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1) System: 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. The systems concept encourages integration (i.e., minimizing the duplication of recording, storing, reporting and processing). 2) Data: Data are facts that are collected, recorded, stored, and processed by an information system. Data are raw facts about events that have little organization or meaningfor example, a set of raw scores on a class examination. Organizations collect data about events that occur; resources that are affected by those events; and agents who participate in the events. 3) Information: 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. However, when you get more information than you can effectively assimilate, you suffer from information overload. Example: Final exams week! When youve reached the overload point, the quality of decisions declines while the costs of producing the information increases. 4) Difference between data and information: Subject Data Information Data is raw, unorganized facts Information is data that have been Meaning that need to be processed. organized and processed to provide meaning to a user. Each student's test score is one The class's average score is the information Example piece of data. that can be concluded from the given data. Data refers to details, facts Information refers to only those events Events about any event. which are concerned with entity. ArrangeData is, generally, disorganized Information is properly arranged, classified ment and disjointed in the form. and organized. Understand Cannot be understood or made Is understood and used by the users of use of by the users. accounting information for taking their ability decisions. It does not depend upon Information is based upon and derived from Basis information. data. 5) Benefits of information: i) Cost of producing information: Costs may include time and resources spent: Collecting data Processing data Storing data Distributing information to users

ii) Value of information: Costs and benefits of information are often difficult to quantify, but you need to try when youre making decisions about whether to provide information. 6) Characteristics that make data useful: i) Relevance: It reduces uncertainty by helping you predict what will happen or confirm what already has happened. ii) Reliability: Information is reliable if it is free from error and bias and accurately represents the events or activities of the organization. iii) Completeness: Information is complete if it doesnt omit important aspects of the underlying events or activities of the organization. iv) Timeliness: Information is timely if it is provided in time to enable decision makers to use it to make decisions. v) Understandability: Information is understandable if it is presented in a useful and intelligible format. vi) Verifiability: Information is verifiable if two knowledgeable people acting independently would each produce the same information. vii) Accessibility: Available when needed (Timely) and in a useful format (Understandable). You can get to it when you need it and in a format you can use. 7) Users of Information: Costs and benefits of information are often difficult to quantify, but we need to try when were making decisions about whether to provide information. (a) External users: External users primarily use information that is either: Mandatory informationRequired by a governmental entity, such as Form 10-Ks required by the SEC; or Essential informationRequired to conduct business with external parties, such as purchase orders. In providing mandatory or essential information, the focus should be on: o Minimizing costs o Meeting regulatory requirements o Meeting minimum standards of reliability and usefulness ii) Internal Users: Internal users primarily use discretionary information. The primary focus in producing this information is ensuring that benefits exceed costs, i.e., the information has positive value. 8) What is an AIS? An accounting information system (AIS) is the system of records of a business to maintain its accounting system. This includes the purchase, sales, and other financial processes of the business. The purpose of AIS is to accumulate data and provide decision makers (investors, creditors, and managers) with information. 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.

9) State how accounting is an information system with example. An information system is the set of formal procedures by which data are collected, processed into information, and distributed to users. Accounting systems are comprised of manual or computerized records of financial transactions for the purpose of recording, categorizing, analyzing and reporting timely financial management information. Its purpose is to provide information to decision makers regarding the economic status and activity of individuals, business organizations and govt. agencies. Accounting information systems vary widely from one business to another. In small businesses, accounting systems may consist of little more than a cash register, a checkbook, and an annual trip to an income tax preparer. In large businesses, accounting systems include computers, highly trained personnel, and accounting reports that affect the daily operations of every department. But in every case, the basic purpose of the accounting system remains the same: to meet the organizations needs for information as efficiently as possible. So, from the above discussion, we can say that Accounting is an information system. 10) Components of an AIS: i) People who operate and performs various functions ii) Procedures and Instructions: For collecting, processing, and storing data about activities. iii) Data about the business processes iv) Software used to process the organizations data v) Information Technology (IT) Infrastructure includes computers, peripherals, networks, and so on. vi) Internal Control and Security: Safeguard the system and its data. 11) The functions of AIS: The functions of AIS are to i) Collect and store data about events, resources, and agents. ii) Transform that data into information that management can use to make decisions about events, resources, and agents. iii) Provide adequate controls to ensure that the entitys resources (including data) are: Available when needed; Accurate and reliable. 12) Relationship of MIS and AIS: Relationship of MIS and AIS- The relationship between MIS and AIS can be enumerated in the following Diagram-

13) Difference between AIS and MIS: AIS The system of collecting and processing transaction data and disseminating financial information to interested parties is known as the AIS. A combination of financial and management accounting information system. AIS are information systems that are specially designed for accounting and finance. AIS is a part of MIS which pertain to finances. It captures and records financial effects of firms transactions. AIS include Transaction processing systems, Financial Reporting Systems and Management Reporting Systems.

MIS MIS is the discipline which focuses on the management of information and communications technology elements within business organizations. It is a tool for managers to organize, evaluate and efficiently run their departments. AIS are information systems that are specially designed for management. MIS is a much broader concept. It captures and records overall managerial effects of firms transactions. MIS include financial management systems, marketing systems, distribution systems and human resource systems.

