special
journals.
1. Physical component- acquisition of
goods the total of journal vouchers processed is
2. Financial components- cash equivalent to the general journal.
disbursements to the supplier
Name the two types of ledgers.
Name the major subsystems of the conversion
cycle. 1. General ledger- account listed on the
chart of accounts
1. Production system- planning, 2. Subsidiary ledger- activity by detail for
scheduling, and control of the physical each account type
product through manufacturing
process. What is an audit trail?
2. Cost accounting system- monitors the Audit trail- tracing transactions from source
flow of cost information related to documents to financial statements.
production.
Tracing- Source doc to FS
Name the major subsystems of the revenue
cycle. Vouching-FS to Source docs

1. Sales order processing (physical What is the confirmation process?

component)- granting credit, shipping
Confirmation process- selecting customers and
product, rendering services.
contacting them to determine whether the
2. Cash receipts(financial component)-
transactions recorded in the financial
collecting cash, depositing cash in the
statements actually took place and are valid.
bank.
Computer-based systems employ four types of
Name the three types of documents.
files. Name them.
1. Source Documents- used to capture
1. Master file- temporary file, use to
and formalize transaction data that the
change or update data in master file.
transaction cycle needs for processing.
2. Transaction file- used as standards for
2. Product document- result of
processing transactions.
transaction processing
 3. Archive file- Past transaction retained System flowcharts represent the physical
for future reference. elements being used (i.e., how the tasks are
being conducted) by illustrating the relationship
between input sources, program, and output
Give an example of a record that might products.
comprise each of the four file types found in a Is a data flow diagram an effective
computer based system. documentation technique for identifying who
Master file( general ledger and subsidiary or what performs a particular task? Explain.
ledgers)- ex AR No. A DFD shows which tasks are being
Transaction File(general and special journals)- performed, but not who performs them. It
sales journal, cash receipts journal depicts the logical system.

Reference files-list of vendors, delinquent For what purpose are entity relationship
customers diagrams used?

Archive files- records have been processed but An entity relationship (ER) diagram is a
retained for history documentation technique used to represent the
relationship between entities. One common use
What is the purpose of a digital audit trail? for ER diagrams is to model an organization’s
database.
Digital audit trail- like paper trail, allows to
trace transactions form financial statements Data model- blueprint for what ultimately will
balance back to actual transaction, to compare become physical database.
balances and perform reconciliations.
What is an entity?
Give an example of how cardinality relates to
business policy. Entities are physical resources (automobiles,
cash, or inventory), events (ordering inventory,
Cardinality reflects normal business rules as receiving cash, shipping goods), and agents
well as organizational policy, the 1:1 cardinality (salesperson, customer, or vendor) about which
in the first example in Figure 2-12 suggests that the organization wishes to capture data.
each salesperson in the organization is assigned
one automobile. If instead the organization’s Program flow charts- relationship between
policy were to assign a single automobile to one computer programs, files used, and outputs
or more salespeople that share it, this policy produced.
would be reflected by a 1:M relationship. What information is provided by a record
What is meant by cardinality in entity layout diagram?
relationship diagrams? Record layout diagrams- reveal internal
Cardinality refers to the numerical mapping structure of the records that constitutes a file or
between entity instances, and it is a matter of database table.
organization policy. The relationship can be What are the two data processing approaches
one-to-one, one-to-many, or many-to-many. used in modern systems?
Distinguish between entity relationship Distinguish between batch and real-time
diagrams, data flow diagrams, and system processing.
flowcharts.
Batch - a group of similar transactions that are
Entity relationship diagrams represent the processed together, time lag exists
relationship between entities (resources,
events, and agents) in a system. Real-time Systems- Process transaction
individually at economic event occurs, no time
Dataflow diagrams represent the logical lag.
elements (i.e. what is being done) of a system
by illustrating processes, data sources, data Legacy systems VS Modern Systems
flows, and entities.
Legacy system- used to process financially Legacy systems tend to have the following
significant transaction, auditors need to know distinguishing features: they are mainframe-
how to evaluate and test them. (batch system) based applications, they tend to be batch-
oriented, and early legacy systems use flat files
Modern systems- process transaction in real for data storage
time.
How is backup of database files accomplished?
Distinguish between the sequential file and
database approaches to data backup. First, a special recovery program uses the
backup file to create a preupdate version of the
Sequential- master files are completely master file. Second, the file update process is
reproduced in the form of a physically new file, repeated using the previous batch of
thus creating a backup copy automatically. transactions to restore the master to its current
Databases- use destructive update procedures condition.
and require separate backup procedures. In one sentence, what does updating a master
file record involve?

