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 and the information needed to make them. Identify the 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 companys value chain.
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What Is a System?
System
A set of two or more interrelated components interacting to achieve a goal Occurs when components act in their own interest without regard for overall goal

Goal Conflict

Goal Congruence
Occurs when components acting in their own interest contribute toward overall goal

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Data vs. Information

Data are facts that are recorded and stored.
Insufficient for decision making.

Information is processed data used in decision making.

Too much information however, will make it more, not less, difficult to make decisions. This is known as Information Overload.
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Information

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Value of Information
Benefits
Reduce Uncertainty Improve Decisions

Costs
Time & Resources
Produce Information Distribute Information

Improve Planning
Improve Scheduling
Benefit $s > Cost $s

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What Makes Information Useful?

Necessary characteristics:
Relevant
The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent. The inclusion in reported information of everything material that is necessary for faithful representation of the relevant phenomena.
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Reliable

Complete

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What Makes Information Useful?

Timely
Having information available to a decision maker before it loses its capacity to influence decisions.

Understandable Verifiable

The quality of information that enables users to perceive its significance.

The ability through consensus among measurers to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias. Available when needed (see Timely) and in a useful format (see Understandable).
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Accessible

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Business Process
Systems working toward organizational goals

Financing

Revenue

Human Resources

Expenditure

Production

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Business Process Cycles

Revenue
Expenditure

Production
Human Resources

Financing

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Business Transactions
GiveGet exchanges
Between two entities

Measured in economic terms

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Business Cycle Give Get

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Revenue Cycle
Finished Goods Revenue Cycle Expenditure Cycle Production Cycle

General Ledger and Reporting System

The Revenue Cycle

Gets finished goods from the production cycle. Provides funds to the financing cycle. Provides data to the general ledger and reporting system.

Human Res./ Payroll Cycle

Financing Cycle

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Expenditure Cycle
Revenue Cycle Expenditure Cycle
Data Raw Mats.

Production Cycle

General Ledger and Reporting System

The Expenditure Cycle

Gets funds from the financing cycle. Provides raw materials to the production cycle. Provides data to the general ledger and reporting system.

Human Res./ Payroll Cycle

Financing Cycle

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Production Cycle
Finished Goods Revenue Cycle Expenditure Cycle
Raw Mats.

Production Cycle

General Ledger and Reporting System

The Production Cycle:

Gets raw materials from the expenditure cycle. Gets labor from the HR/payroll cycle. Provides finished goods to the revenue cycle. Provides data to the general ledger and reporting system.

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Human Res./ Payroll Cycle

Financing Cycle

HR/Payroll Cycle
Revenue Cycle Expenditure Cycle Production Cycle

General Ledger and Reporting System

The HR/Payroll Cycle:

Gets funds from the financing cycle Provides labor to the production cycle. Provides data to the general ledger and reporting system.
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Human Res./ Payroll Cycle

Funds

Financing Cycle

Financing Cycle
Revenue Cycle Expenditure Cycle Production Cycle

General Ledger and Reporting System

The Financing

Cycle:

Human Res./ Payroll Cycle

Funds

Financing Cycle

Gets funds from the revenue cycle. Provides funds to the expenditure and HR/payroll cycles. Provides data to the general ledger and reporting system.

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Accounting Information Systems

Collect, process, store, and report data and information
If Accounting = language of business AIS = information providing vehicle Accounting = AIS

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Components of an AIS
People using the system
Procedures and Instructions
For collecting, processing, and storing data

Data Software

Information Technology (IT) Infrastructure

Computers, peripherals, networks, and so on

Internal Control and Security

Safeguard the system and its data
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AIS and Business Functions

Collect and store data about organizational:
Activities, resources, and personnel

Transform data into information enabling

Management to: Plan, execute, control, and evaluate Activities, resources, and personnel

Provide adequate control to safeguard

Assets and data
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AIS Adds Value

Improve Quality and Reduce Costs
Improve Efficiency

Improve Sharing Knowledge

Improve Supply Chain

Improve Internal Control

Improve Decision Making
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Improve Decision Making

Identify situations that require action. Provide alternative choices. Reduce uncertainty. Provide feedback on previous decisions. Provide accurate and timely information.
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Value Chain
The set of activities a product or service moves along before as output it is sold to a customer
At each activity the product or service gains value

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Value ChainPrimary Activities

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Value ChainSupport Activities

Firm Infrastructure

Technology

Human Resources

Purchasing

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Value Chain

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AIS and Corporate Strategy

Organizations have limited resources, thus investments to AIS should have greatest impact on ROI. Organizations need to understand: IT developments

Business strategy
Organizational culture Will effect and be effected by new AIS

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