Chapter 1 - Accounting

Information Systems:
An Overview

Dennis T. Fajarito, MBA

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Learning Objectives
• Distinguish between data and information.
o Discuss the characteristics of useful information.
o 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.

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Learning Objectives
• 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 company’s value chain.

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What is a system?
System - A set of two or more interrelated components
interacting to achieve a goal

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What is a system?
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

⬡ These are facts that are collected,

recorded, stored, and processed by
a system.
⬡ Insufficient for decision making.

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Data vs. Information
Information

Data that have been organized and processed

to provide meaning and improve decision-
making. Too much information however, will
make it more, not less, difficult to make
decisions. This is known as Information
Overload.
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Data vs. Information
Information Overload – Exceeding
the amount of information a
human mind can absorb and
process, resulting in a decline in
decision-making quality and an
increase in the cost of providing
information.
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Information Technology
The computers and other
electronic devices used to
store, retrieve, transmit and
manipulate data.

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Value of Information
It is the benefit produced by the information minus the
cost of producing it.

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Value of Information
Benefits Costs
⬡ Time & Resources
⬡ Reduce Uncertainty ∙ Produce Information
⬡ Improve Decisions ∙ Distribute
⬡ Improve Planning Information
⬡ Improve Scheduling

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Characteristics of Useful Information
Characteristics Definition

Relevant Reduces uncertainty, improves decision making, or confirms or corrects prior

expectations.

Reliable Free from error or bias; accurately represents organization events or activities.

Complete Does not omit important aspects of the events or activities it measures.

Timely Provided in time for decision makers to make decisions.

Understandable Presented in a useful and intelligible format.

Verifiable Two independent, knowledgeable people produce the same information.

Accessible Available to users when they need it (timely) and in a format they can use
(understandable).

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Business Process
It is a set of related,
coordinated, and structured
activities and tasks, performed
by a person, a computer, or a
machine that help accomplish a
specific organizational goal.

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Transaction
It is an agreement between
two entities to exchange goods
or services or any other event
that can be measured in
economic terms by an
organization.

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Transaction Processing
Process of capturing
transaction data, processing it,
storing it for later use, and
producing information output,
such as a managerial report or
a financial statement.

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Give-get Exchange
Transactions that happen a great many times, such as
giving up cash to get inventory from a supplier and
giving employees a paycheck in exchange for their labor.

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Business Processes of Transaction Cycles
The major give-get exchanges that occur frequently in
most companies.

➢ The revenue cycle, where goods and services are sold for cash
or a future promise to receive cash.
➢ The expenditure cycle, where companies purchase inventory
for resale or raw materials to use in producing products in
exchange for cash or a future promise to pay cash.
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Business Processes of Transaction Cycles
➢ The production or conversion cycle, where raw materials are
transformed into finished goods.
➢ The human resources/payroll cycle, where employees are
hired, trained, compensated, evaluated, promoted, and
terminated.
➢ The financing cycle, where companies sell shares in the
company to investors and borrow money, and where investors
are paid dividends and interest is paid on loans.
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Business Cycle Give-Get

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Accounting Information Systems
A system that collects, records, stores, and processes
data to produce information for decision makers. It
includes people, procedures and instructions, data,
software, information technology infrastructure, and
internal controls and security measures.

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Accounting Information Systems

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6 Compnents of AIS
1. The people who use the system
2. The procedures and instructions used to collect, process, and store
data
3. The data about the organization and its business activities
4. The software used to process the data
5. The information technology infrastructure, including the computers,
peripheral devices, and network communications devices used in
the AIS
6. The internal controls and security measures that safeguard AIS data
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Business Functions
1. Collect and store data about organizational activities,
resources, and personnel.
2. Transform data into information so management can plan,
execute, control, and evaluate activities, resources, and
personnel.
3. Provide adequate controls to safeguard the organization’s
assets and data.

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A well-designed AIS can add value to an organization
by:

1. Improving the quality and reducing the costs of products or

services.
2. Improving efficiency.
3. Sharing knowledge.
4. Improving the efficiency and effectiveness of its supply chain.
5. Improving the internal control structure.
6. Improving decision making.

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AIS can help improve decision making in several ways:
• It can identify situations requiring management action.
• It can reduce uncertainty and thereby provide a basis for choosing among
alternative actions.
• It can store information about the results of previous decisions, which
provides valuable feedback that can be used to improve future decisions.
• It can provide accurate information in a timely manner.
• It can analyze sales data to discover items that are purchased together, and
can use such information to improve the layout of merchandise or to
encourage additional sales of related items.

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The Role of the AIS in the Value Chain

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The Role of the AIS in the Value Chain

Outbound
Inbound Logistics Operations Marketing/Sales Service
Logistics

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The Role of the AIS in the Value Chain
1. Inbound logistics consists of receiving, storing, and distributing the
materials an organization uses to create the services and products it
sells.
2. Operations activities transform inputs into final products or services.
For example, assembly line activities convert raw materials into a
finished car.
3. Outbound logistics activities distribute finished products or services
to customers.

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The Role of the AIS in the Value Chain
4. Marketing and sales activities help customers buy the
organization’s products or services.
5. Service activities provide post-sale support to customers.

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Support Activities

Firm
Infrastructure Technology

Human Purchasing
Resources

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Support Activities
1. Firm infrastructure is the accounting, finance, legal, and general
administration activities that allow an organization to function.
2. Human resources activities include recruiting, hiring, training, and
compensating employees.
3. Technology activities improve a product or service.
4. Purchasing activities procure raw materials, supplies, machineries, and the
buildings used to carry out the primary activities.

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Thanks!

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