BAAE 20- Accounting

Information Systems
Overview of
Accounting
Information
System
The information Environment
The information Environment

Horizontal flows of information used primarily at the operations

level to capture transaction and operations data

Vertical flows of information

• downward flows — instructions, quotas, and budgets
• upward flows — aggregated transaction and operations data
The information Environment

Information Requirements

• Each user group has unique information requirements.

• The higher the level of the organization, the greater the need
for more aggregated information and less need for detail.
The information Environment

Information in Business

Information is a business resource that:

• needs to be appropriately managed
• is vital to the survival of contemporary businesses
What is accounting?
Accounting

Accounting is the art of

recording, classifying and
summarizing in a significant
manner and in terms of
money, transactions and
events which are, in part at
least, of a financial character
and interpreting the results
thereof.
Information

Information in Business

Information is a business resource that:

• needs to be appropriately managed
• is vital to the survival of contemporary businesses
What is a System?
System

• A group of interrelated multiple components or subsystems that

serve a common purpose
• System or subsystem?
• A system is called a subsystem when it is viewed as a
component of a larger system.
• A subsystem is considered a system when it is the focus of
attention.
System
System Decomposition versus System Interdependency

• System Decomposition
• the process of dividing the system into smaller subsystem parts

• System Interdependency
• distinct parts are not self-contained
• they are reliant upon the functioning of the other parts of the system
• all distinct parts must be functioning or the system will fail
What is an Information System?
Information System

An information system is the

set of formal procedures by
which data are collected,
processed into information, and
distributed to users.
An Information Systems Framework
• A transaction is a business event.
• Financial transactions
• economic events that affect the assets and equities of the
organization
• e.g., purchase of an airline ticket
• Nonfinancial transactions
• all other events processed by the organization’s information
system
• e.g., an airline reservation — no commitment by the customer
An Information Systems Framework

Transactions Processed by the Information Systems

Financial

Transactions Information User

Nonfinancial System Decisions
Information
Transactions
A Framework
for Information
Systems
An Information Systems Framework
AIS versus MIS
• Accounting Information Systems (AIS) process
• financial transactions; e.g., sale of goods
• nonfinancial transactions that directly affect the processing of
financial transactions; e.g., addition of newly approved vendors

• Management Information Systems (MIS) process

• nonfinancial transactions that are not normally processed by
traditional AIS; e.g., tracking customer complaints
An Information Systems Framework
AIS subsystems

Transaction processing system (TPS)

• supports daily business operations
General Ledger/ Financial Reporting System (GL/FRS)
• produces financial statements and reports
Management Reporting System (MRS)
• produces special-purpose reports for internal use
General Model for AIS
Transforming Data into Information

Functions for transforming data into information according to

the general AIS model:

1. Data Collection
2. Data Processing
3. Data Management
4. Information Generation
Transforming Data into Information

1. Data Collection

• Capturing transaction data

• Recording data onto forms
• Validating and editing the data
Transforming Data into Information

2. Data Processing

• Classifying • Merging
• Transcribing • Calculating
• Sorting • Summarizing
• Batching • Comparing
Transforming Data into Information

3. Data Management

• Storing
• Retrieving
• Deleting
Transforming Data into Information

4. Information Generation

• Compiling
• Arranging
• Formatting
• Presenting
Transforming Data into Information

Data are the facts that are

collected and processed by
the information system.
Data are meaningless and
useless, which, therefore,
should be processed and
transformed to meaningful,
organized, and useful form
that is called information.
Transforming Data into Information

Data are facts, which may or may not be processed (edited, summarized,
or refined) and have no direct effect on the user. Also it can be stored in a
system.

• A fact could be a number, date, name and so on.

For example:
May 18, 1992
XYZ Corp.
1,000,000.00
Transforming Data into Information

Information is often defined simply as processed data.

For example:
Transaction Date: May 18, 1992
Company Name: XYZ Corp.
Amount: 1, 000, 000.00
Characteristics of Useful Information

• Regardless of physical form or technology, useful information

has the following characteristics:
• Relevance: serves a purpose
• Timeliness: no older than the time period of the action it supports
• Accuracy: free from material errors
• Completeness: all information essential to a decision or task is present
• Summarization: aggregated in accordance with the user’s needs
What is an Accounting Information
System?
Accounting Information System
An Accounting Information System (AIS) is generally a computer-
based method for tracking accounting activity in conjunction with
information technology resources.

AIS is responsible for the collection, storage and processing of

financial and accounting data that is used for internal
management decision making, including nonfinancial
transactions that directly affect the processing of financial
transactions.
Accounting Information System

Accounting is an information system.

• It identifies, collects, processes, and communicates economic

information about a firm using a wide variety of technologies.
• It captures and records the financial effects of the firm’s
transactions.
• It distributes transaction information to operations personnel
to coordinate many key tasks.
Accounting Information System
Types of Information that an AIS can provide.

Provide information for Decision Making:

• The second function of the AIS is to provide management with
information useful for
• decision making.
• The information an AIS provides falls into two main categories:
• Financial Statements
• Managerial Reports
Accounting Information System
Financial Statement

• Prepare a trial balance.

• Make adjusting entries.
• Prepare the adjusted trial balance.
• Produce the income statement.
• Make closing entries.
• Produce the balance sheet.
• Prepare the statement of cash flows
Accounting Information System

Managerial Reports

The AIS must also be able to provide managers with detailed

operational information about the organization’s performance.

Two important types of managerial reports are

– budget
– performance reports
Accounting Information System

Information System Objectives in a Business Context

The goal of an information system is to support

• the stewardship function of management
• management decision making
• the firm’s day-to-day operations
 At the Intersection of Accounting and IS
Activity

Accounting AIS Information

System
 END

Hall, Accounting Information Systems, 7e