Chapter 1

Accounting Information Systems: An Overview

1-1
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 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 companys value chain.

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 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

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 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 Information
make decisions. This is
known as Information
Overload.

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 Value of Information

Benefits Costs
Reduce Uncertainty Time & Resources

Improve Decisions
Produce Information
Improve Planning Distribute Information

Improve Scheduling
Benefit $s > Cost $s

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 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.

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 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).

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 Business Process

Systems working toward

organizational goals Financing Revenue

Human
Expenditure
Resources

Production

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 Business Process Cycles

Revenue

Expenditure

Production

Human Resources

Financing

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 Business Transactions

GiveGet exchanges

Between two entities

Measured in economic terms

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 Business Cycle GiveGet

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 Accounting Information Systems

Collect, process, store, and report data and information

If Accounting = language of business

AIS = information providing vehicle

Accounting = AIS

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 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, and so on

Internal Control and Security

Safeguard the system and its data

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 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
Activities, resources, and personnel

Provide adequate control to safeguard

Assets and data

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 AIS Value Add

Improve Quality and Reduce Costs

Improve Efficiency

Improve Sharing Knowledge

Improve Supply Chain

Improve Internal Control

Improve Decision Making

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 Improve Decision Making

Identify situations that require action.

Provide alternative choices.

Reduce uncertainty.

Provide feedback on previous decisions.

Provide accurate and timely information.

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 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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 Value ChainPrimary Activities

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 Value ChainSupport Activities

Firm
Infrastructure Technology

Human Purchasing
Resources

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 Value Chain

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 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

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