Accounting Information System - Chapter 1-3

7/24/2019 Accounting Information System - Chapter 1-3

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Chapter :

Overview of AIS


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Chapter Outline

What is the difference between data andinformation?

What is an accounting information system?

Why is the AIS an important topic to study? What is the role of the AIS in the value chain?

How does the AIS provide information for

decision making? What are the basic strategies and strategic

positions an organization can pursue?


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Data vs Information

Data Processing InformationDataDataData

data processed

to bemeaningful and

useful to others

Relevant

Reliable

Complete

TimelyUnderstandable

Verifiable

cost and

benefits of

information


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The Information System

Data Processing Information

data

collection

data

management

information

generation

data

processingdata control


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Accounting Information System

a unified structure that employ

physical resources and components

to transform economic data into

accounting information for external

and internal users


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WHY STUDY ACCOUNTING INFORMATION

SYSTEMS?

Its fundamental to accounting.

Accounting is an information-providingactivity, so accountants need to understand:

How the system that provides thatinformation is designed, implemented andused.

How financial information is reported

How information is used to makedecisions


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SYSTEMS?


Other accounting courses focus on how theinformation is provided and used.

An AIS course places greater emphasis on:

How the data is collected and transformed

How the availability, reliability, andaccuracy of the data is ensured

AIS courses are not number-crunchingcourses


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SYSTEMS?


The skills are critical to career success.

Auditors need to evaluate theaccuracy and reliability ofinformation produced by the AIS.


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SYSTEMS?



Tax accountants must understand theclients AIS adequately to beconfident that it is providing completeand accurate information for tax

planning and compliance work.


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SYSTEMS?



In management consulting, thedesign, selection, and implementationof accounting systems is a rapidgrowth area.


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SYSTEMS?



Inprivate industry and not-for-profits,systems work is considered the mostimportant activity performed byaccountants.


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SYSTEMS?



The AIS course complements other systems courses.

Other systems courses focus on design andimplementation of information systems,

databases, expert systems, andtelecommunications.

AIS courses focus on accountability andcontrol.


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SYSTEMS?



The AIS course complements other

systems courses.

AIS topics are tested on the new CPAexam.

Makes up about 25% of the BusinessEnvironment & Concepts section ofthe CPA exam.


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SYSTEMS?



The AIS course complements other

systems courses.

AIS topics are tested on the new CPAexam.

AIS topics impact corporate strategy andculture.


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X!

6 Components of an AIS

AIS

people procedure

data

software

security

Informationtechnology
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Business Functions of an AIS

Collect and store data about organizationalactivities, resources and personnel

Transform data into information that isuseful for making decisions

Provide adequate controls to safeguard the

organizations asset, to ensure that the assetsand data are available when needed and thedata are accurate and reliable


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sequence of business activities

by which, in the perspective ofthe end user, value is added to

products and services

produced by an organization

Value Chain

Infrastructure

Human resource management

TechnologyPurchasing


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ROLE OF THE AIS IN THE VALUE CHAIN

Business

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Supplier

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

For example, the inbound logistics of a

business, links to the outbound logistics

of its suppliers.


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ROLE OF THE AIS IN THE VALUE CHAIN

Business

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Supplier

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

And the outbound logistics of a

business, links to the inbound logistics

of its customers.


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Decision Structure and Scope

Unstructured

decision

Semi-structureddecision

Structured

decision

Operational

control

Management

control

Strategic

planning


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THE AIS AND CORPORATE STRATEGY

Corporations have:

Unlimited opportunities to invest intechnology

Limited resources to invest in technologyMust identify the improvements likely toyield the highest return.

This decision requires an understanding ofthe entitys overall business strategy.


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Basic Business Strategies

Product differentiation strategy

- Adding features or services to

charge customer a premium price

Low-cost strategy

- Striving to be the most efficient

producer of a product and service


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Chapter Summary

What is the difference between data andinformation?

What is an accounting information system?

Why is the AIS an important topic to study? What is the role of the AIS in the value chain?

How does the AIS provide information for

decision making? What are the basic strategies and strategic

positions an organization can pursue?


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Chapter 2:

Business Processes


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Chapter Outline

What are the basic business activities inwhich an organization engages?

What role does the data processing cycleplay in organizing business activities andproviding information to users?

What is the role of the information

system and enterprise resource planningin modern organizations?


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Each activity

requires

different typesof decisions!

INFORMATION NEEDS AND BUSINESSACTIVITIES

Businesses engage in a variety of activities, including:Acquiring capital

Buying buildings and equipment

Hiring and training employees

Purchasing inventory

Doing advertising and marketing

Selling goods or services

Collecting payment from customers

Paying employeesPaying taxes

Paying vendors

Each decision

requires

different types

of information.


