Accounting Information

Systems: An Overview
Chapter 1

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 Learning Objectives
• Distinguish between data and information:
▫ Understand the characteristics of useful information.
▫ Explain how to determine the value of information.

• Describe the major business processes present in most

companies.

• Explain what an accounting information system (AIS) is

and describe its basic functions.

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 Systems, Data, and Information

• A system is a set of two or more interrelated

components that interact to achieve a goal.
• Systems are almost always composed of smaller
subsystems, each performing a specific function
supportive of the larger system.

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 Systems
• When the systems concept is used in systems
development, changes in subsystems cannot be
made without considering the effect on other
subsystems and the system as a whole.

▫ Goal conflict occurs when a decision or action of

a subsystem is inconsistent with another
subsystem or the system as a whole.
▫ Goal congruence is achieved when a subsystem
achieves its goals while contributing to the
organization’s overall goal.
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 Data vs. Information
• Data are facts stored in the system
▫ A fact could be a number, date, name,
and so on.
For example:
2/22/14
ABC Company, 123,
99, 3, 20, 60

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 Data vs. Information
The previous slide just showed facts, if we put those
facts within a context of a sales invoice, for example, it
is meaningful and considered information.

Invoice Date : 2/22/14 Invoice #: 123

Customer: ABC company

Item # Qty Price

99 3 $20

Total Invoice Amount $60

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 Systems, Data, and Information
• Usually, more information and better
information translates into better decisions.
• However, when you get more information than
you can effectively assimilate, you suffer from
information overload.
• When you’ve reached the overload point, the
quality of decisions declines while the costs of
producing the information increases.

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 Value of Information
• Information is valuable when the benefits exceed
the costs of gathering, maintaining, and storing
the data.

Benefit (i.e., improved decision making)

> Cost (i.e., time and resources used to get
the information)

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 What Makes Information Useful?
There are seven general characteristics that make
information useful:
1. Relevant: information needed to make a decision
(e.g., the decision to extend customer credit would
need relevant information on customer balance
from an A/R aging report)
2. Reliable: information free from error and bias
3. Complete: does not omit important aspects of
events or activities
4. Timely: information needs to be provided in time
to make the decision
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 What Makes Information Useful?

5. Understandable: information must be

presented in a meaningful manner
6. Verifiable: two independent people can
produce the same conclusion
7. Accessible: available when needed

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 Transactional Information Between
Internal and External Parties in an AIS
• Business organizations conduct business
transactions between internal and external
stakeholders.
• Internal stakeholders are employees in the
organization (e.g., employees and managers).
• External stakeholders are trading partners such as
customers and vendors as well as other external
organizations such as Banks and Government.
• The AIS captures the flow of information between
these users for the various business transactions.
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 Interactions Between AIS and Internal
and External Parties

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 Basic Business Processes
• Transactions between the business organization
and external parties fundamentally involve a
“give–get” exchange. These basic business
processes are:
▫ Revenue: give goods/service—get cash
▫ Expenditure: get goods/service—give cash
▫ Production: give labor and give raw materials—get
finished goods
▫ Payroll: give cash—get labor
▫ Financing: give cash—get cash
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 What Is an Accounting Information
System?
• It can be manual or computerized
• Consists of :
1. people
2. procedures and instructions,
3. data
4. software
5. information technology infrastructure (computers,
peripheral devices, and network communications devices)
6. internal controls and security measures
Thus, transactional data is collected and stored into
meaningful information from which business decisions are
made and provides adequate controls to protect and secure
the organizational data assets.
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 What Is an Accounting Information
System?
These six components enable an accounting information
system to fulfill three important business functions:
1. Collect and store data about organizational
activities, resources, and personnel.
2. Transform data into information that is useful for
making decisions so management can plan, execute,
control, and evaluate activities, resources, and
personnel.
3. Provide adequate controls to safeguard the
organization’s assets, including its data, to ensure that
the assets and data are available when needed and the
data are accurate and reliable.
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 The CITP Designation

• CITP: Certified Information Technology

Professional
• Identifies CPAs who possess a broad
range of technological knowledge and
the manner in which information
technology (IT) can be used to achieve
business objectives
• Reflects the AICPA’s recognition of the
importance and interrelationship of IT
with accounting
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