Page 39 - Accounting Information Systems

10 PART I Overview of Accounting Information Systems

Transaction Processing System
The TPS is central to the overall function of the information system by converting economic events into
financial transactions, recording financial transactions in the accounting records (journals and ledgers),
and distributing essential financial information to operations personnel to support their daily operations.
The TPS deals with business events that occur frequently. In a given day, a firm may process thou-
sands of transactions. To deal efficiently with such volume, similar types of transactions are grouped to-
gether into transaction cycles. The TPS consists of three transaction cycles: the revenue cycle, the
expenditure cycle, and the conversion cycle. Each cycle captures and processes different types of finan-
cial transactions. Chapter 2 provides an overview of transaction processing. Chapters 4, 5, 6, and 7 exam-
ine in detail the revenue, expenditure, and conversion cycles.

General Ledger/Financial Reporting Systems
The general ledger system (GLS) and the financial reporting system (FRS) are two closely related subsys-
tems. However, because of their operational interdependency, they are generally viewed as a single integrated
system—the GL/FRS. The bulk of the input to the GL portion of the system comes from the transaction
cycles. Summaries of transaction cycle activity are processed by the GLS to update the general ledger control
accounts. Other, less frequent, events such as stock transactions, mergers, and lawsuit settlements, for which
there may be no formal processing cycle in place, also enter the GLS through alternate sources.
The FRS measures and reports the status of financial resources and the changes in those resources.
The FRS communicates this information primarily to external users. This type of reporting is called non-
discretionary because the organization has few or no choices in the information it provides. Much of this
information consists of traditional financial statements, tax returns, and other legal documents.
Management Reporting System
The MRS provides the internal financial information needed to manage a business. Managers must deal
immediately with many day-to-day business problems, as well as plan and control their operations. Man-
agers require different information for the various kinds of decisions they must make. Typical reports pro-
duced by the MRS include budgets, variance reports, cost-volume-profit analyses, and reports using
current (rather than historical) cost data. This type of reporting is called discretionary reporting because
the organization can choose what information to report and how to present it.

A GENERAL MODEL FOR AIS
Figure 1-5 presents the general model for viewing AIS applications. This is a general model because it
describes all information systems, regardless of their technological architecture. The elements of the gen-
eral model are end users, data sources, data collection, data processing, database management, informa-
tion generation, and feedback.

End Users
End users fall into two general groups: external and internal. External users include creditors, stockhold-
ers, potential investors, regulatory agencies, tax authorities, suppliers, and customers. Institutional users
such as banks, the SEC, and the Internal Revenue Service (IRS) receive information in the form of finan-
cial statements, tax returns, and other reports that the firm has a legal obligation to produce. Trading part-
ners (customers and suppliers) receive transaction-oriented information, including purchase orders,
billing statements, and shipping documents.
Internal users include management at every level of the organization, as well as operations personnel.
In contrast to external reporting, the organization has a great deal of latitude in the way it meets the needs
of internal users. Although there are some well-accepted conventions and practices, internal reporting is
governed primarily by what gets the job done. System designers, including accountants, must balance the
desires of internal users against legal and economic concerns such as adequate control and security,
proper accountability, and the cost of providing alternative forms of information. Thus, internal reporting
poses a less structured and generally more difficult challenge than external reporting.