Chapter 1 Accounting Information Systems: An Overview Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-1

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. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-2

What Is a System?  System  A set of two or more interrelated components interacting to achieve a goal  Goal Conflict  Occurs when components act in their own interest without regard for overall goal  Goal Congruence  Occurs when components acting in their own interest contribute toward overall goal Process1Process2 Goal Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-3

Data vs. Information  Data are facts that are recorded and stored.  Insufficient for decision making.  Information is processed data used in decision making.  Too much information however, will make it more, not less, difficult to make decisions. This is known as Information Overload. Information data Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-4

Value of Information Benefits  Reduce Uncertainty  Improve Decisions  Improve Planning  Improve Scheduling Costs  Time & Resources  Produce Information  Distribute Information 1-5 Benefit $’s > Cost $’s Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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.” Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-6

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). Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-7

Business Process  Systems working toward organizational goals Revenue Expenditure Production Human Resources Financing Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-8

Business Process Cycles  Revenue  Expenditure  Production  Human Resources  Financing Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-9

Business Transactions  Give–Get exchanges  Between two entities  Measured in economic terms Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-10

Business Cycle Give– Get Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-11

Revenue Cycle 12 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle  The Revenue Cycle  Gets finished goods from the production cycle.  Provides funds to the financing cycle.  Provides data to the general ledger and reporting system. Funds Data Finished Goods

Expenditure Cycle 13 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle  The Expenditure Cycle  Gets funds from the financing cycle.  Provides raw materials to the production cycle.  Provides data to the general ledger and reporting system. Funds Raw Mats. Data

Production Cycle 14 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle  The Production Cycle:  Gets raw materials from the expenditure cycle.  Gets labor from the HR/payroll cycle.  Provides finished goods to the revenue cycle.  Provides data to the general ledger and reporting system. Raw Mats. Data Finished Goods Labor

HR/Payroll Cycle 15 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle  The HR/Payroll Cycle:  Gets funds from the financing cycle  Provides labor to the production cycle.  Provides data to the general ledger and reporting system. Labor Funds Data

Financing Cycle 16 General Ledger and Reporting System Revenue Cycle Expenditure Cycle Production Cycle Human Res./ Payroll Cycle Financing Cycle  The Financing Cycle:  Gets funds from the revenue cycle.  Provides funds to the expenditure and HR/payroll cycles.  Provides data to the general ledger and reporting system. Funds Data Funds

Accounting Information Systems  Collect, process, store, and report data and information  If Accounting = language of business  AIS = information providing vehicle  Accounting = AIS Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-17

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 1-18

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 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-19

AIS Adds Value  Improve Quality and Reduce Costs  Improve Efficiency  Improve Sharing Knowledge  Improve Supply Chain  Improve Internal Control  Improve Decision Making Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-20

Improve Decision Making  Identify situations that require action.  Provide alternative choices.  Reduce uncertainty.  Provide feedback on previous decisions.  Provide accurate and timely information. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-21

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 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-22

Value Chain—Primary Activities Inbound Logistics Operations Outbound Logistics Marketing/ Sales Service Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-23

Value Chain—Support Activities Firm Infrastructure Human Resources Technology Purchasing Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-24

Value Chain Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-25

AIS and Corporate Strategy AIS IT Developments Business Strategy Organizational Culture Organizations have limited resources, thus investments to AIS should have greatest impact on ROI. Organizations need to understand: IT developments Business strategy Organizational culture Will effect and be effected by new AIS Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-26