Accounting Information

Systems: An Overview

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After studying this chapter, you should be able to:
§ Distinguish data from information, discuss the characteristics of
useful information, and explain how to determine the value of
information.
§ Explain the decisions an organization makes, the information
needed to make them, and the major business processes present in
most companies.
§ Explain how an AIS adds value to an organization, how it affects
and is affected by corporate strategy, and its role in a value chain.
§ How does an AIS add value to an organization, how do an AIS and
corporate strategy affect each other,
§ Finally, the role of the AIS in the value chain.

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Case
After working for years as a regional manager for a retail
organization, Scott Parry opened his own business with Susan
Gonzalez, one of his district managers, as his partner. They formed
S&S to sell appliances and consumer electronics. Scott and Susan
pursued a “clicks and bricks” strategy by renting a building in a busy
part of town and adding an electronic storefront.
Scott and Susan invested enough money to see them through the
first six months. They will hire 15 employees within the next two
weeks—three to stock the shelves, four sales representatives, six
checkout clerks, and two to develop and maintain the electronic
storefront.

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Scott and Susan will host S&S’s grand opening in five weeks. To meet
that deadline, they have to address the following important issues:

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 Although Scott and Susan could use an educated guess
or “gut feeling” to make these decisions, they know they
can make better decisions if they obtain additional
information. A well-designed AIS can solve these issues
and provide the information they need to make any
remaining decisions.
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Some Definitions:
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 college of business is a system composed of various departments, each of
which is a subsystem. Moreover, the college itself is a subsystem of the university.
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.

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Information overload: Exceeding the amount of information a human mind can absorb
and process, resulting in a decline in decision-making quality and an increase in the cost
of providing information.
Information technology (IT): The computers and other electronic devices used to store,
retrieve, transmit, and manipulate data.
Value of information: The value of information is the benefit produced by the information
minus the cost of producing it. Benefits of information include reduced uncertainty,
improved decisions, and improved ability to plan and schedule activities.

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 Table 1-1 presents seven characteristics that make information useful and meaningful.

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To illustrate the value of information, consider the case of 7-Eleven. When a Japanese company
licensed the very successful 7-Eleven name from Southland Corporation, it invested heavily in
IT. However, the U.S. stores did not. Each 7-Eleven store in Japan was given a computer that:

§ Keeps track of the 3,000 items sold in each store and determines what products are
moving, at what time of day, and under what weather conditions.
§ Keeps track of what and when customers buy to make sure it has in stock the products
most frequently purchased.
§ Orders sandwiches and rice dishes from suppliers automatically. Orders are placed and
filled three times a day so that stores always have fresh food. In addition, suppliers can
access 7-Eleven sales data electronically so that they can forecast demand.
§ Coordinates deliveries with suppliers. This reduces deliveries from 34 to 12 a day,
resulting in less clerical receiving time.
§ Prepares a color graphic display that indicates which store areas contribute the most to
sales and profits. Average daily sales of 7-Eleven Japan were 30% higher and its
operating margins almost double those of its closest competitor.

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Information Needs and Business Processes:
Business process: A set of related, coordinated, and structured activities and tasks,
performed by a person, a computer, or a machine, that help accomplish a specific
organizational goal.

INFORMATION NEEDS Scott and Susan decide they must understand how S&S
functions before they can identify the information they need to manage S&S effectively.
Then they can determine the types of data and procedures they will need to collect and
produce that information. They created Table 1-2 to summarize part of their analysis.

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BUSINESS PROCESSES
Scott decides to reorganize the business processes listed in Table 1-2 into groups of
related transactions. A transaction is an agreement between two entities to exchange
goods or services or any other event that can be measured in economic terms by an
organization. Examples include selling goods to customers, buying inventory from
suppliers, and paying employees. The process that begins with capturing transaction data
and ends with informational output, such as the financial statements, is called transaction
processing.

Many business activities are pairs of events involved in a give-get exchange. Most
organizations engage in a small number of give-get exchanges, but each type of exchange
happens many times.
For example, S&S will have thousands of sales to customers every year in exchange for
cash. Likewise, S&S will continuously buy inventory from suppliers in exchange for
cash.

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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.

FIGURE 1-1 Interactions between S&S and External and Internal Parties.

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Accounting information system: 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 a data identification, collection, and storage process as well as an
information development, measurement, and communication process. By definition,
accounting is an information system, since an AIS collects, records, stores, and processes
accounting and other data to produce information for decision makers. This is illustrated
in Figure 1-3.
An AIS can be a paper-and-pencil manual system, a complex system using the latest in
IT, or something in between. Regardless of the approach taken, the process is the same.
The AIS must collect, enter, process, store, and report data and information. The paper
and pencil or the computer hardware and software are merely the tools used to produce
the information.

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There are six components of an AIS:

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 FIGURE 1-4 Factors Influencing Design of the AIS

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