ACCOUNTING

INFORMATION AIS
SYSTEMS
LEARNING OBJECTIVES
1. Explain what an accounting information system (AIS) is.
2. Explain why studying AIS is important.
3. Discuss the role played by the AIS in a company’s value
chain and explain how the AIS can add value to a
business.
4. Explain the three basic functions performed by an
accounting information system (AIS).
5. Discuss the types of information that can be provided
by an AIS.
LEARNING OBJECTIVE 1

Explain what an accounting

information system (AIS) is.
WHAT IS AN AIS?
An accounting information system (AIS) consists of:
 People
 Procedures
 Data
 Software
 Information technology
WHAT IS AN AIS?
What important functions does the AIS perform in an
organization?
1. It collects and stores data about activities and transactions.
2. It processes data into information that is useful for making
decisions.
3. It provides adequate controls to safeguard the organization’s
assets.
BASIC SUBSYSTEMS IN THE AIS
1. The expenditure cycle: involves activities of buying and paying for
goods or services used by the organization.
2. The production cycle: involves activities converting raw materials and
labor into finished goods.
3. The human resources/payroll cycle: involves activities of hiring and
paying employees.
4. The revenue cycle: involves activities of selling goods or services and
collecting payment for those sales.
5. The financing cycle: involves activities of obtaining necessary funds to
run the organization, repay creditors, and distribute profits to
investors.
BASIC SUBSYSTEMS IN THE AIS
Financing Expenditure Human
Cycle Cycle Resources

General Ledger & Reporting System

Production Revenue
Cycle Cycle
LEARNING OBJECTIVE 2

Explain why studying AIS is important.

WHY STUDY AIS?
Because :
 Accounting is defined as an information system.

 The primary objective of accounting is to provide information

useful to decision makers.

 Accounting is about information identification, development,

measurement, and communication process, and...

 Financial information reporting.

WHY STUDY AIS?
To understand how the accounting system works.
 How to collect data about an organization’s activities and
transactions

 How to transform that data into information that

management can use to run the organization

 How to ensure the availability, reliability, and accuracy of

that information
WHY STUDY AIS?
 Auditors need to understand the systems that are used to
produce a company’s financial statements.

 Tax professionals need to understand enough about the

client’s AIS to be confident that the information used for tax
planning and compliance work is complete and accurate.

 A survey conducted by the Institute of Management

Accountants (IMA) indicates that work relating to accounting
systems was the single most important activity performed by
corporate accountants.
INFORMATION TECHNOLOGY
AND CORPORATE STRATEGY
 The same survey conducted by the Institute of Management
Accountants (IMA) also indicates that the second most
important job activity of corporate accountants is long-term
strategic planning.

 One important aspect of this topic is how to align information

technology (IT) with an organization’s strategy.
FACTORS INFLUENCING
DESIGN OF THE AIS
Organizational
Strategy
Culture

AIS

Information
Technology
LEARNING OBJECTIVE 3

Discuss the role played by the AIS in a

company’s value chain and explain
how the AIS can add value to a
business.
THE VALUE CHAIN
 The ultimate goal of any business is to provide value to its
customers.

 A business will be profitable if the value it creates is greater

than the cost of producing its products or services.
VALUE CHAIN MODEL AND THE SUPPLY CHAIN
Typical functional areas mapped on
the value chain of a manufacturing company
Firm Infrastructure
Support Activities

(Accounting, Finance, General Management)

Human Resource Management
(Human Resources)
Technology Development
(Engineering)
Procurement
(Material Management-Operations)
Primary Activities

Inbound Operations Outbound Marketing Service

Logistics Logistics and Sales

(Material (Operations) (Material (Marketing) (Service or

Management- Management- Marketing)
Operations) Operations)
SUPPLY-CHAIN MANAGEMENT
a) Supply Chain direct to customer
Suppliers Inbound Logistics Production

Transaction Delivery Customer

b) Supply Chain including wholesalers and retailers

Information Flow

Transfer Transfer Transfer Transfer

Suppliers Manufacturing Distribution Retail Outlet Customer
Cash
Flow
Supply Chain Organization
HOW AN AIS CAN ADD VALUE
TO AN ORGANIZATION

An AIS adds value by providing accurate and timely

information so that five primary value chain activities
can be performed more effectively and efficiently.
This is done by: improving the quality and reducing the
costs of products or services.
HOW AN AIS CAN ADD VALUE
TO AN ORGANIZATION
An AIS can…

 improve efficiency.

 improve decision making capabilities.

 increase the sharing of knowledge.

