Question

The development of accounting information systems is much more than the software for ledger posting and report formation. It also involves establishing procedures for capturing data and distribution, as well as analysis of accounting information. In an accounting information system, there are three basic entities that need to be considered when specifying a system, namely, transactions, account and processing period. Outline the relationship between these three entities.

(Outline a range of considerations for developing accounting system specifications).

Answer 1

A number of accounting software packages are available offering a variety of features. However, these software pack­ages offer only the structure for accounting information systems. At the most, they reduce the programming effort for accounting information systems.

The development of accounting information systems is much more than the software for ledger posting and report formation. It also involves establishing procedures for capturing data and distribution, as well as analysis of accounting information, prepare budget/forecast report and planning for decision making.

In an accounting information system, there are three basic entities, namely, transactions, account and processing period. Transactions can give effective accounts that have activities in different periods.

The transactions shall be of different kinds, such as receipts, pay­ments, sales, purchase, acquisition of assets or repayment of liabili­ties, etc. Simi­larly, accounts can be of different kinds, such as assets, liabilities, revenue and expense. Each of these accounts are broadly divided into heads, sub-heads, sub-sub heads.The details are worked out at the time of designing the databases.

In order to develope Information Systems of the organisation, essential to base the activity analysis on the basic entities. The next level of activity analysis involves identification of the life-cy­cle activities.

Transactions has divided into below life cycles:

1) Purchasing life cycle

2) Production life cycle

3) Revenue life cycle

4) Investment life cycle

Similarly Processing has divided into below life cycles:

1) Planning and Control life cycle

2) Internal and external reporting life cycle

These life cycle activities are on-going activities and are performed continuously. Each of these activities may be sequentially related to some other activities. The third level of activity analysis involves splitting of the life-cycle activities into functions.

For example, each type of transaction must be initiated and recognised; then the data regarding the transaction must be captured, coded for future clas­sification, classified, summarised and reported. These functions are to be performed differently for different types of transactions. The process of defining the functions focuses only on those activities that create, update or use information in the database of the enter­prise.

At this level of activity analysis, the activities are self con­tained, have clearly defined starting and ending events or nodes and an identifiable person or a group of persons responsible for performing the function.

These functions can then be divided into sub-functions until the functions are specific enough to define the module for computer programs. The splitting of life-cycle activities into functions and sub-functions helps in identification of functions that are repeated in more than one life-cycle activity.

Conclusion: In an accounting information system, all three basic entities need to be considered when specifying a system, namely, transactions, account and processing period as they are interlinked to each other.