14) Why study Accounting Information Systems? i) Its fundamental to accounting: Accounting is an information-providing activity, so accountants need to understand: How the system that provides that information is designed, implemented and used. How financial information is reported How information is used to make decisions Other accounting courses focus on how the information is provided and used. An AIS course places greater emphasis on: How the data is collected and transformed How the availability, reliability, and accuracy of the data is ensured AIS courses are not number-crunching courses ii) The skills are critical to career success: Auditors need to evaluate the accuracy and reliability of information produced by the AIS. Tax accountants must understand the clients AIS adequately to be confident that it is providing complete and accurate information for tax planning and compliance work. In private industry and not-for-profits, systems work is considered the most important activity performed by accountants. In management consulting, the design, selection, and implementation of accounting systems is a rapid growth area. iii) The AIS course complements other systems courses: Other systems courses focus on design and implementation of information systems, databases, expert systems, and telecommunications. AIS courses focus on accountability and control.
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iv) AIS topics are tested on the new CPA exam: Makes up about 25% of the Business Environment & Concepts section of the CPA exam. v) AIS topics impact corporate strategy and culture: AIS design is affected by information technology, the organizations strategy, and the organizations culture. Information technology affects the companys choice of business strategy. To perform cost-benefit analyses on IT changes, you need to understand business strategy. While culture affects the design of the AIS, its also true that the AIS affect culture by altering the dispersion and availability of information.

15) Role of the AIS in the value chain: The objective of most organizations is to provide value to their customers. Value is provided by performing a series of activities referred to as the value chain. These include: (a) Primary activities (b) Support activities. These activities are sometimes referred to as line and staff activities respectively. (a) Primary activities: An organizations value chain consists of five primary activities that directly provide value to the customers: i) Inbound logistics: Inbound logistics consists of receiving, storing, and distributing the materials that are inputs used by the organization to create the products or services. For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs. ii) Operations: Operations activities transform those inputs into products or services. For the pharmaceutical company, this step involves combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers. iii) Outbound logistics: Outbound logistics are the activities involved in distributing finished products or services to customers. For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals. iv) Marketing and sales: Marketing and sales refers to the activities involved in helping customers to buy the organizations products or services. A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders. v) Service: Service activities provide post-sale support provided to customers such as repair and maintenance function. A pharmaceutical firm will typically not be repairing its product (though the product may be periodically reformulated). The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc.
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(b) Support activities: Organizations also perform a number of other support activities that enable the five primary activities to be performed efficiently and effectively. Support activities include i) Firm infrastructure: Firm infrastructure refers to the accounting, finance, legal support, and general administration activities that are necessary for any organization to function. It includes the companys accounting information system. ii) Human resources: Human resources activities include recruiting and hiring new employees, training employees, providing employee benefits and compensation. iii) Technology: Technology activities improve the products or services. Example research & development, investment in new IT, website development, and product design. For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones. iv) Purchasing: Purchasing includes all the activities involved in procuring raw materials, supplies, machinery, and the buildings used to carry out the primary activities. In the pharmaceutical company, the purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations.

Information technology can significantly impact the efficiency and effectiveness with which the preceding activities are carried out. An organizations value chain can be connected with the value chains of its customers, suppliers, and distributors. 16) The value chain concept of a Pharmaceutical company: The Pharmaceuticals Inc. performs various Primary activities and Support activities. (a) Primary activities: Primary activities include i) Inbound logistics: Handling incoming chemicals and elements that will be used to make their drugs. ii) Operations: Combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers. iii) Outbound logistics: Packaging and shipping the goods to drug stores, doctors, and hospitals.

iv) Marketing and sales: A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders. v) Service: A pharmaceutical firm will typically not be repairing its product, only reformulate. The company is more likely to be providing advisory services to pharmacists, etc. (b) Support activities: Support activities include i) Firm infrastructure: Relates to the accounting, finance, legal support, and general administration activities that are necessary for pharmaceutical company to function. It includes the companys AIS. ii) Human resources: Recruiting and hiring new employees, training employees, providing employee benefits and compensation. iii) Technology: Include research and development to create new drugs and modify existing ones. iv) Purchasing: The purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations. An organizations value chain can be connected with the value chains of its customers, suppliers, and distributors. The inbound logistics of Pharmaceuticals, Inc. links to the outbound logistics of its suppliers. And the outbound logistics of Pharmaceuticals, Inc. links to the inbound logistics of its customers. The linking of these separate value chains creates a larger system known as a supply chain. Information technology can facilitate synergistic linkages that improve the performance of each companys value chain.

17) How AIS can add value to an organization? 1) Improving the Quality and Reducing Costs of products or services. 2) Improving Efficiency of operations by providing more timely information. 3) Improve Decision making by providing accurate information in a timely manner. 4) Improve Sharing Knowledge 5) Improve Supply Chain 6) Improve Internal Control.