1. Acct 325 - Systems Instructor: Glenn McGuigan Email: glenn_mcguigan@transcanada.com

2. Accounting Information Systems and Business Processes Overview Lecture 1 (Chapter 1 & 2)

3. Lecture 01-3 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Introduction This lecture defines an accounting information system (AIS). It discusses why AIS is an important topic. It describes how an AIS adds to an organization’s value chain. It describes and contrasts the basic strategies that a business can pursue. It also discusses the types of information reports that can be produced by the AIS.

4. Lecture 01-4 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart What is an AIS? A system is a set of two or more interrelated components that interact to achieve a goal. Systems are almost always composed of smaller subsystems, each performing a specific function supportive of the larger system. An accounting information system (AIS) consists of: People Procedures Data Software Information technology

5. Lecture 01-5 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Functions of an AIS? What important functions does the AIS perform in an organization? 1 It collects and stores data about activities and transactions. 2 It processes data into information that is useful for making decisions. 3 It provides adequate controls to safeguard the organization’s assets.

6. Lecture 01-6 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Three Basic Functions Performed by an AIS 1 The efficient and effective processing of data about a company’s transactions: Capture transaction data on source documents. Record transaction data in journals, which present a chronological record of what occurred. Post data from journals to ledgers, which sort data by account type.

7. Lecture 01-7 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Three Basic Functions Performed by an AIS 2 To provide management with information useful for decision making: In manual systems, this information is provided in the form of reports that fall into two main categories: –financial statements –managerial reports

8. Lecture 01-8 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Three Basic Functions Performed by an AIS 3 To provide adequate internal controls: Ensure that the information produced by the system is reliable. Ensure that business activities are performed efficiently and in accordance with management’s objectives. Safeguard organizational assets.

9. Basic Subsystems in the AIS Expenditure Cycle Human Resources Production Cycle Revenue Cycle Financing Cycle General Ledger & Reporting System

10. Factors Influencing Design of the AIS Organizational Culture Strategy Information Technology AIS

11. Lecture 01-11 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Value Chain 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.

12. Lecture 01-12 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Value Chain An organization’s value chain consists of nine interrelated activities that collectively describe everything it does. The five primary activities consist of the activities performed in order to create, market, and deliver products and services to customers and also to provide post-sales services and support.

13. Lecture 01-13 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Value Chain Primary Activities Inbound Logistics Outbound Logistics Operations Marketing and Sales Service

14. Lecture 01-14 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Value Chain The four support activities in the value chain make it possible for the primary activities to be performed efficiently and effectively.

15. Lecture 01-15 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Value Chain Support Activities Infrastructure Human Resources Technology Purchasing

16. Lecture 01-16 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Supply Chain The value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers. An organization’s value chain and the value chains of its suppliers, distributors, and customers collectively form a Supply Chain.

17. Lecture 01-17 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart How An AIS Can Add Value To An Organization An AIS adds value... – by providing accurate and timely information so that five primary value chain activities can be performed more effectively and efficiently. This is done by: – improving the quality and reducing the costs of products or services.

18. Lecture 01-18 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart How An AIS Can Add Value To An Organization An AIS can… – improve efficiency. – improve decision making capabilities. – increase the sharing of knowledge. – Improve decision making. – Improve the internal control structure. A well-designed AIS can also help an organization profit by improving the efficiency and effectiveness of its supply chain.

19. Lecture 01-19 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Information and Decision Making What is information? The term data refers to any and all of the facts that are collected, stored, and processed by an information system. Information is data that has been organized and processed so that it is meaningful.

20. Lecture 01-20 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Information and Decision Making Characteristics of Useful Information Understandable Verifiable TimelyRelevant Reliable Complete

21. Lecture 01-21 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Information and Decision Making What is decision making? Decision making involves the following steps: 1 Identify the problem. 2 Select a method for solving the problem. 3 Collect data needed to execute the decision model. 4 Interpret the outputs of the model.

