Accounting Information Systems: An

Overview
Lecture 01
1-1
AC 203 Computerized Accounting Applications
 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 Process1

 Occurs when components act in

their own interest without
regard for overall goal Goal
 Goal Congruence
 Occurs when components Process2
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 data
making. data

 Information is processed data data

used in decision making.
 Too much information
however, will make it more,
not less, difficult to make
decisions. This is known as Information
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
Benefit Tsh’s
Tsh’s >> Cost
Cost Tsh’s
Tsh’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

 ERP Video

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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

Inbound Logistics Operations Outbound Logistics Marketing/Sales Service

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 Value Chain—Support Activities

Firm
Infrastructure Technology

Human Purchasing
Resources

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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. IT Developments

Organizations need to understand:

IT developments

Business strategy AI
Organizational culture
Organizational
S
Will effect and be effected by new Culture
Business Strategy

AIS

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 Data Storage

 Types of AIS storage:

 Paper-based
 Ledgers
 Journals
 Computer-based

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 Ledgers
 General
 Summary level data for each: • Joe Smith
 Asset, liability, equity, A/R $250
• Patti Jones
revenue, and expense
$1000 $750
 Subsidiary
 Detailed data for a General
Ledger (Control) Account that
has individual sub-accounts • ACME Inc.
 Accounts Receivable
 Accounts Payable
A/P $150
• Jones, Inc
$600 $350

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 Journals

 General
 Infrequent or specialized transactions

 Specialized
 Repetitive transactions
 E.g., sales transactions

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 Coding Techniques
 Sequence
 Items numbered consecutively

 Block Digit Position Meaning

 Specific range of numbers are 1–2 Product Line, size,
associated with a category and so on
 10000–199999 = Electric Range
3 Color
 Group 4–5 Year of Manufacture
 Positioning of digits in code provide 6–7 Optional Features
meaning
1241000 12 = Dishwasher
 Mnemonic 4 = White
 Letters and numbers 10 = 2010
 Easy to memorize 00 = No Options
 Code derived from description of item

 Chart of accounts
 Type of block coding

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 File Types

 Transaction
 Contains records of a
business from a specific
period of time Transaction
File

 Master
 Permanent records Updated
 Updated by transaction Master
with the transaction file File
Master before
 Database Update

 Set of interrelated files

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 Audit Trail
 Audit trail for Invoice #156 for
$1,876.50 sold to KDR Builders
 An Audit trail is a traceable path of
a transaction through a data
processing system from point of
origin to final output, or backwards
from final output to point of origin
 It enables an auditor to begin with
a summary balance on the
financial statement and trace
through accounting records to the
individual transactions that make
up the balance.

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 Source Documents of
Accounting Transactions

Recording in the Journal

[Books of Prime Entry]

Repeating the process Posting to the Ledger

[periodically]

Preparation of the
Trial Balance

Recording and Posting

Adjusting Journal Entries

Preparation of
Financial Statements

Recording and Posting

Closing Journal Entries

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 ERP Systems

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 Enterprise Resource Planning (ERP)

 Integrate an organization’s information into one overall AIS

 ERP modules:
 Financial
 Human resources and payroll
 Order to cash
 Purchase to pay
 Manufacturing
 Project management
 Customer relationship management
 System tools

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 ERP Advantages

 Integration of an organization’s data and financial information

 Data is captured once

 Greater management visibility, increased monitoring

 Better access controls

 Standardizes business operating procedures

 Improved customer service

 More efficient manufacturing

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 ERP Disadvantages

 Cost

 Time-consuming to implement

 Changes to an organization’s existing business processes can be

disruptive

 Complex

 Resistance to change

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