Accounting Information Systems – Chapters 1 & 2 Vocabulary

Accounting Information System (AIS)

A set of formal processes for collecting, storing, processing, and reporting financial data to internal and external users.

Transaction

An event that affects or is of interest to the organization and is processed by its information system as a unit of work.

Financial Transaction

An economic event that affects assets or equities, is recorded in the accounts, and is measured in monetary terms.

Nonfinancial Transaction

An event processed by the information system that does not meet the definition of a financial transaction.

Transaction Processing System (TPS)

AIS subsystem that captures and processes business events and produces documents and reports for daily operations.

General Ledger/Financial Reporting System (GL/FRS)

AIS subsystem that summarizes transaction data and produces traditional external financial statements.

Management Reporting System (MRS)

AIS subsystem that provides internal managers with special-purpose financial reports for decision making.

Management Information System (MIS)

System that processes nonfinancial transactions to support managerial planning, control, and decision making.

Revenue Cycle

TPS cycle that handles selling goods, delivering services, and collecting cash from customers.

Expenditure Cycle

TPS cycle that manages the purchase and payment of resources such as inventory, labor, and assets.

Conversion Cycle

TPS cycle that converts raw materials and labor into finished goods through production and cost accounting.

Data

Raw facts that may or may not be processed and that have no direct effect on a user’s actions.

Information

Processed data that influence the actions or decisions of users.

Feedback

Output that is returned to the system as input to initiate or modify a process.

End Users

People who use information produced by a system; includes internal and external users.

External Users

Individuals outside the organization—such as investors, creditors, and regulators—who receive system output.

Internal Users

Managers and employees within the organization who use system information for operations and control.

Data Collection

Operational stage that ensures event data entering the system are valid, complete, and error-free.

Data Processing

Activities that transform raw data into meaningful information by classifying, sorting, calculating, or summarizing.

Database Management

Tasks of storing, retrieving, and deleting data in an organized repository for shared access.

Information Generation

Compiling, arranging, and presenting information to users in documents, reports, or on screens.

Relevance

Attribute of information that makes it useful to a specific decision or task.

Timeliness

Characteristic of information that is available before it loses ability to influence decisions.

Accuracy

Freedom from material error in information.

Completeness

Degree to which information contains all essential facts required for the task.

Summarization

Appropriate aggregation of data to meet the needs of the user’s level of responsibility.

Information Objectives

Goals common to all systems: support operations, management decision making, and stewardship reporting.

Stewardship

Management’s responsibility to properly manage resources and report on activities to owners and stakeholders.

Information System

Formal procedures by which data are collected, stored, processed, and distributed to users.

Sarbanes-Oxley Act (SOX)

2002 U.S. law that established new corporate governance and internal control requirements for public companies.

Corporate Governance

Set of policies and processes that direct and control a company’s activities and protect stakeholder interests.

Internal Control

Processes designed to provide reasonable assurance of achieving objectives in reporting reliability, asset safeguarding, and compliance.

Domain Expert

Professional with deep knowledge of business processes who participates in system design; accountants often serve this role.

External Audit

Independent attestation that expresses an opinion on the fairness of financial statements.

Internal Audit

Appraisal function within an organization that examines and evaluates its activities and controls.

Advisory Services

Non-audit professional services that improve client operations; restricted for audit clients under SOX.

Attest Function

Role of the external auditor in issuing a formal opinion on financial statement fairness.

Auditor Independence

Freedom from factors that might influence an auditor’s objectivity and opinion.

Audit Committee

Subcommittee of the board of directors responsible for hiring auditors and overseeing financial reporting.

IT Audit

Examination of an organization’s computer-based information system and related controls.

Accounting Independence

Requirement that accounting activities remain separate from functions that manage or custody assets.

Data Sources

Financial transactions that enter the information system from internal or external entities.

External Financial Transaction

Economic exchange with parties outside the organization, such as a sale or purchase.

Internal Financial Transaction

Movement or conversion of resources within the organization, such as issuing raw materials to production.

Source Document

Original record that captures and formalizes transaction data at the time of occurrence.

Product Document

System output created for distribution to users, such as an invoice or paycheck.

Turnaround Document

Product document sent to an external party that is later returned as a source document, e.g., remittance advice.

