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Accounting Information

Systems: An Overview
Chapter 1

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Learning Objectives
Distinguish between data and information:
Understand the characteristics of useful information.
Explain how to determine the value of information.
Explain fundamental decisions an organization makes:
Understand basic information needed to make them.
Identify the transactional information that passes between internal and external
parties and an AIS.
Describe the major business processes present in most companies.
Explain what an accounting information system (AIS) is and describe its basic
Discuss how an AIS can add value to an organization.
Explain how an AIS and corporate strategy affect each other.
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Explain the role an AIS plays in a companys value chain.


Data vs. Information

Data are facts stored in the system
A fact could be a number, date, name,
and so on.
For example:
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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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 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 people can
produce the same conclusion
7. Accessible: available when needed

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Organizational Decisions and Information

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
Key decisions and information needed often
come from these business processes.

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Transactional Information Between Internal

and External Parties in an AIS
Business organizations conduct business
transactions between internal and external
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.
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Interactions Between AIS and Internal and

External Parties

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Basic Business Processes

Transactions between the business organization
and external parties fundamentally involve a
giveget exchange. These basic business
processes are:
Revenue: give goods / give serviceget cash
Expenditure: get goods / get servicegive cash
Production: give labor and give raw materialsget
finished goods
Payroll: give cashget labor
Financing: give cashget cash
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What Is an Accounting Information System?

It can be manual or computerized
Consists of
People who use the system
Technology (data, software, and information
Controls to safeguard information

Thus, transactional data is collected and stored into

meaningful information from which business
decisions are made and provides adequate controls
to protect and secure the organizational data assets.
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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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AIS and Strategy

An AIS is influenced by an organizations
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 necessary to measure how well
they are doing in obtaining that goal.
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AIS in the Value Chain

The value chain shows how the different
activities within an organization provide value to
the customer.
These activities are primary and support
Primary activities provide direct value to the
Support activities enable primary activities to be
efficient and effective.
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Key Terms

Goal conflict
Goal congruence
Information technology (IT)
Information overload
Value of information
Business process
Transaction processing
Give-get exchange

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Revenue cycle
Expenditure cycle
Production (conversion) cycle
Human resource/payroll cycle
Financing cycle
General ledger and reporting
Accounting information
system (AIS)
Predictive analytics
Value chain
Primary activities
Support activities
Supply chain