BASIC COMPUTER AND IT CONCEPTS (STUDY OBJECTIVE 5)

Nearly all accounting information systems rely on computer hardware and software to track business processes and to record accounting data. Therefore, it is important for you to have some understanding of basic computer terminology and concepts. Many details about IT systems are described in later chapters of this book, but some of the basic concepts are included in this chapter.

BASIC COMPUTER DATA STRUCTURES

Accounting data are stored in computer files, and an accountant should have some understanding of data structures in IT systems. Data are organized in a data hierarchy in computer systems, as follows:

1. Bit, or binary digit
2. Byte
3. Field
4. Record
5. File
6. Database

A bit is a shortened reference to binary digit. The bit is the smallest unit of information in a computer system. A bit can have only one of two values: zero or one. All data in a computer system are reduced to a set of bits, or zeros and ones. A byte is a unit of storage that represents one character. In most computer systems, a byte is made up of eight bits. For example, the character “A” would be represented in a computer system by a set of eight bits. Every character, including letters, numbers, and symbols, are represented by a byte.

A field is one item within a record. For example, last name is a field in a payroll record, and description is a field in an inventory record. A record is a set of related fields for the same entity. All fields for a given employee form a payroll record. Such fields would be employee number, last name, first name, Social Security number, pay rate, and year-to-date gross pay. The entire set of related records form a file. The set of all employee records forms a payroll file.

Thus, the data structure hierarchy is as follows: Eight bits are a byte, a collection of related bytes is a field, a set of related fields is a record, and a set of related records is a file. The entire collection of files is called a database. A database is a collection of data stored on the computer in a form that allows the data to be easily accessed, retrieved, manipulated, and stored. The term database usually implies a shared database within the organization. Rather than each computer application having its own files, a database implies a single set of files that is shared by each application that uses the data. A relational database stores data in several small two-dimensional tables that can be joined together in many varying ways to represent many different kinds of relationships among the data. An example of a relationship in data is a single customer having more than one order. A relational database is intended to allow flexibility in queries. This means that managers or users can query the database for information or reports as needed.

The computer files of traditional accounting software systems use master files and transaction files. The master files are the relatively permanent files that maintain the detailed data for each major process. For example, a payroll master file contains a record of each employee's relatively permanent information necessary to process payroll transactions such as name, address, pay rate, and year-to-date amounts. Thus, the master file is much like a subsidiary ledger. The transaction file is the set of relatively temporary records that will be processed to update the master file. A payroll transaction file would contain the set of hours worked by each employee for a particular pay period. The transaction file is processed against the master file, and employee year-to-date balances are updated in the master file.

Not all modern IT systems and accounting software implemented within the last decade use master files and transaction files. Some systems use a database approach to processing and storing accounting data, storing the many details of financial transactions in huge databases. These systems do not necessarily maintain computerized ledgers and journals. Because all transaction data are stored in databases, when needed, the transactions can be organized or summarized by the important dimension requested. For example, the sales transactions that meet certain criteria can be extracted from the database—it is not necessary to construct or review a sales ledger.

FILE ACCESS AND PROCESSING MODES

In computer systems, files are organized in one of two ways which determine the type of access provided. Sequential access files store records in sequence, with one record stored immediately after another. The sequence is usually based on a key field such as employee number or customer number. Sequential files are read and written in sequence. This means that for the user to access record number 500, the previous 499 records must first be read by the computer. Sequential access is faster when the records are always accessed and used in sequential order.

Random access files (sometimes called direct access files) are not written or read in sequential order. The records are stored in random order on a disk media. Since records are distributed randomly on the disk surface, an underlying system enables the computer to find a record among the random records, using either a randomized formula or a hashing scheme to assign a specific address to each record. A formula generates the specific address for each record. When that record is requested, the formula can be recalculated to find the address of the requested record. If records are to be accessed randomly, then random access is a more efficient access method than sequential access.

There are situations where the same files may sometimes be accessed either way, sequentially or randomly. In cases where both access methods are necessary, some systems use the indexed sequential access method (ISAM). ISAM files are stored sequentially, but can also be accessed randomly because an index allows random access to specific records.

There are also two modes of processing transactions in accounting systems: batch processing and online processing. Batch processing requires that all similar transactions be grouped together for a specified time; then this group of transactions is processed as a batch. Batch processing is best suited to applications having large volumes of similar transactions that can be processed at regular intervals. Payroll processing is a good example of a system well suited for batch processing. All time cards can be grouped together for a two-week pay period, and all payroll processing takes place on the entire set of time cards.

Online processing is the opposite of batch processing. Transactions are not grouped into batches, but each transaction is entered and processed one at a time. Some online processing systems are also real-time processing systems, meaning that the transaction is processed immediately, and in real time, so that the output is available immediately. Online processing is best suited to applications in which there is a large volume of records, but only a few records are needed to process any individual transaction.

