1. Accounting Information Systems: An Overview
Chapter 1
Accounting Information Systems: An Overview
Copyright © 2012 Pearson Education

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 toward overall goal
Process1
Process2
Goal
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4. 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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5. Benefit $’s > Cost $’s
Value of Information
Benefits
Costs
Reduce Uncertainty
Improve Decisions
Improve Planning
Improve Scheduling
Time & Resources
Produce Information
Distribute Information
Benefit $’s > Cost $’s
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6. 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.”
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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7. 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).
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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8. Business Process
Business process is set of interrelated coordinated and structured activities and tasks performed by a person. A computer, of a machine that help accomplish a specific organization goal.
To make effective decision, organization must decide what decisions they need, what information they need and how to gather and process data.
Systems working toward organizational goals
Revenue
Expenditure
Production
Human Resources
Financing
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9. INFORMATION NEEDS AND BUSINESS PROCESSES
Businesses engage in a variety of processes, including:
Acquiring capital
Buying buildings and equipment
Hiring and training employees
Purchasing inventory
Doing advertising and marketing
Selling goods or services
Collecting payment from customers
Paying employees
Paying taxes
Paying vendors
Each decision requires different types of information.

10. INTERACTION WITH EXTERNAL AND INTERNAL PARTIES
AIS
Internal
Parties
External
Parties
The interaction is typically two way, in that the AIS sends information to and receives information from these parties.

11. BUSINESS CYCLES
A transaction is:
An agreement between two entities to exchange goods or services; OR
Any other event that can be measured in economic terms by an organization.
EXAMPLES:
Sell goods to customers
Depreciate equipment

12. BUSINESS CYCLES Begins with capturing data about a transaction.
The business transaction cycle is a process that:
Begins with capturing data about a transaction.
Ends with an information output, such as financial statements.

13. Business Transactions
Give–Get exchanges
Between two entities
Measured in economic terms
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14. Business Cycle Give–Get
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15. BUSINESS CYCLES Revenue cycle Expenditure cycle Production cycle
Many business processes are paired in give-get exchanges.
Basic exchanges can be grouped into five major transaction cycles:
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle

16. BUSINESS CYCLES Revenue cycle Expenditure cycle Production cycle
Many business processes are paired in give-get exchanges.
The basic exchanges can be grouped into five major transaction cycles:
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle

17. REVENUE CYCLE Give Get Goods Cash
The revenue cycle involves interactions with your customers.
You sell goods or services and get cash.
Give
Goods
Get
Cash

18. BUSINESS CYCLES Revenue cycle Expenditure cycle Production cycle
Many business processes are paired in give-get exchanges.
The basic exchanges can be grouped into five major transaction cycles:
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle

19. EXPENDITURE CYCLE Give Get Cash Goods
The expenditure cycle involves interactions with your suppliers.
You buy goods or services and pay cash.
Give
Cash
Get
Goods

20. BUSINESS CYCLES Revenue cycle Expenditure cycle Production cycle
Many business processes are paired in give-get exchanges.
The basic exchanges can be grouped into five major transaction cycles:
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle

21. PRODUCTION CYCLE Give Raw Get Materials & Finished Labor Goods
In the production cycle, raw materials and labor are transformed into finished goods.
Give Raw
Materials &
Labor
Get
Finished
Goods

22. BUSINESS CYCLES Revenue cycle Expenditure cycle Production cycle
Many business processes are paired in give-get exchanges.
The basic exchanges can be grouped into five major transaction cycles:
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle

23. HUMAN RESOURCES/PAYROLL CYCLE
The human resources cycle involves interactions with your employees.
Employees are hired, trained, paid, evaluated, promoted, and terminated.
Give
Cash
Get
Labor

24. BUSINESS CYCLES Revenue cycle Expenditure cycle Production cycle
Many business processes are paired in give-get exchanges.
The basic exchanges can be grouped into five major transaction cycles:
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle

25. FINANCING CYCLE Give Get Cash cash
The financing cycle involves interactions with investors and creditors.
You raise capital (through stock or debt), repay the capital, and pay a return on it (interest or dividends).
Give
Cash
Get
cash

26. BUSINESS CYCLES
Thousands of transactions can occur within any of these cycles.
But there are relatively few types of transactions in a cycle.

27. BUSINESS CYCLES Give goods Get cash
EXAMPLE: In the revenue cycle, the basic give-get transaction is:
Give goods
Get cash

28. BUSINESS CYCLES Other transactions in the revenue cycle include:
Handle customer inquiries
Take customer orders
Approve credit sales
Check inventory availability
Initiate back orders
Pick and pack orders
Ship goods
Bill customers
Update sales and Accts Rec. for sales
Receive customer payments
Update Accts Rec. for collections
Handle sales returns, discounts, and bad debts
Prepare management reports
Send info to other cycles
Note that the last activity in any cycle is to send information to other cycles.

29. BUSINESS CYCLES
Go back to the book page 34 ,if you wish to see the transactions that occur in the other cycles:
Expenditure
Cycle
Human Res./
Payroll Cycle
Production
Cycle
Financing
Cycle

30. BUSINESS CYCLES Relates to other cycles.
Every transaction cycle:
Relates to other cycles.
Interfaces with the general ledger and reporting system, which generates information for management and external parties.

