WEEK#3

CHAPTER 1
ACCOUNTING INFORMATION SYSTEM
 Goal Conflict vs. Goal Congruence
Goal Conflict:

Occurs when the activity of a subsystem is not consistent with another subsystem or with
the larger system, or when the database or software you are using is not consistent with
Organization’s Goal and Function. Occurs when components act in their own interest
without regard for overall goal

Goal Congruence:

Occurs when the subsystem’s goal are in line with organization’s goals. Occurs when
components acting in their own interest contribute toward overall goal

What are the components of AIS

An AIS made up of major six parts. These are listed blow

1.User/AIS PEOPLE.

This includes anyone is using the accounting system, Chief of Executives, Accountants,
Managers, auditors, a so on.it helps in smooth working and coordination of different
departments. The people in an AIS are the system Users.an AIS helps the different
departments within a company work together. Professionals who may need to use an
organization’s AIS includes

1. Accountants

2. Consultants

3. Business Analysis

4. Managers

5. Chief Financial Officer

6. Auditors
2. Procedures and Instruction

AIS is coded with a certain procedures and instructions that regulates how financial
information is collected, stored, and processed. These are both manual and automated
methods. And can come from internal or external sources.

3.Data (Source Data)

The accounting system has a database structure to store information in one central location
to keep it easily accessible by all the departments. This system will save each and every piece
of information relevant to the company’s finances. This may include.

• Transaction data

• Tax information

• Inventory data

• General ledger

• Customer data
 • Invoice/bills

• Sales orders

• Purchase requisition

• Sales analysis

• Payroll information

• Credit data

4.AIS Software (information processor)

AIS has a software component that essential to store and process the data, analyze it and
disseminate the data among the organization. Before there were computers, an AIS was a
manual papers-based system, but today, most companies are using computer software’ as the
basis of the AIS.small business may use intuit QuickBooks or sage’s sage 50 accounting. Small
to mid-size businesses might use SAP. Business One.

5.IT Infrastructures (Hardware and Devices)

Information Technology infrastructure is just a fancy name for the hardware used to operate
the accounting information system. Most of these hardware items a business would need to
have anyway and can include the following.

1. Computers

2. Mobile devices

3. Servers

4. Printers

5. Routers

6. Storage media

7. Backup power supply

 8. Projectors

9. Keyboards

10. Bar code scanners

11. Monitors

6.Security/Control

Almost all AIS-generated data are confidential information. You must have internal control
over the circulation of these sensitive data. The security measurements can range from
simple numeric passwords to complex biometric identification like fingerprint, voices, facial
recognition, and retina scans. Some of the sensitive data are as follows.

❑ Salary information

❑ Personal data

❑ Social security numbers

❑ Company’s financial data

❑ Customer information

❑ Credit card numbers

❑ Financial information of other stakeholders

1.Data
Data are the Fact Collected in the raw form for reference and Analysis. Data are facts stored
in the system a fact could be a number, date, name, and so on.AIS Accounting Transactions
(Data). Data (Internal Financial Transaction such as Employee Salary, External Financial
Transaction such as Paid Electricity).

data
data

data

Information
Examples of Data Transactions (Data Source)
1. Sale of Goods Purchased…………………..Data
2. Purchase of Inventory…………..Data
3. Receipt of Cash………..Data
4. Cash Payment……….Data

Example#1
Change this Data into Information
• 1/15/2017
• ABC Company
• 123
• Rice
• 4, 10, 40

Solutions

Date Company Item Invoice Price Quantity Amount

Name

1/15/2017 ABC RICE 123 4 10 40

Company
Exercise#1

From the Following Data change into Accounting Information

❑ 20

❑ 30

❑ 2012

❑ Shoe

❑ Pants

❑ 2005

❑ 18

❑ 2010

❑ Shirts

2. Process/Data Processing
Is a Design/Program/Logic and Knowledge we used to convert Raw Data into
Information. Once collected, data usually require processing to produce
information.
How to Make the Process

Example#1

Paid Cash to Mr. Ahmed for his Electric Bill …….150$/(Data)

(Process/Logic/Knowledge and Design)(System)

Process1

Goal
Process2
To be useful information must have these attributes:

•Relevant—information capable of making a difference in a decision.

