ACC200 - Accounting

Information Systems
Sem 3 2018

Topic 1- Introduction to
Accounting Information
Systems
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 Learning Objectives
1. Explain what an accounting information
system (AIS) is and describe the basic
functions it performs.
2. Discuss why studying the design and
management of an AIS is important.
3. Discuss ways that the AIS can add value to a
business.

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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.

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 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.

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 Information and Decisions

Top-Level
Management
Strategic
Summarization
Middle and Filtration
Management Tactical

Lower-Level Operational
Management
Transaction Oriented

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 Information and Decision
Making
Characteristics of Useful Information

Relevant Timely

Reliable Understandable

Complete Verifiable

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 Ten Most Important Activities
Performed By Accountants
1. Accounting systems 6. Financial and
and financial reporting economic analyses
2. Long-term strategic 7. Process improvement
planning 8. Computer systems
3. Managing the and operations
accounting and 9. Performance
finance function evaluation
4. Internal Consulting 10. Customer and product
5. Short-term budgeting profitability analyses

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 What Is an Information
System?
 An Information system is a framework in which data on a
companies business processes is collected, processed,
controlled and managed through stages in order to provide
information to users
 It can be a manual or computerized system
 Firms depend on information systems in order to survive and
stay competitive

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What Is the function 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.

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 The Three Basic Functions
Performed by an AIS
1 To collect and store data about the
organization’s business activities and
transactions efficiently and effectively:
 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.

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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

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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.

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 Why Study AIS?
 To understand how the accounting
system works.
 How to collect data about an organization’s
activities and transactions
 How 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

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 Why Study AIS?

 Auditors need to understand the

systems that are used to produce a
company’s financial statements.
 Tax professionals need to understand
enough about the client’s AIS to be
confident that the information used for
tax planning and compliance work is
complete and accurate.

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 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
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Information Systems

 The term information system suggests

the use of computer technology in an
organization.
 What is a computer-based information
system?
 It is a collection of computer hardware
and software designed to transform
data into useful information.

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 What Is An Accounting
Information System (AIS)?

 An accounting information system (AIS)

consists of:
 People
 Procedures
 Data
 Software
 Information technology infrastructure (Hardware)

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 Information System -Basic Stages

Data
storage

Data Data Information

input processing output

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 Capturing Inputs

 Manual keying
 Scanning through barcode technology
 Scanning through image scanners
 Magnetic ink character recognition [MICR]
 Voice recognition
 Optical mark readers

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 Processes

 Processes are the sets of activities that are

performed on the inputs into the system

Examples:
o Performing calculations
o Validity checks
o Hash checks

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 Outputs
 Outputs refer to what is obtained from a
system, or the result of what the system does
Examples:
oReceipts
oInvoices

 Outputs are normally the starting point when

designing a system

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 Resources Required for an
AIS
 Processor(s): Manual or Computerized
 Data Base(s): Data Repositories
 Procedures: Manual or Computerized
 Input/Output Devices
 Miscellaneous Resources

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 Roles of Accountants
With Respect to an AIS

 Financial accountants prepare financial information for

external decision-making in accordance with MASB

 Managerial accountants prepare financial information

for internal decision-making

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Financial Reporting
Balance Sheet

Income Statement
The primary
Statement of Cash Flows
financial
statements.

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 Accounting Information
Systems

Cost & Revenue

Determination
Job Costing
Information Users Process Costing Decision Support
Investors ABC CVP Analysis
Creditors Sales Performance
Managers Evaluation
Owners Assets & Liabilities Incremental
Customers Plant & Equipment Analysis
Employees Loans & Equity Budgeting
Regulatory Agencies Receivables, Capital Allocation
-SC Payables & Cash Earnings per Share
-IRB Cash Flows Ratio Analysis
-KLSE From Operations
From Financing
From Investing

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 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.

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 How An AIS Can Add Value
To An Organization
– An AIS adds value by:
– improving the quality and reducing the costs of
products or services.
– improving efficiency.
– Improving decision making capabilities.
– increasing the sharing of knowledge.

A well-designed AIS can also help an organization

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

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 The Supply Chain
Raw Materials
Supplier

Manufacturer

Distributor

Retailer

Consumer

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 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.

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 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.

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 The Value Chain
Primary Activities

Inbound Outbound
Operations
Logistics Logistics

Marketing
Service
and Sales
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The Value Chain

 The four support activities in the value

chain make it possible for the primary
activities to be performed efficiently
and effectively.

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The Value Chain
Support Activities

Infrastructure Technology

Human
Purchasing
Resources
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 The Value System

 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 value system.

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Gains from Computerised AIS
for Accountants
 Faster processing of transactions and other data
 Greater accuracy in computations of and comparisons
with data
 Lower cost of processing each transaction
 More timely preparation of reports and other outputs
 More concise storage of data, with greater accessibility
when needed
 Wider range of choices for entering data and providing
outputs
 Higher productivity for employees and managers, who
learn to use computers effectively in their routine and
decision-making responsibilities

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End of Lecture 1