1. Chapter 1 Accounting Information Systems: An Overview Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-1

2. Learning Objectives  Distinguish between data and information  Discuss the characteristics of useful information  Explain how to determine the value of information  Explain the decisions an organization makes and the information needed to make them  Identify the information that passes between internal and external parties and an AIS.  Describe the major business processes present in most companies.  Explain what an accounting information system (AIS) is and describe its basic functions.  Discuss how an AIS can add value to an organization.  Explain how an AIS and corporate strategy affect each other.  Explain the role an AIS plays in a company’s value chain. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-2

3. What is a System?  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 towards overall goal Process1Process2 Goal Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-3

4. Data vs. Information  Data are facts that are recorded and stored  Insufficient for Decision Making  Information is processed data used in decision making  Too much information however, will make it more not less difficult to make decisions. This is known as Information Overload Information data Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 4

5. Value of Information Benefits  Reduce Uncertainty  Improve Decisions  Improve Planning  Improve Scheduling Costs  Time & Resources  Produce Information  Distribute Information Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-5 Benefit $’s > Cost $’s

6. What makes information Useful?  Necessary Characteristics:  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.”  Reliable  “The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent.”  Complete  “The inclusion in reported information of everything material that is necessary for faithful representation of the relevant phenomena.” Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-6

7. What makes information Useful?  Timely  “Having information available to a decision maker before it loses its capacity to influence decisions.”  Understandable  “The quality of information that enables users to perceive its significance.”  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.”  Accessible  Available when needed (see Timely) and in a useful format (see Understandable) Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-7

8. Business Process  Systems working towards Organizational Goals Revenue Expenditure Production Human Resources Financing Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-8

9. Revenue Cycle Activities 1.Sales order entry 2.Shipping 3.Billing 4.Cash collections

10. Expenditure Cycle Activities 1.Ordering materials, supplies, and services 2.Receiving materials, supplies, and services 3.Approving supplier invoices 4.Cash disbursements Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 13-10

11. Production Cycle Activities 1.Product design 2.Planning and scheduling 3.Production operations 4.Cost accounting Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 14-11

12. HRM and Payroll Cycle Activities 1.Update master data 2.Validate time and attendance 3.Prepare payroll 4.Distribute payroll 5.Disburse taxes and miscellaneous deductions Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 15-12

13. Business Transactions  Give – Get Exchanges  Between 2 entities  Measured in economic terms Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-13

14. Business Cycle Give–Get Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-14

15. Accounting Information Systems  Collect, Process, Store and Report Data and Information  If Accounting = Language of Business  AIS = Information providing vehicle  Accounting = AIS Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-15

16. Components of an AIS  People using the system  Procedures and Instructions  For collecting, processing and storing data  Data  Software  Information Technology (IT) Infrastructure  Computers, peripherals, networks, etc.  Internal Control and Security  Safeguard the system and its data Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-16

17. AIS & Business Funtions  Collect and Store data about organizational:  Activities, Resources, & Personnel  Transform data into information enabling  Management to:  Plan, Execute, Control, & Evaluate  Activities, Resources, & Personnel  Provide adequate control to safeguard  Assets & Data Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-17

18. AIS Value Add  Improve Quality / Reduce Costs  Improve Efficiency  Improve Sharing Knowledge  Improve Supply Chain  Improve Internal Control  Improve Decision Making Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-18

19. Improve Decision Making  Identify situations that require action  Provide alternative choices  Reduce Uncertainty  Provide feedback on previous decisions  Provide accurate and timely information Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-19

20. Value Chain  The set of activities a product or service moves along before as output it is sold to a customer.  At each activity the product or service gains value Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-20

21. Value Chain – Primary Activities Inbound Logistics Operations Outbound Logistics Marketing/SalesService Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-21

22. Value Chain - Support Activities Firm Infrastructure Human Resources Technology Purchasing Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-22

23. Value Chain Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-23

24. AIS & Corporate Strategy AIS IT Developments Business Strategy Organizational Culture Organizations have limited resources thus investments to AIS should have greatest impact on ROI Organizations need to understand how: IT developments Business Strategy & Organizational Culture Will effect and be effected by new AIS Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 1-24