INTRODUCTION TO

ACCOUNTING INFORMATION SYSTEMS

Gregor Timothy O. Marcaida, MBA, CPA, CREB, CREA
College of Arts and Sciences
San Beda College - Alabang
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.

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What Is Information?

 Information is a business resource that:

– needs to be appropriately managed
– is vital to the survival of contemporary businesses

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What is the difference between Information and Data?

 Data
– Raw facts
– No organization or meaning
– Beginning of audit trail

 Information
– Processed data
– Meaningful to users

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 Internal & External Information Flows

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Characteristics of Useful Information
 Regardless of physical form or technology, useful information
has the following characteristics:
– Relevance: serves a purpose
– Timeliness: no older than the time period of the action it
supports
– Accuracy: free from material errors
– Completeness: all information essential to a decision or task
is present
– Summarization: aggregated in accordance with the user’s
needs

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Information Qualities

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Transactions

Financial

Transactions User
Information
Decision
Nonfinancial System
Information Making

Transactions

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 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
– Organization: Transactions-Journals-Ledgers-Financial
Statements
– Interrelationships: The relationship between Subsidiary
ledgers and the General Ledger
– Integration: Individual transactions to Financial Statements
– Central Objectives: Financial Reports, Budgets, Management
Reports

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Information System Model

 An information system (IS) or management information system

(MIS) is a manmade system that consists of an integrated set of
computer-based and manual components established to collect,
store, and manage data and to provide output information to
users.
 The figure on the next slide depicts the functional components of
an information system.

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Information System Objectives in a Business Context

 The goal of an information system is to support

– the stewardship function of management
– management decision making
– the firm’s day-to-day operations

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Transforming Data into Information

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Transforming Data into Information

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Input, Processing and Output Devices

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 Input Devices

 Source documents and data transcription

 Point-of-Sale (POS) devices

– Bar Code Readers
– Universal Product Code (UPC)
 Magnetic Ink Character Recognition (MICR)

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MICR Symbols

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 Input Devices

 Optical Character Recognition (OCR)

– Mark-sense media
– Turnaround documents

 Plastic Cards with Magnetic Strips

 Microcomputer Input Devices
– PDA Devices

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Common Input Devices

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 Input Devices

 Digital Cameras

 Biometric Scanners
– Behavioral systems
– Physiological systems
– Enrollment
– Hamming distance

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Biometric Scanners

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 Central Processing Units

 Primary Memory

 Microprocessors

 Computers, Processing Speeds and AISs

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Central Processing Units

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 Output Devices

 Printers

 Video output

 Multimedia

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Importance of Secondary Storage Devices

 Primary Memory
– Volatile Memory
– Lost electrical power, lost memory

 Secondary Storage
– Mass Storage or Auxiliary Storage
– Maintain data in permanent files

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Format of a Computer Record

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 Secondary Storage Devices

 Magnetic (hard) disks

– Redundant Arrays of Inexpensive Disks (RAIDS)

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Multiplatter Hard Disk

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 Secondary Storage Devices

 CD-ROMs
– Write-once, read-many (WORM) media
 DVDs
 Blu-Ray Discs
 Flash memory
 Image processing
 Record Management Systems

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 Data Communications
and Networks

 Communication Channels and Protocols

– Modem
– Integrated Services Digital Network (ISDN)
– Digital Subscriber Line (DSL)
– Data Communications Protocol

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 Data Communications
and Networks

 Local Area Networks (LANs)

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Information System Model

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What is Accounting Information Systems?

 Accounting is an information system.

– It identifies, collects, processes, and communicates
economic information about a firm using a wide variety of
technologies.
– It captures and records the financial effects of the firm’s
transactions. (financial transactions; e.g., sale of goods)
– It distributes transaction information to operations personnel
to coordinate many key tasks.
– and nonfinancial transactions that directly affect the
processing of financial transactions; e.g., addition of newly
approved vendors
– 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.
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Sarbanes-Oxley Act of 2002

Section 404 –
 Management must identify, document, and evaluate
significant internal controls.
 Auditors must report on management’s assertions regarding
internal controls.

Section 409 –
 Requires disclosure to the public on a
“rapid and current” basis of material changes in an
organization’s financial condition.

