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Accounting
Information Systems:
An Overview
Chapter 1
01/14/21 Addis Ababa University; School of Commerce;
 Learning Objectives:
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 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.
 Explain the role played by the AIS in a company’s
value chain and discuss ways that the AIS can add
value to a business.
 Describe and contrast the basic strategies and
strategic positions that a business can adopt.

Addis Ababa University; School of Commerce; 01/14/21

What Is System?
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
 ItIt isis aa set
set of
of two
two or
or more
more interrelated
interrelated components
components each each
performing
performing aa specific
specific function
function that
that are
are coordinated
coordinated to
to achieve
achieve
one
oneor ormore
morecommon
commonobjectives.
objectives.

INPUT PROCESS OUTPUT

FEEDBACK

Addis Ababa University; School of Commerce; 01/14/21

What is Information System?
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DATA INFORMATION

INPUT PROCESS OUTPUT

FEEDBACK

Addis Ababa University; School of Commerce; 01/14/21

 What is Accounting System?
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
ItIt isis an
an organized
organized setset of
of manual
manual andand computerized
computerized
accounting
accounting methods,
methods, procedures,
procedures, and and controls
controls
established
established to to gather,
gather, record,
record, classify,
classify, summarize,
summarize,
interpret,
interpret, andand present
present accurate
accurate andand timely
timely financial
financial
information
informationfor forbusiness
businessdecisions.
decisions.

ItIt comprises
comprises source
source documents,
documents, journals,
journals, ledgers,
ledgers,
accounting
accounting policies
policies & & procedures
procedures and and financial
financial
reports.
reports.

The
The advancement
advancement of of information
information technology
technology has
has allowed
allowed
companies
companies to to transform
transform thisthis accounting
accounting information
information
system
system intointo an
an automated
automated process
process using
using computers,
computers,
servers,
servers,andandaccounting
accountingsoftware
software
Addis Ababa University; School of Commerce; 01/14/21
  Distinguish the two major kinds to
Accounting Systems.
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1.
1. Manual
Manual Accounting
Accounting System
System
 ItIt requires
requires the
the acting
acting accountant
accountant or or bookkeeper
bookkeeper toto post
post business
business
transactions
transactions toto thethe general
general journal,
journal, general
general ledger
ledger and
and worksheet
worksheet by by
hand.
hand.
 ItIt can can be
be completed
completed byby either
either using
using actual
actual paper
paper journal
journal and
and ledger
ledger
sheets
sheetsor orby
bycreating
creatingthese
thesesheets
sheetsininaacomputer
computerprogram
programsuch
suchasasExcel.
Excel.
 ItIt isis considered
considered manual
manual because
because each
each transaction
transaction isis entered
entered into
into the
the
system
systemindividually.
individually.
2.
2. Computerized
Computerized Accounting
Accounting System
System
 This
This system
system allows
allows the
the user
user toto enter
enter the
the transaction
transaction into
into the
the program
program
once,
once,and
andall
allaccounts
accountsare
areupdated
updatedas asnecessary.
necessary.
 Computerized
ComputerizedAccounting
AccountingSystem/Accounting
System/AccountingInformation
InformationSystem
Systemisis
aa collection
collection of
of resources
resources such
such as as people
people andand equipment
equipment designed
designed toto
transform
transformfinancial
financialdata
datainto
intoinformation.
information.
Addis Ababa University; School of Commerce; 01/14/21
  What are the Components of
Computerized Accounting Systems?
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
Computerized
Computerized Accounting
Accounting System/Accounting
System/Accounting Information
Information
System
System hashas 55components:
components:
1.
1. People
People-who
-whooperate
operatethe
thesystem
systemand
andperform
performvarious
variousfunctions.
functions.
2.
2. Procedures-
Procedures- both both manual
manual andand automated
automated involved
involved in in
collecting,
collecting, processing,
processing, and
and storing
storing data
data about
about organization’s
organization’s
activities.
activities.
3.
3. Data
Data--about
aboutthe
theorganization’s
organization’stransactions
transactions
4.
4. Software
Software -- used
used to
to process
process the
the organization’s
organization’s data.
data. E.g.
E.g. Sage
Sage
Evolution,
Evolution,Peachtree
Peachtreeaccounting
accounting,,QuickBooks,
QuickBooks,etc etc
5.
5. Information
Information Technology
Technology Infrastructure
Infrastructure -- including
including
computers,
computers, peripheral
peripheral devices,
devices, and
and network
network communication
communication
devices.
devices.
Addis Ababa University; School of Commerce; 01/14/21
  What are basic functions of Accounting
Information Systems?
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
TheThe 55 components
components together
together enable
enable thethe system
system toto
fulfill
fulfill three
three important
important functions
functions in
in any
any organization.
organization.
1.
1.ItIt collects
collects andand stores
stores data
data about
about activities
activities and
and
transactions.
transactions.
2.
2.ItIt processes
processes datadata into
into information
information that
that isis useful
useful for
for
making
making decisions.
decisions.
3.
3.ItIt provides
provides adequate
adequate controls
controls to to safeguard
safeguard the the
organization’s
organization’s assetsassets including
including its
its data,
data, to to ensure
ensure
that
that the
the data
data are
are available
available when
when needed
needed and and are
are
accurate
accurate andand reliable.
reliable.
Addis Ababa University; School of Commerce; 01/14/21
What are the Basic Types of Information Systems?
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 Information System/Computer Based Information System - the use of computer

technology in an organization to provide information to users.
1. Management Information Systems (MIS)- to provide decision-
oriented information to managers
a. Manufacturing Information System- for the manufacturing function.
b. Marketing Information System- for marketing function.
c. Human Resource Information System- for the human resource
(personnel) function.
d. Financial Information System- for finance function.
2. Decision Support Systems (DSS)- provides data processed into a
decision making format for the end use and assists the user in making a
decision. e.g. use of spreadsheet software to perform what if analysis.

