Accounting Information

Systems – An Overview
Contents
 What is Accounting?  Accounting Information
 What is a System? Systems
 Data Vs. Information  The Business Firms
 Functional Steps in as a System
Transforming Data  System Characteristics of
into Information Business Firms
 What is an  Functions of an
Information Information Systems
System?  Types of Information
 Universal Data Systems
Process
Model
Contents

 AIS as an MIS Sub System

 Relationship of AIS and MIS
 Objectives and Uses of AIS
 Reasons for Studying AIS
 Roles of Accountant with Respects
to an AIS
 Role of AIS in the Value Chain
 Role of the AIS in Decision Making
 The AIS and Corproate Strategy
What Is Accounting?

 It is the principal way of organizing and reporting

financial information. It has been called the
“language of business.”
 Accounting and information systems comprise the
functional area of business responsible for
providing information to the other areas to enable
them to do their jobs and for reporting the results
to interested parties.
 To that end, an accounting system is used to
identify, analyze, measure, record, summarize,
and communicate relevant economic information
to interested parties.
What Is a System?

A System is an entity consisting of

interacting parts that are coordinated
to achieve one or more common
objectives. Systems must possess
 SYSTEM

INPUT PROCESS OUTPUT

FEEDBACK
INFORMATION SYSTEM

DATA INFORMATION

INPUT PROCESS OUTPUT

FEEDBACK
 Data Versus Information

Data are raw facts and figures that are

processed to produce information
Information is data that have been
processed and are meaningful and useful to
users. The terms “meaningful” and “useful”
are value-laden terms and usually subsume
other qualities such as timeliness, relevance,
reliability, consistency, comparability, etc.
 Functional Steps in Transforming Data
into Information
 Data collection - capturing,
recording, validating and editing data
for completeness and accuracy
 Data Maintenance/Processing -
classifying, sorting, calculating data
 Data Management - storing,
maintaining and retrieving data
Data Control - safeguarding and
securing data and ensuring the
accuracy and completeness of the
same
 Information Generation -
interpreting, reporting, and
communicating information
What Is an Information
System?

 An Information system is a framework in

which data is collected, processed, controlled
and managed through stages in order to provide
information to users
 It evolves over time and becomes more
formalized as a firm grows and becomes more
complex. It can be a manual or computerized
system
 Firms depend on information systems in order to
survive and stay competitive
 The Universal Data Processing Model
Storage

Processing

Consumers

Exchange Events
}
Internal Events
Environmental
 Accounting Information
System

An Accounting Information

System is a unified structure
that employs physical resources
and components to transform
economic data into accounting
information for external and
internal users.
The Business Firm as a System

Environment Organization’s
Organization
of the Firm functions
Business Information
AIS Transaction
Firm System
Cycles
Operational
Business Events
System
from Operations
System Characteristics of Business
Firms

Objectives
Environment
Constraints
Input-Process-Output
Feedback
Controls
Subsystems
FUNCTIONS OF AN INFORMATION
SYSTEM
ENVIRONMENT

Customers Suppliers

ORGANIZATION
INFORMATION SYSTEM

INPUT PROCESS OUTPUT

FEEDBACK

Regulatory Stockholders Competitors

Agencies
 TYPES OF INFORMATION
SYSTEMS
KIND OF SYSTEM GROUPS SERVED

STRATEGIC LEVEL SENIOR

MANAGERS

MANAGEMENT LEVEL MIDDLE

MANAGERS

KNOWLEDGE LEVEL KNOWLEDGE &

DATA WORKERS

OPERATIONAL OPERATIONAL LEVEL

MANAGERS

SALES & MANUFACTURING FINANCE ACCOUNTING HUMAN

MARKETING RESOURCES
AIS as an MIS Subsystem

Sales/ Production
Marketing Info

AIS

Personnel Finance
 Relationship of AIS & MIS

MIS

Finance Sales/Marketing Production AIS Personnel

Order entry/Sales
Billing/[Link]./Cash receipts
Purchasing/A. Pay./Cash
disb.
Inventory
Payroll
General ledger
Production
Examples of AIS Subsystems
(Merchandising)
Order Purchasing/
entry Sales A. Payable/
System Cash Disb.
Inventory
System
Shippin System
g Receivin
g