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Each activity

requires

different typesof decisions!

INFORMATION NEEDS AND BUSINESSACTIVITIES

Businesses engage in a variety of activities, including:Acquiring capital

Buying buildings and equipment

Hiring and training employees

Purchasing inventory

Doing advertising and marketing

Selling goods or services

Collecting payment from customers

Paying employeesPaying taxes

Paying vendors

Each decision

requires

different types

of information.

An effective AIS

needs to be able to

integrateinformation of

different types

(financial or non-

financial) andfrom different

sources (internal

or external)


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INTERACTION WITH EXTERNAL ANDINTERNAL PARTIES

AIS

External

Parties

Internal

Parties

The interaction is typically two-way, in that

the AIS sends information to and receivesinformation from these parties.


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BUSINESS CYCLES

A transaction is:An agreement between two entities to exchange

goods or services; OR

Any other event that can be measured ineconomic terms by an organization.

EXAMPLES:

Sell goods to customersDepreciate equipment


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BUSINESS CYCLES

The transaction cycle is a process:Begins with capturing data about atransaction

Ends with an information output, such asfinancial statements


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BUSINESS CYCLES

Many business activities are paired ingive-get exchanges

The basic exchanges can be groupedinto five major transaction cycles.Revenue cycle

Expenditure cycleProduction cycle

Human resources/payroll cycle

Financing cycle


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BUSINESS CYCLES





Financing cycle


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REVENUE CYCLE

The revenue cycle involves interactionswith your customers.

You sell goods or services and get cash.

Give

Goods GetCash


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BUSINESS CYCLES





Financing cycle


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EXPENDITURE CYCLE

The expenditure cycle involvesinteractions with your suppliers.

You buy goods or services and paycash.

Give

Cash GetGoods


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BUSINESS CYCLES





Financing cycle


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PRODUCTION CYCLE

In the production cycle, rawmaterials and labor are

transformed into finished goods.

Give Raw

Materials &Labor

Get

FinishedGoods


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BUSINESS CYCLES





Financing cycle


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HUMAN RESOURCES/PAYROLL CYCLE

The human resources cycle involvesinteractions with your employees.

Employees are hired, trained, paid,evaluated, promoted, and terminated.

Give

Cash GetLabor


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BUSINESS CYCLES

Many business activities are paired in give-get exchanges

The basic exchanges can be grouped into five major transactioncycles.

Revenue cycle

Expenditure cycle Production cycle


Financing cycle


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FINANCING CYCLE

The financing cycle involves interactions withinvestors and creditors.

You raise capital (through stock or debt), repay the

capital, and pay a return on it (interest ordividends).

Give

Cash Getcash


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THE DATA PROCESSING

An important function of the AIS is toefficiently and effectively process the

data about a companys transactions.In manualsystems, data is entered intopaper journals and ledgers.

In computer-basedsystems, the series of

operations performed on data is referredto as the data processing cycle.


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THE DATA PROCESSING

The data processing cycleconsists of four steps:Data input

Data storage

Data processingInformation output


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THE DATA PROCESSING

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InputAny data or instructions

you enter into a

computer

OutputData that has been

processed into

informationStorageArea in a computer

that can hold data and

information for future

use

ProcessManipulate the input

(data) to produce

output (information)


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THE DATA PROCESSING

Data input

Data storage



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DATA INPUT

The first step in data processing is tocapture the data.

Usually triggered by a business activity.Data is captured about:

The eventthat occurred

The resources affected by the eventThe agents who participated


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DATA INPUT

A number of actions can be taken toimprove the accuracy and efficiency of

data input:Turnaround documents EXAMPLE: The stub on your telephone bill that you

tear off and return with your check when you pay the

bill. The customer account number is coded on the

document, usually in machine-readable form, whichreduces the probability of human error in applying thecheck to the correct account.


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DATA INPUT

A number of actions can be taken toimprove the accuracy and efficiency ofdata input:Turnaround documents

Source data automation

Capture data with minimal human intervention.

EXAMPLES: ATMs for banking

Point-of-sale (POS) scanners in retail stores

Automated gas pumps that accept your credit card


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DATA INPUT

A number of actions can be taken toimprove the accuracy and efficiency

of data input:Turnaround documents


Well-designed source documents anddata entry screens


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DATA INPUT

A number of actions can be taken toimprove the accuracy and efficiency of

data input:Turnaround documents


Well-designed source documents and data

entry screensUsing pre-numbered documents or havingthe system automatically assign

sequential numbers to transactions


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THE DATA PROCESSING

Data input

Data storage



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DATA STORAGE

Data needs to be organizedfor easy and efficient access.

