Accounting Information Systems: An Overview

Accounting Information
Systems: An Overview
Chapter 1
Copyright © 2015 Pearson Education, Inc.

1-1
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
functions.
•Discuss how an AIS can add value to an organization.
•Explain how an AIS and corporate strategy affect each other.

•Explain the role an AIS plays in a company’s value chain. 1-2
Systems and Subsystems
• System
▫ is a set of interrelated components that interact to
achieve a common goal.
▫ Ex. College, department
• Subsystem
▫ designed to achieve one or more organizational
goal

3
Systems and Subsystems
• Goal Conflict
▫ occurs when subsystems’ goals are inconsistent
with the goals of another subsystem and on the
system as a whole.
• Goal Congruence
▫ Occurs when a subsystem achieves its goals while
contributing to the organization’s overall goal.

4
Data vs. Information
• Data are facts 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

1-5
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

1-6
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)

1-7
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
1-8
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

1-9
Information Needs and Business
Processes
• Business processes/activities
▫ is a set of related, coordinated, and structured
activities and tasks that are performed by a
person, a computer, or a machine a computer or a
machine, and that help accomplish a specific
organizational goal.
▫ Compose of an entity, resources, and process

10
Organizational Decisions and Information
Needed
• 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
goal.
• Key decisions and information needed often
come from these business processes.

1-11
12
13
Transactional Information Between Internal
and External Parties in an AIS
• Transaction
• an agreement between two entities to exchange
goods or services, such as selling inventory in
exchange for cash; any other event that can be
measured in economic terms by an organization.
• Transaction processing
• Process of capturing transaction data, processing
it, storing it for later use, and producing
information output, such as a managerial report
or a financial statement.
1-14
• give-get exchange
• Transactions that happen a great many times, such
as giving up cash to get inventory from a supplier
and giving employees paycheck in exchange for their
labor.
• Business processes / transaction cycles
• The major give-get exchanges that occur frequently
in most companies.

1-15
• Business organizations conduct business

transactions between internal and external
stakeholders.
• 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.
1-16
Interactions Between AIS and Internal and External Parties

1-17
Basic Business Processes
• Transactions between the business organization
and external parties fundamentally involve a
“give–get” exchange. These basic business
processes are:
▫ Revenue: give goods / give service—get cash
▫ Expenditure: get goods / get service—give cash
▫ Production: give labor and give raw materials—get
finished goods
▫ Payroll: give cash—get labor
▫ Financing: give cash—get cash
1-18
What Is an Accounting Information System?
• It can be manual or computerized
• Consists of
▫ People who use the system
▫ Processes
▫ Technology (data, software, and information
technology)
▫ 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.
1-19
20
21
22
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
▫ Sharing knowledge

1-23
AIS and 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 necessary to measure how well
they are doing in obtaining that goal.

1-24
25
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
activities.
▫ Primary activities provide direct value to the
customer.
▫ Support activities enable primary activities to be
efficient and effective.

1-26
Copyright © 2015 Pearson Education, Inc. 1-27
Key Terms
• System • Revenue cycle
• • Expenditure cycle
Goal conflict
• Production (conversion) cycle
• Goal congruence
• Human resource/payroll cycle
• Data
• Financing cycle
• Information
• General ledger and reporting
• Information technology (IT) system
• Information overload • Accounting information system
• Value of information (AIS)
• Business process • Predictive analytics
• Transaction • Value chain
• Transaction processing • Primary activities
• Give-get exchange • Support activities
• Supply chain
1-28
29

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Accounting Information

Copyright © 2015 Pearson Education, Inc.

•Explain fundamental decisions an organization makes:

•Describe the major business processes present in most companies.

•Discuss how an AIS can add value to an organization.

•Explain how an AIS and corporate strategy affect each other.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Invoice Date : 2/22/14 Invoice #: 123

Customer: ABC company

Item # Qty Price

Total Invoice Amount $60

Benefit (i.e., improved decision making)

Copyright © 2015 Pearson Education, Inc.

5. Understandable: information must be

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

• Business organizations use business processes to

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

• Business organizations conduct business

Copyright © 2015 Pearson Education, Inc.

• A well thought out AIS can add value through

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

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