Accounting Information Systems: an overview

Accounting Information Systems: An OverviewChapter 11-1Copyright 2015 Pearson Education, Inc.Copyright 2015 Pearson Education, Inc.Learning ObjectivesDistinguish between data and information:Understand the characteristics of useful information.Explain how to determine the value of information.

Explain fundamental decisions an organization makes:Understand basic information needed to make them.

Identify the transactional 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 companys value chain.

1-2Copyright 2015 Pearson Education, Inc.Data vs. InformationData are facts stored in the systemA fact could be a number, date, name, and so on.For example: 2/22/14ABC Company, 123,99, 3, 20, 60

1-3Copyright 2015 Pearson Education, Inc.Data vs. InformationThe previous slide just showed facts, if we put those facts within a context of a sales invoice, for example, it is meaningful and considered information.

Invoice Date : 2/22/14Invoice #: 123

Customer: ABC company

Item #QtyPrice993$20

Total Invoice Amount$60

1-4Copyright 2015 Pearson Education, Inc.Value of InformationInformation is valuable when the benefits exceed the costs of gathering, maintaining, and storing the data.

Benefit (i.e., improved decision making) > Cost (i.e., time and resources used to get the information)1-5Copyright 2015 Pearson Education, Inc.What Makes Information Useful?There are seven general characteristics that make information useful: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)Reliable: information free from bias Complete: does not omit important aspects of events or activities Timely: information needs to be provided in time to make the decision1-6Copyright 2015 Pearson Education, Inc.What Makes Information Useful?Understandable: information must be presented in a meaningful manner Verifiable: two independent people can produce the same conclusionAccessible: available when needed1-7Copyright 2015 Pearson Education, Inc.Organizational Decisions and Information NeededBusiness 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.1-8Copyright 2015 Pearson Education, Inc.Transactional Information Between Internal and External Parties in an AISBusiness 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.1-9Copyright 2015 Pearson Education, Inc.Interactions Between AIS and Internal and External Parties1-10

Copyright 2015 Pearson Education, Inc.Basic Business ProcessesTransactions between the business organization and external parties fundamentally involve a giveget exchange. These basic business processes are:Revenue: give goods / give serviceget cashExpenditure: get goods / get servicegive cashProduction: give labor and give raw materialsget finished goodsPayroll: give cashget laborFinancing: give cashget cash1-11Copyright 2015 Pearson Education, Inc.What Is an Accounting Information System?It can be manual or computerizedConsists of People who use the systemProcessesTechnology (data, software, and information technology)Controls to safeguard informationThus, transactional data is collected and stored into meaningful information from which business decisions are made and provides adequate controls to protect and secure the organizational data assets. 1-12Copyright 2015 Pearson Education, Inc.How Does an AIS Add Value?A well thought out AIS can add value through effective and efficient decisions.Having effective decisions means quality decisionsHaving efficient decisions means reducing costs of decision making1-13Copyright 2015 Pearson Education, Inc.AIS and StrategyAn AIS is influenced by an organizations 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.1-14Copyright 2015 Pearson Education, Inc.AIS in the Value ChainThe value chain shows how the different activities within an organization provide value to the customer.These activities are primary and support activities. Primary activities provide direct value to the customer.Support activities enable primary activities to be efficient and effective. 1-15Copyright 2015 Pearson Education, Inc.1-16

Copyright 2015 Pearson Education, Inc.Key TermsSystemGoal conflictGoal congruenceDataInformationInformation technology (IT)Information overloadValue of informationBusiness processTransactionTransaction processingGive-get exchangeRevenue cycleExpenditure cycleProduction (conversion) cycleHuman resource/payroll cycleFinancing cycleGeneral ledger and reporting systemAccounting information system (AIS)Predictive analyticsValue chainPrimary activitiesSupport activitiesSupply chain1-17Copyright 2015 Pearson Education, Inc.