Revenue Expenditure
Cycle Cycle
General
Ledger Human
Billing/ Resource
A. Receivable System Management
Cash Receipts Ext/Fin. (Payroll)
reporting
System Tax & req. reporting
reporting Internal
 System
No Planning/Control, Investment, or Production Cycles reflected here
 The Operational System of a
Manufacturing Firm
Manufacturing Firm
Facilities
Supporting
LaborOperations
(human
services)
Material Acquiring Producing Storing Shipping Goods
from Materials Finished Finished Finished to
Supplier Goods Goods Goods Customer

Data Information

AIS

Funds Funds
Data and information flow
Physical flows
Examples of AIS Subsystems:
Production Cycle

Inventory Purchasing/
System Production A. Payable/
Cash Disb.
System System

Production
General Cycle Human
Ledger Resource
System Management
(Payroll
System

No Revenue, and Investment Cycles reflected here

Organizational Structure in
Business Firms

Hierarchical

Matrix: Blend functional and project-

oriented structures

Decentralized

Network
Objectives and Users of AIS
Support day-to-day operations
Transaction processing
Support Internal Decision-Making
Trend Analyses
Quantitative & Qualitative Data
Non-transactional sources
Help fulfill Stewardship Role
Resources Required for an AIS

Processor(s): Manual or Computerized

Data Base(s): Data Repositories
Procedures: Manual or
Computerized
Input/Output Devices
Miscellaneous Resources
Reasons for Studying Accounting
Information Systems

Career accountants will be users, auditors, and

developers of AIS
Modern-day AIS are complex because of new
technologies
Concepts studied in AIS are integrated into
every other accounting course
Roles of Accountants With
Respect to an AIS

 Financial accountants prepare financial

information for external decision-making in
accordance with GAAP
 Managerial accountants prepare financial
information for internal decision-making
Roles of Accountants With
Respect to an AIS
 Auditors - evaluate controls and attest to
the fairness of the financial statements.
 Accounting managers - control all
accounting activities of a firm.
 Tax specialists - develop information
that reflects tax obligations of the firm.
 Consultants - devise specifications for the
AIS.
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series
of activities referred to as the value
chain.
These include:
1. Primary activities ( Line)
2. Support activities (Staff)
These activities are sometimes
referred to as “line” and “staff”
activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series
of activities referred to as the value
chain.
These include:
1. Primary activities (five Activities)
2. Support activities
These activities are sometimes
referred to as “line” and “staff”
activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
1.1 Inbound logistics
Receiving, storing, and distributing the materials that
are inputs to the organization’s product or service.

For a pharmaceutical company, this activity might

involve handling incoming chemicals and elements
that will be used to make their drugs.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
1.1 Inbound logistics
1.2 Operations
Transforming those inputs into products or services.

For the pharmaceutical company, this step involves

combining the raw chemicals and elements with the work of
people and equipment to produce the finished drug product
that will be sold to customers.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
1.1 Inbound logistics
1.2 Operations
1.3 Outbound logistics
Distributing products or services to customers.

For the pharmaceutical company, this step involves packaging

and shipping the goods to drug stores, doctors, and hospitals.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
1.1 Inbound logistics Helping customers to buy
the organization’s products
1.2 Operations
or services.
1.3 Outbound logistics
1.4 Marketing and salesA pharmacy agent may visit
the drug stores, doctors, etc.
to inform them about their
products and take orders.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary ies
Post-sale support provided to customers
activit such as repair and maintenance function.
include:
1.1 Inbound logistics
The pharmaceutical company is more
1.2 Operation likely to be providing advisory services
to pharmacists, etc.
s
1.3 Outbound
lo
1.4 Marketing and sales
1.5 Service
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series
of activities referred to as the value
chain.
These include:
1. Primary activities (five Activities)
2. Support activities (four
Activities)
These activities are sometimes
referred to as “line” and “staff”
activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
2.1 Firm infrastructure
Accountants, lawyers, and administration. Includes
the company’s accounting information system.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
2.1 Firm infrastructure
2.2 Human resources
Involves recruiting and hiring new employees,
training employees, paying employees, and handling
employee benefits.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
2.1 Firm infrastructure
2.2 Human resources
2.3 Technology
Activities to improve the products or services (e.g., R&D,
website development).