•Predictive Value. •Feedback Value.

•Materiality. Faithful Representation—information produced accurately reflects

the condition of the business.

•Complete.

•Neutral

. •Free from Error

Distinguish among data, information, and an information system. Data are simply raw facts

that describe an event and have little meaning on their own. Information is defined as being

data organized in a meaningful way to be useful to the user. Data serves as an input. E.g., the

sales prices of a particular toy might be considered data. However, after subtracting the cost of

goods sold from the sales price to compute the margin would only be considered information if

it helps a retailer decide whether to carry that toy in its inventory. Discretionary Versus

Mandatory Information: Discretionary information is information that is not required by law.

•Using an Activity-Based Costing system to determine the overhead costs associated with each

pound of chicken at Tyson Foods. •Managers must decide if the benefits of discretionary

information outweigh the costs of obtaining that information. Mandatory information is

information that is required by law. •Examples include Form 10-K (Annual Reports that

include Financial Statements) and Tax Returns. •Since it is required, manager may choose to

minimize the costs of producing this information.

Where do AIS add value to a Business? In the Primary Activities? •Inbound logistics are the

activities associated with receiving and storing raw materials and other partially completed

materials and distributing those materials to manufacturing when and where they are needed.

•Operations are the activities that transform inputs into finished goods and services (for

example, turning wood into furniture for a furniture manufacturer, building a house for a home

builder). •Outbound logistics are the activities that warehouse and distribute the finished

goods to the customers. •Marketing and sales activities identify the needs and wants of their

customers to help attract them to the firm's products and buy them. •Service activities provide

the support of customers after the products and services are sold to them (for example,

warranty repairs, parts, instruction manuals, etc.). Where do A I S add value to a Business? In

the Support Activities? •Firm infrastructure activities are all the activities needed to support

the firm, including the C E O, finance, accounting, and legal. •Human resource management

activities include recruiting, hiring, training and compensating employees. •Technology

activities include all the technologies to support value-creating activities. These technologies

also include research and development to develop new products or research and development

to determine ways to produce products at a cheaper price

Role of Accountants in AIS: •Designer - System Analyst. •Implementer - Database

Administrator. •User - Record Journal Entries. •Evaluator - Auditor. •Manager - Controller or

CFO.
Data are raw facts about events that have no organization or meaning. Data are facts

that are collected, recorded, stored, and processed by an information system. Data are

facts stored in the system. A fact could be a ABC Company, 1. number, date, name, and so

on.

What Makes Information Useful? There are seven general characteristics that make

information useful: -Relevant: information needed to make a decision. -Reliable: information

free from error or bias and faithfully describes events and activities. -Complete: does not

omit important aspects of events or activities. It doesn't leave out anything

that's important. -Timely: You get it in time to make your decision. -Understandable:

information must be presented in a meaningful manner. -Verifiable: two independent people

can produce the same conclusion. -Accessible: available when needed. You can get to it

when you need it and, in a format, you can use

Informationis data that have been organized and processed to provide meaning to a
user. If we put those facts within a context of a sales invoice, for example, it is
meaningful and considered information. Information is provided to both External users
and Internal users.

Invoice Date :22/2/14

Customers: ABC COMPANY

Item Rice

Invoice =123

Total invoice amount qty 3 Price 20 = 60$

Benefits of information: -Reduction of uncertainty -Improved decisions -Improved
ability to plan and schedule activities •

Cost of producing information Costs may include time and resources spent: •Collecting data

•Processing data •Storing data •Distributing information to users 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. -Example: Final exams week! •When you've reached the overload

point, the quality of decisions declines while the costs of producing the information

increases.