22. Lecture 01-22 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Information and Decision Making 5 Evaluate the merits of each alternative. 6 Choose and execute the preferred solution. Decisions can be categorized as follows: – in terms of the degree of structure that exists – by the scope of the decision

23. Lecture 01-23 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Decision Structure Structured decisions are repetitive, routine, and understood well enough that they can be delegated to lower- level employees in the organization. An example is: Extending credit to customers.

24. Lecture 01-24 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Decision Structure Semistructured decisions are characterized by incomplete rules for making the decision and the need for subjective assessments and judgments to supplement formal data analysis. An example is: Setting a marketing budget for a new product.

25. Lecture 01-25 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Decision Structure Unstructured decisions are nonrecurring and nonroutine. An example is: Choosing the cover for a magazine.

26. Lecture 01-26 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Information Technology and Corporate Strategy Develop a basic understanding of… – corporate strategies. – how IT developments can be used to implement existing organizational strategies. – how IT developments can be used to create an opportunity to modify existing strategies.

27. Lecture 01-27 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Information Technology and Corporate Strategy Because an AIS functions within an organization, it should be designed to reflect the values of that organizational culture.

28. Lecture 01-28 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Strategy and Strategic Positions Two Basic Strategies To be a lower-cost producer than competitors To differentiate products and services from competitors

29. Lecture 01-29 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Strategy and Strategic Positions Three Basic Strategic Positions Variety-based strategic position Need-based strategic position Access-based strategic position

30. Lecture 01-30 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Strategy and Strategic Positions What role does the AIS play in helping organizations adopt and maintain a strategic position? – data collection about each activity – transforming data into information that can be used by management to coordinate those activities

31. Lecture 01-31 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart What is the Value of Information? The value of information is the benefit produced by the information minus the cost of producing it.

32. Lecture 01-32 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart What is an Audit Trail? An audit trail provides a means to check the accuracy and validity of ledger postings. Observe that the posting reference for $2,400 credit to the sales account in the general ledger, SJ5, refers back to page 5 of the sales journal.

33. Lecture 01-33 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart What is the Chart of Accounts? The chart of accounts is a list of all general ledger accounts used by an organization. It is important that the chart of accounts contains sufficient detail to meet the information needs of the organization.

34. Lecture 01-34 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Financial Statements The preparation of financial statements consists of a sequence of activities. What are these activities?

35. Lecture 01-35 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Financial Statements Prepare a trial balance. Make adjusting entries. Prepare the adjusted trial balance. Produce the income statement. Make closing entries. Produce the balance sheet. Prepare the statement of cash flows.

36. Lecture 01-36 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Managerial Reports The AIS must also be able to provide managers with detailed operational information about the organization’s performance. What reports does management need? – inventory status – budgets – performance reports

37. Lecture 01-37 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Managerial Reports What is a budget? A budget is the formal expression of goals in financial terms. What are some types of budgets? – cash – operating – capital

38. Lecture 01-38 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Managerial Reports What is a performance report? A performance report lists the budgeted and actual amounts of revenues and expenses and also shows the variances, or differences, between these two amounts.

39. Lecture 01-39 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Internal Control Considerations An AIS must provide adequate internal controls to accomplish three basic objectives: 1 Ensure that the information is reliable. 2 Ensure that business activities are performed efficiently. 3 Safeguard organizational assets.

40. Lecture 01-40 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart Internal Control Considerations What are two important methods for accomplishing these objectives? 1 Provide for adequate documentation of all business activities. 2 Design the AIS for effective segregation of duties.

41. Lecture 01-41 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart What is Segregation of Duties? Segregation of duties refers to dividing responsibility for different portions of a transaction among several people. What functions should be performed by different people? – authorizing transactions – recording transactions – maintaining custody of assets

42. Lecture 01-42 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart The Future of AIS The Internet makes strategy more important than ever Enterprise resource planning (ERP) systems are a recent development that integrate all aspects of a company’s operations with its traditional AIS. The important point underlying ERP systems is the need for and value of cross-functional integration of financial data and other nonfinancial operating data.

43. Lecture 01-43 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart End of Lecture 1