ACACIS Session 1 26 August 2023 1

Accounting Information Systems
Fifteenth Edition
Chapter 1
Accounting Information
Systems: An Overview
Copyright © 2021, 2018, 2015 Pearson Education, Inc. 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.
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 v s. Information
ersu
• 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
Decision Quality
• Information helps us make better decisions.
• Too much information causing information overload can
reduce decision quality.
• Information Technology (IT) is used to help decision
makers more effectively filter and condense information.
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 14 general characteristics that make information
useful:
1. Access restricted: limit access to authorized parties
2. Accurate: accurate, correct, and free of error
3. Available: available to users when needed
4. Reputable: perceived as true and credible
5. Complete: does not omit important aspects of events or
activities
6. Concise: clear, succinct, brief, but comprehensive
7. Consistent: presented in the same format over time
What Makes Information Useful? (2 of 2)
8. Current: up to the present data and time
9. Objective: unbiased, unprejudiced, and impartial
10. Relevant: reduces uncertainty and improves decision
making
11. Timely: provided in time for decision maker to make
decisions
12. Useable: easy to use for different task
13. Understandable: easily comprehended and interpreted
14. Verifiable: two independent people can produce the
same information
Machine-Readable Format
• Data is most useful when it is in a machine-readable
format that can be read and processed by a computer.
• XBRL is an example of a machine-readable format that
can improve many of the characteristics that make
information useful.
• https://www.youtube.com/watch?v=YIjWVAh42Vk
(Deloitte)
Information Needs and Business
Processes
• 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.
Figure 1.1 The Components of an
Information System
Transactional Information Between
Internal and External Parties in an AI S
• Business organizations conduct business transactions,
which is an agreement between two entities to exchange
goods, services, or any other event that can be measured
in economic terms by an organization.
• Transaction data is used to create financial statements and
is called transaction processing.
• The flow of information between these users for the
various business activities involves a give-get exchange
grouped into business processes or transaction cycles.
Figure 1.2 Interactions Between S&S
and External and Internal 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
What Is an Accounting Information
System (AI S)?
• 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)
– Technology (data, software, and information
technology)
– Controls to safeguard information
• Thus, an AIS collects and stores data, transforms that data
into information, and provides adequate controls.
How Does an AI S Add Value to an
Organization?
• A well thought out AIS can add value by:
– Improving the quality and reducing the costs of
products or services
– Improving efficiency
– Sharing knowledge
– Improving efficiency and effectiveness of its supply
chain
– Improving the internal control structure
– Improving decision making
Artificial Intelligence
• Artificial intelligence (AI) is the use of computer systems
to simulate human intelligence processes such as learning,
reasoning, and self-improvement.
• AI can be used in the following fields
– Business
– Education
– Finance
– Healthcare
Data Analytics
• Data analytics is the use of software and algorithms to
find and solve problems and improve business
performance.
• Analytics can help improve decision making by
– Identifying a problem/issue for management to resolve.
– Collecting the data needed to solve the problem,
analyze it, and make recommendations to
management on how to resolve it.
– Integrating actionable insights into the systems used to
make decisions.
Blockchain
• Blockchain represents individual digital records, called
blocks, linked together using cryptography in a single list,
called a chain.
• Blockchain has several significant advantages, including
– accuracy, transparency, data consistency, trust,
– no need for third parties, single set of books, reduced
cost,
– decentralization, efficiency, privacy, security, and
provenance
• There are also significant challenges to its adoption
including political and regulatory issues.
Cloud Computing, Virtualization, and
the Internet of Things
• Cloud computing is the use of a browser to remotely
access software, data storage, hardware, and applications.
• Virtualization is the running of multiple systems
simultaneously on one physical computer.
• Internet of Things (IoT) refers to the embedding of
sensors in a multitude of devices (lights, heating and air
conditioning, appliances, etc.) so that those devices can
now connect to the Internet.
AI S 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.
AI S in the Value Chain
• The value chain links together the different activities
within an organization that provide value to the customer.
– Value chain activities are 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
organization’s value chain as well as its suppliers,
distributors, and customers.
Figure 1.6 The Value Chain
Fifteenth Edition
Chapter 2
Overview of Transaction
Processing and Enterprise
Resource Planning Systems
Learning Objectives
• Describe the data processing cycle used to process
transactions, including how data is input, stored, and
processed and how information is output.
• Discuss how organizations use enterprise resource
planning (ERP) systems to process transactions and
provide information.
Figure 2.1 The Data Processing Cycle
Data Input
Steps in Processing Input are:
• Capture transaction data triggered by a business activity
(event).
• Make sure captured data are accurate and complete.
• Ensure company policies are followed (e.g., approval of
transaction).
Data Capture
• Information collected for an activity includes:
– Activity of interest (e.g., sale)
– Resources affected (e.g., inventory and cash)
– People who participated in the activity (e.g., customer
and employee)
• Information comes from source documents.
Source Documents
• Captures data at the source when the transaction takes
place
– Paper source documents
– Turnaround documents
– Source data automation (captured data from machines,
e.g., point-of-sale scanners at grocery store)
Data Storage
• Important to understand how data is organized
– Chart of accounts
▪ Coding schemas that are well thought out to
anticipate management needs are most efficient and
effective
– Transaction journals (e.g., Sales)
– Subsidiary ledgers (e.g., Accounts receivable)
– General ledger
Note: With the above, one can trace the path of the
transaction (audit trail)
Coding Techniques
• Sequence codes—items numbered consecutively to
account for all items (i.e., prenumbered forms)
• Block code—blocks of numbers reserved for specific
categories of data (i.e., product numbers that start with a 2
are refrigerators)
• Group codes—two or more subgroups of digits used to
code items (i.e., car VIN #’s)
• Mnemonic codes—letters and numbers interspersed to
identify an item (i.e. Dry300W05 is low end (300), white
(W) dryer (DRY) made by Sears (05))
Figure 2.2 Recording and Posting a Credit
Sale
Audit trail for Invoice #156 for
$1,876.50 sold to KDR
Builders
Figure 2.3 Data Storage Elements
• Data is stored in master files or transaction files.
Data Processing
Four types of processing (CRUD):
• Creating new records (e.g., adding a customer)
• Reading existing data
• Updating previous record or data
• Deleting data
Data processing can be batch processed (e.g., post records
at the end of the business day) or in real-time (process as it
occurs).
Information Output
The data stored in the database files can be viewed
• Online (soft copy)
• Printed out (hard copy)
– Document (e.g., sales invoice)
– Report (e.g., monthly sales report)
– Query (question for specific information in a database,
e.g., Which division had the most sales for the month?)
Enterprise Resource Planning (E R P)
Systems
• Integrates activities from the entire organization
– Revenue Cycle
– Expenditure Cycle
– Production Cycle
– H/R Payroll Cycle
– General Ledger and Reporting System
Advantages of E R P System
• Integrated enterprise-wide single view of the organization’s
data which streamlines the flow of information
• Data captured once (i.e., no longer need sales to enter
data about a customer and then accounting to enter same
customer data for invoicing)
• Greater visibility and monitoring capabilities for
management
• Improve access of control of the data through security
settings
• Standardization of procedures and reports
• Improves customer service
• Increases productivity through automation
Disadvantages of E R P System
• Costly
• Significant amount of time to implement
• Customizing or standardizing a business process
• Complexity
• User resistance (learning new things is sometimes hard
for employees)
Fifteenth Edition
Chapter 3
Systems Documentation Techniques
Learning Objectives
• Prepare and use business process diagrams to
understand, evaluate, and document information systems.
• Prepare and use flowcharts to understand, evaluate, and

