Lecture 01

Acct 325 - Systems
Instructor: Glenn McGuigan
Email: glenn_mcguigan@transcanada.com
Accounting Information
Systems and Business
Processes Overview
Lecture 1
(Chapter 1 & 2)
Introduction
 This lecture defines an accounting information
system (AIS).
 It discusses why AIS is an important topic.
 It describes how an AIS adds to an
organization’s value chain.
 It describes and contrasts the basic strategies
that a business can pursue.
 It also discusses the types of information
reports that can be produced by the AIS.
©2003 Prentice Hall Business Publishing, Lecture 01-

Accounting Information Systems, 9/e, Romney/Steinbart
3
What is an AIS?
 A system is a set of two or more interrelated
components that interact to achieve a goal.
 Systems are almost always composed of smaller
subsystems, each performing a specific function
supportive of the larger system.
 An accounting information system (AIS) consists
of:
 People
 Procedures
 Data
 Software
 Information technology

4
Functions of an AIS?
 What important functions does the
AIS perform in an organization?
1 It collects and stores data about
activities and transactions.
2 It processes data into information that
is useful for making decisions.
3 It provides adequate controls to
safeguard the organization’s assets.

5
The Three Basic Functions
Performed by an AIS
1 The efficient and effective processing of
data about a company’s transactions:
 Capture transaction data on source
documents.
 Record transaction data in journals, which
present a chronological record of what
occurred.
 Post data from journals to ledgers, which
sort data by account type.

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Performed by an AIS
2 To provide management with information
useful for decision making:
 In manual systems, this information is
provided in the form of reports that fall
into two main categories:
– financial statements
– managerial reports

7
Performed by an AIS
3 To provide adequate internal controls:
 Ensure that the information produced
by the system is reliable.
 Ensure that business activities are
performed efficiently and in
accordance with management’s
objectives.
 Safeguard organizational assets.

8
Basic Subsystems in the AIS
Financing Expenditure Human

Cycle Cycle Resources
General Ledger & Reporting System
Production Revenue
Cycle Cycle
Factors Influencing
Design of the AIS
Organizational
Strategy
Culture
AIS
Information
Technology
The Value Chain
 The ultimate goal of any business is to
provide value to its customers.
 A business will be profitable if the
value it creates is greater than the
cost of producing its products or
services.

11
The Value Chain
 An organization’s value chain consists of
nine interrelated activities that collectively
describe everything it does.
 The five primary activities consist of the
activities performed in order to create,
market, and deliver products and services
to customers and also to provide post-sales
services and support.

12
The Value Chain
Primary Activities
Inbound Outbound
Operations
Logistics Logistics
Marketing
Service
and Sales
13
The Value Chain
 The four support activities in the value

chain make it possible for the primary
activities to be performed efficiently
and effectively.

14
The Value Chain
Support Activities
Infrastructure Technology
Human
Purchasing
Resources
15
The Supply Chain
 The value chain concept can be

extended by recognizing that
organizations must interact with
suppliers, distributors, and customers.
 An organization’s value chain and the
value chains of its suppliers,
distributors, and customers
collectively form a Supply Chain.

16
How An AIS Can Add Value
To An Organization
 An AIS adds value...
– by providing accurate and timely
information so that five primary value
chain activities can be performed more
effectively and efficiently. This is done
by:
– improving the quality and reducing the costs
of products or services.

17
How An AIS Can Add Value
To An Organization
An AIS can…
– improve efficiency.
– improve decision making capabilities.
– increase the sharing of knowledge.
– Improve decision making.
– Improve the internal control structure.
 A well-designed AIS can also help an

organization profit by improving the efficiency
and effectiveness of its supply chain.

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Information and Decision
Making
 What is information?
 The term data refers to any and all of
the facts that are collected, stored,
and processed by an information
system.
 Information is data that has been
organized and processed so that it is
meaningful.
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Making
Characteristics of Useful Information
Relevant Timely
Reliable Understandable
Complete Verifiable
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Making
 What is decision making?
 Decision making involves the
following steps:
1 Identify the problem.
2 Select a method for solving the problem.
3 Collect data needed to execute the decision
model.
4 Interpret the outputs of the model.

21
Making
5 Evaluate the merits of each alternative.
6 Choose and execute the preferred solution.
 Decisions can be categorized as follows:
– in terms of the degree of structure that
exists
– by the scope of the decision

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Decision Structure
 Structured decisions are repetitive,

routine, and understood well enough
that they can be delegated to lower-
level employees in the organization.
 An example is:
 Extending credit to customers.

