1. Accounting Information Systems: An Overview
Chapter 1
Accounting Information Systems: An Overview
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2. 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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3. Goal 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 towards overall goal
Process1
Process2
Goal
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4. These are all Systems
Manual
Living
Automated
ERP
Machine-Human

5. Should All Systems be Automated?No
Cost
it may be cheaper to continue carrying out the system functions and storing the system’s information manually.
Security
if the information system is maintaining sensitive, confidential data, the user may not feel that an automated system is sufficiently secure.
The user may want the ability to keep the information physically protected and locked up.

6. Types of Systems On-line Real-time Decision Support Expert Systems
Knowledge Based Systems

7. Automated Manual System
Four Sub-processes
Business Event Occurs
Recorded on Source Document
Record Business Event
Batch Processed and Input by data-entry clerk
Event Data Store (Sales, Purchases, etc.)
Data Store = Table
Update Master Data
Generate Output

8. Automated Equivalent to a Manual System

9. Online Transaction Entry (OLTE)
Entering business events at time and place the business event occurs
Computer input device used to enter data at source at time of business event
Merging Step 1 & 2 of Automated Manual System
Input/Source document is eliminated
Price data is retrieved from the system
Source documents are printed by the system
Event information in accumulated on tape or disk

10. Online Transaction Entry (Batch)

11. Online Real-time (OLRT)
Three Sub-processes
Business event occurs and is recorded
Transactions saved
Update Master data
Immediate mode
Generate Reports and Support Queries
Reports periodically or on an as needed basis
Support queries to generate unique reports for key decisions on demand

12. Online real-time processing

13. Real Time System Not the same as Online Real-Time
Controls an environment by receiving data, processing them, and returning the results sufficiently quickly to affect the environment at that time
Require concurrent processing of multiple inputs.
Interacts with both people and an environment that is generally autonomous and often hostile.

14. Decision Support Systems
Computer system that
Supports
business and organizational decision-making activities (Wikipedia)
Key Features
Provides decision alternatives
Based on model
Human makes final choice

15. Expert Systems
Attempts to mimic the decision making steps of an Expert
If-Then-Else Rules
Output is Decision
Ability to Explain Choice
Ability to Explain non-chosen Options

16. Knowledge Based Systems
Two Basic Types
Threaded Discussion Boards
Database of Information/Knowledge
Database of SME’s
Purpose
Don’t re-invent the Wheel
Ease the process of finding an expert

17. Hierarchical view of Systems
Operational/Transactions
Decision Support
Strategic Planning

18. General Systems Theory
The more specialized a system is, the less able it is to adapt to different circumstances.
The larger a system is, the more of its resources that must be devoted to its everyday maintenance.
Systems are always part of larger systems, and they can always be partitioned into smaller systems.
Systems grow (5-10%/year)
The interactions between components of a system are often complex and subtle.
a change in system component A can cause a change in B, which can “ripple” into component C.
the change in C can cause a “feedback” effect on the original component A

19. Data vs. Information 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
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20. Benefit $’s > Cost $’s
Value of Information
Benefits
Costs
Improve Decisions
Reduce Uncertainty
Improve Planning
Improve Scheduling
Time & Resources
Produce Information
Distribute Information
Benefit $’s > Cost $’s

21. 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.”
Materiality
“there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process. “
Faithful Representation
“faithful depiction … of economic phenomena”
Complete
all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations.
Neutral
without bias in the selection or presentation of financial information
Free from error
there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process.
Point out to students that these characteristics are from the SFAC #2 Quality of Accounting Information (maybe have them read it).
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22. What makes information Useful?
Enhancing Characteristics
Timely
“Having information available to a decision maker before it loses its capacity to influence decisions.”
Enhances relevance of information as even untimely information may be useful in confirming previous 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.”
Enhances the usefulness of information but is not necessarily required
Comparability
Relevant and Faithful representations of information are enhanced if it can be compared with other companies and/or between different periods of the same company
Point out to students that these characteristics are from the SFAC #8 which supersedes SFAC#2 Quality of Accounting Information (maybe have them read it).
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23. Business Process
A set of related, coordinated, and structured activities, performed by a person/machine that help to accomplish a specific goal.
Systems working towards Organizational Goals
Revenue
Expenditure
Production
Human Resources
Financing
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24. Revenue Cycle Activities
Sales order entry
Shipping
Billing
Cash collections

25. Expenditure Cycle Activities
Ordering materials, supplies, and services
Receiving materials, supplies, and services
Approving supplier invoices
Cash disbursements
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26. Production Cycle Activities
Product design
Planning and scheduling
Production operations
Cost accounting
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27. HRM and Payroll Cycle Activities
Update master data
Validate time and attendance
Prepare payroll
Distribute payroll
Disburse taxes and miscellaneous deductions
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28. Business Transactions
Give – Get Exchanges
Between 2 entities
Measured in economic terms
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29. Business Cycle Give–Get
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30. 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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31. 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, etc.
Internal Control and Security
Safeguard the system and its data
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32. WHAT IS AN AIS?
An 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.
Technology is simply a tool to create, maintain, or improve a system.

33. WHAT IS AN AIS? The functions of an AIS are to:
Collect and store data about events, resources, and agents.
Transform that data into information that management and external users can use to make decisions about events, resources, and agents.
Provide adequate controls to ensure that the entity’s resources (including data) are:
Available when needed
Accurate and reliable

34. AIS & Business Functions
Collect and Store data about organizational:
Activities, Resources, & Personnel
Transform data into information enabling
Management to:
Plan, Execute, Control, & Evaluate
Provide adequate control to safeguard
Assets & Data
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35. AIS Value Add Improve Quality / Reduce Costs Improve Efficiency
Improve Sharing Knowledge
Improve Supply Chain
Improve Internal Control
Improve Decision Making
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36. 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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37. 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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38. Value Chain – Primary Activities
Inbound Logistics
Operations
Outbound Logistics
Marketing/Sales
Service
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39. Value Chain - Support Activities
Firm Infrastructure
Human Resources
Technology
Purchasing
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40. Value Chain
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41. AIS & Corporate Strategy
Organizations have limited resources thus investments to AIS should have greatest impact on ROI
Organizations need to understand how:
IT developments
Business Strategy &
Organizational Culture
Will effect and be effected by new AIS
AIS
IT Developments
Business Strategy
Organizational Culture
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