Course Title: Accounting Information Systems

• Course code: ACC-4810

Dept. of Business Administration
Romney & Steinbart, (2006) Accounting
Information Systems, Prentice Hall
Business Publishing

Md. Harun Ur Rashid

Lecturer of Accounting
Dept. of Economics & Banking, IIUC
 Objectives of the course
•This course aims to provide the students with theoretical and practical knowledge of accounting and
information systems. The course gives the students an insight into the information systems required in the
accounting system in a business organization. This also combines knowledge about business, information
technology and information systems to install a philosophy in the information age of accounting professionals
of today and tomorrow.

Learning Outcomes:
On successful completion of this course, students will be able to:
1. Understand the primary data and information flow within the business environment.
2. Understand various transaction cycles and basic accounting records in a computer-based system.
3. Understand Information Technology in sufficient depth to be able to identify and formulate
opportunities for its use in the development of financial information systems.
4. Acquaint students with contemporary accounting software.
 Syllabus for Mid-term Exam
Session 1: Fundamentals of Information Systems
Components of information systems, information Systems Resources, Information Systems, Activities, Recognizing
information systems, the role of information systems. In business, business processes and information systems.
Types of information systems- Transaction processing systems (TPS), Office Automation Systems (OAS),
Knowledge Work Systems (KWS, Management Information Systems (MIS), Decision Support Systems (DSS) and
Executive Support Systems (ESS). Characteristics TPS, OAS, OAS, KWS, MIS, DSS and ESS
Session 2- Accounting Information System
The nature and purpose of an organization, the call for change, how accounting professionals can change their value?
The traditional accounting information system: Rules for accounting, steps in the accounting cycle and their
objective, applying information technology to the accounting cycle, criticisms of the traditional accounting system
architecture.
Session 3- Introduce Accounting and ERP Packages/ Tally ERP
Creating company, Ledger creation and modification, various transaction entries like purchase, payment, receipt,
sales, contra, journal etc. showing various reports such as profit and loss, balance sheet etc.
Session 4- Enhancements through Information Technology and Networks
Importance of information technology and computer networks to accountants specialized inter-organizational
system, intranet and extranet.
Session 5- Inventory management in tally ERP
Creating stock groups, unit measure, stock item, godown. Creating purchase vouchers, stock journals and sales
vouchers. Show various types of inventory reports.
 Chapter 1: Fundamentals of information Systems

• 1. Definition of AIS
• 2. Difference between data and Information
• 3. Characteristics of useful information
• 4. Business/transaction process
• 5. Components of AIS (6)
• 6. How can an AIS add value to an organization?
• 7. How can an AIS help improve decision making?
• 8. The AIS and corporate strategy
• 9. The role of the AIS in the value chain
• 10. Types of Information
 Definition of AIS
• AIS is a system that collects, records, stores, and processes data to
produce information for decision-makers. It includes people,
procedures and instructions, data, software, information technology
infrastructure, and internal controls and security measures.

• Accounting is an information system that identifies, records and

communicates the economic events of an organizations to
interested users.
• Information
• System: A system is a set of two or more interrelated
components that interact to achieve a goal. Most
systems are composed of smaller subsystems that
support the larger system. For example, a faculty of
business is a system composed of various
departments, each of which is a subsystem.
Moreover, the business faculty itself is a subsystem
of the university .
 Difference between data and information

• Data are facts that are collected,

recorded, stored, and processed by an
information system. Businesses need to
collect several kinds of data, such as the
activities that take place, the resources
affected by the activities, and the people
who participate in the activity. For
example, the business needs to collect
data about a sale (date, total amount),
the resource sold (good or service,
quantity sold, unit price), and the people
who participated (customer, salesperson).
• Information is data that have been
organized and processed to provide
meaning and improve the decision-
making process. As a rule, users make
better decisions as the quantity and
quality of information increase.
Characteristics of Useful Information

Reduces uncertainty, improves decision making, or confirms or corrects

Relevant
prior expectations.
Free from error or bias; accurately represents organization events or
Reliable
activities.
Complete Does not omit important aspects of the events or activities it measures.

Timely Provided in time for decision makers to make decisions.

Understandable Presented in a useful and intelligible format.
Verifiable Two independent, knowledgeable people produce the same information.

Accessible Available to users when they need it and in a format they can use.
 • Transaction - An agreement between two entities to exchange goods
Business Process or services, such as selling inventory in exchange for cash; any other
event that can be measured in economic terms by an organization.
• Transaction processing – Process of capturing transaction data,
processing it, storing it for later use, and producing information
output, such as a managerial report or a financial statement.
• To sum, the process that begins with capturing transaction data and
ends with informational output, such as the financial statements, is
called transaction processing.
Types of business processes or transaction cycles

• These exchanges can be grouped into five major business processes or transaction cycles:

• The revenue cycle, where goods and services are sold for cash or a future promise to receive cash.
• The expenditure cycle, where companies purchase inventory for resale or raw materials to use in
producing products in exchange for cash or a future promise to pay cash.
• The production or conversion cycle, where raw materials are transformed into finished goods using
labor, raw materials, and equipment (to produce finished goods).
• The human resources/payroll cycle - Activities associated with hiring, training, compensating,
evaluating, promoting, and terminating employees.
• The financing cycle, where companies sell shares in the company to investors and borrow money, and
where investors are paid dividends and interest is paid on loans.
 Components of AIS
• There are six components of an AIS:
1. The people who use the system
2. The procedures and instructions used to
collect, process, and store data
3. The data about the organization and its
business activities
4. The software used to process the data
5. The information technology
infrastructure, including the computers,
peripheral devices,
and network communications devices used
in the AIS
6. The internal controls and security
measures that safeguard AIS data
Business functions

• These six components enable an AIS to fulfill three important business functions:

1. Collect and store data about organizational activities, resources, and personnel. Organizations have a
number of business processes, such as making a sale or purchasing raw materials, which are repeated
frequently.