For the pharmaceutical company, these activities would

include research and development to create new drugs and
modify existing ones.
ROLE OF THE AIS IN THE VALUE CHAIN
Support esBuying the resources (e.g., materials,
activiti inventory, fixed assets) needed to carry
include:
out the entity’s primary activities.
2.1 Firm ctur
infrastru eIn the pharmaceutical company, the
2.2 Human purchasing folks are trying to get the
resou best combination of cost and quality in
buying chemicals, supplies, and other
2.3 Technology assets the company needs to run its
2.4 Purchasing operations.
ROLE OF THE AIS IN THE VALUE CHAIN
Information technology can
significantly impact the efficiency
and effectiveness with which the
preceding activities are carried out.
An organization’s value chain can be
connected with the value chains of its
customers, suppliers, and distributors.
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co. For example, the inbound logistics of
Inbound Logistics Pharmaceuticals, Inc., links to the outbound
Operations logistics of its suppliers.
Outbound Pharmaceutical
Logistics s,
Inc.
Marketing & Sales
Service Inbound Logistics
Operations Customer Pharmacy
Outbound Inbound Logistics
Logistics Operations
Marketing & Outbound Logistics
Sales Service
Marketing & Sales

Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co. And the outbound logistics of Pharmaceuticals,
Inbound Logistics Inc., links to the inbound logistics of its
Operations customers.
Outbound Pharmaceuticals,
Logistics Inc.
Marketing & Sales Inbound Logistics
Service
Operations Customer Pharmacy
Outbound Inbound Logistics
Logistics
Operations
Marketing &
Sales Service
Outbound
Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co. The linking of these separate value chains
Inbound Logistics creates a larger system known as a supply
Operations chain.
Outbound Pharmaceuticals,
Logistics Inc.
Marketing & Sales Inbound Logistics
Service
Operations Customer Pharmacy
Outbound Inbound Logistics
Logistics
Operations
Marketing &
Sales Service
Outbound
Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co. The linking of these separate value chains
Inbound Logistics creates a larger system known as a supply
Operations chain.
Outbound Pharmaceuticals,
Logistics Inc.
Marketing & Sales Inbound Logistics
Service Operations Customer Pharmacy
Information technology
can facilitate Outbound Inbound Logistics
synergistic linkages Logistics Operations
that improve the Marketing &
Outbound
performance of each Sales Service
company’s value chain. Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN decision making
Robert Anthony identified three levels of
decision making activities.
• Strategic planning
• management control
• operational control
ROLE OF THE AIS IN Decision making
1. Strategic planning
is the process of deciding on the:
 objectives of the organization
 Changes in the objectives
 Policies to achieve
those objectives
ROLE OF THE AIS IN Decision making
Strategic planning activity:
is the primary concern of top
management (president &the vice
presidents of major divisions)
identify the major markets and
product lines for the organization
during the long run planning
process.
ROLE OF THE AIS IN decision making
2. Management control
 is the process by which managers
assume the resources are obtained &
used effectively and efficiently to
accomplish the organization objectives.
management control activities:
 are primarily the concern of an
organizations middle management
(managers in charge of factories ,sales
regions…)
ROLE OF THE AIS IN decision making
Middle managers:
implement strategies identified
at the higher level
want to operate their segments of
the organization efficiently while
achieving the objectives identified
by top management.
 relay on the budgeting & responsibility
reporting systems of the accounting
system.
ROLE OF THE AIS IN decision making
3. Operational control
 is the process of assuring that specific tasks are
carried out effectively and efficiently.
 operational control activities:
 are primarily the concern of lower level
mangers in an organization (department heads
and supervisors)
i.e.
 lower level mangers achieve those specific tasks
assigned to them by middle management.
ROLE OF THE AIS IN decision making
Robert Anthony states that;
The managers at each level face
different decision problems. and
the degree of structure used to make
decisions are categorized as:
• Unstructured decisions
• Semi-structured decisions
• Structured decisions
ROLE OF THE AIS IN decision making
a. Unstructured decision
 Are usually faced at the top level
of the organization.
 Many alternatives are available but there
is little guidance concerning the best one
to follow.
 Require the knowledge and judgment
acquired by many years of experience.
