LECTURE OUTLINES

Accounting Information System

Definitions Objective of Accounting Information System General view of AIS application

Role of accountant in AIS Comparison between manual and computer-based system (Accounting records and processing)

INFORMATION IS A BUSINESS SOURCE. Stakeholders Top Mgmt

Middle Mgmt
Budget info.& Instruction Operations Management
Day to day operations information

Performance Info.

Operations personnel

Customer

Supplier

Cont

Vast quantities of information flows to the respective users, depending on their needs. Based on the diagram, the information flows horizontally and vertically.
Horizontal

flows support the operation level task and contain detail information (eg. Shipment of goods, sales, units produced &etc..) Vertical flows distribute summary of detail information to the various level of managers. Info. to support planning & ctrl functions. Downward info. (eg senior to junior) in the form of instructions, quotas and budget.

Information also organization and environment.

flows users

between the in the external

ACCOUNTING INFORMATION SYSTEM

Accounting .a process of recording, classifying, summarizing economic data into useful information in making decision by the interested users. Information is derived from the processing of data.

Input Economic Data

Process

Output Financial Information

System
System is a unified group of interacting parts that function together to achieve its purposes. Characteristics of system:

System has a boundary that separates it from its environment. Systems are open where they accept inputs from environments and provide outputs to the environments. Systems are also tangible where they employ physical resources such as materials and personnel. System contains interdependent parts that have system characteristics and are called subsystems.

ACCOUNTING INFORMATION SYSTEM

Definition of AIS
AIS is a unified structure within an entity, such as a business firm, that employs physical resources and other components to transform economic data into accounting information, with the purpose of satisfying the information needs of a variety of users.

INFORMATION SYSTEM

A set of formal procedures by which data are collected, processed into information, and distribute to users.
2 types of information system,

MIS and AIS both systems should integrate to achieve operational efficiency

AIS consists of major subsystems:

Transaction Processing System (TPS) General ledger/financial reporting system (GL/FRS) Management Reporting System (MRS)

INFORMATION SYSTEM

AIS

MIS

GL/FRS

TPS

MRS

FMS

MS

PS

HRS

Distinction between AIS and MIS

AIS process financial and non-financial information which directly affect the processing of financial system. MIS process non-financial transactions which are not being processed by AIS.

Objectives of AIS
1.

2.

3.

To support the stewardship function of mgmt. Providing mandatory info to users who are external to the firm eg shareholders ( fin statement ) , government/regulators (tax withholding report ), lenders etc To support management decision making Decisions pertaining to planning and controlling a firms operations. To grant or increase credit facility to a particular customer. Provide info for make of buy decision. To support firms day to day operations Billing customers for goods sold/services performed. Ordering goods from suppliers and making payments. Processing paychecks for employees.

AIS APPLICATION (General Model)

EXTERNAL ENVIRONMENT
THE INFORMATION SYSTEM Database Mgmt

External Sources data

Data collection

Data Processing

Information generation

External End Users

Internal Sources data

Internal End Users THE BUSINESS ORG Feedback

Data Sources a financial transaction which enter into the system

External Sources Eg. Sales of goods & services
Internal Sources Eg. Movement of RM into WIP

Data Collection important stage, only valid, complete and free from material errors are accepted.
Apply

2 rules : Relevance to avoid data redundancy, improve efficiencies (reduce data overloaded). Efficiencies

Data Processing
Involve

posting, summarizing procedures used in accounting application. Various techniques that can be used by firm Batch processing sequential file approach Batch processing direct access approach Batch processing using real time data collection Real time processing Batch processing - Transactions are accumulated to a certain batch size and processed in one go. Real time processing - Transaction is processed immediately after it is keyed in

Distinguishing Characteristics
Information time frame
Resources

Data Processing Methods Batch

Lag exist between time when the economic event occurs and when it is recorded.
Generally, fewer resources (hardware, programming, training) are required. Certain records are processed after the event to avoid operational delays
1. 2. 3.

Real- time
Processing takes place when the economic event occurs
More resources are required than for batch processing All records pertaining to the event are processed immediately
1.

