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Chapter 1: Goals/Learning Objectives

1. Distinguish between data and information, Discuss the characteristics of useful information, Explain how to determine the value of information. 2. Explain the decisions an organization makes and the information needed to make those decisions. 3. Identify the information that passes between internal and external parties and an AIS. 4. Describe the major business processes present in most companies. 5. Explain what an accounting information system (AIS) is and describe its basic functions. 6. Discuss how an AIS can add value to an organization. 7. Explain how an AIS and corporate strategy affect each other.

8. Explain the role an AIS plays in a companys value chain.

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Homework Questions: chapter 1


Discussion questions: 1.1, 1.2, 1.3, 1.7 Problems: 1.3 (USAA), 1.4 (for your practice), and 1.5 (will be answered in chapter 12). Internet exercises: read the document at this link: quality standard for accounting information: write a summary (1page) http://www.fasb.org/pdf/aop_CON2.pdf

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Goal #1
After finishing this learning objective the student should be able to: 1. Define a System, data, and information 2. Distinguish Data and Information 3. Understand the value of Information versus cost of information 4. List and explain all Useful Characteristics of Information

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Systems (Definition, Terms)


System A set of two or more interrelated components interacting to achieve a goal Goal Conflict Occurs when components act in their own interest without regard for overall goal Goal Congruence Occurs when components acting in their own interest contribute toward overall goal

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Data vs. Information in AIS


Data are facts that are collected, recorded stored and processed by IS. Note data by itself in not in the form that facilitate decision making. Information is data after it has been organized and processed to provide meaning and improve decision making. Note: there is a human limit to absorbing amounts of information. Too much of it can lead to Information Overload.

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Use of IT to produce Information


Information Technology
1. Designer use IT to help decision makers more effectively filter and condense information 2. Because tons of data can exist in large databases and data warehouse 1. Walmart 500 terabytes of data (2000 miles of book shelfs or 100 million digital photos) Can you imagine any accounting company putting together an accounting group of employees to sort thru these miles and miles of data? 2. Because of IT we can now collect, sort, organize, and filter these data and customize the information for any user group
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Value of Information
Benefits
Reduce Uncertainty Improve Decisions Improve Planning Improve Scheduling

Costs
Time & Resources Produce Information Distribute Information

Benefit $s > Cost $s

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What Makes Information Useful?


Necessary characteristics:
1. Relevant

The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations.
1. Reliable

The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent.
1. Complete

The inclusion in reported information of everything material that is necessary for faithful representation of the relevant phenomena.
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What Makes Information Useful?


4. Timely

Having information available to a decision maker before it loses its capacity to influence decisions.
4. Understandable

The quality of information that enables users to perceive its significance.


4. Verifiable

The ability through consensus among measurers to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias.
4. Accessible

Available when needed (see Timely) and in a useful format (see Understandable).
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Goals #2, #3, and #4


After finishing these learning objectives the student should be able to answer questions such as:
1. What decision does an organization make 2. What information is needed to make those decisions 3. What information passes between internal and external parties and an AIS 4. What are the major business processes (students must master this subject to do well in this class). 1. What are transaction cycles (AIS Subsystems) 2. What are transactions (what AIS collects data about (REA))

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Business Process and AIS


Business processes are a set of related, coordinated, and structured activities and tasks performed by a person, computer, or machine to achieve the organizations goal. Data gathering in AIS is tied to the business processes of an organization. AIS collects data about these activities and provides useful information to each decision maker of each activity to help make effective decision

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Business Process Cycles: Pairs of events


1. Revenue: Sales/Sell and Collections 2. Expenditure: Purchases/Acquire and Payments 3. Production: Labor and Material and Finished Goods 4. Human Resources: Hiring People and Getting Labor 5. Financing: Acquiring Capital (Cash) and Giving Capital (Cash) the opposite is Investing giving cash and making more cash. Note: Information is needed to make effective decisions about all five of these activities. So, data has to be collected about them. These data have to be organized and provided to the right users for them to make effective decisions.
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Business Transactions: Cycles


1. GiveGet exchanges 2. Between two entities 3. Measured in economic terms For Example: Revenue Cycle
1. 2. 3. Give (a product or service) Get (or collect cash) Between the company (entity 1) that sells the product and the customer (entity 2) Economic terms (is the dollar amount and when will it be paid, all in cash now or in smaller amounts plus finance charge and interest over 2 years).

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Business Process, Key Decisions, and Information Needs


1. Examples: (see table 1-2)
Process = acquire capital, Decision = How much, which investor, and Information Needs = cash flow projections, amortization schedules

2. Users of the information: a. Internal: management, accounting staff, and employees b. External: vendors, customers, government, investors, creditors, banks, etc(figure 1-1).

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Business Cycle GiveGet

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Common Activities related to each business process: table 1-3


1. Revenue: 14 common activities (for both transactions sales and collections 2. Expenditure: 12 common activities for most types of purchases and payments 3. Human resources and payroll: 9 common activities 4. Production: 8 common activities 5. Financing: 7 common activities

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Goals #5 and 6:
After finishing these learning objectives the student should be able to answer questions such as: 5.
1. 2.

What is an AIS
What is Accounting and therefore what is AIS. What are the functions of an AIS

6. How does an AIS add value to any organization

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Accounting Information Systems


1. Accounting is about: Collecting, processing, storing, and reporting data and about information development: measurement, and communication process AIS is the same thing (collects, records, stores, processes accounting data to produce information for decision makers) so accounting must be AIS 2. If Accounting = language of business 3. AIS = information providing vehicle it is therefore the intelligence of the language 4. AIS can be pencil/paper based or sophisticated IT based it does not matter it still is about the same thing. Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall

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Components of an AIS
1. People using the system 2. Procedures and Instructions
1. For collecting, processing, and storing data

3. Data 4. Software 5. Information Technology (IT) Infrastructure


1. Computers, peripherals, networks, and so on

6. Internal Control and Security


1. Safeguard the system and its data

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AIS and Business Functions


1) Collect and store data about organizational:
1) Activities, resources, and personnel

2) Transform data into information enabling


1) Management to: 1) Plan, execute, control, and evaluate 1) Activities, resources, and personnel

3) Provide adequate control to safeguard


1) Assets and data

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AIS Value Add


1. Improve Quality and Reduce Costs 2. Improve Efficiency 3. Improve Sharing Knowledge 4. Improve Supply Chain 5. Improve Internal Control 6. Improve Decision Making

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Improve Decision Making


1. Identify situations that require action. 2. Provide alternative choices. 3. Reduce uncertainty. 4. Provide feedback on previous decisions. 5. Provide accurate and timely information.

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Goals #7, and 8


After finishing these learning objectives the student should be able to answer questions such as: 1. Explain how an AIS and Corporate Strategy affect each other 2. What is an organizations Value Chain, Role of AIS in the Value Chain

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Value Chain
1. The set of activities a product or service moves along before as output it is sold to a customer a. At each activity the product or service gains value

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Value ChainPrimary Activities

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Value ChainSupport Activities

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Value Chain

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AIS and Corporate Strategy


Organizations have limited resources, thus investments to AIS should have greatest impact on ROI. Organizations need to understand: IT developments Business strategy Organizational culture Will effect and be effected by new AIS
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