ACCOUNTING

INFORMATION
SYSTEMS

AIS

LEARNING OBJECTIVES
1.

Explain what an accounting information system (AIS) is.

2.

Explain why studying AIS is important.

3.

Discuss the role played by the AIS in a companys value

chain and explain how the AIS can add value to a
business.

4.

Explain the three basic functions performed by an

accounting information system (AIS).

5.

Discuss the types of information that can be provided

by an AIS.

LEARNING OBJECTIVE 1

Explain what an accounting

information system (AIS) is.

WHAT IS AN AIS?
An accounting information system (AIS) consists of:

People

Procedures

Data

Software

Information technology

WHAT IS AN AIS?
What important functions does the AIS perform in an
organization?

1. It collects and stores data about activities and transactions.

2. It processes data into information that is useful for making
decisions.
3. It provides adequate controls to safeguard the organizations
assets.

BASIC SUBSYSTEMS IN THE AIS

1. The expenditure cycle: involves activities of buying and paying for
goods or services used by the organization.
2. The production cycle: involves activities converting raw materials and
labor into finished goods.
3. The human resources/payroll cycle: involves activities of hiring and
paying employees.
4. The revenue cycle: involves activities of selling goods or services and
collecting payment for those sales.
5. The financing cycle: involves activities of obtaining necessary funds to
run the organization, repay creditors, and distribute profits to
investors.

BASIC SUBSYSTEMS IN THE AIS

Financing
Cycle

Expenditure
Cycle

Human
Resources

General Ledger & Reporting System

Production
Cycle

Revenue
Cycle

LEARNING OBJECTIVE 2

Explain why studying AIS is important.

WHY STUDY AIS?

Because :
Accounting is defined as an information system.
The primary objective of accounting is to provide information
useful to decision makers.
Accounting is about information identification, development,
measurement, and communication process, and...
Financial information reporting.

WHY STUDY AIS?

To understand how the accounting system works.
How to collect data about an organizations activities and
transactions

How to transform that data into information that

management can use to run the organization

How to ensure the availability, reliability, and accuracy of

that information

WHY STUDY AIS?

Auditors need to understand the systems that are used to
produce a companys financial statements.

Tax professionals need to understand enough about the

clients AIS to be confident that the information used for tax
planning and compliance work is complete and accurate.
A survey conducted by the Institute of Management
Accountants (IMA) indicates that work relating to accounting
systems was the single most important activity performed by
corporate accountants.

INFORMATION TECHNOLOGY
AND CORPORATE STRATEGY
The same survey conducted by the Institute of Management

Accountants (IMA) also indicates that the second most

important job activity of corporate accountants is long-term
strategic planning.
One important aspect of this topic is how to align information

technology (IT) with an organizations strategy.

FACTORS INFLUENCING
DESIGN OF THE AIS
Organizational
Culture

Strategy

AIS

Information
Technology

LEARNING OBJECTIVE 3
Discuss the role played by the AIS in a
companys value chain and explain
how the AIS can add value to a
business.

THE VALUE CHAIN

The ultimate goal of any business is to provide value to its

customers.
A business will be profitable if the value it creates is greater
than the cost of producing its products or services.

VALUE CHAIN MODEL AND THE SUPPLY CHAIN

Typical functional areas mapped on
the value chain of a manufacturing company

Primary Activities

Support Activities

Firm Infrastructure
(Accounting, Finance, General Management)
Human Resource Management
(Human Resources)
Technology Development
(Engineering)
Procurement
(Material Management-Operations)
Inbound
Logistics

Operations

(Material
(Operations)
ManagementOperations)

Outbound
Logistics

Marketing
and Sales

Service

(Material
ManagementOperations)

(Marketing)

(Service or
Marketing)

SUPPLY-CHAIN MANAGEMENT
a) Supply Chain direct to customer
Suppliers

Inbound Logistics

Production

Delivery

Customer

Transaction

b) Supply Chain including wholesalers and retailers

Information Flow
Transfer

Suppliers

Transfer

Manufacturing

Transfer

Distribution

Transfer

Retail Outlet

Customer

Cash
Flow
Supply Chain Organization

HOW AN AIS CAN ADD VALUE

TO AN ORGANIZATION
An AIS adds value by providing accurate and timely
information so that five primary value chain activities
can be performed more effectively and efficiently.
This is done by: improving the quality and reducing the
costs of products or services.

HOW AN AIS CAN ADD VALUE

TO AN ORGANIZATION
An AIS can

improve efficiency.
improve decision making capabilities.
increase the sharing of knowledge.
A well-designed AIS can also help an organization profit by
improving the efficiency and effectiveness of its supply chain.