A well-designed AIS can also help an organization profit by

improving the efficiency and effectiveness of its supply chain.
INFORMATION TECHNOLOGY
AND CORPORATE STRATEGY
Develop a basic understanding of…
 corporate strategies.
 how IT developments can be used to implement existing
organizational strategies.
 how IT developments can be used to create an opportunity
to modify existing strategies.
Because an AIS functions within an organization, it should be
designed to reflect the values of that organizational culture.
STRATEGY AND STRATEGIC POSITIONS
What role does the AIS play in helping organizations adopt and
maintain a strategic position?

 Data collection about each activity

 Transforming data into information that can be used by

management to coordinate those activities
LEARNING OBJECTIVE 4

Explain the three basic functions

performed by an accounting
information system (AIS).
THE THREE BASIC FUNCTIONS PERFORMED BY
AN AIS
1. The efficient and effective processing of data about a
company’s transactions:
 Capture transaction data on source documents.
 Record transaction data in journals, which present a
chronological record of what occurred.
 Post data from journals to ledgers, which sort data by
account type.
THE THREE BASIC FUNCTIONS PERFORMED BY
AN AIS
2. To provide management with information useful for decision
making:
 In manual systems, this information is provided in the
form of reports that fall into two main categories:
• Financial statements
• Managerial reports
THE THREE BASIC FUNCTIONS PERFORMED BY
AN AIS
3. To provide adequate internal controls:
 Ensure that the information produced by the system is
reliable.
 Ensure that business activities are performed efficiently
and in accordance with management’s objectives.
 Safeguard organizational assets.
LEARNING OBJECTIVE 5

Discuss the types of information that

can be provided by an AIS.
FINANCIAL STATEMENTS
The next function of the AIS is to provide management with
information useful for decision making.
The preparation of financial statements consists of a sequence
of activities.
What are these activities?
FINANCIAL STATEMENTS
A. Prepare a trial balance.
B. Make adjusting entries.
C. Prepare the adjusted trial balance.
D. Produce the income statement.
E. Make closing entries.
F. Produce the balance sheet.
G. Prepare the statement of cash flows.
MANAGERIAL REPORTS
The AIS must also be able to provide managers with detailed
operational information about the organization’s performance.
What reports does management need?
A. Inventory status
B. Budgets
C. Performance reports
INTERNAL CONTROL CONSIDERATIONS
Another main function of an AIS is to provide
adequate internal controls to accomplish three basic
objectives:
 Ensure that the information is reliable.
 Ensure that business activities are performed
efficiently.
 Safeguard organizational assets.
TYPICAL TPS OF A MANUFACTURER
Purchasing
Vendors Order

Receiving Manufac-
Goods turing
Payroll
Inventory
Accounts
Shipping
Payable
Taxes
Customers Customer
Order
General Fixed
Ledger Assets
Accounts
Receivable Periodic
Statements
MANAGING THE ACCOUNTING
INFORMATION SYSTEMS
Strategic Systems

Internal Tactical Systems External

Environment Environment

Operational and
Transaction Processing
System
 MANAGING THE ACCOUNTING
INFORMATION SYSTEMS
STRATEGIC SYSTEMS
a. Strategic Planning b. Ratios and Financial Health
c. Merger and Acquisition Analysis
INTERNAL EXTERNAL
ENVIRONMENT TACTIAL SYSTEMS ENVIRONMENT
a. Budgeting Preparation and Control
Top Management IRS
b. Investment Management
Operation/ c. Capital Budgeting d. Cost Analysis and Control Vendors
Production e. Tax Management f. Auditing Clients
Marketing g. Financial Planning Suppliers
HRM Customers
Engineering OPERATIONAL AND Business Partners
TRANSACTION PROCESSING
SYSTEMS
a. The General Ledger b. Sales Order Processing
c. Accounts Payable and Receivable
d. Receiving and Shipping
e. Payroll f. Inventory Management
g. Periodical Reports & Statements
FINANCIAL PLANNING AND BUDGETING

 Financial and economic forecasting

 Planning for incoming funds

 Budgeting preparation and operation

 Capital budgeting decision

CONTROL AND AUDITING
 Budgetary control

 Auditing

 Financial health analysis

 Profitability analysis and cost control

 Product pricing
THE FUTURE OF AIS
 The Internet makes strategy more important than
ever
 The important point underlying ERP systems is the
need for and value of cross-functional integration
of financial data and other nonfinancial operating
data.
THANK YOU! VIVEK K. SINGH
WIWECK@GMAIL.COM