C

HAPTER 1
Accounting Information
Systems:
An Overview

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

1 of 24

INTRODUCTION
Questions to be addressed in this chapter
include:
What is the meaning of system, data, and
information?
What makes information useful?
Describe the major business processes present in
most companies.
What is an accounting information system (AIS)?
What is the role of the AIS in the value chain?

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

2 of 24
35

SYSTEMS, DATA, AND INFORMATION

A system is a set of two or more interrelated
components that interact to achieve a goal.
Systems are almost always composed of
smaller subsystems, each performing a specific
function supportive of the larger system.

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

3 of 24
35

SYSTEMS, DATA, AND INFORMATION

Data are facts that are collected, recorded,
stored, and processed by an information system.
Information is different from data.
Information is data that have been organized
and processed to provide meaning to a user.
Usually, more information and better information
translates into better decisions.

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

4 of 24
35

SYSTEMS, DATA, AND INFORMATION

However, when you get more information
than you can effectively assimilate, you
suffer from information overload.
When youve reached the overload point,
the quality of decisions declines while the
costs of producing the information
increases.

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

5 of 24
35

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.

Reliable
The quality of information that assures that information is
reasonably free from error and bias and faithfully represents
what it purports to represent.

Complete
The inclusion in reported information of everything material
that is necessary for faithful representation of the relevant
phenomena.

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

6 of 24
35

What Makes Information Useful?

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

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

Verifiable
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.

Accessible
Available when needed (see Timely) and in a useful format (see
Understandable).

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

7 of 24
35

BUSINESS PROCESSES
A transaction is:
An agreement between two entities to
exchange goods or services; OR
Any other event that can be measured in
economic terms by an organization.

EXAMPLES:
Sell goods to customers
Depreciate equipment

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

8 of 24
35

BUSINESS PROCESSES
Many business processes are paired in
give-get exchanges.
Basic exchanges can be grouped into five
major transaction cycles:
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle
2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

9 of 24
35

BUSINESS PROCESSES
Transactions in the revenue cycle:
MAJOR GIVE-GET
Give goods or services; get
cash
OTHER TRANSACTIONS
Handle customer inquiries
Take customer orders
Approve credit sales
Check inventory availability
Initiate back orders
Pick and pack orders
Ship goods
Bill customers

Update sales and Accts Rec.

for sales
Receive customer payments
Update Accts Rec. for
collections
Handle sales returns,
discounts, and bad debts
Prepare management reports
Send info to other cycles

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

10 of 24
35

BUSINESS PROCESSES
Transactions in the expenditure cycle:
MAJOR GIVE-GET:
Give cash; get goods or
services
OTHER TRANSACTIONS
Requisition goods and
services
Process purchase orders to
vendors
Receive goods and services
Store goods
Receive vendor invoices

Update accounts payable for

purchase
Approve invoices for payment
Pay vendors
Update accounts payable for
payment
Handle purchase returns,
discounts, and allowances
Prepare management reports
Send info to other cycles

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

11 of 24
35

BUSINESS PROCESSES
Transactions in the HR/payroll cycle:
MAJOR GIVE-GET:
Give cash; get labor
OTHER TRANSACTIONS
Recruit, hire, and train
employees
Evaluate and promote
employees
Discharge employees
Update payroll records

Pay employees
Process timecard and
commission data
Prepare and distribute
payroll
Calculate and disburse tax
and benefit payments
Prepare management reports
Send info to other cycles

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

12 of 24
35

BUSINESS PROCESSES
Transactions in the production cycle:
MAJOR GIVE-GET:
Give labor and raw materials;
Get finished goods
OTHER TRANSACTIONS
Design products
Forecast, plan, and schedule
production
Requisition raw materials
Manufacture products

Store finished goods

Accumulate costs for
products
Prepare management reports
Send info to other cycles

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

13 of 24
35

BUSINESS PROCESSES
Transactions in the financing cycle:
MAJOR GIVE-GET:
Give cash; get cash
OTHER TRANSACTIONS
Forecast cash needs
Sell securities to investors
Borrow money from lenders

Pay dividends to investors

and interest to lenders
Retire debt
Prepare management reports
Send info to other cycles

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

14 of 24
35

Business Cycle GiveGet

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

15 of 35

WHAT IS AN AIS?
An AIS is a system that collects, records,
stores, and processes data to produce
information for decision makers.
It can:
Use advanced technology; or
Be a simple paper-and-pencil system; or
Be something in between.

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

16 of 24
35

WHAT IS AN AIS?
The functions of an AIS are to:
Collect and store data about events,
resources, and agents.
Transform that data into information that
management can use to make decisions
about events, resources, and agents.
Provide adequate controls to ensure that the
entitys resources (including data) are:
Available when needed
Accurate and reliable

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

17 of 24
35

ROLE OF THE AIS IN THE VALUE CHAIN

The objective of most organizations is to provide
value to their customers.
What does it mean to deliver value?
It may mean:
Making it faster
Making it more reliable
Providing better service or advice
Providing something in limited supply (like O-negative
blood or rare gems)
Providing enhanced features
Customizing it

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

18 of 24
35

ROLE OF THE AIS IN THE VALUE CHAIN

Value is provided by performing a series of
activities to a product or service before it is
sold to a customer. These include:
Primary activities
Support activities

These activities are sometimes referred to

as line and staff activities respectively.
At each activity the product or service
gains value.
2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

19 of 24
35

Value Chain

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

20 of 35

ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Information
technology can
facilitate synergistic
linkages that improve
the performance of
each companys value
chain.

The linking of these separate value chains

creates a larger system known as a supply
chain.
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
21 of 24
35

ROLE OF THE AIS IN THE VALUE CHAIN

Improve Quality and Reduce Costs

Improve Efficiency
Improve Sharing Knowledge
Improve Supply Chain
Improve Internal Control
Improve Decision Making

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

22 of 24
35

THE AIS AND CORPORATE STRATEGY

The authors believe:
Accounting and information systems should
be closely integrated.
The AIS should be the primary information
system to provide users with information they
need to perform their jobs.

2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

23 of 24
35

The CITP Designation

CITP: Certified Information Technology
Professional
Identifies CPAs who possess a broad
range of technological knowledge and
the manner in which information
technology (IT) can be used to achieve
business objectives
Reflects the AICPAs recognition of the
importance and interrelationship of IT
with accounting
2012 Pearson Education, Inc. Accounting Information Systems, Romney/Steinbart

24 of 24
35