INFORMATION TECHNOLOGY
AND CORPORATE STRATEGY
Develop a basic understanding of
corporate strategies.
how IT developments can be used to implement existing
organizational strategies.

how IT developments can be used to create an opportunity

to modify existing strategies.
Because an AIS functions within an organization, it should be
designed to reflect the values of that organizational culture.

STRATEGY AND STRATEGIC POSITIONS

What role does the AIS play in helping organizations adopt and
maintain a strategic position?
Data collection about each activity
Transforming data into information that can be used by
management to coordinate those activities

LEARNING OBJECTIVE 4
Explain the three basic functions
performed by an accounting
information system (AIS).

THE THREE BASIC FUNCTIONS PERFORMED BY

AN AIS
1. The efficient and effective processing of data about a
companys transactions:
Capture transaction data on source documents.
Record transaction data in journals, which present a
chronological record of what occurred.

Post data from journals to ledgers, which sort data by

account type.

THE THREE BASIC FUNCTIONS PERFORMED BY

AN AIS
2. To provide management with information useful for decision
making:
In manual systems, this information is provided in the
form of reports that fall into two main categories:

Financial statements
Managerial reports

THE THREE BASIC FUNCTIONS PERFORMED BY

AN AIS
3. To provide adequate internal controls:

Ensure that the information produced by the system is

reliable.
Ensure that business activities are performed efficiently
and in accordance with managements objectives.
Safeguard organizational assets.

LEARNING OBJECTIVE 5

Discuss the types of information that

can be provided by an AIS.

FINANCIAL STATEMENTS
The next function of the AIS is to provide management with
information useful for decision making.
The preparation of financial statements consists of a sequence
of activities.
What are these activities?

FINANCIAL STATEMENTS
A. Prepare a trial balance.
B. Make adjusting entries.
C. Prepare the adjusted trial balance.
D. Produce the income statement.
E. Make closing entries.
F. Produce the balance sheet.

G. Prepare the statement of cash flows.

MANAGERIAL REPORTS
The AIS must also be able to provide managers with detailed
operational information about the organizations performance.

What reports does management need?

A. Inventory status

B. Budgets
C. Performance reports

INTERNAL CONTROL CONSIDERATIONS

Another main function of an AIS is to provide
adequate internal controls to accomplish three basic
objectives:
Ensure that the information is reliable.

Ensure that business activities are performed

efficiently.
Safeguard organizational assets.

TYPICAL TPS OF A MANUFACTURER

Purchasing
Order

Vendors
Receiving
Goods

Manufacturing

Payroll

Inventory
Accounts
Payable

Shipping
Taxes
Customer
Order

Customers

General
Ledger
Accounts
Receivable

Periodic
Statements

Fixed
Assets

MANAGING THE ACCOUNTING

INFORMATION SYSTEMS
Strategic Systems

Internal
Environment

Tactical Systems

Operational and
Transaction Processing
System

External
Environment

MANAGING THE ACCOUNTING

INFORMATION SYSTEMS
STRATEGIC SYSTEMS
a. Strategic Planning b. Ratios and Financial Health
c. Merger and Acquisition Analysis

INTERNAL
ENVIRONMENT
Top Management
Operation/
Production
Marketing
HRM
Engineering

TACTIAL SYSTEMS

a. Budgeting Preparation and Control

b. Investment Management
c. Capital Budgeting d. Cost Analysis and Control
e. Tax Management f. Auditing
g. Financial Planning

OPERATIONAL AND
TRANSACTION PROCESSING
SYSTEMS
a. The General Ledger b. Sales Order Processing
c. Accounts Payable and Receivable
d. Receiving and Shipping
e. Payroll
f. Inventory Management
g. Periodical Reports & Statements

EXTERNAL
ENVIRONMENT
IRS
Vendors
Clients
Suppliers
Customers
Business Partners

FINANCIAL PLANNING AND BUDGETING

Financial and economic forecasting
Planning for incoming funds

Budgeting preparation and operation

Capital budgeting decision

CONTROL AND AUDITING

Budgetary control
Auditing

Financial health analysis

Profitability analysis and cost control

Product pricing

THE FUTURE OF AIS

The Internet makes strategy more important than
ever
The important point underlying ERP systems is the
need for and value of cross-functional integration
of financial data and other nonfinancial operating
data.

THANK YOU!

VIVEK K. SINGH
WIWECK@GMAIL.COM