Operational efficiency Advantages

Better control Fewer resources required. Better operational efficiency Times lag exist, data is not up to date.

No time lag, data is updated immediately

Disadvantages

1.

1. 2.

More resources are required. Can create operational inefficiency

 Data

management

Management

of repository of financial and non-financial data. Content : according to hierarchy attribute records file Tasks : storage retrieval deletion

Functional areas of a firm

Material mgmt Production Marketing Distribution Personnel Finance ACCOUNTING COMPUTER SERVICE

Accounting Functions
Captures

and records firms transactions Distributes transaction information to operations personnel to coordinate their tasks eg. Inventory control, cost accounting + etc.

Computer Service Functions

Centralized approach Computer resources are placed at the central location, and shared by other functional areas. (refer figure 1-9, 1-10)

Value info. reliability

Maintain

its independence concept within the organization.

Distributed approach Places resources of the firm under the direct control of end users. Involve extensive use of networks to permit comm among users. (refer figure 1-11)

CENTRALISED DATA PROCESSING APPROACH (figure 1-9)

Data Information Marketing

Finance COMPUTER SERVICES RESOURCES

Production

Distribution

Accounting

ORGANIZATION OF COMPUTER SERVICES FUNCTION Biz Org

Marketing

Computer Services

Finance

System Development

Database Administration

Data Processing

New System Development

System Maintenance

Data Control

Data Preparation

Computer Operation

Data Library

ORGANIZATION OF COMPUTER SERVICES FUNCTION (DDP) Biz Org

Marketing

Finance

Administration

Treasurer

Controller

IPU

IPU

IPU

IPU

ROLES OF ACCOUNTANT IN AIS

1.

2.

3.

Users of AIS As end users, accountants must provide a clear picture of their needs to the professionals who design their systems. For eg the accountant must specify accounting rules and techniques to be used, internal control requirements, and special algorithms such as depreciation models. Designers of AIS Responsible for the conceptual system which involves specifying criteria for identifying delinquent customers and the information that needs to be reported. Accountants should determine the nature of information required, its sources, its destination, and the accounting rules to be applied. Auditors of AIS Accountants must check that the system is working as it should be, according to what it is design for. This includes testing the internal control of the system.

Accounting record in manual and computer based systems

Manual System
Documents

Computer Based systems

Master

Source documents Product Documents Turnaround Documents

Journal Ledgers

file Transaction file Reference file Archive file

* Provide audit trail for tracing transactions.

* Audit trail is embedded in the system

Manual System

Documents
1. Source document Used to capture and formalized transaction data needed for processing by the transaction cycle. 2. Product document Are results of transaction processing rather than the triggering mechanism. 3. Turnaround document Are product documents of one system that become source documents for another system

Manual System-continued

Journal transactions are recorded in chronological order.

1.

Special journals
Sales journals Purchases journals Cash receipts journals Cash disbursement journals Payroll journals

Manual System-continued
2. General Journals Used to record non-recurring, infrequent and dissimilar transactions e.g depreciation. 3. Registers This term denotes certain types of special journals e.g payroll register. The register can also be a log e.g receiving register is a log of all receipts of raw materials or merchandize ordered from supplier.

Manual System-continued

Ledgers

Are books of financial accounts, which reflect the financial effects of the firms transactions after they are posted from the various journals. Show activity by account type. Two types of ledgers:

General ledgers Subsidiary ledgers

e.g of subsidiary ledgers are Debtors ledger, Creditors ledger, Payroll ledger and inventory ledger.

Computerized system

Master file Contains account data. Examples are general ledgers and subsidiary ledgers. Transaction file. A temporary file holding transaction records that will be used to change or update data in a master file. E.g Sales orders, inventory receipts and cash receipts.

Computerized system - continued

Reference file Stores data that are used as standards for processing transactions. E.g Price lists, list of authorized suppliers, tax table, employee rosters and customer credit files. Archive file. Contains records of past transactions that are retained for future reference.

Benefits of computerized AIS

Information can be prepared on time. Produce more accurate and presentable accounting information. Information can be accessed or retrieved quickly and timely. In the long run, save time and cost in the preparation and safe keeping of the information.