2020-03-05

CHAPTER 1
ACCOUNTING INFORMATION SYSTEMS:
AN OVERVIEW

Tengku Fairuz Binti Tengku Embong

Faculty of Accountancy

Learning Objectives
1 Distinguish between data and information:
✓ Discuss the characteristics of useful information.
✓ Explain how to determine the value of information.

2 Explain the decisions an organization makes:

✓ The information needed to make them.
✓ The major business processes present in most
companies.

3 Explain how an AIS adds value to an organization:

✓ How it affects and is affected by corporate strategy.
✓ The role of AIS in a value chain.

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Systems,
Data and
Information

Data vs. Information

Facts collected, recorded, stored and

processed by an information system.
For example:
2/22/14
Info
ABC Company, 123, Data that have been organized and
99, 3, 20, 60 processed to provide meaning and
improve the decision making

Data Invoice Date : 2/22/14

Customer: ABC company
process.
Invoice #: 123

Item # Qty Price

99 3 $20
Total Invoice Amount $60

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Decision Quality
Information helps us make
better decisions.

Too much information causing

information overload can
reduce decision quality.

Information Technology (IT) is

used 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 - improved decision making, reduced uncertainty and
improved ability to plan and schedule activities.
❑ Cost - time and resources used to produce and distribute inf
ormation

A good example of the value of information is provided on page 30 for the

7-Eleven stores in Japan.

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What Makes Information Useful?

There are seven general characteristics that make
information useful:
➢ Relevant: information needed to make a decision.

➢ 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
decision.
➢ Understandable: information must be presented in a
meaningful manner.
➢ Verifiable: two independent people can produce the same
conclusion.
➢ Accessible: available when needed

Data differ from information in which way?

A B C D

Data are Information Data are There is no

facts about is data meaningful difference
a sale organized to bits of
provide information
meaning

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Which of the following is not a characteristic that

makes information useful?

A B C D

It is reliable It is timely It is It is relevant

inexpensive

Information
Needs &
Business
Processes

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Key Decisions &

Information Needs
• Business organizations use business
processes to get things done.

• A business process is a set of related,

coordinated, and structured activities and
tasks performed by people, machines, or
both to achieve a specific organizational
goal.

• Key decisions and information needed

Business Processes often come from these business processes.

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Interactions
Between
Organization &
External &
Internal Parties

Types of information needed for decisions:

✓ Some is financial An effective AIS needs to be able
✓ Some is nonfinancial to integrate information of different
✓ Some comes from internal sources types and from different sources
✓ Some comes from external sources

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What information needs are generally associated

with the acquire inventory business process?

A B C D

Market Vendor Inventory All answers

Analysis Performance status A, B & C
reports

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Business Processes
A Transaction
An agreement between two entities to exchange 02
goods or services or any other event that can be
measured in economic terms by an organization. Transaction processing
Process of capturing transaction
data, processing it, storing it for
later use, and producing
information output
Business Processes 01 03
Groups of related transactions

❖ Revenue cycle
Transactions between the business
❖ Expenditure cycle
❖
❖
Production cycle
Human resources/payroll cycle
04 organization and external parties
fundamentally involve a “give–get”
❖ Financing cycle exchange

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Transaction Cycles
Expenditure Cycle Chapter 13
2
Purchase of inventory for resale or raw
materials for use in production in exchange
for cash or a promise to pay cash in the
future (Accounts Payable).
Chapter 14

3 Production or Conversion Cycle

Raw materials are converted into finished goods
.

1 Revenue Cycle
Activities associated with selling
goods and services in exchange
for cash or future promise to
receive cash (Accounts
Receivable)
Chapter 12
5
Financing Cycle
Companies acquire capital
by selling shares or borrowing
money and where investors
4 Human Resource/ are paid dividends or interest
Payroll Cycle
Employees are hired, trained,
compensated, evaluated,
promoted, and terminated
Chapter 15

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The figure also shows

the relationship between
these cycles and the
general ledger and
reporting system function
which is used to generate
information for both
management and
external parties

Basic
Give - Get
Exchanges

Refer Table 1-3

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Which transaction cycle includes interactions

between an organization and its suppliers?

A B C D

Revenue Expenditure Human General

cycle cycle resources/ ledger and
payroll cycle reporting
system

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In which cycle does a company ship goods

to customers?

A B C D

Production Financing Revenue Expenditure

cycle cycle cycle cycle

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Accounting
Information
System

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What is an AIS?
A system that collects, records, stores, and processes data to
produce information for decision makers.

“ “ “ “

“ “ “ “

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Components of an AIS
PROCEDURES AND
INSTRUCTIONS

PEOPLE DATA

SOFTWARE
INTERNAL
CONTROLS & INFORMATION
SECURITY TECHNOLOGY
MEASURES INFRASTRUCTURE

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These 6 Components Help The AIS Fulfil

3 Important Business Functions:

Collect and about organizational

that is useful for making
decisions so management
can plan, execute, control,
and evaluate activities,
resources, and personnel
store data activities, resources,
and personnel
Transform data
into information
to safeguard the organization’s
assets, including its data, to
Provide adequate ensure that the assets and
controls data are available when
needed and the data are
accurate and reliable

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Which of the following is a function of an AIS?

A B C D

Reducing Transforming Allocating Automating

the need to data into organizational all decision
identify a useful resources. making.
strategy and information.
strategic
position.

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How Does an AIS Add Value to an Organization?

Improving the quality and Improving decision
reducing the costs of making
products or services

Improving the internal

Improving efficiency
control structure

Improving efficiency and

effectiveness of its supply
Sharing knowledge chain

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An AIS provides value by:

A B C D

Improving Providing Creating new Both A

products or timely and products and B
services through reliable
information that information
increases quality to decision
and reduces makers
costs

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AIS and
Corporate Strategy

Three factors that influence the

design of an AIS.

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Role of the AIS in

the Value Chain
✓ The value chain links together the different activities within
an organization that provide value to the customer.
The objective of most
✓ Value chain activities are primary and support activities. organizations is to
• Primary activities provide direct value to the customer. provide value to their
• Support activities enable primary activities to be efficient and customers
effective.

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An extended system that

includes the
organizations value
chain as well as its
suppliers, distributors,
and customers

❖ For example, the inbound logistics of Pharmaceuticals,

Inc., links to the outbound logistics of its suppliers.
Supply Chain ❖ And the outbound logistics of Pharmaceuticals, Inc.,
links to the inbound logistics of its customers.

❖ The linking of these separate value chains creates a

larger system known as a SUPPLY CHAIN.

Information technology can facilitate synergistic

linkages that improve the performance of
each company’s value chain

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The value chain concept is composed of the

following two types of activities:

A B C D

Primary and Primary and Support and Technology

service support value and
support

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Which of the following is a primary activity in the

value chain?

A B C D

Purchasing Accounting Post-sales Human

service resource
management

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Which of the following is a support activity in the

value chain?

A B C D

Purchasing Manufacturing Post-sales Receiving

service materials

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Thank You !
End of Chapter 1

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