Special Journal

Record that captures frequent, homogeneous transactions such as sales, purchases, or cash receipts.

General Journal

Journal for infrequent, nonroutine, or adjusting entries not recorded in special journals.

Journal Voucher

Written authorization that supports a general journal entry, often used in computerized systems.

Register

Log or special journal used to record specific types of transactions; e.g., payroll register.

Ledger

Book of accounts that shows the balances and changes in each account.

General Ledger

Ledger containing control accounts for every account of the organization.

Subsidiary Ledger

Detailed ledger that supports a general ledger control account with individual balances.

Control Account

General ledger account whose balance equals the sum of the balances in a related subsidiary ledger.

Audit Trail

Chain of evidence that links financial statement balances to individual source documents.

Master File

Permanent or semi-permanent computer file containing data about accounts, such as customer or inventory records.

Transaction File

Temporary file containing records of transactions to update master files.

Reference File

File that stores standards or constant data used in processing transactions, such as tax tables.

Archive File

Historical file of past transactions retained for future reference and audit trail purposes.

Data Attribute

Elementary piece of data that describes an entity, such as customer name.

Record

Complete set of attributes for one entity instance in a file.

File

Collection of related records; in databases, often called a table.

Primary Key

Unique identifier attribute that distinguishes one record from all others in a file.

Secondary Key

Non-unique attribute used for searching or sorting records.

Data Hierarchy

Logical structure of data: attribute → record → file → database.

Flat-File Model

Legacy approach where individual data files are not integrated and each application has its own data set.

Data Redundancy

Unnecessary duplication of data in multiple files, leading to storage waste and inconsistency.

Task-Data Dependency

Inability to obtain new information because data are owned by one application and not shared.

Database Model

Concept of storing organizational data in a centralized shared repository accessible to multiple users.

Database Management System (DBMS)

Software that controls access to, and integrity of, a database.

Centralized Data Processing

Configuration in which all data processing is performed by computers housed in one data center.

Distributed Data Processing (DDP)

Configuration in which users process transactions locally on departmental computers networked together.

Systems Development Function

Process of acquiring or building information systems to meet user needs.

Systems Maintenance Function

Modification of existing systems to correct errors and adapt to changing requirements.

Systems Development Life Cycle (SDLC)

Formal process for planning, creating, testing, and deploying information systems.

Commercial Software

Prewritten, vendor-supplied application package sold to many organizations.

Turnkey System

Commercial software that can be implemented with little or no modification by the user.

Custom Software

Application program developed in-house or by a contractor for a specific organization’s needs.

Enterprise Resource Planning (ERP)

Modular commercial system that integrates key business processes and data across the organization.

IT Outsourcing

Practice of contracting a third party to provide computing services previously performed in-house.

Cloud Computing

On-demand network access to shared computing resources delivered over the Internet.

Software as a Service (SaaS)

Cloud model delivering application software over the Internet on a subscription basis.

Infrastructure as a Service (IaaS)

Cloud model providing virtualized computing resources such as servers and storage.

Platform as a Service (PaaS)

Cloud model offering hardware plus development tools for building and hosting applications.

Data Processing Function

IT activity that applies hardware, software, and personnel to process transactions and produce information.

Database Administration

Independent group responsible for security and integrity of the shared database.

Network Administration

Function that configures, monitors, and secures an organization’s computer networks.

Preventive Maintenance

Scheduled servicing and repair intended to prevent equipment breakdowns.

Quality Control (production)

Function that monitors manufacturing to ensure products meet specifications.

Production Planning

Scheduling the flow of materials, labor, and machinery to meet production requirements efficiently.

Materials Management

Planning and controlling the organization’s inventory of materials to meet production needs.

Purchasing Function

Department responsible for ordering inventory and other resources from suppliers.

Receiving Function

Department that accepts deliveries, counts items, and inspects their condition.

Stores Function

Department holding physical custody of inventory awaiting production use.

Distribution Function

Activity of delivering finished goods to customers accurately and promptly.

Marketing Function

Strategic and operational activities related to product promotion, advertising, and market research.

Human Resource Management

Function that recruits, trains, compensates, and counsels employees.

Finance Function

Management of organization’s financial resources, banking, and investment activities.

Cost Accounting

System for tracking, recording, and analyzing costs associated with products or services.