Is a flowchart an effective documentation Updating a master file record involves changing

technique for identifying who or what the value of one or more of its variable fields to
performs a particular task? Explain. reflect the effects of a transaction.

A flowchart depicts the physical system and Comment on the following statement: ‘‘Legacy
illustrates what type of and where a task is systems always use flat-file structures.’’
performed and who is performing it. A flat-file structure is a single-view model that
How may batch processing be used to improve characterizes legacy systems in which data files
operational efficiency? are structured, formatted, and arranged to suit
the specific needs of the owner or primary user
In fact, the task of doing so takes time which, of the system.
when multiplied by hundreds or thousands of
transactions, can cause significant processing Explain the technique known as destructive
delays. However, improves operational update.
efficiency by eliminating unnecessary activities Destructive update involves replacing an old
at critical points in the process. data value with a new value and thus destroying
Why might an auditor use a program the original.
flowchart? What factor influences the decision to employ
When testing an application program, the real-time data collection with batch updating
auditor needs details about its internal logic rather that purely real-time processing?
provided by the program flowchart to design Explain.
the audit tests. Transaction volume is the key factor. Large-
How are system flowcharts and program scale systems that process high volumes of
flowcharts related? transactions often use real-time data collection
and batch updating. Master file records that are
System flowchart -shows the relationship unique to a transaction such as customer
between two computer programs, the files that accounts and individual inventory records can
they use, and the outputs that they produce. be updated in real time without causing
operational delays. Common accounts should
Program flowchart- provides this detail. Every
be updated in batch mode. Realtime processing
program represented in a system flowchart
is better suited to systems that process lower
should have a supporting program flowchart
transaction volumes and those that do not
that describes its logic.
share common records.
What are the distinguishing features of a
What are the advantages of real-time data
legacy system?
processing?
In a real-time processing environment, the What role does the audit trail play in the task
master files are updated as soon as the of confirmation?
transaction is submitted and accepted into the
Explain how the magnetic audit trail functions.
system. Thus, reports are more accurate in the
sense that the information is as current as Are large batch sizes preferable to small batch
possible. Faster operational response time to sizes? Explain.
customer requests such as the shipping of an
order is another, and very important, benefit. Discuss why an understanding of legacy
Finally, the reduction of paper and storage system technologies is of some importance to
space of physical source documents is another auditors.
benefit.
If an organization processes large numbers of
What are the advantages of real-time data transactions that use common data records,
collection? what type of system would work best (all else
being equal)?
By collecting data in real time, certain
transaction errors can be prevented or detected If an organization processes transactions that
and corrected at their source. have independent (unique) data needs, what
type of system would work best (all else being
What are some of the more common uses of equal)?
data codes in accounting information systems?
Explain how a hashing structure works and
Block codes for the general ledger accounts, why it’s quicker than using an index. Give an
sequential codes for documents, and group example. If it’s so much faster, why isn’t it
codes for coding transactions. used exclusively?
Compare and contrast the relative advantages Describe a specific accounting application that
and disadvantages of sequential, block, group, could make use of a virtual storage access
alphabetic, and mnemonic codes. method file.

Explain the following three types of pointers:

physical address pointer, relative address
Discuss the flow of cash through the
transaction cycles. Include in your discussion pointer, and logical key pointer.
the relevant subsystems and any time lags that Should an auditor wishing to assess the
may occur. adequacy of separation of functions examine a
data flow diagram or a system flowchart?
Explain whether the cost accounting system
primarily supports internal or external Why?
reporting. Discuss some of the problems associated with
Discuss the role of the conversion cycle for general ledger systems that do not have data
coding schemes.
service and retailing entities.

Can a turnaround document contain

information that is subsequently used as a
source document? Why or why not?

Would the writing down of obsolete inventory

be recorded in a special journal or the general
journal? Why?

Are both registers and special journals

necessary?

Discuss the relationship between the balance

in the accounts payable general ledger control
account and what is found in the accounts
payable subsidiary ledger.