Accounting Information Systems

Fifteenth Edition, Global Edition

Chapter 1
Accounting Information
Systems: An Overview

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Learning Objectives
• Distinguish between data and information:
– Discuss the characteristics of useful information.
– Explain how to determine the value of information.
• Explain the decisions an organization makes:
– The information needed to make them.
– The major business processes present in most
companies.
• Explain how an A I S adds value to an organization:
– How it affects and is affected by corporate strategy.
– The role of A I S in a value chain.

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Distinguishing Between Data and
Information
• Data are facts collected, recorded, and stored in the
system
– A fact could be a number, date, name, and so on.

For example:
2/22/14
A B C Company
123, 99, 3, 20, 60

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Data v s. Information
ersu

• The previous slide just showed data; if we organize the

data within a context of a sales invoice, for example, it is
meaningful and considered information.
Invoice Date : 2/22/14 Invoice #: 123
Customer: A B C Company
Item # Qty Price
99 3 $20
Total Invoice Amount $60

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Decision Quality
• Information helps us make better decisions.
• Too much information causing information overload can
reduce decision quality.
• Information Technology (I T) is used to help decision
makers more effectively filter and condense information.

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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) = value of
information

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What Makes Information Useful? (1 of 2)
There are 14 general characteristics that make information
useful:
1. Access restricted: limit access to authorized parties
2. Accurate: accurate, correct, and free of error
3. Available: available to users when needed
4. Reputable: perceived as true and credible
5. Complete: does not omit important aspects of events or
activities
6. Concise: clear, succinct, brief, but comprehensive
7. Consistent: presented in the same format over time

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What Makes Information Useful? (2 of 2)
8. Current: up to the present data and time
9. Objective: unbiased, unprejudiced, and impartial
10.Relevant: reduces uncertainty and improves decision
making
11. Timely: provided in time for decision maker to make
decisions
12.Useable: easy to use for different task
13.Understandable: easily comprehended and interpreted
14.Verifiable: two independent people can produce the
same information

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Machine-Readable Format
• Data is most useful when it is in a machine-readable
format that can be read and processed by a computer.
• X B R L is an example of a machine-readable format that
can improve many of the characteristics that make
information useful.

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Information Needs and Business
Processes
• Business organizations use business processes to get
things done. A business process is a set of related,
coordinated, and structured activities and tasks performed
by people, machines, or both to achieve a specific
organizational goal.
• Key decisions and information needed often come from
these business processes.

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Figure 1.1 The Components of an
Information System

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Transactional Information Between
Internal and External Parties in an A I S
• Business organizations conduct business transactions,
which is an agreement between two entities to exchange
goods, services, or any other event that can be measured
in economic terms by an organization.
• Transaction data is used to create financial statements and
is called transaction processing.
• The flow of information between these users for the
various business activities involves a give-get exchange
grouped into business processes or transaction cycles.

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Figure 1.2 Interactions Between S&S
and External and Internal Parties

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Basic Business Processes
• Transactions between the business organization and
external parties fundamentally involve a “give–get”
exchange. These basic business processes are:
– Revenue cycle: give goods / give service—get cash
– Expenditure cycle: get goods / get service—give cash
– Production cycle: give labor and give raw materials—
get finished goods
– Payroll cycle: give cash—get labor
– Financing cycle: give cash—get cash

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What Is an Accounting Information
System (A I S)?
• A I S is a system that collects, records, stores, and
processes data to produce information for decision
makers.
• Consists of
– People who use the system
– Processes (procedures and instructions)
– Technology (data, software, and information
technology)
– Controls to safeguard information
• Thus, an A I S collects and stores data, transforms that
data into information, and provides adequate controls.

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How Does an A I S Add Value to an
Organization?
• A well thought out A I S can add value by:
– Improving the quality and reducing the costs of
products or services
– Improving efficiency
– Sharing knowledge
– Improving efficiency and effectiveness of its supply
chain
– Improving the internal control structure
– Improving decision making

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Artificial Intelligence
• Artificial intelligence (A I) is the use of computer systems
to simulate human intelligence processes such as learning,
reasoning, and self-improvement.
• A I can be used in the following fields
– Business
– Education
– Finance
– Healthcare

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Data Analytics
• Data analytics is the use of software and algorithms to
find and solve problems and improve business
performance.
• Analytics can help improve decision making by
– Identifying a problem/issue for management to resolve.
– Collecting the data needed to solve the problem,
analyze it, and make recommendations to
management on how to resolve it.
– Integrating actionable insights into the systems used to
make decisions.

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Blockchain
• Blockchain represents individual digital records, called
blocks, linked together using cryptography in a single list,
called a chain.
• Blockchain has several significant advantages, including
– accuracy, transparency, data consistency, trust,
– no need for third parties, single set of books, reduced
cost,
– decentralization, efficiency, privacy, security, and
provenance
• There are also significant challenges to its adoption
including political and regulatory issues.

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Cloud Computing, Virtualization, and
the Internet of Things
• Cloud computing is the use of a browser to remotely
access software, data storage, hardware, and applications.
• Virtualization is the running of multiple systems
simultaneously on one physical computer.
• Internet of Things (IoT) refers to the embedding of
sensors in a multitude of devices (lights, heating and air
conditioning, appliances, etc.) so that those devices can
now connect to the Internet.

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A I S and Corporate Strategy
• An A I S 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 (both financial and
nonfinancial) necessary to measure how well they are
doing in obtaining that goal.

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A I S in the Value Chain
• The value chain links together the different activities within
an organization that provide value to the customer.
– Value chain activities are primary and support activities.
▪ Primary activities provide direct value to the
customer.
▪ Support activities enable primary activities to be
efficient and effective.
• A supply chain is an extended system that includes the
organization’s value chain as well as its suppliers,
distributors, and customers.

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Figure 1.6 The Value Chain

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Key Terms (1 of 2)
• System
• Goal conflict
• Goal congruence
• Data
• Information
• Machine-readable
• Information overload
• Information technology (I T)
• Value of information
• Information system
• Business process
• Transaction
• Transaction processing
• Give-get exchange
• Business processes or
transaction cycles
• Revenue cycle
• Expenditure cycle
• Production or conversion cycle
• Human resource/payroll cycle
• Financing cycle
• General ledger and reporting
system
• Accounting information system
(A I S)
• Accounting
• Artificial intelligence
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Key Terms (2 of 2)
• Data analytics
• Data dashboard
• Blockchain
• Virtualization
• Cloud computing
• Internet of Things (IoT)
• Value chain
• Primary activities
• Support activities
• Supply chain

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