31. The Revenue Cycle Finished Goods Expenditure Cycle Revenue Cycle
Production
Cycle
Data
Funds
General Ledger
and Reporting
System
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.
Human Res./
Payroll Cycle
Financing
Cycle

32. The Expenditure Cycle Expenditure Cycle Revenue Cycle Production Cycle
Raw
Mats.
Revenue
Cycle
Production
Cycle
Data
Funds
General Ledger
and Reporting
System
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.
Human Res./
Payroll Cycle
Financing
Cycle

33. Finished Goods Expenditure Cycle Revenue Cycle Production Cycle
Raw
Mats.
Revenue
Cycle
Production
Cycle
Data
General Ledger
and Reporting
System
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.
Labor
Human Res./
Payroll Cycle
Financing
Cycle

34. The HR/Payroll Cycle: Expenditure Cycle Revenue Cycle Production Cycle
General Ledger
and Reporting
System
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
Data
Human Res./
Payroll Cycle
Financing
Cycle
Funds

35. The Financing Cycle: Expenditure Cycle Revenue Cycle Production Cycle
Funds
Funds
General Ledger
and Reporting
System
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.
Data
Human Res./
Payroll Cycle
Financing
Cycle
Funds

36. Internal & External Users
Expenditure
Cycle
Revenue
Cycle
Production
Cycle
Data
Data
Data
General Ledger
and Reporting
System
Information for
Internal & External Users
Data
The General Ledger and Reporting System:
Gets data from all of the cycles.
Provides information for internal and external users.
Data
Human Res./
Payroll Cycle
Financing
Cycle

37. Business Process Cycles
Revenue
Expenditure
Production
Human Resources
Financing
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38. Accounting Information Systems
Collect, process, store, and report data and information
If Accounting = language of business
Accounting = AIS
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39. Components of an AIS People using the system
Procedures and Instructions
For collecting, processing, and storing data
Data about organization and its activities
Software used to process data
Information Technology (IT) Infrastructure
Computers, peripherals, networks, and so on
Internal Control and Security
Safeguard the system and its data
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40. 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
Provide adequate control to safeguard
Assets and data
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41. AIS Value Add
Improve Quality and Reduce Costs of product or service : ex, AIS can monitor machinery so operators are notified immediately when performance falls outside acceptable quality limits. This indirectly helps to maintain product quality, reduce waste , and lower the cost.
Improve Efficiency: ex, timely info makes JIT more applicable as it require accurate and up-to-date info about raw material inventories and their locations.
Improve Sharing Knowledge and expertise: this can improve operations and provide competitive advantage . Ex supermarkets update sale folks with new discounts and prices
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42. AIS Value Add
Improve Supply Chain efficiencies and effectiveness : by cut off many process of ordering and let supplier manage the inventory by his self.
Improve Internal Control: an AIS with proper internal control will help protect systems from fraud, errors, failures, and disasters.
Improve Decision Making: this can be translated in different ways
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43. Improve Decision Making
AIS can help improve Decision Making in several ways:
Identify situations that require action.
Provide alternative choices.
Reduce uncertainty.
Provide feedback on previous decisions.
Provide accurate and timely information.
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44. 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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45. Value Chain—Primary Activities
Inbound Logistics
Operations
Outbound Logistics
Marketing/Sales
Service
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46. ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series of activities referred to as the value chain. These include:
Primary activities
Support activities
These activities are sometimes referred to as “line” and “staff” activities respectively.

47. ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
Inbound logistics
Receiving, storing, and distributing the materials that are inputs to the organization’s product or service.
For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs.

48. ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
Inbound logistics
Operations
Transforming 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.

49. ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
Inbound logistics
Operations
Outbound logistics
Distributing products or services to customers.
For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals.

50. ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Helping customers to buy the organization’s products or services.
A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders.

51. ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
Post-sale support provided to customers such as repair and maintenance function.
A pharmaceutical firm will typically not be repairing it’s product (though the product may be periodically reformulated). The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc.

52. ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series of activities referred to as the value chain. These include:
Primary activities
Support activities
These activities are sometimes referred to as “line” and “staff” activities respectively.

53. Value Chain—Support Activities
Firm Infrastructure
Human Resources
Technology
Purchasing
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54. ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
Firm infrastructure
Accountants, lawyers, and administration. Includes the company’s accounting information system.

55. ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
Firm infrastructure
Human resources
Involves recruiting and hiring new employees, training employees, paying employees, and handling employee benefits.

56. ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
Firm infrastructure
Human resources
Technology
Activities to improve the products or services (e.g., R&D, Web site development).
For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones.

57. ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
Firm infrastructure
Human resources
Technology
Purchasing
Buying the resources (e.g., materials, inventory, fixed assets) needed to carry out the entity’s 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.

58. Value Chain
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59. ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
For example, the inbound logistics of Pharmaceuticals, Inc., links to the outbound logistics of its suppliers.
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service

60. ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
And the outbound logistics of Pharmaceuticals, Inc., links to the inbound logistics of its customers.
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service

61. ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
The linking of these separate value chains creates a larger system known as a supply chain.
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service

62. ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
The linking of these separate value chains creates a larger system known as a supply chain.
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Information technology can facilitate synergistic linkages that improve the performance of each company’s value chain.

63. AIS and Corporate Strategy
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
AIS
IT Developments
Business Strategy
Organizational Culture
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64. WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
Occupational
Culture
Strategy
AIS design is affected by information technology, the organization’s strategy, and the organization’s culture.
AIS
Information
Technology

65. WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
Occupational
Culture
Strategy
AIS
Information technology affects the company’s choice of business strategy. To perform cost-benefit analyses on IT changes, you need to understand business strategy.
Information
Technology

66. WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
Occupational
Culture
Strategy
AIS
Although culture affects the design of the AIS, it’s also true that the AIS affects culture by altering the dispersion and availability of information.
Information
Technology

67. ROLE OF THE AIS IN THE VALUE CHAIN
The objective of most organizations is to provide value to their customers.
What does it mean to deliver value?