LEARNING OBJECTIVES
1. Explain what an accounting information system (AIS)
is.
2. Explain why studying AIS is important.
3. Discuss the role played by the AIS in a company’s
value chain and explain how the AIS can add value to a
business.
4. Explain the three basic functions performed by an
accounting information system (AIS).
5. Discuss the types of information that can be provided
by an AIS.
LEARNING OBJECTIVE 1
Explain what an accounting information system (AIS) is.
WHAT IS AN AIS?
An accounting information system (AIS) consists of:
People
Procedures
Data
Software
Information technology
WHAT IS AN AIS?
What important functions does the AIS perform in an
organization?
1. It collects and stores data about activities and
transactions.
2. It processes data into information that is useful for
making decisions.
3. It provides adequate controls to safeguard the
organization’s assets.
BASIC SUBSYSTEMS IN THE AIS
1. The expenditure cycle: involves activities of buying
and paying for goods or services used by the
organization.
2. The production cycle: involves activities converting
raw materials and labor into finished goods.
3. The human resources/payroll cycle: involves activities
of hiring and paying employees.
4. The revenue cycle: involves activities of selling goods
or services and collecting payment for those sales.
5. The financing cycle: involves activities of obtaining
necessary funds to run the organization, repay
creditors, and distribute profits to investors.
BASIC SUBSYSTEMS IN THE AIS
Expenditure Cycle
Human Resources
Production Cycle
Revenue Cycle
Financing Cycle
General Ledger & Reporting System
LEARNING OBJECTIVE 2
Explain why studying AIS is important.
WHY STUDY AIS?
Because :
Accounting is defined as an information system.
The primary objective of accounting is to provide
information useful to decision makers.
Accounting is about information identification,
development, measurement, and communication
process, and...
Financial information reporting.
WHY STUDY AIS? To understand how the accounting
system works.
How to collect data about an organization’s 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
WHY STUDY AIS?
Auditors need to understand the systems that are
used to produce a company’s financial statements.
Tax professionals need to understand enough about
the client’s AIS to be confident that the information
used for tax planning and compliance work is complete
and accurate.
A survey conducted by the Institute of Management
Accountants (IMA) indicates that work relating to
accounting systems was the single most important
activity performed by corporate accountants.
INFORMATION TECHNOLOGY AND CORPORATE
STRATEGY
The same survey conducted by the Institute of
Management
Accountants (IMA) also indicates that the second most
important job activity of corporate accountants is long- SUPPLY-CHAIN MANAGEMENT
term
Suppliers Inbound Logistics Production
strategic planning.
Transaction Delivery Customer
One important aspect of this topic is how to align
information a) Supply Chain direct to customer

technology (IT) with an organization’s strategy. Suppliers Manufacturing Distribution Retail Outlet
Customer Transfer Transfer Transfer Transfer
FACTORS INFLUENCING DESIGN OF THE AIS
Supply Chain Organization
Organizational Culture
Information Flow
Strategy
Cash Flow
Information Technology
b) Supply Chain including wholesalers and retailers
AIS
HOW AN AIS CAN ADD VALUE TO AN ORGANIZATION
LEARNING OBJECTIVE 3
An AIS adds value by providing accurate and timely
Discuss the role played by the AIS in a company’s value
chain and explain how the AIS can add value to a information so that five primary value chain activities
business. can be performed more effectively and efficiently.
THE VALUE CHAIN This is done by: improving the quality and reducing the
The ultimate goal of any business is to provide value costs of products or services.
to its
HOW AN AIS CAN ADD VALUE TO AN ORGANIZATION
customers.
An AIS can…
A business will be profitable if the value it creates is
greater improve efficiency.

than the cost of producing its products or services. improve decision making capabilities.

VALUE CHAIN MODEL AND THE SUPPLY CHAIN Typical increase the sharing of knowledge.
functional areas mapped on the value chain of a
A well-designed AIS can also help an organization profit
manufacturing company
by
Firm Infrastructure (Accounting, Finance, General
improving the efficiency and effectiveness of its supply
Management) Human Resource Management (Human
chain.
Resources) Technology Development (Engineering)
Procurement (Material Management-Operations) INFORMATION TECHNOLOGY AND CORPORATE
STRATEGY
Su pport Activities
Develop a basic understanding of…
Service
corporate strategies.
(Service or Marketing)
how IT developments can be used to implement
Inbound Logistics
existing organizational strategies.
(Material ManagementOperations)
how IT developments can be used to create an
Operations opportunity to modify existing strategies.

