Module 1
Accounting Information Systems: An Overview
ACCOUNTING INFORMATION SYSTEM
[BCC-AIS]
JB EMANUEL T. DE GUZMAN, CPA
Instructor
MODULE 1: ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW
LEARNING OBJECTIVES:
At the end of the module, you must be able to:
1. Distinguish between data and information.
2. Explain fundamental decisions an organization makes.
3. Identify transaction information between internal and external users.
4. Describe basic functions of Accounting system.
5. Discuss how AIS add value to an organization.
6. Explain how AIS and Corporate Strategy affects each other.
7. Explain the role an AIS plays in an organization value chain.
INPUT INFORMATION:
Lecture / Discussion:
System
• A set of two or more interrelated components that interact to achieve a goal.
Goal Conflict vs. Goal Congruence
Goal Conflict Goal Congruence
• occurs when a subsystem’s goals are • occurs when a subsystem achieves its
inconsistent with the goals of another goals while contributing to the
subsystem or with the system as a whole organization’s overall goal
Data vs. Information
• Data are facts stored in the system
o A fact could be a number, date, name, and so on.
For example: 2/22/14, ABC Company, 123, 99, 3, 20, 60
• 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
Information Overload
• Occurs when those limits are passed, resulting in a decline in decision-making quality and
an increase in the cost of providing that information.
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• Information system designers use information technology (IT) to help decision makers
more effectively filter and condense information.
Value of Information
• Information is valuable when the benefits exceed the costs of gathering, maintaining, and
storing the data.
Benefit (i.e., reduced uncertainty, improved decision making, and improved ability to plan and
schedule activities) 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; accurately represents organization events or activities
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.
Transaction and Transaction Processing Transaction
• An agreement between two entities to exchange goods or services or any other event that
can be measured in economic terms by an organization.
Transaction Processing
• The process that begins with capturing transaction data and ends with informational output,
such as the financial statements.
Transaction 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.
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Interactions Between AIS and Internal and External Parties; Business Processes or
Transaction Cycles
Business Processes/Transaction Cycles
• The revenue cycle, where goods and services are sold for cash or a future promise to
receive cash. This cycle is discussed in Module 6.
• The expenditure cycle, where companies purchase inventory for resale or raw materials to
use in producing products in exchange for cash or a future promise to pay cash. This cycle is
discussed in Module 7.
• The production or conversion cycle, where raw materials are transformed into finished
goods. This cycle is discussed in Module 8.
• The human resources/payroll cycle, where employees are hired, trained, compensated,
evaluated, promoted, and terminated. This cycle is discussed in Module 9.
• The financing cycle, where companies sell shares in the company to investors and borrow
money, and where investors are paid dividends and interest is paid on loans.
Basic Business Processes
• Transactions between the business organization and external parties fundamentally involve
a “give–get” exchange. These basic business processes are:
o Revenue: give goods / give service—get cash
o Expenditure: get goods / get service—give cash
o Production: give labor and give raw materials—get finished goods
o Payroll: give cash—get labor
o Financing: give cash—get cash
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Accounting Information Systems in a Nutshell
• Accounting is the “language of business”
• AIS is the intelligence—the information-providing vehicle—of that language.
What is Accounting Information Systems (AIS)?
• It can be manual or computerized
• Consists of
1. The people who use the system
2. The procedures and instructions used to collect, process, and store data
3. The data about the organization and its business activities
4. The software used to process the data
5. The information technology infrastructure, including the computers, peripheral
devices, and network communications devices used in the AIS
6. The internal controls and security measures that safeguard AIS
How Does an AIS Add Value?
• A well thought out AIS can add value through effective and efficient decisions.
o Having effective decisions means quality decisions
o Having efficient decisions means reducing costs of decision making
AIS and Strategy
• An AIS is influenced by an organization’s strategy.
• A strategy is the overall goal the organization hopes to achieve (e.g., increase profitability).
• Once an overall goal is determined, an organization can determine actions needed to reach
their goal and identify the informational requirements necessary to measure how well they
are doing in obtaining that goal.
• Many other technological advances affect company strategy and provide an opportunity to
gain a competitive advantage.
• An example is predictive analysis, which uses data warehouses and complex algorithms to
forecast future events, based on historical trends and calculated probabilities.
Example:
• FedEx uses predictive analysis to predict, with 65% to 90% accuracy, how customers
respond to price changes and new services.
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AIS in the Value Chain
• The value chain shows how the different activities within an organization provide value to
the customer.
• It links together the primary and support activities in a business.
o Primary activities provide direct value to the customer.
o Support activities enable primary activities to be efficient and effective.
Value Chain: Primary Activities
1. Inbound logistics consists of receiving, storing, and distributing the materials an organization
uses to create the services and products it sells. For example, an automobile manufacturer
receives, handles, and stores steel, glass, and rubber.
2. Operations activities transform inputs into final products or services. For example, assembly line
activities convert raw materials into a finished car and retailers remove goods from packing boxes
and place the individual items on shelves for customers to purchase.
3. Outbound logistics activities distribute finished products or services to customers. An example
is shipping automobiles to car dealers.
4. Marketing and sales activities help customers buy the organization’s products or services.
Advertising is an example of a marketing and sales activity.
5. Service activities provide post-sale support to customers. Examples include repair and
maintenance services.
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Value Chain: Support Activities
1. Firm infrastructure is the accounting, finance, legal, and general administration activities that
allow an organization to function. The AIS is part of the firm infrastructure.
2. Human resources activities include recruiting, hiring, training, and compensating employees.
3. Technology activities improve a product or service. Examples include research and
development, investments in IT, and product design.
4. Purchasing activities procure raw materials, supplies, machinery, and the buildings used to
carry out the primary activities.
- - - NOTHING FOLLOWS - - -
Turn the rejections you receive into regret of others.
~ JDG, CPA
Ora et Labora
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