Accounting Information

Systems: An Overview
Chapter 1

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Learning Objectives
1. Distinguish between data and information:
 Understand the characteristics of useful information.
 Explain how to determine the value of information.
2. Explain fundamental decisions an organization makes:
 Understand basic information needed to make them.
3. Identify the transactional information that passes
between internal and external parties and an AIS.
4. Describe the major business processes present in most
companies.
5. Explain what an accounting information system (AIS) is
and describe its basic functions.
6. Discuss how an AIS can add value to an organization.

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1.What Is a System?
• System
▫ A set of two or more
interrelated components
interacting to achieve a goal
• Goal Conflict
▫ Occurs when components act Process1

in their own interest without

regard for overall goal
• Goal Congruence
Goal
▫ Occurs when components
Process2
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. data
• Information is processed data data
used in decision making. data
▫ Too much information however,
will make it more, not less,
difficult to make decisions. This Information
is known as Information
Overload.
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Data vs. Information
• Data are facts 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

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Data vs. Information
The previous slide just showed facts, if we put those
facts 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

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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)

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Value of Information

Benefits Costs

• Reduce Uncertainty • Time & Resources

• Improve Decisions ▫ Produce Information
• Improve Planning ▫ Distribute Information
• Improve Scheduling

Benefit $’s > Cost $’s

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What Makes Information Useful?
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 error or 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

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What Makes Information Useful?

5. Understandable: information must be

presented in a meaningful manner
6. Verifiable: two independent, knowledgeable
people can produce the same conclusion
7. Accessible: available when needed

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Matching 2 column

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2. Business Process
• Systems working Financing Revenue
toward organizational
goals

Human
Expenditure
Resources

Production

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Business Process
• A transaction 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.
• EXAMPLES:
▫ Sell goods to customers
▫ Depreciate equipment
• Transaction cycle is called business processes
Organizational Decisions and
Information Needed
• Business organizations use business processes to
get things done. These processes are a set of
structured activities that are performed by
people, machines, or both to achieve a specific
goal.

• Key decisions and information needed often

come from these business processes.

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3.Transactional Information Between
Internal and External Parties in an AIS
• Business organizations conduct business
transactions between internal and external
stakeholders.
• 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. 1-16
Interactions Between AIS and
Internal and External Parties

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4.Basic Business Processes
• Transactions between the business organization
and external parties fundamentally involve a
“give–get” exchange. These basic business
processes are:

▫ Revenue: give goods / give service—get cash

▫ Expenditure: get goods / get service—give cash
▫ Production: give labor and give raw materials—get
finished goods
▫ Human Resources/Payroll: give cash—get labor
▫ Financing: give cash—get cash
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Business
Cycle
Give–Get

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5.WHAT IS AN AIS?
• An AIS is a system that collects, records, stores,
and processes data to produce information for
decision makers.
• It can:
▫ Use advanced technology; or
▫ Be a simple paper-and-pencil system; or
▫ Be something in between.
What Is an AIS?
Consists of
1. People using the system
2. Procedures and Instructions
▫ For collecting, processing, and storing data
3. Data
4. Software
5. Information Technology (IT) Infrastructure
▫ Computers, peripherals, networks, and so on
6. Internal Control and Security
▫ Safeguard the system and its data

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WHAT IS AN AIS?
• The functions of an AIS are to:
▫ Collect and store data about events,
resources, and agents.
▫ Transform that data into information that
management can use to make decisions
about events, resources, and agents.
▫ Provide adequate controls to ensure that
the entity’s resources (including data) are:
 Available when needed
 Accurate and reliable
6.How Does an AIS Add Value?

• A well thought out AIS can add value through

effective and efficient decisions.
▫ Having effective decisions means quality decisions
▫ Having efficient decisions means reducing costs of
decision making

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6.AIS Value Add

1. Improve Quality and Reduce Costs

2. Improve Efficiency
3. Improve Sharing Knowledge
4. Improve Supply Chain
5. Improve Internal Control
6. Improve Decision Making

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Improve Decision Making

1. Identify situations that require action.

2. Provide alternative choices.
3. Reduce uncertainty.
4. Provide feedback on previous decisions.
5. Provide accurate and timely information.

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Key Terms
• System
• Goal conflict
• Goal congruence
• Data
• Information
• Information technology (IT)
• Information overload
• Value of information
• Business process
• Give-get exchange
• Revenue cycle
• Expenditure cycle
• Production (conversion) cycle
• Human resource/payroll cycle
• Financing cycle
• General ledger and reporting
system
• Accounting information
system (AIS)
• Value chain
• Primary activities
• Support activities
• Supply chain
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