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Decision Structure
 Semistructured decisions are
characterized by incomplete rules for
making the decision and the need for
subjective assessments and
judgments to supplement formal data
analysis.
 An example is:
 Setting a marketing budget for a new
product.

24
Decision Structure
 Unstructured decisions are

nonrecurring and nonroutine.
 An example is:
 Choosing the cover for a magazine.

25
Information Technology
and Corporate Strategy
 Develop a basic understanding of…
– corporate strategies.
– how IT developments can be used to
implement existing organizational
strategies.
– how IT developments can be used to
create an opportunity to modify
existing strategies.
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Information Technology
and Corporate Strategy
 Because an AIS functions within an
organization, it should be designed to
reflect the values of that organizational
culture.

27
Strategy and Strategic
Positions
Two Basic Strategies
To be a lower-cost producer than competitors
To differentiate products and services from

competitors

28
Positions
Three Basic Strategic Positions
Variety-based strategic position
Need-based strategic position
Access-based strategic position

29
Positions
 What role does the AIS play in helping
organizations adopt and maintain a
strategic position?
– data collection about each activity
– transforming data into information that
can be used by management to
coordinate those activities

30
What is the Value of
Information?
 The value of information is the benefit
produced by the information minus the
cost of producing it.

31
What is an Audit Trail?
 An audit trail provides a means to
check the accuracy and validity of
ledger postings.
 Observe that the posting reference for
$2,400 credit to the sales account in
the general ledger, SJ5, refers back to
page 5 of the sales journal.

32
What is the Chart of
Accounts?
 The chart of accounts is a list of all
general ledger accounts used by an
organization.
 It is important that the chart of
accounts contains sufficient detail to
meet the information needs of the
organization.

33
Financial Statements
 The preparation of financial

statements consists of a sequence of
activities.
 What are these activities?

34
Financial Statements
 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.

35
Managerial Reports
 The AIS must also be able to provide
managers with detailed operational
information about the organization’s
performance.
 What reports does management
need?
– inventory status
– budgets
– performance reports

36
Managerial Reports
What is a budget?
 A budget is the formal expression of
goals in financial terms.
 What are some types of budgets?
– cash
– operating
– capital

37
Managerial Reports
What is a performance report?

 A performance report lists the
budgeted and actual amounts of
revenues and expenses and also
shows the variances, or differences,
between these two amounts.

38
Internal Control
Considerations
 An AIS must provide adequate
internal controls to accomplish three
basic objectives:
1 Ensure that the information is reliable.
2 Ensure that business activities are
performed efficiently.
3 Safeguard organizational assets.

39
Internal Control
Considerations
 What are two important methods for
accomplishing these objectives?
1 Provide for adequate documentation
of all business activities.
2 Design the AIS for effective
segregation of duties.

40
What is Segregation of
Duties?
 Segregation of duties refers to
dividing responsibility for different
portions of a transaction among
several people.
 What functions should be performed
by different people?
– authorizing transactions
– recording transactions
– maintaining custody of assets
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The Future of AIS
 The Internet makes strategy more
important than ever
 Enterprise resource planning (ERP) systems
are a recent development that integrate all
aspects of a company’s operations with its
traditional AIS.
 The important point underlying ERP systems is
the need for and value of cross-functional
integration of financial data and other
nonfinancial operating data.

42
End of Lecture 1

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Acct 325 - Systems

Instructor: Glenn McGuigan

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

Financing Expenditure Human

General Ledger & Reporting System

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

 The four support activities in the value

©2003 Prentice Hall Business Publishing, Lecture 01-

 The value chain concept can be

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

– improve decision making capabilities.

– increase the sharing of knowledge.

– Improve decision making.

– Improve the internal control structure.

 A well-designed AIS can also help an

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

 Structured decisions are repetitive,

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

 Unstructured decisions are

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

To be a lower-cost producer than competitors

To differentiate products and services from

©2003 Prentice Hall Business Publishing, Lecture 01-

Variety-based strategic position

Need-based strategic position

Access-based strategic position

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

 The preparation of financial

©2003 Prentice Hall Business Publishing, Lecture 01-

 Prepare a trial balance.

 Prepare the adjusted trial balance.

 Produce the income statement.

 Make closing entries.

 Produce the balance sheet.

 Prepare the statement of cash flows.

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

What is a performance report?

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

©2003 Prentice Hall Business Publishing, Lecture 01-

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