Chapter 1: Systems fundamentals Flashcards
Traditionally, the role of an accountant is to capture and record financial information.
Has this role changed?
Why or why not?
The accountant’s role now extends beyond maintaining books through capturing and recording an organisation’s financial information.
Instead, accountants have also become knowledge workers by providing information and solving problems for an organisation.
The career paths of an accountant, however, still rely on accounting skills.
What are the differences between data and information?
- Data are the raw facts relating to or describing an event.
- Data become useful when we apply rules or knowledge to it and convert data into information.
- We use information as a guiding tool in decision-making and to prompt action.
- In contrast, we cannot use data in this way.
Information overload can be harmful to both individuals and the relevant organisation, why?
Organisations need to be conscious of what information they produce and make sure that it is relevant.
In large organisations, people will often request reports for a specific problem.
Over time that problem may disappear, yet the company still produces and files the reports, wasting resources.
The person receiving this irrelevant information risks information overload because they have more information than they can process to make a meaningful decision.
Information overload can lead to undesirable consequences:
- a reduction in efficiency
- a decrease in productivity
- increased stress
Describe the relationship between input, process, and output.
Inputs include data and other resources that are the starting point for a system.
Processes are the performed activities on the inputs into the system.
Outputs refer to what we obtain from a system or the result of what the system does.
Typically, a process will take at least one input and then “transform” or “manipulate” the data into outputs.
Therefore, any process must have at least one input and one output.
What is feedback and how does it interact with the system?
The interactions of inputs, processes, and output provide us with feedback.
Feedback ensures that the system is running as expected and that there are no problems or exceptional circumstances.
For example, when we enter a datum about a customer into a system, such as a customer number, the system will check that it is in the required format and is a valid number.
If the system finds an error (e.g. the person has entered an alpha-numeric number when it should be numeric), then it will alert and prompt the data entry person to re-enter the customer number in the correct format.
What is the relationship between system scope and the external environment?
We need to apply a defined task or domain to a system because one system cannot do everything.
This limitation is the idea of system scope and is called the domain of a system.
Systems also operate within a particular external environment or context, which affects the system’s operation.
Therefore, anything that the system scope does not include belongs to the external environment.
Collectively, the things that belong to the external environment are factors or pressures outside a system that nevertheless influence its design and operation.
An accounting information system can be defined as the application of technology to the capturing, verifying, storing, sorting and reporting of data relating to an organisation’s activities.
Explain how we arrive at this definition.
It encompasses the definitions of:
- accounting
- information
- systems
“Capturing, verifying, storing, sorting and reporting” describes the accounting functions within an organisation,
“Data relating to an organisation’s activities” relate to information.
The capturing and reporting of data reflect a system’s input and output.
Verifying, storing, and sorting relate to processes.
Until the 1970s, information systems were seen as a support tool for the accounting function.
What happened afterwards as technology continued to develop?
Technology has continued to develop, including management information systems, and database and electronic data processing technologies.
With the emergence of the microcomputer, organisations began to see that we could apply computer technology beyond the domain of the accounting function.
The information systems function began to develop an identity of its own, becoming more distinct from the accounting function.
As these new technologies emerged, the accounting function’s reliance on the information systems functions increased.
This reliance has extended to multi-purpose applications.
The increased role of the information systems function within organisations has made other functional areas dependent on it.
What kind of information can an accounting information system provide, and what are the uses of such information?
AIS’s can generate diverse information.
For example, an AIS typically produces the following accounting statements:
- income statement (statement of comprehensive income)
- statement of financial position (balance sheet)
- statement of cash flows
Shareholders, potential shareholders, creditors and debtors use the general purpose financial statements.
For example, these reports support decision-making by providers of scarce economic resources about whether to invest in a company and to evaluate company performance at the financial year-end.
Other accounting information is also available for decision-makers within an organisation, and an adequately designed AIS can satisfy internal users’ needs.
For example, employees will have access to stored data in the form of reports.
They can query and manipulate the data in various ways to answer questions that may arise in the daily running of the organisation.
Give five examples of decision-making (within a firm) that require accounting information.
Determining:
i. Whether to approve a credit sale
ii. A customer’s creditworthiness
iii. The quantity of raw materials to order
iv. The financial performance of a firm, department, or even a team
v. The provision for bad debts
Describe some inputs, processes and outputs of an accounting information system.
Inputs:
- Sales order (record purchase requests from customers),
- Purchase data (data about purchases initiated with our vendors)
- Receiving data (data about arriving goods)
- Shipping data (data about goods sent to customers)
- Invoices (received from vendors)
Processes:
- Check data is valid
- Sort data
- Manipulate data
Outputs:
- Invoice (sent to the customer)
- Cheque (sent to the vendor)
- Profit and loss report
- Accounts receivable report
What is the difference between data and information?
Data are the raw facts relating to or describing an event.
For example, data related to a sale could include:
- customer’s name
- address
- salesperson ID
- sale number
- sale date
- items purchased
- quantity purchased
On its own, this data is not so useful.
However, by using rules and knowledge, we can convert this data into meaningful information.
For example, we can summarise sales data by either customer, sales or product to provide information about high-spending customers or slow-moving products.
What is information overload?
Why might it happen, and what are its consequences?
Information overload refers to an individual who has too much information to process to make a meaningful decision.
It can happen when administrators either fail to filter data (i.e. rubbish dump) or neglect to summarise and organise it.
The potential consequences of information overload include:
- the production of unnecessary reports and information
- adverse decision-making by employees unable to synthesise such volumes of data
Briefly summarise the changing relationship between accounting and information systems.
Regarding the role of accounting, accounting used to be the primary source of information for an organisation (Figure 1.4).
In the original manual environment, the accounting function and the information technology function were unified because the accountant kept records, stored data and synthesised it into reports.
The advent of computing technology made the accounting task easier.
Initially, organisations saw information technology as a way of helping the accountant and information systems were, therefore, the domain of the accountant.
Information technology and information systems later expanded to include the traditional roles of data management and storage, while accounting became a separate function.
Eventually, organisations incorporated technology into many areas of the organisation, in addition to the accounting role.
Accountants now use information systems to complete accounting tasks and, therefore, also require technology skills.
Compare the role of the accountant today to his or her position before the introduction of computer technology.
How have the responsibilities and duties changed over time?
From the evolution of accounting and the information management systems functions, accountants used to be responsible for both roles.
In contrast, today, accountants are only responsible for the accounting function.
On the other hand, technically qualified personnel, who might not have accounting skills, are now responsible for the accounting information storage function.
In other words, the evolution of technology has reduced the responsibilities of the accountant, since accountants have lost their direct control of the information storage function that was once associated with the accounting discipline.
Some argue that this shift creates a greater need for accountants to also gain critical skills in information management, such as information systems.
What are some uses of accounting information?
Provide five examples of how accounting information may be used and who it would be used by.
The table below provides some typical examples of how accounting information may be used.
