The Accounting

Information System

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Definition and Components
of AIS

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Introduction to Accounting Information System

What is a System?
- a regularly interacting or
interdependent group of elements
forming a unified whole
- a collection of related parts
treated as a unit where its
components interact.
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Introduction to Accounting Information System
Business Systems
– a collection of:
> policies
> procedures
> methods or techniques
> people
> machines
> and other elements that interact
and enable the organization to
reach its goals.

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Introduction to Accounting Information System
Information Systems
– a business system that
process data and make it
available to users for decision
making.

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Accounting
Information Systems

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Accounting Information Systems
- accounting transaction data is
collected and processed into
financial information.

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Accounting Information Systems
- a structure that a business uses to
collect, store, manage, process, retrieve
and report its financial data so that it
can be used by accountants,
consultants, business analysts,
managers, CFOs, auditors and
regulatory and tax agencies.
(the above definition describes the functions of AIS)

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 Accounting Information Systems

- in general, can be either manual

or computerized.
- for purposes of this course, the
study is focused on
computerized information
system (CIS).

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 Accounting Information Systems
- on top of the previously described
components or parts of a business system,
we need to include:
1. Data and all the information that goes
into the AIS
2. Software: consist of computer
programs used for processing data
3. Information technology infrastructure
including communication facilities
4. Internal controls
Basic Principles of a Reliable
AIS

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5 Basic Principles
1. Security – limited access
2. Confidentiality – protection of sensitive
information
3. Privacy – non-disclosure of personal
information
4. Processing integrity – accuracy,
completeness, timeliness of processing
with proper authorization
5. Availability – meeting of operational and
contractual obligations
The Business Environment
and the AIS

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Business Firms as Systems

Business Firm

Organizational Information Operational

Structure < -> System <-> System

Sub-systems
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Business Firms as Systems
1. Objectives:
- Maximizing profits
> Optimum use of resources
> Reduction of human effort
- Uncover duplication or
redundancy
- Effective and efficient AIS is a
competitive advantage
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Business Firms as Systems
2. Environment
- The surroundings that lies
beyond the firm’s boundary:
people, facilities, government
agencies, external organizations,
e.g., banks, customers, suppliers,
competitors and the market in
general that surround a system.
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Business Firms as Systems
3. Constraints
- internal or external
restrictions, e.g. company policies,
external rules, government
regulations / state laws
- systems boundary / restriction
in market area
- funds and trained personnel
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Business Firms as Systems
4. Controls
- to monitor operations and
processes, so as to identify and
correct deviations from plans.
- various internal controls are
utilized by both the firm and the
AIS.
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Business Firms as Systems
5. Input-Process-Outputs
- includes resources needed to
conduct operations and produce
outputs
➢ raw materials, labor,
overheads, merchandise,
facilities, funds, etc.
➢ raw data or source documents
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Business Firms as Systems
6. Feedback
- needed to increase the
degree of control and a tool for
continuous improvements
➢ choice of suppliers
➢ best selling products
➢ systems revision
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Business Firms as Systems
7. Interfaces
- subsystems are linked to
each other through couplings
or shared boundaries in order
to exchange inputs and
outputs.

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Business Firms as Systems
8. Subsystems
- one of the parts of a system which
perform a specified task that is
consonant with the goals of a larger
system of which it is a part.
- the formation of separate business
units to lessen the complexity of
managing the business, home office
and branches (sales offices and factories).
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Subsystems of Business Firms

Business Firm

Organizational Information Operational

Structure < -> System <-> System

Sub-systems
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Organizational Structures
- the means by which the
managers of the firm direct and
coordinate the set of activities
and operations.
- responsibility centers or cost
centers are established where the
accountable manager resides.
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Organizational Structures
- the structure can be:
- Hierarchical, or
- Networked

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Operational System
- a collection of primary physical
processes (business processes,
operations, or activities) that a
firm provides.
- the collective process is called
as each process add value to
the final output.
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Operational System
- examples of operational
processes:
➢ acquiringmaterials, producing
finished goods, storing finished
good, shipping finished goods,
selling

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Information Systems
and Valued Information Output
- Value of information (economic nature)
➢ related to the effectiveness of
decision making
- Information qualities
➢ relevance, accuracy, timeliness,
conciseness, clarity, quantifiability,
consistency
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Key Functions Related to Information

- Planning: tied directly to the firm’s

objective, choosing alternatives and
determining how to put the choices
into effect.

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Key Functions Related to Information
- Planning
➢Strategic (high level): for example
low price, high volume strategy;
looking at consumer preferences,
launching of new products
➢ Tactical or operational: for example,
marketing strategies are translated
into detailed selling and advertising
plans
Key Functions Related to Information
- Control: to ensure that plans are
being followed.
➢Operational control: for example, are
shipping schedules followed? are raw
material usages within the allowed
standard quantities?
➢Management control: e.g., budget
control through responsibility centers
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Communication of Information
- Technical level
➢ to convey accurate and complete
information.
- Semantic level
➢ to convey information that the user
can clearly understand.
- Effectiveness level
➢ to stimulate desired results such as
sound decisions.
Information Technology
and AIS

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Effects of IT on AIS
1. Faster processing of transactions
2. Greater accuracy; lower cost of
processing
3. More timely presentation
4. More concise storage with greater
accessibility when needed
5. Larger range of choices for entering data
and providing outputs
6. Higher productivity for employees and
managers.
Information System Architectures
- Broadly defined as the structural
arrangement of hardware and data
communications components of
an information system.
- It also pertains to software,
concepts, or capabilities.

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Information System Architectures
➢Mainframes, minicomputers,
microcomputers
➢Multiple processors: coupled,
parallel, distributed (network)
➢Internal computer networks:
WAN (centralized or distributed),
LAN
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Types of Networks
Wide-area network
- links together geographically
dispersed computer systems, i.e.,
decentralized computer systems.
Local area network
- functions within a single limited
geographical area.
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Information System Architectures
➢External computer networks: open
systems architecture; closed system
architecture

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Trends in IT
Hardware
- size, speed, storage capacity,
reliability, cost, options.
Software
- voice activated software

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Data and Data-base
Management

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Database
Database
Library
File
Record
Field
Byte (Character)
Bit
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Database
- Collected data sets that are
organized and stored as integral
part of a computer-based
information system.

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Database Management
Three major functions:
- file storage
- file maintenance (update)
- retrieval of data (file access)

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Characteristics of the Database Approach
1. Data independence
➢ separation of data from the
various application programs
and other accesses of the users.
➢Changes affecting data need be
made in the DBMS alone rather
than in all application programs
that use the data.
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Characteristics of the Database Approach
2. Data standardization
➢ data elements have a
standard definitions, thus,
stored data are compatible
with all every application
program that access the data.

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Characteristics of the Database Approach
3. One-time data entry and
storage
➢ consequently, redundancy is
eliminated.

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Characteristics of the Database Approach
4. Data integration
➢ enables all affected data sets
to be updated simultaneously.
5. Shared data ownership
➢ users from different functions,
e.g., accounting, warehousing,
production, sales, etc. may
draw from the same data base.
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Characteristics of the Database Approach
6. Centralized data management
➢ a database administrator is in
charge of managing the
database centrally. This
provides security and integrity
to the data.

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Benefits of the Database Approach
- Data redundancies are reduced
through the “one time entry” and
processing of data.
- Inconsistencies are eliminated since
all data sets affected by a transaction
data are updated simultaneously.
- Improved security because of
centralized data management.

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