Module 1: Accounting Information

Systems: An Overview
Information Needs and Business Processes

All organizations need information in order to make effective decisions. In addition, all organizations
have certain business processes in which they are continuously engaged. A business process is a set of
related, coordinated, and structured activities and tasks that are performed by a person, a computer, or
a machine a computer or a machine, and that help accomplish a specific organizational goal.

To make effective decisions, organizations must decide what decisions they need to make, what
information they need to make the decisions, and how to gather and process the data needed to
produce the information. This data gathering and processing is often tied to the basic business processes
in an organization.
Business Processes

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 wi th
capturing transaction data and ends with informational output, such as the financial statements, is
called transaction processing. Transaction processing is covered in more depth in Module 2. 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.

- The revenue cycle, where goods and services are sold for cash or a future promise to
receive cash. This cycle is discussed in Module 4.

- The expenditure cycle, where companies purchase inventory for resale or raw materials
to use in producing products in exchange for cash or a future promise to pay cash. This
cycle is discussed in Module 5.

- The production or conversion cycle, where raw materials are transformed into finished
goods. This cycle is discussed in Module 7.

- The human resources/payroll cycle, where employees are hired, trained, compensated,
evaluated, promoted, and terminated. This cycle is discussed in Module 6.

- The financing cycle, where companies sell shares in the company to investors and
borrow money, and where investors are paid dividends and interest is paid on loans.
Accounting Information Systems

It has often been said that accounting is the language of busi ness. If that is the case, then an accounting
information system (AIS) is the intelligence—the information-providing vehicle—of that language.

Accounting is a data identification, collection, and storage process as well as 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.

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.

This course does not distinguish an AIS from other information systems. Instead, our viewpoint is that
the AIS can and should be the organization’s primary information system and that it provides users with
the information they need to perform their jobs.
There are six components of an AIS:

1. The people who use the system

2. The procedures and instructions used to collect, process, and store data

3. The data about the organization and its business activities

4. The software used to process the data

5. The information technology infrastructure, including the computers, peripheral devices, and
network communications devices used in the AIS

6. The internal controls and security measures that safeguard AIS data

These six components enable an AIS to fulfill three important business functions:

1. Collect and store data about organizational activities, resources, and personnel. Organizations
have a number of business processes, such as making a sale or purchasing raw materials, which
are repeated frequently.

2. Transform data into information so management can plan, execute, control, and evaluate
activities, resources, and personnel.

3. Provide adequate controls to safeguard the organization’s assets and data.

A well-designed AIS can add value to an organization by:

1. Improving the quality and reducing the costs of products or services.

2. Improving efficiency.

3. Sharing knowledge.

4. Improving the efficiency and effectiveness of its supply chain.

5. Improving the internal control structure.

6. Improving decision making.

Primary Activities

1. Inbound logistics

2. Operations

3. Outbound logistics

4. Marketing and sales

5. Service

Support activities

1. Firm infrastructure

2. Human resources

3. Technology

4. Purchasing
1 - Romney, M. B., & Steinbart, P. J. (2020). Chapter 1: Accounting Information Systems: An Overview. In Accounti ng Information
Sys tems 1 (15th ed., pp. 2-16). Hoboken: Pearson Education.

1 https://www.vitalsource.com/referral?term=9780135573006