Chapter 1

Accounting Information Systems: An Overview

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Learning Objectives
Distinguish between data and information.
Discuss the characteristics of useful information. Explain how to determine the value of information.

Explain the decisions an organization makes and the information needed to make them. Identify the information that passes between internal and external parties and an AIS. Describe the major business processes present in most companies. Explain what an accounting information system (AIS) is and describe its basic functions. Discuss how an AIS can add value to an organization. Explain how an AIS and corporate strategy affect each other. Explain the role an AIS plays in a companys value chain.

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What Is a System?

System A set of two or more interrelated components interacting to achieve a goal Goal Conflict Occurs when components act in their own interest without regard for overall goal Goal Congruence Occurs when components acting in their own interest contribute toward overall goal
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Data vs. Information

Data are facts that are recorded and stored. Insufficient for decision making. Information is processed data used in decision making. Too much information however, will make it more, not less, difficult to make decisions. This is known as Information Overload.

Information

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Value of Information

Benefits
Reduce Uncertainty Improve Decisions Improve Planning Improve Scheduling

Costs
Time & Resources Produce Information Distribute Information

Benefit $s > Cost $s

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What Makes Information Useful?

Necessary characteristics:
Relevant The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Reliable The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent. Complete The inclusion in reported information of everything material that is necessary for faithful representation of the relevant phenomena.

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What Makes Information Useful?

Timely Having information available to a decision maker before it loses its capacity to influence decisions. Understandable The quality of information that enables users to perceive its significance. Verifiable The ability through consensus among measurers to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias. Accessible Available when needed (see Timely) and in a useful format (see Understandable).

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Business Process

Systems working toward organizational goals

Financing

Revenue

Human Resources

Expenditure

Production

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Business Process Cycles

Revenue Expenditure Production Human Resources Financing

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Business Transactions
GiveGet exchanges Between two entities Measured in economic terms

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Business Cycle GiveGet

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Accounting Information Systems

Collect, process, store, and report data and information If Accounting = language of business AIS = information providing vehicle Accounting = AIS

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Components of an AIS
People using the system Procedures and Instructions
For collecting, processing, and storing data

Data Software Information Technology (IT) Infrastructure

Computers, peripherals, networks, and so on

Internal Control and Security

Safeguard the system and its data

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AIS and Business Functions

Collect and store data about organizational:
Activities, resources, and personnel

Transform data into information enabling

Management to: Plan, execute, control, and evaluate Activities, resources, and personnel

Provide adequate control to safeguard

Assets and data

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AIS Value Add

Improve Quality and Reduce Costs Improve Efficiency Improve Sharing Knowledge Improve Supply Chain Improve Internal Control Improve Decision Making

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Improve Decision Making

Identify situations that require action. Provide alternative choices. Reduce uncertainty. Provide feedback on previous decisions. Provide accurate and timely information.

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Value Chain
The set of activities a product or service moves along before as output it is sold to a customer
At each activity the product or service gains value

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Value ChainPrimary Activities

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Value ChainSupport Activities

Firm Infrastructure

Technology

Human Resources

Purchasing

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Value Chain

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AIS and Corporate Strategy

Organizations have limited resources, thus investments to AIS should have greatest impact on ROI. Organizations need to understand: IT developments Business strategy Organizational culture Will effect and be effected by new AIS

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