DATABASES AND ACCOUNTING SYSTEMS

Database Accounting Systems

Most accounting students learn the mechanics of accounting using the tools of manual double entry bookkeeping such as journals and ledgers Businesses saw the advantages of relational databases for all their information processing needs. Consolidate data and data-handling operations

Events-based Theories of Accounting

Over the past thirty years, researchers such as William McCarthy and George Sorter have developed and refined various events-based approaches to accounting theory. Provides a solid theoretical underpinning for accountants increasing use of relational databases to perform accounting tasks Objectives: Accountants should strive to store all relevant attributes of economic events in a readily accessible form

Double Entry Bookkeeping vs. Database Accounting

Double-entry bookkeeping provided an excellent method for recording transactions

Developed 500 years ago High cost of gathering information Recording transactions was a time-consuming task Quickly identify essential elements of transactions Capture and store key attributes of transactions in a highly aggregated form Cost of information gathering a affordable levels Debit-credit balancing check provided an important internal control feature

Double Entry Bookkeeping vs. Database Accounting

Computerized transaction processing

Easily
Bar

captures a wide variety of information

code readers

Reduces

cost of acquiring and storing multiple attributes of each economic event

Case study

Most sales transactions begin when customer sends a purchase order. If the firm receiving the purchase order has the goods in stock and finds the customers credit to be acceptable, the firm ships the ordered goods and invoices the customer.

Double-entry bookkeeping system

General Journal Entry Date Account

Debit
Amount

Credit
Amount

Date

Accounts Receivable Sales Explanation

Transaction due Names of the accounts debited Names of the accounts credited Transaction amount Explanation of the transaction

Double-entry bookkeeping system

Specialized journals and subsidiary ledgers

Sales

journal Subsidiary ledger

Account

code Customers name

Database accounting system

Store many more attributes of the sales transaction than a journal entry can store.
Data

is stored in an atomic form Store multiple attributes in multiple tables

Establish

a primary key

One or more fields in a table that provides a unique identifier for each row in the table

Advantages of database accounting systems

Reduce data storage costs

Stores

data only once

Eliminate data redundancy Eliminate data inconsistencies Avoid duplicate processing Ease add, delete update data maintenance tasks Make data independent of applications Centralize data management Centralize data security

Advantages of database accounting systems

Ease report modifications and updates Provided ad hoc query capabilities Facilitate cross-functional data analysis Permit multiple users simultaneous data access

Disadvantages of Database Accounting Systems

Greater hardware requirements The database software itself Employing a database administrator System operation becomes critical Incorrect data entry corrupts many users work Territorial disputes over data ownership may arise

Centralization of data and security control

Increases risk Contingency plans

Back-up Recovery

Security

Business Activity Classifications

Service Firms

Simplest form of business activity No need to track inventory Buy and sell Track revenues , inventory, sales and expenses Cost of goods Production of goods

Merchandising Firms

Manufacturing Firms

Purchase of raw materials and labor Incurring other manufacturing costs Processing raw materials, labor and other cost into goods Selling the finished goods

Transaction cycles

Revenue cycle Purchase cycle Payroll cycle Production cycle

Accounting Information Systems and Database Systems

Events accounting
Storing

data about an economic event REA Accounting Model

Aggregations of data

Database Management systems

Provide software to:

Store Retrieve Modify

Pre-DBMS Data Acquisition and Reporting

Flat

Files (1960s) Programs were written in Common Business Oriented Language (COBOL)

Functions of Database Management System

Efficient data maintenance User-accessible catalog Concurrency control Transaction support Recovery services Security and authorization services Integrity facilities

Advantages of DBMS

Subschema
A

pseudo table that appears to the user to be the real table the details of physical storage

Data independence
Hide

Relational DBMS

Late 1960s and early 1970s

Dr.

E.F. Codd
representation of database system

Data model
Abstract
Description

of data Methods of accessing the data

Hierarchical model Network model Relational model - Logical and physical characteristics of the database are distinct

Database objects
Formal term Relation Tuple Attribute Less formal term Table Row Column Data processing term File Record field

Database objects

Entries must be single valued Each attribute has a distinct name Every entry in a column contains a value for that column only and values are of the same data type Order of the rows are unimportant Order of columns are unimportant Each row is unique