Lets start with somevocabulary terms with respect

to data storage.


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DATA STORAGE

Ledger

A ledgeris a file used to store cumulative

information about resources and agents. Wetypically use the word ledgerto describe the set of

t-accounts. The t-account is where we keep track

of the beginning balance, increases, decreases,

and ending balance for each asset, liability,owners equity, revenue, expense, gain, loss, and

dividend account.


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DATA STORAGE

Ledger

Following is an example of a ledger account for accounts receivable:

ACCOUNT: Accounts Receivable Account Number: 120

Date Description Post Ref Debit Credit Balance01/01/05 42,069.00

01/03/05 Sales S03 1,300.00 43,369.00

01/13/05 Cash collections CR09 4,600.00 38,769.00

01/23/05 Sales S04 5,600.00 44,369.00

GENERAL LEDGER


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DATA STORAGE

Ledger

General ledger

Thegeneral ledger is the summarylevel information for all accounts.

Detail information is not kept in this

account.


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DATA STORAGE

Ledger

General ledger

Example: Suppose XYZ Co. has three customers.Anthony Adams owes XYZ $100. Bill Brown

owes $200. And Cory Campbell owes XYZ $300.

The balance in accounts receivable in the general

ledger will be $600, but you will not be able to tellhow much individual customers owe by looking at

that account. The detail isnt there.


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DATA STORAGE

Ledger

General ledger

Subsidiary ledgerThe subsidiary ledgers contain the detail accounts

associated with the related general ledger account.

The accounts receivable subsidiary ledger willcontain three separate t-accountsone for

Anthony Adams, one for Bill Brown, and one for

Cory Campbell.


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DATA STORAGE

Ledger

General ledger

Subsidiary ledger

The related general ledger account is often called

a control account.

The sum of the subsidiary account balances

should equal the balance in the control account.


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DATA STORAGE

Ledger

General ledger

Subsidiary ledgerCoding techniques

Coding is a method of systematically assigning

numbers or letters to data items to help classifyand organize them. There are many types of

codes including sequence code, block codes, and

group codes.


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DATA STORAGE

Ledger

General ledger

Subsidiary ledgerCoding techniques

Group coding schemes are often used

in assigning general ledger account

numbers.


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DATA STORAGE

Ledger

General ledger

Subsidiary ledger

Coding techniques

Chart of accounts

The chart of accounts is a list of all general

ledger accounts an organization uses.

The structure of this chart is an important AIS

issue, as it must contain sufficient detail to meetthe organizations needs.


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DATA STORAGE

Journals

In manual systems and someaccounting packages, the first place

that transactions are entered is the

journal.


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DATA STORAGE

Audit trail

An audit trail exists when there is sufficient

documentation to allow the tracing of atransaction from beginning to end or from the

end back to the beginning.

The inclusion of posting references anddocument numbers enable the tracing of

transactions through the journals and ledgers

and therefore facilitate the audit trail.


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DATA STORAGE

Now that weve learned some storageterminology, lets return to the data storageprocess.

When transaction data is captured on asource document, the next step is to recordthe data in a journal.

A journal entry is made for each transactionshowing the accounts and amounts to becredited.


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DATA STORAGE

If you took a principles of financial accountingclass, you probably worked with journals thatlooked something like this:

01/15/10 Accounts receivable 2,200

Sales revenue 2,200

01/18/10 Cash 1,800

Accounts receivable 1,800

01/21/10 Salaries expense 900

Cash 900

DATA STORAGEYou may not have gotten much experience


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You may not have gotten much experiencewith special journals, but in most real-world

situations, journal entries really work like this.Entries are originally made in the general journalonly forNon-routine transactions.

Summaries of routine transactions

Routine transactions are originally entered inspecial journals. The most common special

journals are:Credit sales

Cash receipts

Credit purchases

Cash disbursements


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DATA STORAGE

Lets work through an examplewith a special journal. In this casewell use the sales journal.


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DATA STORAGE

On December 1, a sale is made to AvatarCompany for P800. Avatar Company wassent Invoice No. 201.

Page 5

Date

Invoice

Number

Account

Debited

Account

Number Post Ref. Amount

12/01/04 201 Lee Co. 120-122 800.00

Sales Journal


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DATA STORAGE

The general ledger account number for accountsreceivable is No. 120. Avatar Company was aboutthe 122nd customer, so their subsidiary accountnumber is 120-122.