Information is provided to both: A. External users- external users primarily use

information that is either: mandatory information (required by a governmental

entity) or essential information (required to conduct business with external parties,

such as purchase orders). In providing mandatory or essential information, the focus should

be on: -Minimizing costs -Meeting regulatory requirements -Meeting minimum standards of

reliability and usefulness B. Internal Users - internal users primarily use discretionary

information. The primary focus in producing this information is ensuring that

benefits exceed costs, i.e., the information has positive value.

Why Study AIS? 1.Accountants- to understand how the accounting system works. How to

collect data about an organization's activities and transactions H o w 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. Aa survey

conducted by the IMA indicates that work relating to accounting systems was the single

most important activity performed by corporate accountants. AIS courses are not number-

crunching courses (the act of processing numerical data). 2.Auditors -need to understand

the systems that are used to produce a company's financial statements. 3.Tax

accountants - must 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 require the design, selection, and implementation of new AIS. 5.AIS

topics are tested on the new CPA exam. Makes up about 25% of the Business

Environment & Concepts section of the CPA exam. •AIS design is affected by

information technology, the organization's strategy, and the organization's culture -

Occupational Culture -Information Technology -Strategy Information technology affects the

company's choice of business strategy. To perform cost-benefit analyses on IT changes, you

need to understand business strategy. While culture affects the design of the AIS, it's also

true that the AIS affects culture by altering the dispersion and availability of information.

How Can AIS Add Value to An Organ? W ell- desig ned AIS - c an add v al ue to an

org an iz ation by provi ding acc urate an d ti mely 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. 4. Increase the sharing of knowledge. E.g. Banking system 5.Also Commented [AA1]:

help to improve profit by improving the efficiency and effectiveness of its supply chain.
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

ROLE OF THE AIS IN THE VALUE CHAIN

• The objective of most organizations is to provide value to their customers. While “adding
value” is a commonly used buzzword, in its genuine sense, it means making the value of the
finished component greater than the sum of its parts. It may mean making it faster, making it
more reliable, providing better service or advice, providing something in limited supply (like
O-negative blood or rare gems), providing enhanced features, or customizing it.

• Value is provided by performing a series of activities referred to as the value chain. These
include primary and support activities (sometimes referred to as “line” and “staff” activities
respectively).

• Primary activities include:

– Inbound logistics—receiving, storing, and distributing inputs.

– Operations—transforming inputs into outputs.

– Outbound logistics—distributing goods or services to customers.

– Marketing and sales—helping customers buy the product.

– Service—post-sale support, such as repair and maintenance.

• Support activities include:

– Firm infrastructure—accountants, lawyers, administration, AIS.

– Human resources—recruiting, hiring, training, and compensating.

– Technology—R&D, website development, and other activities to improve products or

services.

– Purchasing—buying inputs and other resources.

• 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. The linking of
these separate value chains creates a larger system known as a supply chain. IT can facilitate
synergistic linkages that improve the performance of each company’s value chain.

• There is variation in the degree of structure used to make decisions:

– Structured decisions—repetitive and routine, can be delegated to lower-level employees.

– Semi-structured decisions—have incomplete rules and require some subjectivity.

– Structured decisions—Nonrecurring and non-routine. Require much subjectivity.

• There is variation in the degree of structure used to make decisions:

– Structured decisions—relate to day-to-day performance of specific tasks.

– Semi-structured decisions—regard utilizing resources to accomplish organizational

objectives, e.g., budgeting.

– Structured decisions—involves setting those objectives and the policies to achieve them.

• In general, the higher a manager is in the organization, the more likely he/she is to be
engaging in less structured decisions and broader scope (i.e., strategic planning) decisions
Questions to be addressed in this chapter include:

1. What is the meaning of system, data, and information?

2.What is an accounting information system (AIS)?

3.Why is the AIS an important topic to study?

4.What is the role of the AIS in the value chain?

5.How do the AIS provide information for decision making?

6.What are the basic strategies and strategic positions an organization can pursue