Chapter 1: Accounting Information System
– An Overview
Reasons why we learn AIS
1. Graduation Requirement
2. Fundamental to Accounting
 It provides greater emphasis on
Collection and
transformation of data.
Ensuring availability,
reliability, and accuracy
of data.
 Not number crunching courses
3. Skills critical to success
 Auditors need to evaluate
accuracy and reliability of
information produced by AIS.
 Tax Accountants must
understand the client’s AIS
adequately to be confident that it
is providing complete and
accurate information for tax
planning ang compliance work.
 Systems work is considered the
most important activity
performed by accountants in the
private industry and not-for
profit.
 In management consulting, the
design, selection, and
implementation of accounting
systems is a rapid growth area.
4. Course complements other courses
 AIS courses focus on
accountability and control while
other system courses focus on
design and implementation of
information systems, databases,
expert systems, and
telecommunications.
A large number of specified employment
opportunities are available to those students who
possess a deeper understanding of computer
subjects and can bring advanced computer skills to
accounting jobs.
Essence of Accounting Information System(s)
 Collection of raw and stored data.
(Serves typically as inputs)
 Processing methods (called procedures);
and
 Information (called outputs) that serve
useful accounting purposes.
AIS (or any particular IS) can:
 Use advanced technology
 Be a simple paper-and-pen system
 Be something in between
“Technology is simply a tool to create, maintain
or improve a system.”
Accounting Information Systems exists at the
intersection of two important disciplines; (1)
accounting and (2) information systems.
AIS is the study of computerized accounting
systems, but it is better defined according to what
it does
Functions of Accounting Information Systems
 Collects and stores data about activities
and transactions.
 Processes data into information that is
useful for making decisions.
 Provides adequate control to safeguard the
organization’s assets.
AIS are used in almost all areas of accounting,
including payroll computation, inventory
maintenance, budgeting, and more.
AISs help accountants maintain general ledger
information, create spreadsheets for strategic
planning, and distribute financial reports.
Challenges for accountants is; how to provide
information in the best way, and the quality of
information they provide.
AISs don’t just support accounting and finance
business processes. They often create information
useful for non-accountants.
Organization Information provided by
Unit AIS
 Cash forecasts and
Finance actual payment and
receipt information.
 Sales, summary
analyses, cost
Marketing
information, and sales
forecast.
Human  Payroll analyses, and
 projections of future Transformation of data into results/information
Resources
personnel costs. that is useful and valuable is more important than
 Inventory summary the source of the said data.
Production and product cost
analyses. There is a need for valuable information because
inaccuracy or incompleteness of information
Users must help AIS developers identify the presented by an organization leads to poor
information they need for their planning, decisions, leading up to losses of thousands to
decision making, and control functions. millions of dollars.

Information is relevant if it reduces uncertainty,

Data – facts, figures, symbols, events,
improves a decision maker’s ability to make
measurements, opinions, etc.
predictions, or confirms or corrects their prior
expectations.
Data Represented by
Alphanumeric Numbers, letters, and other Information is reliable if it is free from error or
Data characters bias and accurately represents the events of
Image Data Graphic images and pictures activities of the organization.
Audio Data Sound, noise, or tones
Video Data Moving images or pictures Information is understandable if it is presented in
a useful and intelligible format.
Information – Collection of facts organized in
such a way that they have additional value beyond Information is timely if it is provided in time for
the value of the individual facts. It can also be decision makers to make a decision.
defined as data made more useful through the
application of knowledge. Information is complete if it does not omit
important aspects of the underlying events or
Process activities that it measures.
 Turning data into information
 Set of logically related tasks performed to Information is verifiable if two knowledgeable
achieve a defined outcome. people acting independently would each produce
 Process of defining relationships among the same result.
data to create useful information requires
knowledge. Information is accessible if it is available to users
when they need it and in a format they can use.
Knowledge – awareness and understanding of a
set of information and the ways that information Benefits of Information
can be made useful to support a specific task or  Reduction of uncertainty
reach a decision.  Improved decisions
 Improve ability to plan and schedule
Transformation
Data Information Cost of Producing Information
process
Resources spent in:
Knowledge workers  Data collection
 People who create, use, and disseminate  Data processing
knowledge.  Data storage
 Usually professionals in science,  Distribution of information to users
engineering, business and other areas.
 They organize or process data mentally or The value of information to the user is
manually. determined by its reliability.
  Is this required?
 Do I need this?
Raw Data  Will it contribute to my information?

PROCESSING
 Transforming, converting data into useful
Data Capture outputs
 Processing can involve making
calculations, comparing data and taking
alternative actions, and storing data for
Data future use.
Processing  Processing data into useful information
critical in business settings.

Data OUTPUT
Communication  Involves producing useful information by
means of processing
 Usually in form of documents and reports.
 Can include paychecks for employees,
reports for managers, and information
Users supplied to banks, government agencies,
and other groups.
 In some cases, output from one system
becomes the input of another system.
Data Information
SYSTEMS DEVELOPMENT
Activity of creating or modifying
Unreliable information information systems.
 Has no value to the user They can range from small to very large.
 Waste of resources
 Can lead to dysfunctional behavior STEPS in SYSTEMS DEVELOPMENT

Level of User Relevance/Importance Information

Understanding to User’s Situation Value
None None None
None High None
Low
Some None
Value
Moderate
Good Some
Value
High
Good High
Value
Maximum
Good Critical
Value

Data – facts, figures, symbols, etc. used as input

for processing. SYSTEMS IMPLEMENTATION
(Place solution into effect)
INPUT – gathering and collecting of data
Data Collection – first and most crucial phase of
the processing cycle. SYSTEMS MAINTENANCE &
REVIEW
Questions to ask in accordance with relevance: (Evaluate results of solution)
SYSTEMS INVESTIGATION
(Understand problems)

SYSTEMS ANALYSIS
(Understand solutions)

SYSTEMS DESIGN
(Select and plan best solution)