Accounting Information Systems: An Overview

Accounting Information Systems
Chapter 1
Accounting Information
Systems: An Overview
Copyright © 2018 Pearson Education, Ltd. All Rights Reserved

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:

– The information needed to make them.
– The major business processes present in most companies.
• Explain how an AIS adds value to an organization.

– How it affects and is affected by corporate strategy.
– The role of AIS in a value chain.
Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 2
Distinguishing Between Data and
Information
• Data are facts collected, recorded, and stored in
the system
– A fact could be a number, date, name, and so on.
For example:
2/22/14
ABC Company, 123,
99, 3, 20, 60
Data vs. Information
The previous slide just showed data, if we organize the data
within a context of a sales invoice, for example, it is
meaningful and considered information.
Invoice Date : 2/22/14 Invoice #: 123
Customer: ABC company
Item # Qty Price
99 3 $20
Total Invoice Amount $60
Value of Information
• Information is valuable when the benefits exceed the costs
of gathering, maintaining, and storing the data.
Benefit (i.e., improved decision making) - Cost (i.e., time
and resources used to get the information) = value of
information
What Makes Information Useful? (1 of 2)
There are seven general characteristics that make
information useful:
1. Relevant: information needed to make a decision (e.g.,
the decision to extend customer credit would need
relevant information on customer balance from an A/R
aging report)
2. Reliable: information free from bias
3. Complete: does not omit important aspects of events or
activities
4. Timely: information needs to be provided in time to
make the decision
What Makes Information Useful? (2 of 2)
5. Understandable: information must be presented in a
meaningful manner
6. Verifiable: two independent people can produce the
same conclusion
7. Accessible: available when needed
• Multiple Choice 1
•
• Data differ from information in which way?
• a. Data are facts about a sale
• b. Information is data organized to provide meaning
• c. Data are meaningful bits of information
• d. There is no difference
•
•
• Which of the following is not a characteristic that makes
information useful?
• a. It is reliable
• b. It is timely
• c. It is inexpensive
• d. It is relevant
Organizational Decision and Information
Needs
• Business organizations use business processes to get
things done. A business process is a set of related,
coordinated, and structured activities and tasks performed
by people, machines, or both to achieve a specific
organizational goal.
• Key decisions and information needed often come from

these business processes.
Transactional Information Between Internal
and External Parties in an AIS
• Business organizations conduct business transactions
which is an agreement between two entities (e.g., internal
and external stakeholders) to exchange goods, services,
or any other event that can be measured in economic
terms by an organization.
• Internal stakeholders are employees in the organization
(e.g., employees and managers).
• External stakeholders are trading partners such as
customers and vendors as well as other external
organizations such as banks and government.
• The AIS captures the flow of information between these
users for the various business transactions.
Interactions Between AIS and Internal and
External Parties
Basic Business Processes
• Transactions between the business organization
and external parties fundamentally involve a
“give–get” exchange. These basic business
processes are:
– Revenue cycle: give goods / give service—get cash
– Expenditure cycle: get goods / get service—give cash
– Production cycle: give labor and give raw materials—
get finished goods
– Payroll cycle: give cash—get labor
– Financing cycle: give cash—get cash
Multiple Choice 4
Which transaction cycle includes interactions between

an organization and its suppliers?
a. Revenue cycle
b. Expenditure cycle
c. Human resources/payroll cycle
d. General ledger and reporting system
Multiple Choice 5
In which cycle does a company ship goods to

customers?
a. Production cycle
b. Financing cycle
c. Revenue cycle
d. Expenditure cycle
What Is an Accounting Information System
(AIS)?
• AIS is a system that collects, records, stores, and
processes data to produce information for decision
makers.
• Consists of
– People who use the system
– Processes (procedures and instructions)
– Data
– Software
– Information technology
– Controls to safeguard information
• Thus, an AIS collects and stores data, transforms that data
into information, and provides adequate controls.
•
• Which of the following is a function of an AIS?
• a. Reducing the need to identify a strategy and strategic
position.
• b. Transforming data into useful information.
• c. Allocating organizational resources.
• d. Automating all decision making.
How Does an AIS Add Value to an
Organization?
• A well thought out AIS can add value by:
– Improving efficiency
– Sharing knowledge
– Improving the quality and reducing the costs of products or
services
– Improving efficiency and effectiveness of its supply chain
– Improving the internal control structure
– Improving decision making
•
• An AIS provides value by:
• a. improving products or services through information
that increases quality and reduces costs
• b. providing timely and reliable information to decision
makers
• c. creating new products
• d. both A and B
AIS and Corporate Strategy
• An AIS is influenced by an organization’s strategy.
• A strategy is the overall goal the organization hopes to
achieve (e.g., increase profitability).
• Once an overall goal is determined, an organization can
determine actions needed to reach their goal and identify
the informational requirements (both financial and
nonfinancial) necessary to measure how well they are
doing in obtaining that goal.
AIS in the Value Chain
• The value chain links together the different activities
within an organization that provide value to the
customer.
– Value chain activities include primary and support activities.
 Primary activities provide direct value to the customer.
 Support activities enable primary activities to be
efficient and effective.
• A supply chain is an extended system that includes

the organizations value chain as well as its suppliers,
distributors, and customers.
Multiple Choice 4
Which transaction cycle includes

interactions between an organization and its
suppliers?
a. Revenue cycle
b. Expenditure cycle
c. Human resources/payroll cycle
d. General ledger and reporting system
Multiple Choice 5
In which cycle does a company ship goods

to customers?
a. Production cycle
b. Financing cycle
c. Revenue cycle
d. Expenditure cycle
Key Terms
• System • Revenue cycle
• Goal conflict • Expenditure cycle
• Goal congruence • Production (conversion) cycle
• Data • Human resource/payroll cycle
• Information • Financing cycle
• Information technology (IT) • General ledger and reporting system
• Information overload • Accounting information system (AIS)
• Value of information • Predictive analysis
• Business process • Value chain
• Transaction • Primary activities
• Transaction processing • Support activities
• Give-get exchange • Supply chain
Question
• The value of information can best be determined by
• A) its usefulness to decision makers.
• B) its relevance to decision makers.
• C) the benefits associated with obtaining the information
minus the cost of producing it.
• D) the extent to which it optimizes the value chain.
• Information is ________ when two knowledgeable
people independently produce the same
information.
• A) verifiable
• B) relevant
•
• C) reliable
• D) complete

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Accounting Information Systems

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved

• Explain the decisions an organization makes:

• Explain how an AIS adds value to an organization.

Invoice Date : 2/22/14 Invoice #: 123

Customer: ABC company

Item # Qty Price

Total Invoice Amount $60

• Key decisions and information needed often come from

Which transaction cycle includes interactions between

In which cycle does a company ship goods to

• A supply chain is an extended system that includes

Which transaction cycle includes

In which cycle does a company ship goods

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