Page 5

Date

Invoice

Number

Account

Debited

Account


12/01/10 201 Avatar 120-122 800.00

Sales Journal


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DATA STORAGE

The next sale on December 1 was made to ToyStor Co. for P700.

Page 5

Date

Invoice

Number

Account

Debited

Account


12/01/10 201 Avatar 120-122 800.00

12/01/10 202 ToyStor 120-033 700.00

Sales Journal


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DATA STORAGE

The third and final sale on December 1 was made to Karate Co. forP900.

Page 5

Date

Invoice

Number

Account

Debited

Account


12/01/10 201 Avatar 120-122 800.00

12/01/10 202 ToyStor 120-033 700.00

12/01/10 203 Karate 120-111 900.00

Sales Journal


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DATA STORAGE

Suppose the company making these sales poststransactions at the end of each day.Consequently, at days end, they will post eachindividual transaction to the accounts receivable

subsidiary ledger:An P800 increase in accounts receivable (debit) will be

posted to Avatars subsidiary account (120-122).

A P700 debit will be posted to ToyStors subsidiary

account (120-033).A P900 debit will be posted to Karates subsidiary

account (120-111).


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DATA STORAGE

Then a summary journal entry must be made tothe general journal. The sales for the period aretotaled. In this case, they add up to P2,400.

Page 5

Date

Invoice

Number

Account

Debited

Account


12/01/10 201 Avatar 120-122 800.00

12/01/10 202 ToyStor 120-033 700.0012/01/10 203 Karate 120-111 900.00

TOTAL 2,400.00

120/502

Sales Journal


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DATA STORAGE

The 120/502 that appears beneath the totalindicates that a summary journal entry is made inthe general journal with a debit to accountsreceivable (120) and a credit to sales (502).

Page 5

Date

Invoice

Number

Account

Debited

Account


12/01/10 201 Avatar 120-122 800.00

12/01/10 202 ToyStor 120-033 700.0012/01/10 203 Karate 120-111 900.00

TOTAL 2,400.00

120/502

Sales Journal


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DATA STORAGE

The entries in the general journal are periodically (orautomatically) posted to the general ledger. TheP2,400 debit to accounts receivable will be posted tothe accounts receivable control account, and the

P2,400 credit will be posted to the general ledgeraccount for sales.12/01/10 Accounts receivable 2,400

Sales revenue 2,400

12/01/10 Cash 1,800 Accounts receivable 1,800

12/01/10 Salaries expense 900

Cash 900

DATA STORAGE


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When routine transactions occur, they are recorded inspecial journals.

When non-routine transactions occur, they are recorded inthe general journal.

Periodically, the transactions in the special journal aretotaled, and a summary entry is made in the general

journal.The individual line items in the special journal are posted

to the subsidiary ledger accounts.

The items in the general journal are posted to the general

ledger.Periodically, the balances in the general ledger control

accounts are compared to the sums of the balances in therelated subsidiary accounts.


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COMPUTER-BASED STORAGE CONCEPTS

EntityAttribute

Record

Data Value

Field

File

Master FileTransaction File

Database


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An entity is something about whichinformation is stored.

In your universitys student information

system, one entity is the student. Thestudent information system storesinformation about students.

What are some other entities in your

student information system?


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Attributes are characteristics of interest withrespect to the entity.

Some attributes that a student informationsystem typically stores about the student entity

are:

Student ID number

Phone number

AddressWhat are some other attributes about students

that a university might store?


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A field is the physical space where an attribute isstored.

The space where the student ID number is storedis the student ID field.

Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50

328469993 SIMPSON ALICE 4053721111

328500732 ANDREWS BARRY 4057440236

529036409 FLANDERS CARLA 4057475863


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A record is the set of attributes stored for aparticular instance of an entity.

The combination of attributes stored for

Barry Andrews is Barrys record.

Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50

328469993 SIMPSON ALICE 4053721111328500732 ANDREWS BARRY 4057440236

529036409 FLANDERS CARLA 4057475863


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A data value is the intersection of the row andcolumn.

The data value for Barry Andrews phone numberis 405-744-0236.

Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50

328469993 SIMPSON ALICE 4053721111

328500732 ANDREWS BARRY 4057440236

529036409 FLANDERS CARLA 4057475863


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A file is a group of related records.

The collection of records about all studentsat the university might be called the student

file. If there were only three students andfour attributes stored for each student, thefile might appear as shown below:

Col. 1-9 Col. 10-30 Col. 31-40 Col. 41-50

328469993 SIMPSON ALICE 4053721111

328500732 ANDREWS BARRY 4057440236

529036409 FLANDERS CARLA 4057475863


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A master file is a file that stores cumulativeinformation about an organizations entities.