Batch processing is best suited to sequential access files, and online processing is best suited to random access files. If transactions are to be processed online and in real time, then the computer must access a single record immediately. An online, real-time system requires direct access files. As an example, think about placing a telephone call to reserve an airline ticket. The airline employee must be able to access the specific flight that you request. If flight records were stored sequentially, the computer system would need to read all records in sequence until it reached the requested record. This system would be too inefficient. If the flight records are stored randomly, a hashing index exists to locate any single record quickly.

Online processing usually requires random access files, but batch processing can use either random or sequential access files. In many cases, ISAM files are used, since they offer both random and sequential access. For example, payroll processing requires access to employee records in sequence. This operation would be most efficient as a batch processing system that accesses and processes records sequentially. However, the human resources department would occasionally need to access an individual employee records. For example, when an employee receives a raise, the employee record must be accessed to update the pay rate field. Random access would allow the system to quickly locate that single employee record.

DATA WAREHOUSE AND DATA MINING

A data warehouse is an integrated collection of enterprise-wide data that includes five to ten fiscal years of nonvolatile data, used to support management in decision making and planning. The data warehouse can be better understood by comparing it with the operational database. The operational database contains the data that are continually updated as transactions are processed. Usually, the operational database includes data for the current fiscal year and supports day-to-day operations and record keeping for the transaction processing systems. Each time a new transaction is completed, parts of the operational database must be updated. For example, recording a sale means that sales, inventory, and receivables balances must be updated. This type of update does not occur in a data warehouse.

The data in the data warehouse are said to be enterprise-wide because the data are pulled from each of the operational databases and maintained in the data warehouse for many fiscal periods—ideally, five to ten years. The data in the data warehouse are retrieved from sales order processing, inventory systems, receivables, and many other transaction-processing systems within the organization. The data in a data warehouse are called nonvolatile because they do not change rapidly in the same way that operational data change. Periodically, new data are uploaded to the data warehouse from the operational data; but other than this updating process, the data in the data warehouse do not change.

The data warehouse is used by management to do data mining. Data mining is the process of searching data within the data warehouse for identifiable patterns that can be used to predict future behavior. Although there are many reasons a company might want to know future behavior, the most popular use of data mining is to predict the future buying behavior of customers. If businesses are able to more accurately predict customer buying trends, they can plan appropriately to produce, distribute, and sell the right products to customers at the right time. For example, by examining customer buying patterns from the past few periods of sales, a grocery chain might be able to more accurately predict which products sell better during hot weather periods. The company might find that ice cream sales increase by a large percentage when the temperature exceeds 80 degrees, and therefore it would be able to better plan the amount of ice cream to buy as the weather changes.

NETWORKS AND THE INTERNET

A computer network is two or more computers linked together to share information and/or resources. There are several types of computer networks, but the types most important to the topic of accounting information systems are local area network (LAN), the Internet, extranet, and intranet. A LAN is a computer network that spans a relatively small area. Most LANs are confined to a single building or group of buildings and are intended to connect computers within an organization. However, one LAN can be connected to other LANs over any distance via other network connections. A system of LANs connected in this way is called a WAN, or wide area network.

The Internet is the global computer network, or “information super-highway.” The Internet developed from a variety of university- and government sponsored computer networks that have evolved and are now made up of millions upon millions of computers and subnetworks throughout the world. The Internet is the network that serves as the backbone for the World Wide Web (WWW).

An intranet is a company's private network accessible only to the employees of that company. The intranet uses the common standards and protocols of the Internet. However, the computer servers of the intranet are accessible only from internal computers within the company. The purposes of an intranet are to distribute data or information to employees, to make shared data or files available, and to manage projects within the company.

THE REAL WORLD

An extranet is similar to an intranet except that it offers access to selected outsiders, such as buyers, suppliers, distributors, and wholesalers in the supply chain. Extranets allow business partners to exchange information. These business partners may be given limited access to company servers and access only to the data necessary to conduct supply chain exchanges with the company. For example, suppliers may need access to data pertaining to raw material inventory levels of their customers, but they would not need access to customers' finished product inventory levels. Conversely, a wholesaler within the supply chain may need access to the manufacturer's finished product inventory, but it would not need access to raw material inventory levels.

A cloud computing environment is a contemporary type of computer infrastructure used by a growing number of companies. Cloud computing involves the use of shared services, software and/or data stored on servers at a remote location. These resources are accessible over a network such as the Internet.

These networks are an important part of the infrastructure that allows organizations to effectively use IT systems. The networks allow the IT enablement of business processes. For example, the remote order-taking system described at the beginning of this chapter employs voice-over Internet protocol (VoIP) technology. VoIP uses the Internet to transmit voice telephone data. The IT enabling technologies described in the next section utilize some or all of these types of networks.