Addis Ababa University; School of Commerce; 01/14/21

 What are the basic Types of Info. Systems? (Cont’d…)
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3. Expert Systems (ES)- uses the knowledge about a specific

application area to act as an expert consultant to end-users &
makes the decision by itself .
4. Executive Information System (EIS)- is a system tailored to
the strategic information needs of top-level management.
5. Electronic Data Processing (EDP)- an AIS application that
uses computer technology to process an organization’s
transaction oriented data.
6. Accounting Information System (AIS)- is broader than EDP
and designed to transform accounting data into information. It
also comprises transaction processing cycles, the use of
information technology and the development of information
systems.
Addis Ababa University; School of Commerce; 01/14/21
Why Study AIS?
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1. Accountants- 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.
 A survey conducted by the IMA indicates that work relating to accounting
systems was the single most important activity performed by corporate
accountants.
2. Auditors - need to understand the systems that are used to produce a
company’s financial statements.
3. Tax professionals – understand about the client’s AIS to be confident that the
information used for tax planning & compliance work is complete & accurate.
4. Consultants - consulting services entail the design, selection, and
implementation of new AIS.

Addis Ababa University; School of Commerce; 01/14/21

  What are the Key Factors Influencing
Design of the AIS?
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Organizational
Business Strategy
Culture

AIS

Information
Technology

Addis Ababa University; School of Commerce; 01/14/21

What is the Role of AIS in Value Chain?
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 Value Chain - consists of nine interrelated activities

that collectively describe everything what an
organization does.
 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.

Addis Ababa University; School of Commerce; 01/14/21

  What is the Role of AIS in Value Chain? (Cont’d…)
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A. Primary Activities - create, market, and deliver products and

services to customers & also to provide post-sales services and support.
 Five ( 5) activities:
1. Inbound logistics- receiving, storing, and distributing inputs used to create
the services and products. e.g. warehousing
2. Operations- activities that transform inputs into final products or services.
e.g. Production/transformation & repackaging
3. Outbound logistics- distributing finished products or services to customers.
e.g. distribution/shipping of products to customers.
4. Marketing and sales - helping customers to buy the organization’s products
or services. e.g. advertising and selling
5. Service/Customer service - post sale support to customers. e.g. repairs and
maintenance services
Addis Ababa University; School of Commerce; 01/14/21
What is The Role of AIS in Value Chain?
( Cont’d)
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B. Support Activities - assist the primary activities to be

performed efficiently and effectively.
 Four (4) activities:
1. Firm Infrastructure- accounting, finance, legal support &
general administrative activities.
2. Human resources- recruiting, hiring, training, and providing
employee benefits and compensation.
3. Technology- activities that improve a product or service. e.g. R &
D, improvements in IT, web site development, and product design.
4. Purchasing- procuring raw materials, supplies, machinery, & the
buildings used to carry out the primary activities.
Addis Ababa University; School of Commerce; 01/14/21
 Differentiate among Value Chain vs. Value System vs.
Supply Chain.
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 Value Chain – the set interrelated

Supply Chain
Raw Materials
activities what an organization does Supplier
so as to provide value to its
customers. Manufacturer
 Value system - the sum of value
chain of an organization, its
Distributor
suppliers, distributors, and
customers.
 Supply Chain- the network Retailer
involving in the transfer of
commodities from the Raw material Consumer
supplier to final consumer.
Addis Ababa University; School of Commerce; 01/14/21
How Can AIS Add Value To An Organ?
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 Well designed AIS - can add value to an organization by providing

accurate and timely information so that five primary value chain
activities can be performed more effectively and efficiently.
 More specifically, it:
1. improve the quality and reducing the costs of products or services. E.g.
Cost of production report
2. improve efficiency. E.g. Electronic banking
3. improve decision making capabilities. E.g. ERCA System
4. increase the sharing of knowledge. E.g. Banking System
5. also help to improve profit by improving the efficiency and
effectiveness of its supply chain.
Addis Ababa University; School of Commerce; 01/14/21
What are the basic Business Strategies vs.
Strategic Positions?
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 2 basic strategies
 3 strategic positions
1. Product Differentiation 1. Variety-based strategic
Strategy - to differentiate position – specializing on
some selected products or
products and services from
services in the industry.
competitors.
2. Need-based strategic
2. Cost Reduction Strategy - to position – serving the mass.
be a lower-cost producer from
3. Access-based strategic
competitors. position – differentiating the
market and focusing on some
segments.

Addis Ababa University; School of Commerce; 01/14/21

 What is the Future of AIS?
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 AIS - helps to implement the selected business strategy & maintain the
selected strategic position by providing the necessary information.
 Enterprise Resource Planning (ERP):
 a system that integrates all aspects of a company’s operations with its
traditional AIS. e.g. Ethio telecom
 Its key feature is the integration of financial data and other non-
financial /operating data.
 ERP software integrates the various functions into one complete system
to simplify processes and information across the entire organization.
 Its central feature its system is a shared database that supports multiple
functions used by different business units.
 Employees in different divisions can rely on the same information for
their specific needs.

Addis Ababa University; School of Commerce; 01/14/21

 Thank You for Your Attention!
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Any
Questions?

The
The End
End
Addis Ababa University; School of Commerce; 01/14/21