Implications for both public and private accountants

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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

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 The General AIS Model

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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

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1. Data Collection

 Capturing transaction data

 Recording data onto forms
 Validating and editing the data

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2. Data Processing

 Classifying
 Merging
 Transcribing
 Sorting  Calculating
 Batching  Summarizing
 Comparing

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3. Data Management

 Storing
 Retrieving
 Deleting

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4. Information Generation

 Compiling
 Arranging
 Formatting
 Presenting

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Resources Required for an AIS

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 AIS versus MIS?

IS

AIS MIS

GLS/FRS TPS MRS Finance Marketing Production HRS Distribution

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Gains from IT for Accountants

 Faster processing of transactions and other data

 Greater accuracy in computations of and comparisons with data
 Lower cost of processing each transaction
 More timely preparation of reports and other outputs
 More concise storage of data, with greater accessibility when
needed
 Wider range of choices for entering data and providing outputs
 Higher productivity for employees and managers, who learn to
use computers effectively in their routine and decision-making
responsibilities

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Enterprise Systems

 Integrates business processes and information from entire

enterprise.
 Helps coordinate the operation of business functions.
 ERP systems are software packages that can be used for
the core systems necessary to support enterprise systems.

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What is an ERP System?

 Multi-module application software that helps a company

manage the important parts of its business in an integrated
fashion.
 Key features include:
– smooth and seamless flow of information across
organizational boundaries
– standardized environment with shared database
independent of applications and integrated applications

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Problems with Non-ERP Systems

 In-house design limits connectivity outside the company

 Tendency toward separate IS’s within firm
– lack of integration limits communication within the company
 Strategic decision-making not supported
 Long-term maintenance costs high
 Limits ability to engage in process reengineering

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Integrate Business Functionality
When purchasing equipment the ERP will:
 Provide an electronic order form.
 Apply business rules.
 Route the order for approvals.
 Send the order to a buyer.
 Connect to the vendor.
 Use data to receive goods, project funding requirements,
compare to budget, and analyze vendor performance.

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ERP Systems Vendors

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Major ERP Modules
Sales and Distribution (SD)
 Records customer orders
 Shipping
 Billing
 Connections to
 Materials management module (MM)
 Financial accounting module (FI)
 Controlling module (CO)

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Major ERP Modules, Cont’d.
Materials Management (MM)
 Acquisition and management of goods from vendors
 Purchase order preparation
 Receiving
 Recording invoice
 Interacts with
 Sales and distribution module (SD)
 Financial accounting module (FI)
 Controlling module (C00)

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Major ERP Modules, Cont’d.
Financial Accounting (FI)
 Plays a central role in the SAP system.
 Incorporates data from other modules into general
ledger accounts and financial statements.
 Business events from other modules are incorporated
into the general ledger accounts and included in the
external financial statements.
 The FI module also includes accounts receivable and
accounts payable functions to record and manage that
data directly and to complete events begun in the SD
and MM modules.

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Major ERP Modules, Cont’d.

Controlling (CO)
 Often called Controlling and Profitability Analysis (CO/PA)
 Handles internal accounting including:
– Cost center accounting
– Profitability analysis for sales
– Activity-based accounting
– Budgeting

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Accountants as Information System Users

 Accountants must be able to clearly convey their needs to the

systems professionals who design the system.
 The accountant should actively participate in systems
development projects to ensure appropriate systems design.

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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
 Managers - control all accounting
activities of a firm.
 Tax specialists - develop information
that reflects tax obligations of the firm.

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Accountants as System Designers
 The accounting function is responsible for the conceptual
system, while the computer function is responsible for the
physical system.
 The conceptual system determines the nature of the
information required, its sources, its destination, and the
accounting rules that must be applied.

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Roles of Accountants With Respect to an AIS

 Business analyst bridges the gap

between the accounting and the
technical side, by interpreting the
business requirements to an IT
solution
 Consultants – advises or creates IT
solutions for accounting use of
businesses

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Accountants as System Auditors
– Auditors - evaluate controls and attest to the fairness of
the financial statements.

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Roles of Accountants With Respect to an AIS

 External Auditors
– attest to fairness of financial
statements
– assurance service: broader in
scope than traditional attestation
audit
 IT Auditors
– evaluate IT, often as part of external
audit
 Internal Auditors
– in-house IS and IT appraisal
services
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