You can organize music within your MP3
player according to various playlists, for exam-
ple, your favorite songs, genre, artist, or album.
Playlists allow you to quickly retrieve music
for listening. Computer files are organized
within folders for the same reason. Information,
like music or digital files, is organized into cat-
egories to simplify retrieval and reporting. In
the same way that you organize your digital in-
formation, a business also needs to organize
their transactions. For example, when you shop
atWal-MartorTarget, buy gas at an Exxon-
MobilorBPstation, buy groceries at Krogeror
Supervalu, or buy a ticket to fly on Southwest
AirlinesorAmerican Airlines, you enter into
a transaction that is captured, processed, and
recorded by the business. At Southwest
Airlines, for example, most airline tickets are
sold over the Internet through credit card trans-
actions. But the transaction processing doesn’t
stop at this point. The credit card transaction
records the cash received for the ticket and re-
serves space on a future flight. At the time the
ticket is sold, the airline has recorded unearned
revenue, because it still owes the service. When
the passenger boards the plane, the ticket is
scanned, and another transaction is recorded to
earn the revenue.
While all airlines process transactions in
similar ways, this doesn’t mean that all airlines
are created equal. Southwest Airlines has been
one of the few profitable airlines in the United
States. So what has been the key to Southwest’s
success over the years? Southwest, more than
its competitors, has successfully developed a
low-cost model that involves:
a.using only Boeing 737 aircraft to simplify
maintenance and crew training.
b.using secondary airports in major cities to
reduce ground costs.
c.maximizing airplane flying time by mini-
mizing gate time.
d.avoiding commission-based ticket sales to
travel agents.
e.minimizing baggage handling.
For example, Southwest’s average passenger
fare during 2004 was just over $88—and it
earned a profit! Indeed, Southwest competes
effectively with bus fares.
As a customer, understanding how trans-
actions are processed by a business’s informa-
tion system is not usually important to you. If
you own a business or work for a business,
however, understanding the accounting infor-
mation system is important. For example, you
need to understand how to interpret and ana-
lyze business reports, which includes under-
standing how the reports were generated and
whether the reports reflect all the relevant
data necessary to make business decisions.
In this chapter, we begin by discussing
the nature of business information systems.
We then describe the nature of accounting in-
formation systems and their subsystems, in-
cluding management reporting, transaction
processing, and financial reporting systems.
Our primary focus in this chapter is on the ele-
ments of transaction processing and financial
reporting systems. The elements of these sys-
tems are the same for Southwest Airlines and
Wal-Mart as for the local convenience store or
hardware store.Southwest Airlines
© JOSEPH KACZMAREK/AP PHOTO