document information systems.
• Prepare and use data flow diagrams to understand,

evaluate, and document information systems.
Why Document Systems?
• Accountants must be able to read documentation and
understand how a system works (e.g., auditors need to
assess risk)
• Sarbanes-Oxley Act (SOX) requires management to
assess internal controls and auditors to evaluate the
assessment
• Used for systems development and changes
Business Process Diagrams
• Is a visual way to represent the activities in a business
process.
• Intent is that all business users can easily understand the
process from a standard notation (BPMN: Business
Process Modeling Notation).
• Can show the organizational unit performing the activity.
Figure 3.1 Business Process Diagram
Symbols
Figure 3.2 Business Process Diagram of
Payroll Processing at S&S
Guidelines for Drawing Data Flow
Diagrams
• Identify and understand the business process.
• Decide the level of detail (summary or detailed DFD).
• Organize diagram using as many rows as needed to
explain the process.
• Enter each business process on the diagram showing
where it begins and ends.
• Draw a rough sketch, refine, and finalize.
Flowcharts
Describe an information system showing:
• Inputs and outputs
• Information activities (processing data)
• Data storage
• Data flows
• Decision steps
Key strengths of flowcharts are that they can easily capture
control via decision points, show manual vs. automated u
rs
e
processes.
Figure 3.3 Common Flowcharts Symbols
Types of Flowcharts
• Document: shows the flow of documents and data for a
process, useful in evaluating internal controls
• System: depicts the data processing cycle for a process
• Program: illustrates the sequence of logic in the system
process
System and Program Flowchart
Data Flow Diagrams (DFD)
Focuses on the data flows for:
• Processes
• Sources and destinations of the data
• Data stores
DFD are visually simple and can be used to represent the
same process at a high abstract (summary) or detailed level.
Data Flow Diagrams (DFD)
Figure 3.8 Basic Data Flow Diagram
Elements
Basic Guidelines for Creating a DFD
• Understand the system that you • Identify and group all the basic
are trying to represent. elements of the DFD.
• A DFD is a simple representation • Name data elements with
meaning that you need to descriptive names, use action
consider what is relevant and verbs for processes (e.g., update,
what needs to be included. edit, prepare, validate, etc.).
• Start with a high level (context • Give each process a sequential
diagram) to show how data flows number to help the reader
between outside entities and navigate from the abstract to the
inside the system. Use additional detailed levels.
DFDs at the detailed level to
show how data flows within the • Edit/Review/Refine your D F D to
system. make it easy to read and
understand.
Guidelines for Drawing Flowcharts
• Understand the system you are trying to represent.
• Identify business processes, documents, data flows, and
data processing procedures.
• Organize the flowchart so that it reads from top to bottom
and left to right.
• Clearly label all symbols.
• Use page connectors (if it cannot fit on a single page).
• Edit/review/refine to make it easy to read and understand.

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Accounting Information Systems

• The previous slide just showed data; if we organize the

• Prepare and use flowcharts to understand, evaluate, and

• Prepare and use data flow diagrams to understand,

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