ACC200 - Accounting

Information Systems
Topic 1- Introduction to
Accounting Information
Systems
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Learning Objectives
1.

2.
3.

Explain what an accounting information

system (AIS) is and describe the basic
functions it performs.
Discuss why studying the design and
management of an AIS is important.
Discuss ways that the AIS can add value to a
business.

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What Is Accounting?

It is the principal way of organizing and reporting

financial information. It has been called the language
of business.
Accounting and information systems comprise the
functional area of business responsible for providing
information to the other areas to enable them to do
their jobs and for reporting the results to interested
parties.
To that end, an accounting system is used to identify,
analyze, measure, record, summarize, and
communicate relevant economic information to
interested parties.
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Information and
Decision Making
What is information?
The term data refers to any and all of
the facts that are collected, stored,
and processed by an information
system.
Information is data that has been
organized and processed so that it is
meaningful.

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Information and Decisions

Top-Level
Management
Middle
Management

Lower-Level
Management

Strategic
Tactical

Summarization
and Filtration

Operational
Transaction Oriented
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Information and Decision

Making
Characteristics of Useful Information
Relevant

Timely

Reliable

Understandable

Complete

Verifiable
Accessible

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Ten Most Important Activities

Performed By Accountants
1. Accounting systems
and financial reporting
2. Long-term strategic
planning
3. Managing the
accounting and
finance function
4. Internal Consulting
5. Short-term budgeting

6. Financial and
economic analyses
7. Process improvement
8. Computer systems
and operations
9. Performance
evaluation
10. Customer and product
profitability analyses
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What Is an Information
System?

An Information system is a framework in which data on a

companies business processes is collected, processed,
controlled and managed through stages in order to provide
information to users
It can be a manual or computerized system
Firms depend on information systems in order to survive
and stay competitive

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What Is the function of an

AIS?

What important functions does the AIS

perform in an organization?
It collects and stores data about
activities and transactions.
It processes data into information that
is useful for making decisions.
It provides adequate controls to
safeguard the organizations assets.
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The Three Basic Functions

Performed by an AIS
1

To collect and store data about the

organizations business activities and
transactions efficiently and effectively:
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.

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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
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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.
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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

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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.

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Steps in Transforming Data

into Information

Data collection - capturing, recording, validating and

editing data for completeness and accuracy
Data Maintenance/Processing - classifying, sorting,
calculating data
Data Management - storing, maintaining and retrieving data
Data Control - safeguarding and securing data and
ensuring the accuracy and completeness of the same
Information Generation - interpreting, reporting, and
communicating information

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Information Systems
The term information system suggests
the use of computer technology in
an organization.
What is a computer-based information
system?
It is a collection of computer hardware
and software designed to transform
data into useful information.

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What Is An Accounting
Information System (AIS)?

An accounting information system (AIS)

consists of:
People
Procedures
Data
Software
Information

technology infrastructure (Hardware)

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Information System -Basic Stages

Data
storage

Data
input

Data
processing

Information
output

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Capturing Inputs

Manual keying

Scanning through barcode technology

Scanning through image scanners

Magnetic ink character recognition [MICR]

Voice recognition

Optical mark readers

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Processes

Processes are the sets of activities that are

performed on the inputs into the system
Examples:
o Performing calculations
o Validity checks
o Hash checks
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Outputs

Outputs refer to what is obtained from a

system, or the result of what the system does
Examples:
oReceipts
oInvoices

Outputs are normally the starting point when

designing a system
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Resources Required for an

AIS

Processor(s): Manual or Computerized

Data Base(s): Data Repositories

Procedures: Manual or Computerized

Input/Output Devices
Miscellaneous Resources

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Roles of Accountants
With Respect to an AIS

Financial accountants prepare financial information for

external decision-making in accordance with MASB

Managerial accountants prepare financial information

for internal decision-making

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Financial Reporting
Balance Sheet
Income Statement
Statement of Cash Flows

The primary
financial
statements.

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Accounting
AccountingInformation
Information
Systems
Systems

Information
InformationUsers
Users
Investors
Investors
Creditors
Creditors
Managers
Managers
Owners
Owners
Customers
Customers
Employees
Employees
Regulatory Agencies
Regulatory Agencies
-SC
-SC
-IRB
-IRB
-KLSE
-KLSE

Cost
Cost&&Revenue
Revenue
Determination
Determination
Job Costing
Job Costing
Process Costing
Process Costing
ABC
ABC
Sales
Sales
Assets
Assets&&Liabilities
Liabilities
Plant & Equipment
Plant & Equipment
Loans & Equity
Loans & Equity
Receivables, Payables
Receivables, Payables
&&Cash
Cash
Cash
CashFlows
Flows
From Operations
From Operations
From Financing
From Financing
From Investing
From Investing

Decision
DecisionSupport
Support
CVP Analysis
CVP Analysis
Performance
Performance
Evaluation
Evaluation
Incremental Analysis
Incremental Analysis
Budgeting
Budgeting
Capital Allocation
Capital Allocation
Earnings per Share
Earnings per Share
Ratio Analysis
Ratio Analysis

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Roles of Accountants
With Respect to an AIS

Auditors - evaluate controls and attest to the fairness

of the financial statements.
Accounting managers - control all accounting
activities of a firm.
Tax specialists - develop information that reflects tax
obligations of the firm.
Consultants - devise specifications for the AIS.

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How An AIS Can Add Value

To An Organization

An AIS adds value by:

improving the quality and reducing the costs of
products or services.
improving efficiency.
Improving decision making capabilities.
increasing the sharing of knowledge.

A well-designed AIS can also help an organization

profit by improving the efficiency and effectiveness
of its supply chain.

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The Supply Chain

Raw Materials
Supplier
Manufacturer

Distributor

Retailer

Consumer

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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.

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The Value Chain

An organizations value chain consists of

nine interrelated activities that collectively
describe everything it does.
The five primary activities consist of the
activities performed in order to create,
market, and deliver products and services
to customers and also to provide post-sales
services and support.

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The Value Chain

Primary Activities
Inbound
Logistics

Marketing
and Sales

Operations

Outbound
Logistics

Service
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The Value Chain

The four support activities in the value

chain make it possible for the primary
activities to be performed efficiently
and effectively.

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The Value Chain

Support Activities
Infrastructure

Technology

Human
Resources

Purchasing
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The Value System

The value chain concept can be
extended by recognizing that
organizations must interact with
suppliers, distributors, and customers.
An organizations value chain and the
value chains of its suppliers,
distributors, and customers
collectively form a value system.

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Gains from Computerised AIS

for Accountants

Faster processing of transactions and other data

Greater accuracy in computations of and comparisons
with data
Lower cost of processing each transaction
More timely preparation of reports and other outputs
More concise storage of data, with greater accessibility
when needed
Wider range of choices for entering data and providing
outputs
Higher productivity for employees and managers, who
learn to use computers effectively in their routine and
decision-making responsibilities

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End of Lecture 1