Accounting Information Systems:

Essential Concepts and Applications

Fourth Edition by Wilkinson, Cerullo,
Raval, and Wong-On-Wing

The Study of Accounting

Information Systems
What Is Accounting?

 It is the principal way of organizing and reporting

financial information. It has been called the “language
of business.”
 Accounting and information systems comprise the
functional area of business responsible for providing
information to the other areas to enable them to do their
jobs and for reporting the results to interested parties.
 To that end, an accounting system is used to identify,
analyze, measure, record, summarize, and communicate
relevant economic information to interested parties.
What Is a System?

 A System is an entity consisting of

interacting parts that are coordinated
to achieve one or more common
objectives. Systems must possess
 SYSTEM

INPUT PROCESS OUTPUT

FEEDBACK
 INFORMATION SYSTEM

DATA INFORMATION

INPUT PROCESS OUTPUT

FEEDBACK
Data Versus Information

 Data are raw facts and figures that

are processed to produce
information
 Information is data that have
been processed and are meaningful
and useful to users. The terms
“meaningful” and “useful” are
value-laden terms and usually
subsume other qualities such as
timeliness, relevance, reliability,
consistency, comparability, etc.
 Functional Steps in Transforming
Data into Information
 Data collection - capturing, recording, validating and
editing data for completeness and accuracy
 Data Maintenance/Processing - classifying, sorting,
calculating data
 Data Management - storing, maintaining and retrieving data
 Data Control - safeguarding and securing data and ensuring
the accuracy and completeness of the same
 Information Generation - interpreting, reporting, and
communicating information
What Is an Information
System?

 An Information system is a framework in which data

is collected, processed, controlled and managed
through stages in order to provide information to users
 It evolves over time and becomes more formalized as
a firm grows and becomes more complex. It can be a
manual or computerized system
 Firms depend on information systems in order to
survive and stay competitive
 The Universal Data Processing
Model

Storage

Processing

Consumers

}
Exchange Events
Internal Events
Environmental Events
Accounting Information
System

 An Accounting Information
System is a unified structure that
employs physical resources and
components to transform economic
data into accounting information
for external and internal users.
The Business Firm as a System

Organization Organization’s
Environment functions
of the Firm Information
Business System AIS Transaction
Firm Cycles
Operational
Business Events
System
from Operations
System Characteristics of
Business Firms

 Objectives
 Environment
 Constraints
 Input-Process-Output
 Feedback
 Controls
 Subsystems
 FUNCTIONS OF AN INFORMATION SYSTEM

ENVIRONMENT

ustomers Suppliers

ORGANIZATION
INFORMATION SYSTEM

INPUT PROCESS OUTPUT

FEEDBACK

Regulatory Stockholders Competitors

Agencies
 TYPES OF INFORMATION SYSTEMS
KIND OF SYSTEM GROUPS SERVED

STRATEGIC LEVEL SENIOR

MANAGERS

MANAGEMENT LEVEL MIDDLE

MANAGERS

KNOWLEDGE LEVEL KNOWLEDGE &

DATA WORKERS

OPERATIONAL OPERATIONAL LEVEL

MANAGERS

SALES & MANUFACTURING FINANCE ACCOUNTING HUMAN

MARKETING RESOURCES
AIS as an MIS Subsystem

Sales/ Production
Marketing Info

AIS

Personnel Finance
 Relationship of AIS & MIS

MIS

Finance Sales/Marketing Production AIS Personnel

Order entry/Sales
Billing/A.Rec./Cash receipts
Purchasing/A. Pay./Cash disb.
Inventory
Payroll
General ledger
Production
Examples of AIS Subsystems
(Merchandising)
Order entry Purchasing/
Sales A. Payable/
System Inventory Cash Disb.
System
Shipping System
Receiving

Revenue Expenditure
Cycle Cycle
General
Ledger Human
Billing/ Resource
A. Receivable System Management
Cash Receipts Ext/Fin. reporting (Payroll)
System Tax & req. reporting System
Internal reporting
No Planning/Control, Investment, or Production Cycles reflected here
 The Operational System of
a Manufacturing Firm
Facilities Manufacturing Firm

Labor Supporting
(human Operations
services)
Material Producing Storing Shipping Goods
Acquiring
from Finished Finished Finished to
Materials Goods Goods Goods Customer
Supplier

Data Information

AIS

Funds Data and information flow Funds

Physical flows
Examples of AIS
Subsystems: Production Cycle
Inventory Purchasing/
Production A. Payable/
System Cash Disb.
System System

Production Cycle
Human
General Resource
Ledger Management
System (Payroll
System
No Revenue, and Investment Cycles reflected here
Organizational Structure in
Business Firms

 Hierarchical

 Matrix: Blend functional and project-

oriented structures

 Decentralized

 Network
Objectives and Users of AIS
 Support day-to-day operations
 Transaction processing
 Support Internal Decision-Making
 Trend Analyses
 Quantitative & Qualitative Data
 Non-transactional sources
 Help fulfill Stewardship Role
Resources Required for an AIS

 Processor(s): Manual or Computerized

 Data Base(s): Data Repositories
 Procedures: Manual or
Computerized
 Input/Output Devices
 Miscellaneous Resources
Reasons for Studying Accounting
Information Systems

 Career accountants will be users, auditors, and

developers of AIS
 Modern-day AIS are complex because of new
technologies
 Concepts studied in AIS are integrated into every
other accounting course
Information-Oriented
Professionals
 An array of professionally trained persons from
different fields of study have focused on providing
information to users
 These professionals include system and managerial
accountants and auditors, system analysts and
industrial engineers
 Professional certifications are increasing. These
include Certified Computing Professional,
Certified Information Systems Auditor,
Certified Managerial Accountant, Certified
Fraud Examiner, etc.
Roles of Accountants With
Respect to an AIS

 Financial accountants
prepare financial information
for external decision-making in
accordance with GAAP
 Managerial accountants
prepare financial information
for internal decision-making
Roles of Accountants With
Respect to an AIS
 Auditors - evaluate controls
and attest to the fairness of
the financial statements.
 Accounting managers -
control all accounting activities
of a firm.
 Tax specialists - develop
information that reflects tax
obligations of the firm.
 Consultants - devise
specifications for the AIS.
Ethical Standards for
Consulting
 Professional competence
 Exercise due professional care
 Plan and supervise all work
 Obtain relevant data to support reasonable
recommendations
 Maintain integrity and objectivity
 Understand and respect the responsibilities of all
parties
 Disclose any conflicts of interest