It is conceptually similar to a ledger in a manual

AIS in that:The file is permanent

The file exists across fiscal periods

Changes are made to the file toreflect the effects of new

transactions


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A transaction file is a file that containsrecords of individual transactions (events)that occur during a fiscal period.

It is conceptually similar to a journal in amanual AIS in that:

The files are temporary

The files are usuallymaintained for one fiscalperiod


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A database is a set of interrelated, centrally-coordinated files.

When files about students are integrated

with files about classes and files aboutinstructors, we have a database.

Student

File

Class

File

Instructor

File


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THE DATA PROCESSING

Data input

Data storage



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DATA PROCESSING

Updating data to record the occurrence ofan event, the resources affected by theevent, and the agents who participated,

e.g., recording a sale to a customer.Changing data, e.g., a customer address

Adding data, e.g., a new customer.

Deleting data, e.g., removing an oldcustomer that has not purchased anythingin 5 years.


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DATA PROCESSING

Updating can be done through severalapproaches:Batch processing


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DATA PROCESSINGBatch processing:

Source documents are grouped into batches,and control totals are calculated.

Periodically, the batches are entered into the

computer system, edited, sorted, and storedin a temporary file.

The temporary transaction file is run against

the master file to update the master file.Output is printed or displayed, with errorreports, transaction reports, and control

totals


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DATA PROCESSING


On-line Batch Processing


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DATA PROCESSING

On-line batch processing:

Transactions are entered into acomputer system as they occur and

stored in a temporary file.Periodically, the temporarytransaction file is run against the

master file to update the master file.The output is printed or displayed.


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DATA PROCESSING

Updating can be done through severalapproaches:

Batch processing

On-line Batch Processing

On-line, Real-time Processing


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DATA PROCESSING

On-line, Real-time Processing

Transactions are entered intoa computer system as theyoccur.

The master file is immediately

updated with the data fromthe transaction.

Output is printed or displayed.


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DATA PROCESSING


On-line Batch ProcessingOn-line, Real-time Processing

If youre going through enrollment,

which of these approaches would youprefer that your university was using?

Why?


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THE DATA PROCESSING

Data input

Data storage

Data processing

Information output


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INFORMATION OUTPUT

This output can be in the form of:Documents

Documents are records of transactions orother company data.

Documents generated at the end of thetransaction processing activities are known

as operational documents (as opposed tosource documents).


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INFORMATION OUTPUT


Reports

Reports are used by employees to controloperational activities and by managers to makedecisions and design strategies.

They may be produced on a regular basis, on anexception basis or on demand

Organizations should periodically reassess

whether each report is needed.


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INFORMATION OUTPUT


Reports

Queries Queries are user requests for specific pieces of

information.

They may be requested periodically or one time They can be displayed on monitor (softcopy) or

on screen (hardcopy)


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INFORMATION OUTPUT

Output can serve a variety of purposes:Financial statements can be provided to bothexternal and internal parties.

Some outputs are specifically for internal use: For planning purposes

Budgets: an entitys formal expression of

goals in financial terms Sales forecasts


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INFORMATION OUTPUT

Output can serve a variety of purposes:Financial statements can be provided toboth external and internal parties.

Some outputs are specifically for internaluse: For planning purposes

For management of day-to-day operations


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INFORMATION OUTPUT

Output can serve a variety of purposes:

Financial statements can be provided to both external and internal parties.

Some outputs are specifically for internal use:

For planning purposes


For control purposes

Performance reports are outputs that are usedfor control purposes.

These reports compare an organizations

standard or expected performance with itsactual outcomes.

Management by exception is an approach to

utilizing performance reports that focuses oninvestigating and acting on only thosevariances that are significant.


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INFORMATION OUTPUT

Output can serve a variety ofpurposes:

Financial statements can be providedto both external and internal parties.

Some outputs are specifically forinternal use:For planning purposes


For control purposes

For evaluation purposes

I O A IO OU U


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INFORMATION OUTPUT

Behavioral implications of managerialreports:YOU GET WHAT YOU MEASURE!

INFORMATION OUTPUT


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INFORMATION OUTPUT

Suppose an instructor wants to improve studentlearning. He decides to encourage better attendance by grading

students on attendance (i.e., measuring it).

The result will be better student attendance, i.e., you get

what you measure. The improved attendance may or may not improve learning

outcomes.

Students may be getting better grades when attendance ismeasured, but not learning more.

