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Chapter 1

Accounting Information Systems: An Overview


1-1
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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 company’s value chain.

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What Is a System?

 System
 A set of two or more interrelated
components interacting to achieve
a goal

 Goal Conflict
 Occurs when components act in
their own interest without regard
for overall goal

 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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Value of Information

Benefits Costs
 Reduce Uncertainty  Time & Resources

 Improve Decisions
 Produce Information
 Improve Planning  Distribute Information

 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.”
 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.”

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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
 “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).

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Business Process

 Systems working toward


organizational goals

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Business Process Cycles

 Revenue

 Expenditure

 Production

 Human Resources

 Financing

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Business Transactions

 Give–Get exchanges

 Between two entities

 Measured in economic terms

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Business Cycle Give–Get

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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 Value Add

 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 Chain—Primary Activities

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Value Chain—Support Activities

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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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