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

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

3. 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 Process1Process2 Goal Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-3

4. These are all Systems Living Manual Automated Machine- Human ERP

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 1. The more specialized a system is, the less able it is to adapt to different circumstances. 2. The larger a system is, the more of its resources that must be devoted to its everyday maintenance. 3. Systems are always part of larger systems, and they can always be partitioned into smaller systems. 4. Systems grow (5-10%/year) 5. 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  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 19

20. Value of Information Benefits  Improve Decisions  Reduce Uncertainty  Improve Planning  Improve Scheduling Costs  Time & Resources  Produce Information  Distribute Information 1-20 Benefit $’s > Cost $’s

21. What makes information Useful?  Necessary (Fundamental) 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.”  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.  Materiality  “ Information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity.” 1-21

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

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 Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-23

24. Revenue Cycle Activities 1.Sales order entry 2.Shipping 3.Billing 4.Cash collections

25. Expenditure Cycle Activities 1.Ordering materials, supplies, and services 2.Receiving materials, supplies, and services 3.Approving supplier invoices 4.Cash disbursements Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 13-25

26. Production Cycle Activities 1.Product design 2.Planning and scheduling 3.Production operations 4.Cost accounting Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 14-26

27. HRM and Payroll Cycle Activities 1.Update master data 2.Validate time and attendance 3.Prepare payroll 4.Distribute payroll 5.Disburse taxes and miscellaneous deductions Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 15-27

28. Business Transactions  Give – Get Exchanges  Between 2 entities  Measured in economic terms Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-28

29. Business Cycle Give–Get Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-29

30. 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 1-30

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 Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-31

32. 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  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. AIS & Business Functions  Collect and Store data about organizational:  Activities, Resources, & Personnel  Transform data into information enabling  Management to:  Plan, Execute, Control, & Evaluate  Activities, Resources, & Personnel  Provide adequate control to safeguard  Assets & Data Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-33

34. AIS Value Add  Improve Quality / 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 1-34

35. 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 1-35

36. 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 1-36

37. Value Chain – Primary Activities Inbound Logistics Operations Outbound Logistics Marketing/SalesService Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-37

38. Value Chain - Support Activities Firm Infrastructure Human Resources Technology Purchasing Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-38

39. Value Chain Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-39

40. AIS & 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 how: IT developments Business Strategy & Organizational Culture Will effect and be effected by new AIS Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-40