Some students may in fact reduce their studying becausethey believe they can use the attendance score to boosttheir grade. This behavior would be a dysfunctional resultof the measurement.

INFORMATION OUTPUT


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INFORMATION OUTPUT

Budgets can cause dysfunctionalbehavior.EXAMPLE: In order to stay within budget,

the IT Department did not buy a securitypackage for its system.

A hacker broke in and devastated some oftheir data files.

Critical security measures were foregonein order to meet budgetary goals.

The resulting costs far outweighed the

savings.

INFORMATION OUTPUT


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INFORMATION OUTPUT

Budgeting can also be dysfunctional inthat the focus can be redirected tocreating acceptable numbers instead

of achieving organizational objectives.Does this mean organizationsshouldnt budget?

INFORMATION OUTPUT


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INFORMATION OUTPUT

The saying goes, Not many people sitaround and have a roast goose fall in theirlap.

In other words, if you want a roast goose,you have to aim.

With financial results, youre also unlikely

to achieve when you dont aim.

Just be careful where you aim!

ROLE OF THE AIS


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ROLE OF THE AIS

The traditional AIS captured financialdata.Non-financial data was captured in other,

sometimes-redundant systemsEnterprise resource planning (ERP)systems are designed to integrate all

aspects of a companys operations(including both financial and non-financial information) with thetraditional functions of an AIS.


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Chapter Summary

What are the basic business activities inwhich an organization engages?

What role does the data processing cycle

play in organizing business activities andproviding information to users?

What is the role of the information

system and enterprise resource planningin modern organizations?


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Chapter 3:

Systems Development and

Documentation Techniques


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Chapter Outline

What is the purpose of documentation? Why do accountants need to understand

documentation?

What documentation techniques are usedin accounting systems?

What are data flow diagrams andflowcharts?

How are they alike and different?

How are they prepared?


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Types of Documentation Tools

Narrative (written description)

Flowcharts

Diagrams

Other written materials


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Types of Documentation Tool

Data flow diagrams

Graphical descriptions of the sources anddestinations of data. They show:Where data comes fromHow it flowsThe processes performed on itWhere it goes


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Types of Documentation Tool

Data flow diagrams

Flowcharts

Document flowcharts describe the flow of

documents and information betweendepartments or units. System flowcharts describe the relationshipbetween inputs, processing, and outputs for asystem.

Program flowcharts describe the sequence oflogical operations performed in a computerprogram.

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DATA FLOW DIAGRAMS

A data flow diagram (DFD)graphically describes the flow ofdata within an organization. It is

used to:Document existing systems

Plan and design new systems

There is no black-and-whiteapproach to developing a DFD.

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DATA FLOW DIAGRAMS

Customer1.0

Process

Payment

2.0

Update

A/R

Credit

Manager

Bank

Accounts

Receivable

Customer

payment

Remittance

data

Receivables

InformationDeposit

Example of a data flowdiagram of the customer

payment process

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DATA FLOW DIAGRAMS

A data flow diagram consists of fourbasic elements:

Data sources and destinations

Data flows

Transformation processes

Data stores

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DATA FLOW DIAGRAMS



Data flows


Data stores

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DATA FLOW DIAGRAMS

Data sources and destinationsAppear as squares

Represent organizations

or individuals that sendor receive data used or

produced by the system

An item can be both a source and a destination

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DATA FLOW DIAGRAMS

Customer1.0

Process

Payment

2.0

Update

A/R

Credit

Manager

Bank

Accounts

Receivable

Customer

payment

Remittance

data

Receivables

InformationDeposit

Can you tell which are

sources and which are

destinations?

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DATA FLOW DIAGRAMS



Data flows


Data stores

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DATA FLOW DIAGRAMS

Data flows Appear as arrows

Represent the flow of databetween sources anddestinations, processes, and datastores

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DATA FLOW DIAGRAMS

Customer1.0

Process

Payment

2.0

Update

A/R

Credit

Manager

Bank

Accounts

Receivable

Customer

payment

Remittance

data

Receivables

InformationDeposit

Does it appear that a data

flow can be two-way? If

so, how is it handled?

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DATA FLOW DIAGRAMS

If two data elements flow together, then the use of one data flowline is appropriate.

CustomerProcess

Payment

Cash Receipt & Remittance Slip

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DATA FLOW DIAGRAMS

If a data flow is two-way, use a bi-directional arrow.

Update

Receiv-

ables

General

Ledger

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DATA FLOW DIAGRAMS

If the data elements do not always flowtogether, then multiple lines will beneeded.