2. Transform data into information so management can plan, execute, control, and evaluate activities,
resources, and personnel.

3. Provide adequate controls to safeguard the organization’s assets and data.

How can an AIS add value to an organization?
1. Improving the quality and reducing the costs of products or services: AIS can help maintain product quality,
reduce waste, and lower costs by monitoring machinery.

2. Improving efficiency. For example, timely information makes a just-in-time manufacturing approach possible, as
it requires constant, accurate, up-to-date information about raw materials inventories and their locations.
3. Sharing knowledge. Sharing knowledge and expertise can improve operations and provide a competitive
advantage.
4. Improving the efficiency and effectiveness of its supply chain. For example, allowing customers to directly access
inventory and sales order entry systems can reduce sales and marketing costs, thereby increasing customer retention
rates.

5. Improving the internal control structure. An AIS with the proper internal control structure can help protect
systems from fraud, errors, system failures, and disasters.

6. Improving decision making. Improved decision making is vitally important and is discussed below in more detail.
How can an AIS help improve decision making?
●● It can identify situations requiring management action. For example, a cost
report with a large variance might stimulate management to investigate and, if
necessary, take corrective action.

●● It can reduce uncertainty and thereby provide a basis for choosing among
alternative actions.

●● It can store information about the results of previous decisions, which

provides valuable feedback that can be used to improve future decisions. For
example, if a company tries a particular marketing strategy and the information
gathered indicates that it did not succeed, the company can use that
information to select a different marketing strategy.

●● It can provide accurate information in a timely manner. For example,

Walmart has an enormous database that contains detailed information about
sales transactions at each of its stores. It uses this information to optimize the
amount of each product carried at each store.

●● It can analyze sales data to discover items that are purchased together, and
 THE AIS AND CORPORATE
STRATEGY

•Many other technological advances affect

company strategy and provide an opportunity to
gain a competitive advantage. An example is
predictive analysis, which uses data warehouses
and complex algorithms to forecast future events,
based on historical trends and calculated
probabilities.
 • To provide value to their customers, most organizations
perform a number of different activities.

The role of • Primary activities

• 1. Inbound logistics consists of receiving, storing, and distributing the
the AIS in materials an organization uses to create the services and products it sells. For
example, an automobile manufacturer receives, handles, and stores steel,
the value glass, and rubber.
2. Operations activities transform inputs into final products or services. For
example, assembly line activities convert raw materials into a finished car and
chain retailers remove goods from packing boxes and place the individual items on
shelves for customers to purchase.
3. Outbound logistics activities distribute finished products or services to
customers. An
example is shipping automobiles to car dealers.
4. Marketing and sales activities help customers buy the organization’s
products or services. Advertising is an example of a marketing and sales
activity.
5. Service activities provide post-sale support to customers. Examples include
repair and
maintenance services.
• Supportive activities
• Support activities allow the five primary activities to be performed efficiently and
effectively. They are grouped into four categories:
1. Firm infrastructure is the accounting, finance, legal, and general administration
activities that allow an organization to function. The AIS is part of the firm infrastructure.
2. Human resources activities include recruiting, hiring, training, and compensating
employees.
3. Technology activities improve a product or service. Examples include research and
development, investments in IT, and product design.
4. Purchasing activities procure raw materials, supplies, machinery, and the buildings
used
to carry out the primary activities.
 Types of Information Systems

1. Transaction processing systems (TPS): It records and process data resulting from business
transactions (sales, purchases, inventory changes). It may be batch processing and real-time
processing. Some examples are:
• Point of Sale Systems – records daily sales
▪ Payroll systems – processing employees salary, loans management, etc.
▪ Stock Control systems – keeping track of inventory levels
▪ Airline booking systems – flights booking management
2. Office Automation Systems (OAS): An office automation system is the tool that enables data to
move
from one system to another on its own without human intervention and inaccuracies. For example:
LAN

3. Knowledge Work Systems (KWS): It is a specialized system built to promote the creation of
knowledge and to make sure that knowledge and technical skills are proper integrated into business.
For example: Computer Aided design (CAD), 3-D painting
4. Management Information Systems (MIS): MIS provide a variety of pre-specified information
(reports) and displays to management that can be used to help them make more effective, structured
types of day-to-day decisions. For example, sales management, budgeting and HRM systems

5. Decision Support Systems (DSS): Decision support systems are used by senior management to
make non-routine decisions. Decision support systems use input from internal systems (transaction
processing systems and management information systems) and external systems.
The main objective of decision support systems is to provide solutions to problems that are unique
and change frequently. Decision support systems answer questions such as;
▪ What would be the impact of employees' performance if we double the production lot at the
factory?
▪ What would happen to our sales if a new competitor entered the market?

6. Executive Support Systems (ESS): Executive information systems provide top and middle
management with immediate and easy access to selective information about key factors that are
critical to accomplishing a firm’s strategic objectives. EIS are easy to operate and understand. For
example, Table, figures, chart etc.