Accounting Information Systems

Chapter 1
Accounting Information
Systems: An Overview

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved

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:

– The information needed to make them.
– The major business processes present in most companies.

• Explain how an AIS adds value to an organization.

– How it affects and is affected by corporate strategy.
– The role of AIS in a value chain.

Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 2
system - Two or more interrelated
components that interact to
achieve a goal, often composed
of subsystems that support the
larger system.

Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 3
Distinguishing Between Data and
Information
• Data are facts collected, recorded, and stored in
the system
– A fact could be a number, date, name, and so
on.
For example:
2/22/14
ABC Company, 123,
99, 3, 20, 60

Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 4
Data vs. Information
The previous slide just showed data, if we organize
the data within a context of a sales invoice, for
example, it is meaningful and considered
information.

Invoice Date : 2/22/14 Invoice #: 123

Customer: ABC company
Item # Qty Price
99 3 $20
Total Invoice Amount $60
Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 5
information - Data that have
been organized and processed
to provide meaning and improve
decision-making.

Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 6
Decision Quality
• Information helps us make better decisions.
• Too much information causing information overload can
reduce decision quality.
• Information Technology (IT) is used to help decision
makers more effectively filter and condense information.

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Value of Information
• Information is valuable when the benefits exceed the costs
of gathering, maintaining, and storing the data.
Benefit (i.e., improved decision making) - Cost (i.e., time
and resources used to get the information) = value of
information

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What Makes Information Useful? (1 of 2)
There are seven general characteristics that make
information useful:
1. Relevant: information needed to make a decision (e.g., the
decision to extend customer credit would need relevant information
on customer balance from an A/R aging report)
2. Reliable: information free from bias
3. Complete: does not omit important aspects of events or activities
4. Timely: information needs to be provided in time to make the
decision

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What Makes Information Useful? (2 of 2)
5. Understandable: information must be presented in a meaningful
manner
6. Verifiable: two independent people can produce the same
conclusion
7. Accessible: available when needed

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Information Needs and Business Processes
• Business organizations use business processes to get
things done. A business process is a set of related,
coordinated, and structured activities and tasks performed
by people, machines, or both to achieve a specific
organizational goal.
• Key decisions and information needed often come from
these business processes.

Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 11
Transactional Information Between Internal
and External Parties in an AIS
• Business organizations conduct business transactions
which is an agreement between two entities to exchange
goods, services, or any other event that can be measured
in economic terms by an organization.
• Transaction data is used to create financial statements and
is called transaction processing.
• The flow of information between these users for the
various business activities involves a give-get exchange
grouped into business processes or transaction cycles.

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Interactions Between AIS and Internal and
External Parties

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Basic Business Processes
• Transactions between the business organization and
external parties fundamentally involve a ―give–get‖
exchange. These basic business processes are:
– Revenue cycle: give goods / give service—get cash
– Expenditure cycle: get goods / get service—give cash
– Production cycle: give labor and give raw materials—get finished
goods
– Payroll cycle: give cash—get labor
– Financing cycle: give cash—get cash

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What Is an Accounting Information System
(AIS)?
• AIS is a system that collects, records, stores, and
processes data to produce information for decision
makers.
• Consists of
– People who use the system
– Processes (procedures and instructions)
– Technology (data, software, and information technology)
– Controls to safeguard information
• Thus, an AIS collects and stores data, transforms that data
into information, and provides adequate controls.

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 There are six components of an AIS:
• 1. The people who use the system
• 2. The procedures and instructions used to collect,
process, and store data
• 3. The data about the organization and its business
activities
• 4. The software used to process the data
• 5. The information technology infrastructure, including the
computers, peripheral devices,
• and network communications devices used in the AIS
• 6. The internal controls and security measures that
safeguard AIS data
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How Does an AIS Add Value to an
Organization?
• A well thought out AIS can add value by:
– Improving the quality and reducing the costs of products or
services
– Improving efficiency
– Sharing knowledge
– Improving efficiency and effectiveness of its supply chain
– Improving the internal control structure
– Improving decision making

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AIS and Corporate Strategy
• An AIS is influenced by an organization’s strategy.
• A strategy is the overall goal the organization hopes to
achieve (e.g., increase profitability).
• Once an overall goal is determined, an organization can
determine actions needed to reach their goal and identify
the informational requirements (both financial and
nonfinancial) necessary to measure how well they are
doing in obtaining that goal.

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AIS in the Value Chain
• The value chain links together the different activities
within an organization that provide value to the customer.
– Value chain activities are primary and support activities.
 Primary activities provide direct value to the customer.
 Support activities enable primary activities to be efficient and effective.

• A supply chain is an extended system that includes the

organizations value chain as well as its suppliers,
distributors, and customers.

Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 19
Copyright © 2018 Pearson Education, Ltd. Chapter 1: Accounting Information Systems: An Overview Slide 1 - 20