 Are Non-recurring and non-routine
ROLE OF THE AIS IN decision making
 Require a great deal of subjective assessment
 In general, the higher a manager is in
the organization, the more likely
he/she is to be engaging in:
Less structured decisions
Broader scope (i.e., strategic planning) decisions
• E.g. among all the possible new markets
or products, top management must choose
those that the organization can deliver
successfully within the existing human &
financial constraints.
ROLE OF THE AIS IN decision making
• So, the type of information that solve
unstructured problems are largely
long- term forecasts about technology,
demographic,& market demand.
• And it consists of estimates that are
relatively inaccurate & highly
summarized.
• The data sources are obtained mostly
from external sources; such as public
data bases, economic statistics and
predictions of future trends.
ROLE OF THE AIS IN decision making
b. Structured decisions
 Relate to performance of specific tasks
 Are Often of a day-to-day nature
 Face at the operational level,
 At this level, managers are assigned
specific tasks by middle
management and are often given
clear directions about how to
carry out each task.
ROLE OF THE AIS IN decision making
E.g. an accounts payable manager may
be instructed to pay all bills when due
but to take purchase discounts
whenever they are offered.
ROLE OF THE AIS IN decision making
The type of information needed for
structured problems concentrate on
processing historical data from within
the organization. These are:
Highly detailed
 historical and internal
Usually accurate
The data sources for this system can
be identified in advance and used
repeatedly
ROLE OF THE AIS IN decision making
c. Semi-structured decisions
 Face at the middle level of the organization
 Relate to utilizing of resources to
accomplish organizational objectives
ROLE OF THE AIS IN decision making
E.g. top management may assign
production quotas & profit objectives
to a middle level factory manager.
Then the middle manager must:
- acquire materials, hire& train workers,&
schedule production to meet these
objectives
- Exercise judgment in selecting the quality
of materials, the no. of employees, the
amount of training, the proper production
schedule.
ROLE OF THE AIS IN decision making
The type of information needed for semi-
structured decisions tend to combine
the characteristics of information used
for structured and unstructured
decisions.
E.g. A budgeting system utilizes both
internal and external data, is
predictive in nature, & involves
estimates that are frequently
imprecise.
ROLE OF THE AIS IN decision making
 AIS plays an important role in providing
information that is
Relevant
Reliable To the decision
Timely Makers at any level
Understandable
THE AIS AND CORPORATE STRATEGY
Corporations have:
Unlimited opportunities to invest in
technology
Limited resources to invest in technology
Consequently, they must identify the
improvements likely to yield the
highest return.
This decision requires an
understanding of the entity’s overall
business strategy.
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are
two basic business strategies companies
can follow:
Product-differentiation strategy
Low-cost strategy
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are
two basic business strategies companies
can follow:
Product-differentiation
strategy
Low-cost strategy
THE AIS AND CORPORATE STRATEGY
A product differentiation strategy
involves setting your product apart
from those of your competitors, i.e.,
building a “better” mousetrap by
offering one that’s faster, has
enhanced features, etc.
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are
two basic business strategies companies
can follow:
Product-differentiation strategy
Low-cost
strategy
THE AIS AND CORPORATE STRATEGY
A low-cost strategy involves offering a
cheaper mousetrap than your
competitors. The low cost is made
possible by operating more efficiently.
THE AIS AND CORPORATE STRATEGY
Sometimes a company can do both,
but they normally have to choose.
In conclusion, AIS plays a crucial role in
deciding
1. which strategy is best for the company
2. How to best implement the selected
strategy
3. If the selected strategy needs a
revision or change
CONCLUSIONS
 System is an entity consisting of interacting
parts to serve a common purpose
 Any system must evaluate alternative courses
of action from the stand point of the system as
a whole.
 Studying AIS is helpful to:
 understand the accounting process and all business
processes in an organization
 Develop and design new AIS as well as to evaluate and
improve the existing ones.
 The objective of AIS is to generate useful
information (relevant, reliable & timely) to aid
other sub-systems in decision making.
Thank You