Chapter 1 Accounting Information Systems: An Overview

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

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.

Value of Information

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.
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

Business Process Cycles

Revenue
Expenditure
Production
Human Resources
Financing

Business Transactions
GiveGet exchanges
Between two entities
Measured in economic terms

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Business Cycle GiveGet

Accounting Information Systems

Collect, process, store, and report data and information
If Accounting = language of business
AIS = information providing vehicle
Accounting = AIS

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

AIS Value Add

Improve Quality and Reduce Costs
Improve Efficiency
Improve Sharing Knowledge
Improve Supply Chain
Improve Internal Control
Improve Decision Making

Improve Decision Making

Identify situations that require action.
Provide alternative choices.
Reduce uncertainty.
Provide feedback on previous decisions.
Provide accurate and timely information.

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

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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Chapter 2 Overview of Transaction Processing and ERP Systems

Data Processing Cycle

The Data Processing Cycle Determines

What data is stored?
Who has access to the data?
How is the data organized?
How can unanticipated information needs be met?

Data InputCapture
As a business activity occurs data is collected about:
1. Each activity of interest
2. The resources affected
3. The people who are participating

Paper-Based Source Documents

Data are collected on source documents
E.g., a sales-order form
The data from paper-based will eventually need to be transferred to the AIS
Turnaround
Usually paper-based
Are sent from organization to customer
Same document is returned by customer to organization

Source Data Automaton

Source data is captured
In machine-readable form
At the time of the business activity

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 E.g., ATMs; POS

Data InputAccuracy and Control

Well-designed source documents can ensure that data captured is
Accurate
Provide instructions and prompts
Check boxes
Drop-down boxes
Complete
Internal control support
Prenumbered documents

Data Storage
Types of AIS storage:
Paper-based
Ledgers
Journals
Computer-based
Ledgers
General
Summary level data for each:
Asset, liability, equity, revenue, and expense
Subsidiary
Detailed data for a General Ledger (Control) Account that has individual sub-accounts
Accounts Receivable
Accounts Payable

Journals
General
Infrequent or specialized transactions
Specialized
Repetitive transactions
E.g., sales transactions

File Types
Transaction
Contains records of a business from a specific period of time
Master
Permanent records
Updated by transaction with the transaction file
Database
Set of interrelated files

Data Processing
Four Main Activities
1. Create new records
2. Read existing records
3. Update existing records
4. Delete records or data from records

Data Output Types

Soft copy
Displayed on a screen

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 Hard copy
Printed on paper

ERP Systems

Enterprise Resource Planning (ERP)

Integrate an organizations information into one overall AIS
ERP modules:

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 Financial
Human resources and payroll
Order to cash
Purchase to pay
Manufacturing
Project management
Customer relationship management
System tools

ERP Advantages
Integration of an organizations data and financial information
Data is captured once
Greater management visibility, increased monitoring
Better access controls
Standardizes business operating procedures
Improved customer service
More efficient manufacturing

ERP Disadvantages
Cost
Time-consuming to implement
Changes to an organizations existing business processes can be disruptive
Complex
Resistance to change