Customer

Process

Payment

Customer Inquiry

Customer Payment

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DATA FLOW DIAGRAMS



Data flows


Data stores

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DATA FLOW DIAGRAMS

Processes Appear as circles Represent the transformation of data

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DATA FLOW DIAGRAMS

Customer1.0

Process

Payment

2.0

Update

A/R

Credit

Manager

Bank

Accounts

Receivable

Customer

payment

Remittance

data

Receivables

Information

Deposit

Every process must have at

least one data inflow and at

least one data outflow. Why?

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DATA FLOW DIAGRAMS

Data stores Appear as two horizontal lines

Represent a temporary or

permanent repository of data

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DATA FLOW DIAGRAMS

Customer1.0

Process

Payment

2.0

Update

A/R

Credit

Manager

Bank

Accounts

Receivable

Customer

payment

Remittance

data

Receivables

InformationDeposit

Notice that the inflows

and outflows to the data

store are not labeled.

DATA FLOW DIAGRAMS

S bdi idi th DFD


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Subdividing the DFD

The highest level of DFD is called a context diagram. It provides a summary-level view of

the system.

It depicts a data processing systemand the external entities that are: Sources of its input

Destinations of its output

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DATA FLOW DIAGRAMS

PayrollProcessing

System

Depart-

ments

Human

Resources

Govt.

Agencies

Employees

Bank

Manage-

ment

Employee

checks

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O S

1.0

Update

empl.

Payrollfile

2.0

Pay

Employ-ees

5.0

Update

Gen.

Ledger

4.0

Pay

taxes

3.0

Prepare

reports

Employee/

Payroll file

General

Ledger

Human

Resources

Depart-ments Employees

Bank

Govt.

Agencies

Manage-

ment

Employee

Change

form

New employee

formTime

cards

Employee

paychecks

Payroll

check

Payroll

Disburse-

ment data

Payroll tax

disb. voucher

Tax report

& payment

Payroll

report

DATA FLOW DIAGRAMS


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1.0

Update

empl.

Payrollfile

2.0

Pay

Employ-ees

5.0

Update

Gen.

Ledger

4.0

Pay

taxes

3.0

Prepare

reports

Employee/

Payroll file

General

Ledger

Human

Resources

Depart-ments Employees

Bank

Govt.

Agencies

Manage-

ment

Employee

Change

form

New employee

formTime

cards

Employee

paychecks

Payroll

check

Payroll

Disburse-

ment data

Payroll tax

disb. voucher

Tax report

& payment

Payroll

report

DATA FLOW DIAGRAMS


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RULE 1: Understand the system. Observe theflow of information and interview peopleinvolved to gain that understanding.

RULE 2: Ignore control processes and controlactions (e.g., error corrections). Only verycritical error paths should be included.

RULE 3: Determine the system boundaries

where it starts and stops. If youre not sureabout a process, include it for the time being.

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RULE 4: Draw the context diagram first, and thendraw successively greater levels of detail.

RULE 5: Identify and label all data flows. Theonly ones that do not have to be labeled arethose that go into or come out of data stores.

RULE 6: Data flows that always flow togethershould be grouped together. Those that do not

flow together should be shown on separate lines.

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RULE 7: Show a process (circle) wherever a dataflow is converted from one form to another.Every process should have at least one incomingdata flow and at least one outgoing data flow.

RULE 8: Transformation processes that arelogically related or occur simultaneously can begrouped in one bubble.

RULE 9: Number each process sequentially. Aprocess labeled 5.0 would be exploded at thenext level into processes numbered 5.1, 5.2, etc.

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RULE 10: Process names should include actionverbs, such as update,prepare, etc.

RULE 11: Identify and label all data stores,whether temporary or permanent.

RULE 12: Identify and label all sources anddestinations. An entity can be both a sourceand destination. You may wish to include such

items twice on the diagram, if needed, to avoidexcessive or crossing lines.

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RULE 13: As much as possible, organize the flowfrom top to bottom and left to right.

RULE 14: Youre not likely to get it beautiful thefirst time, so plan to go through several iterationsof refinements.

RULE 15: On the final copy, lines should notcross. On each page, include:The name of the DFDThe date prepared

The preparers name

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Now that weve been through theguidelines for developing DFDs, lets goback to the chapter example and see if we

can re-create a part of it.You may wish to create a table with thefollowing headings to organize your

information:Data Inputs

Processes

Data Outputs

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Data Inputs Processes Data Outputs

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The first paragraph of the narrative for thepayroll process reads as follows:When employees are hired, they complete a new

employee form. When a change to an employeespayroll status occurs, such as a raise or a change inthe number of exemptions, human resourcescompletes an employee change form. A copy of

these forms is sent to payroll. These forms areused to create or update the records in theemployee/payroll file and are then stored in thefile. Employee records are stored alphabetically.

