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Accounting Information System: Chapter One

This document provides an overview of accounting information systems. It defines key terms like data, information, and accounting information systems. It explains that AIS capture and process transactional data between internal and external parties. The primary functions of an AIS are to collect, process, manage and generate financial information that is useful for decision making across the basic business processes of revenue, expenditures, production, payroll and financing. An effective AIS can add value by enabling efficient and effective organizational decisions.

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Hibaaq Axmed
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51 views

Accounting Information System: Chapter One

This document provides an overview of accounting information systems. It defines key terms like data, information, and accounting information systems. It explains that AIS capture and process transactional data between internal and external parties. The primary functions of an AIS are to collect, process, manage and generate financial information that is useful for decision making across the basic business processes of revenue, expenditures, production, payroll and financing. An effective AIS can add value by enabling efficient and effective organizational decisions.

Uploaded by

Hibaaq Axmed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 23

CHAPTER ONE

ACCOUNTING
INFORMATION
SYSTEM
AN OVERVIEW
IILearning Objectives

Learning Objective

• Distinguish data from information, discuss the characteristics of


useful information, and explain how to determine the value of
information.
• Understand the primary information flows within the business
environment.
• Understand the difference between accounting information systems
and management information systems.
• Understand the difference between a financial transaction and a non-
financial transaction.
• Explain the decisions an organization makes, the information
needed to make them, and the major business processes present in
most companies.
• Discuss how an AIS can add value to an organization.
• Explain the role an AIS plays in a company’s value
chain.
• Be familiar with the functional areas of a business and
their principal activities.
Data vs. Information
• Data are facts 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
The previous slide just showed facts, if we put those facts 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


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 )
What Makes Information Useful?
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
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
Organizational Decisions and Information Needed

• Business organizations use business processes to get


things done. These processes are a set of structured
activities that are performed by people, machines, or both
to achieve a specific goal.
• Key decisions and information needed often come from
these business processes.
Internal information flows

 Horizontal flows of information used primarily at the


operations level to capture transaction and operations
data.
 Vertical flows of information
oDownward flows- instructions, quotas, and budgets
oUpward flows-aggregated transaction and operation
data
Transactional Information Between Internal
and External Parties in an AIS
• Business organizations conduct business transactions
between internal and external stakeholders.
• Internal stakeholders are employees in the organization (e.g.,
employees and managers).
• External stakeholders are trading partners such as customers
and vendors as well as other external organizations such as
Banks and government.
• The AIS captures the flow of information between these users
for the various business transactions.
Interactions Between AIS and Internal and
External Parties
Basic Business Processes
• Transactions between the business organization and external
parties fundamentally involve a “give–get” exchange. These
basic business processes are:
• Revenue: give goods / give service—get cash
• Expenditure: get goods / get service—give cash
• Production: give labor and give raw materials—get
finished goods
• Payroll: give cash—get labor
• Financing: give cash—get cash

1-13
WHAT IS A SYSTEM?
A system is a group of two or more interrelated components or
subsystems that serve a common purpose.
System versus subsystem?
The distinction between the terms system and subsystem is a matter of
perspective. for our purposes, these terms are interchangeable.
A system is called a subsystem when it is viewed in relation to the
larger system of which it is a part. likewise,
A subsystem is called a system when it is the focus of attention.
What is an information System
 An Information System is the set of formal procedures by which data
are collected, processed in to information, and distributed to users.
What Is an Accounting Information System?
• Accounting information system - A system that collects, records,
stores, and processes data to produce information for decision
makers.
• It can be manual or computerized
• Consists of
▫ People who use the system
▫ Processes
▫ Technology (data, software, and information technology)
▫ Controls to safeguard information
How Does an AIS Add Value?
• A well thought out AIS can add value through effective and
efficient decisions.
• Having effective decisions means quality decisions
• Having efficient decisions means reducing costs of
decision making

1-16
AIS in the Value Chain
• The value chain shows how the different activities within an
organization provide value to the customer.
• These activities are primary and support activities.
• Primary activities provide direct value to the customer.
• Support activities enable primary activities to be efficient and
effective.

1-17
AIS versus MIS

• Accounting information system (AIS) process


• Financial transaction; e.g., sales of goods
• Non financial transactions that directly affect the processing
of financial transaction; e.g., addition of newly approved
vendors.
• Management information system (MIS) process
• Non financial transactions that are normally processed by
traditional AIS; e.g., tracking customer complaint
Transforming the Data into Information
• Function for transforming data in to information according to
the general AIS model:
1. Data Collection
2. Data Processing
3. Data Management
4. Information Generation
1.Data Collection
o Capturing transaction data
o Recording data onto forms
o Validating and editing the data
2. Data Processing
o Classifying
o Transcribing
o Sorting
o Batching
3. Data Management
o Sorting
o Retrieving
o deleting
4. Information Generation
oCompiling
oArranging
oFormatting
oPresenting
Information System Objectives
 The goal of an information system is to support
• Stewardship function of management
• Management decision making
• The firm’s day-to-day operations.
Organizational Structure

 The structure of an organization helps to allocate:


 responsibility,
 authority
 accountability
 Segmenting by business function is a very common method of
organizing.

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