Chapter 1

The Information System:

An Accountant’s
Perspective
 Accounting Information System
• The word AIS consist of Three(3) words.
A= Accounting
I= Information
S=System
 Accounting: Accounting is defined as the
process of identifying, measuring, and
communicating economic information to
permit informed judgments, and decisions by
users of the information.
 Accounting cycle
• Identification and measurement of Transaction
• Recording the transactions (Journal)
• Classifying the transactions (Ledger)
• Summarizing the transactions (Trial Balance)
• Adjusting Entries
• Preparation of Adjusted Trial Balance
• Preparation of Financial Statements
• Closing Entries
• Preparation of Post Closing Trial Balance (Optional)
• Reversing Entries
• Information :
Information is processed data that is used to
make decisions, resolve conflicts, and/or
reduce uncertainty.
• 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.
 Accounting Information System
• Accounting information system is the
collection, storage and processing of financial
and non financial data that are used by
decision makers.
• An accounting information system is generally
a computer-based method for tracking
accounting activity in conjunction with
information technology resources.
• AIS is a subset of Management Information
Systems (MIS)
 What is AIS
• An information system is a formal process for
collecting data, processing the data into
information, and distributing that information to
users.
• The purpose of an accounting information system
(AIS) is to collect, store, and process financial and
accounting data and produce informational
reports that managers or other interested parties
can use to make business decisions. Although an
AIS can be a manual system, today most
accounting information systems are computer-
based.
 Functions of an Accounting
Information System
Accounting information systems have three basic functions:
• The first function of an AIS is the efficient and effective
collection and storage of data concerning an organization’s
financial activities, including getting the transaction data from
source documents, recording the transactions in journals, and
posting data from journals to ledgers.
• The second function of an AIS is to supply information useful
for making decisions, including producing managerial reports
and financial statements.
• The third function of an AIS is to make sure controls are in
place to accurately record and process data.
 Elements of AIS
Six elements compose the typical accounting
information system:      
• People who use the system, including accountants, managers, and
business analysts
• Procedure and instructions are the ways that data are collected, stored,
retrieved, and processed
• Data including all the information that goes into an AIS
• Software consists of computer programs used for processing data
• Information technology infrastructure includes all the hardware used to
operate the AIS
• Internal controls are the security measures used to protect data.

    
 Flow of Information
Internal & External Information Flows
 AIS vs. MIS
• Accounting Information Systems (AISs) process
financial (e.g., sale of goods) and nonfinancial
transactions (e.g., addition of newly approved
vendor) that directly affect the processing of
financial transactions.
• Management Information Systems (MISs) process
nonfinancial transactions that are not normally
processed by traditional AISs (e.g., tracking customer
complains).
• AIS provides information for other external users, so
that it has more users.
AIS vs. MIS?
 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
 AIS and MIS subsystems
• In order to explain how accounting information
system could achieve the mentioned goals, it is
needed to classify organizations’ activities into
five main cycles which are the subsystems of
AIS:
• 1. Expenditure cycle which consists of
activities that involve the buying and paying for
goods and services used by the organization.
• 2. Production cycle which includes activities
which convert raw materials and labors to the
finished products.
• 3. Human resources cycle which consists of
activities that are involved in employing and
paying staff salaries
• 4. Revenue cycle which includes sales of
goods or services or receiving the cash.
• 5. Financing cycle which includes activity that
provides the funds needed for operations.
The General AIS Model
 Transforming the 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
 1. Data Collection
• Capturing transaction data
• Recording data onto forms
• Validating and editing the data
 2. Data Processing
• Classifying
• Transcribing
• Sorting
• Batching
• Merging
• Calculating
• Summarizing
• Comparing
 3. Data Management
• Storing
• Retrieving/ Recovering/Regaining
• Deleting
 4. Information Generation
• Compiling/ Assembling/Accumulating
• Arranging/ placing
• Formatting/ Lay out
• Presenting
Organization of Computer Services Function in a Centralized Data Processing (CDP) System
 Organizational Structure for a
Distributed Data Processing System
 Potential Advantages of DDP
• Cost reductions in hardware and data entry
tasks
• Improved cost control responsibility
• Improved user satisfaction since control is
closer to the user level
• Backup of data can be improved through the
use of multiple data storage sites
 Potential Disadvantages of DDP
• Loss of control
• Mismanagement of organization-wide
resources
• Hardware and software incompatibility
• Redundant tasks and data
• Consolidating tasks usually segregated
• Difficulty attracting qualified personnel
• Lack of standards
Centralized Databases in an IPU Environment:
CDP vs. DDP
• The data is retained in a central location.
• Remote IPUs send requests for data.
• Central site services the needs of the remote
IPUs.
• The actual processing of the data is performed
at the remote IPU.
 System Decomposition vs. System
Interdependency
• System Decomposition
– the process of dividing the system into smaller subsystem
parts
Decomposition is the process of dividing the system into smaller
subsystem parts. This is a convenient way of representing,
viewing, and understanding the relationships among subsystems.
By decomposing a system, we can present the overall system as a
hierarchy and view the relationships between subordinate and
higher-level subsystems. Each subordinate subsystem performs
one or more specific functions to help achieve the overall
objective of the higher-level system.
 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
 Computer Hardware

The physical components of a computer which

can be touched, called Computer Hardware.

By itself, a computer has no intelligence and is

referred to as hardware. A computer can’t be
used until it is connected to other parts of a
computer system.

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 Classification of Hardware

Computer hardware can be divided into five categories:

1. Input Hardware – Keyboard, Mouse

2. Processing Hardware – CPU, RAM
3. Storage Hardware – Hard Disk, CD
4. Output Hardware – Monitor, Printer
5. Communication Hardware – Cable, Modem

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 Software

• Step by step instructions that tells the Hardware

how to perform a task.

• Software tells the computer what to do. Also called a

program.

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 Classification of Computer Software

• Software is generally classified as:

– System Software
– Application Software

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 Systems Software

– DOS (Disk Operating System)

– Windows 3.1/ 3.11/ 95 /98/
– 2000/ NT/ ME / XP / Vista / Windows 7
– Unix
– Linux
– Macintosh OS
– OS/2

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 Applications Software

• Word Processing (e.g. Microsoft Word)

– Write formatted text documents
• Spreadsheets (e.g. Microsoft Excel)
– Do calculations with tables of figures
• Databases (e.g. Microsoft Access)
– Manipulate tables of interrelated data
• Presentations (e.g. Microsoft PowerPoint)
– Give a slide show to present information
• Graphics (e.g. CorelDraw, Paint)
– Edit photos, diagrams, drawings and pictures

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