DATA FLOW DIAGRAMSh f h f h f h


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The first paragraph of the narrative for the

payroll process reads as follows:When employees are hired, they complete a newemployee form. When a change to an employeespayroll status occurs, such as a raise or a changein the number of exemptions, human resourcescompletes an employee change form. A copy ofthese forms is sent to payroll. These forms are

used to create or update the records in theemployee/payroll file and are then stored in thefile. Employee records are stored alphabetically.

The portion marked in red relates to activities that go on outside theboundaries of the payroll system. Consequently, these activities will not be

included on the DFD.

DATA FLOW DIAGRAMSh f h f h f h


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payroll process reads as follows:When employees are hired, they complete a newemployee form. When a change to an employeespayroll status occurs, such as a raise or a changein the number of exemptions, human resourcescompletes an employee change form. A copy ofthese forms is sent to payroll. These forms are


The portion marked in red relates to

activities that go on outside theboundaries of the payroll system.

Consequently, these activities will

not be included on the DFD.

DATA FLOW DIAGRAMS


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employee form. When a change to an employeespayroll status occurs, such as a raise or a changein the number of exemptions, human resourcescompletes an employee change form. A copy of


DATA FLOW DIAGRAMS


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employee form. When a change to an employeespayroll status occurs, such as a raise or a changein the number of exemptions, human resourcescompletes an employee change form. A copy of


The portion marked in red suggests two

data flows coming into the payroll

process (new employee forms and

employee change forms). The source of

the inflows is the human resourcesdepartment.

DATA FLOW DIAGRAMS


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New employee

forms and

employee changeforms

(from H.R.

Dept.)

DATA FLOW DIAGRAMS


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payroll process reads as follows:When employees are hired, they complete a newemployee form. When a change to an

employees payroll status occurs, such as a raiseor a change in the number of exemptions,human resources completes an employeechange form. A copy of these forms is sent to

payroll. These forms are used to create orupdate the records in the employee/payroll fileand are then stored in the file. Employeerecords are stored alphabetically.

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payroll process reads as follows:When employees are hired, they complete a newemployee form. When a change to an

employees payroll status occurs, such as a raiseor a change in the number of exemptions,human resources completes an employeechange form. A copy of these forms is sent to


The sentence marked in red suggests

a process (update employee records)

with the data outflow going to a data

store (the employee/payroll file).

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New employee

forms and

employeechange forms

(from H.R.

Dept.)

Update records

(read from

file and

record)

Updated

employee/

payroll file

DATA FLOW DIAGRAMS


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payroll process reads as follows:When employees are hired, they complete anew employee form. When a change to an

employees payroll status occurs, such as araise or a change in the number of exemptions,human resources completes an employeechange form. A copy of these forms is sent to


DATA FLOW DIAGRAMS


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employee form. When a change to an employees

payroll status occurs, such as a raise or a change inthe number of exemptions, human resourcescompletes an employee change form. A copy ofthese forms is sent to payroll. These forms are


The final sentence in this paragraph

provides information about the physical

storage of the data. Physical informationis utilized in flowcharts but not in data

flow diagrams.

DATA FLOW DIAGRAMS


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New employee forms and

employee change forms

(from H.R. Dept.)

Update records (read from

file and record)

Updated employee/

payroll file

We will not do the entire DFD, however, you could finish this table by

reading the remainder of the narrative in Table 3-1 in your textbook. The

portion of the table completed so far allows us to draw the segment of the

DFD that is highlighted on the following slide.

DATA FLOW DIAGRAMS


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1.0

Update

empl.

Payroll

file

2.0

Pay

Employ-

ees

5.0

Update

Gen.

Ledger

4.0

Pay

taxes

3.0

Prepare

reports

Employee/

Payroll file

General

Ledger

Human

Resources

Depart-

ments Employees

Bank

Govt.

Agencies

Manage-

ment

Employee

Change

form

New employee

form

Time

cards

Employee

paychecks

Payroll

check

Payroll

Disburse-

ment data

Payroll tax

disb. voucher

Tax report

& payment

Payrollreport

DATA FLOW DIAGRAMS


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Keep the following in mind as youdevelop your DFD:Remember to ignore control activities,

such as error correction processes.Some data inputs and outputs will notappear on the first level of the DFD but

appear as the processes are explodedinto greater levels of detail.

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The data flow diagram focuses onthe logical flow of data.

Next, we will discuss flowcharts,which place greater emphasis onphysical details.

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