(Operations) Because an AIS functions within an organization, it

should be designed to reflect the values of that
Outbound Logistics organizational culture.
(Material ManagementOperations) STRATEGY AND STRATEGIC POSITIONS
Marketing and Sales What role does the AIS play in helping organizations
(Marketing) adopt and

Pr imary Activities maintain a strategic position?

 Data collection about each activity C. Prepare the adjusted trial balance.

Transforming data into information that can be used D. Produce the income statement.
by
E. Make closing entries.
management to coordinate those activities
F. Produce the balance sheet.
LEARNING OBJECTIVE 4
G. Prepare the statement of cash flows.
Explain the three basic functions performed by an
accounting information system (AIS).

THE THREE BASIC FUNCTIONS PERFORMED BY AN AIS MANAGERIAL REPORTS

1. The efficient and effective processing of data about a The AIS must also be able to provide managers with
company’s transactions: Capture transaction data on detailed operational information about the
source documents. organization’s performance.

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.
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
What reports does management need?
A. Inventory status
B. Budgets
C. Performance reports
INTERNAL CONTROL CONSIDERATIONS
Another main function of an AIS is to provide adequate
internal controls to accomplish three basic objectives:
Ensure that the information is reliable. Ensure that
business activities are performed efficiently.
Safeguard organizational assets.

TYPICAL TPS OF A MANUFACTURER

• Managerial reports

THE THREE BASIC FUNCTIONS PERFORMED BY AN AIS Vendors

3. To provide adequate internal controls: Customers

Ensure that the information produced by the system is General Ledger

reliable. Periodic Statements
Ensure that business activities are performed Manufacturing
efficiently and in accordance with management’s
objectives. Purchasing Order

Safeguard organizational assets. Receiving Goods

LEARNING OBJECTIVE 5 Accounts Payable

Discuss the types of information that can be provided Shipping

by an AIS.
Accounts Receivable
FINANCIAL STATEMENTS
Inventory
The next function of the AIS is to provide management
Customer Order
with information useful for decision making.
Taxes
The preparation of financial statements consists of a
sequence of activities. Payroll
What are these activities? Fixed Assets
FINANCIAL STATEMENTS MANAGING THE ACCOUNTING INFORMATION SYSTEMS
A. Prepare a trial balance. Strategic Systems
B. Make adjusting entries. Tactical Systems
Operational and Transaction Processing System

Internal Environment

External Environment

MANAGING THE ACCOUNTING INFORMATION SYSTEMS

TACTIAL SYSTEMS a. Budgeting Preparation and Control

b. Investment Management c. Capital Budgeting d.
Cost Analysis and Control e. Tax Management f.
Auditing g. Financial Planning

INTERNAL ENVIRONMENT

Top Management Operation/ Production Marketing

HRM Engineering

EXTERNAL ENVIRONMENT

IRS Vendors Clients Suppliers Customers Business

Partners

STRATEGIC SYSTEMS a. Strategic Planning b. Ratios

and Financial Health c. Merger and Acquisition Analysis

OPERATIONAL AND TRANSACTION PROCESSING

SYSTEMS a. The General Ledger b. Sales Order
Processing c. Accounts Payable and Receivable d.
Receiving and Shipping e. Payroll f.
Inventory Management g. Periodical Reports &
Statements

FINANCIAL PLANNING AND BUDGETING

Financial and economic forecasting

Planning for incoming funds

Budgeting preparation and operation

Capital budgeting decision

CONTROL AND AUDITING

Budgetary control

Auditing

Financial health analysis

Profitability analysis and cost control

Product pricing

THE FUTURE OF AIS

The Internet makes strategy more important than

ever The important point underlying ERP systems is
the need for and value of cross-functional integration of
financial data and other nonfinancial operating data