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Chapter 2 – Foundational Concepts of The AIS
Instructor Manual
➢ Interrelationship Of Business Processes And The AIS. Business processes
occur so that organizations may serve their customers. As the many business
processes occur, all of the data generated must be collected and processed by the
accounting information system. The accounting information system collects detailed
➢ Types Of Accounting Information Systems.
o Manual Systems. Manual systems use manual record keeping processes
and paper-based records such as source documents, turnaround documents,
general ledger, general journal, special journals, subsidiary ledgers, and
o Legacy Systems. Legacy systems are older IT systems that may have been
in place within the organization for many years. These are usually systems
based on mainframe host computers and older technology. They were
written in computer languages such as COBOL or Basic. There are both
advantages and disadvantages to legacy systems. When the benefits of
o Modern, Integrated IT Systems. These systems are based on current
technology. They are purchased software, rather than software developed
internally, but may be modified to meet the organization’s needs. Purchased
software has the advantages of lower costs, fewer bugs, and a shorter
implementation time. These modern, integrated systems usually run in one of
two types of computer models: client-server or cloud computing.
o Client-server Computing. In a client-server system, two types of computers
are networked together to accomplish processing. Client computers are
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to either the client or server on the basis of which can handle the task most
efficiently. Many ERP systems use a web browser and individual PCs as the
client computers.
o Cloud Computing. Cloud computing is a centralized approach to IT whereby
servers are purchased from a third party provider; thus, the organization’s
➢ Accounting Software Market Segments. Accounting software can be categorized
according to the type of enterprise is its intended market. The four categories of
accounting software types are small companies, midmarket companies, beginning
ERP, and high end or tier 1 ERP. Small company accounting software is intended
for companies with revenue of approximately $250,000 or less. Midmarket
➢ Input Methods Used in Business Processes. Almost all business processes
generate some type of accounting data. There are many different types of
processes, and many different ways to capture the data from these processes.
o Source Documents And Keying. Transaction data is often captured on
pre-printed, sequentially numbered source documents. From this source
document, employees enter the data into the IT system using a keyboard.
This process is time consuming and error prone. Many companies have
replaced this source document and keying approach with newer technology.
o Bar Codes. Bar codes are machine-readable symbols consisting of a series
of bars and spaces. You see these bar codes on products you buy at grocery
stores and all types of retail stores. Bar codes can be used with a bar code
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electronically, much of the manual processing is eliminated, thereby reducing
time, cost, and errors.
➢ Processing Accounting Data
o Batch Processing. In batch processing, all similar transactions within a
specified time are grouped together and processed as a batch. This method
is efficient for large volumes of like transactions; it maintains a well-defined
o Online And Real Time Processing. With online and real-time processing,
transactions are entered and processed as they occur. This eliminates the
time lag inherent in batch systems; input errors can be checked as data are
entered; files are updated in real-time, and integration of business processes
➢ Outputs Of The AIS Related to Business Processes. There are many kinds of
outputs and only a few are described here. Some outputs are documents
exchanged with trading partners such as invoices, statements, or purchase orders.
Some are internal documents such as credit memorandums. Some outputs are in
the form of reports for either internal or external users, including financial statements
or aged receivables reports. Internal reports might be printed, viewed on a screen,
or customizable queries.
➢ Documenting Processes and Systems. A picture of a system in the form of a chart
or map is a concise, complete, and easy–to-understand way to view a process or
system.
o Process Maps. It is a pictorial representation of a business process using
five symbols. It shows the steps and sequence of a business process and
may show flow through individual departments.
o System Flowcharts. It shows inputs, computerized processing, and outputs
of a computer system using standard flowchart symbols. It displays the
sequence of processes and the media used in processing and storage.
➢ Ethical Considerations At The Foundation Of AIS. An AIS can be used as a tool
to conduct or cover up fraud or theft. If the IT systems are not closely monitored,
these frauds could go undetected for long periods. As companies choose and