Chapter 1 Accounting Information Systems: An Overview

Chapter 1Accounting Information Systems: An Overview

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.

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What Is a System?

System A set of two or more

interrelated components interacting to achieve a goal

Most systems are composed of smaller subsystems . . .

. . . And vice versa

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SYSTEMS, DATA, AND INFORMATION

Every organization has goals. The susbsystems should be designed to

maximize achievement of the organization’s goals

Even to the detriment of the subsystem itself

EXAMPLE: The production department (a subsystem) of a company might have to forego its goal of staying within its budget in order to meet the organization’s goal of delivering product on time.

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Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger system.

Goal congruence occurs when the subsystem’s goals are in line with the organization’s goals.

The larger and more complicated a system, the more difficult it is to achieve goal congruence.

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The systems concept encourages integration (i.e., minimizing the duplication of recording, storing, reporting and processing).

Data are facts that are collected, recorded, stored, and processed by an information system.

Organizations collect data about: Events that occur Resources that are affected by those events Agents who participate in the events

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Information is different from data.

Information is data that have been organized and processed to provide meaning to a user.

Usually, more information and better information translates into better decisions.

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However, when you get more information than you can effectively assimilate, you suffer from information overload. Example: Final exams week!

When you’ve reached the overload point, the quality of decisions declines while the costs of producing the information increases.

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Value of Information

Benefits

Reduce Uncertainty

Improve Decisions

Improve Planning

Improve Scheduling

Value of information occurs when benefits exceed costs

Costs

Time & Resources

Produce Information Distribute Information

Benefit $’s > Cost $’s

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 9

What Makes Information Useful?مفيدة المعلومات يجعل الذي ما

Necessary characteristics: المفيدة المعلومات خصائص Relevant مالئمة

“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.”

It reduces uncertainty by helping you predict what will happen or confirm what already has happened

Reliable عليها يعتمد “The quality of information that assures that information

is reasonably free from error and bias and faithfully represents what it purports ( الغرض او ”.to represent(الغاية

Complete كاملة “The inclusion in reported information of everything

material that is necessary for faithful representation of the relevant phenomena.”

It doesn’t leave out anything that’s important

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What Makes Information Useful?

Timely المناسب التوقيت “Having information available to a decision maker before it

loses its capacity to influence decisions.” Understandable المستخدم قبل من واستيعابها فهمها امكانية

“The quality of information that enables users to perceive its significance.” It’s presented in a manner you can comprehend and use.

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.” the nature of the information is such that different people would tend to produce the same result

Accessible وبالشكل المناسب بالوقت للمعلومة الوصول امكانيةفهمها من يمكننا الذي

Available when needed (see Timely) and in a useful format (see Understandable).

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Information is provided to both: External users , investors المستثمرون (current and potential ), creditors

الحكومية Government agencies , المقرضون Securities commission ,المؤسساتالمالية االوراق العمالية Labor unions ,هيئة suppliers , العمالء customers ,االتحادات

…الموردون Internal Users: management الشركة organization ,الموظفين employees , ادارة

departments المختلفة الشركة دوائر

External users primarily use information that is either: MANDATORY INFORMATION—Required by a governmental entity, such as

Form 10-K’s required by the SEC; or ESSENTIAL INFORMATION—Required to conduct business with external

parties, such as purchase orders. In providing mandatory or essential information, the focus should be on: Minimizing costs Meeting regulatory requirements Meeting minimum standards of reliability and usefulness


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Business Transactions

Give–Get exchanges

Between two entities

Measured in economic terms

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Business Process

Systems working toward organizational goals

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INFORMATION NEEDS AND BUSINESS ACTIVITIES

Businesses engage in a variety of activities, including: Acquiring capital االموال على الحصول Buying buildings and equipment والمعدات المباني شراء Hiring and training employees الموظفين وتدريب تعين Purchasing inventory المخزون شراء Doing advertising and marketing وتسويق دعاية اجراء Selling goods or services خدمات او بضاعة بيع Collecting payment from customers العمالء من التحصيل Paying employees للموظفين الدفع Paying taxes الضرائب دفع Paying vendors للموردين الدفع

Each activity requires different

types of decisions!

Each decision requires different

types of information

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Types of information needed for decisions: Some is financial Some is nonfinancial Some comes from internal sources Some comes from external sources

An effective AIS needs to be able to integrate information of different types and from different sources.

INFORMATION NEEDS AND BUSINESS ACTIVITIES

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INTERACTION WITH EXTERNAL AND INTERNAL PARTIES

The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies.

The AIS also interacts with internal parties such as employees and management

The interaction is typically two-way, in that the AIS sends information to and receives information from these parties.

. باتجاهين يتم التفاعل هذا وخارجية داخلية اطراف مع AISيتفاعل

AISInternalParties

ExternalParties

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A transaction is: An agreement between two entities to exchange goods or

services; OR خدمات او بظائع لتبادل طرفين بين .اتفاقية Any other event that can be measured in economic terms by

an organization. , النقد كا االقتصادية بالوحدات قياسة يمكن ايحدث او

EXAMPLES: Sell goods to customers للعمالء بضائع بيع Depreciate equipment المعدات استهالك

The transaction cycle is a process: اجراءات بسلسلة تمر االتفاقية دورة Begins with capturing data about a transaction Ends with an information output, such as financial

statementsمعلومات شكل على بمخرجات وتنتهي بالعملية متعلقة بيانات على بالحصول تبدا

المالية القوائم .مثل

BUSINESS CYCLES

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Many business activities are paired in give-get exchanges وخذ اعطي لتبادالت تزاوج هي االعمال نشاطات من العديد

The basic exchanges can be grouped into five major transaction cycles. Revenue cycle االيراد دورة Expenditure cycle االنفاق دورة Production cycle التحويل او االنتاج دورة Human resources/payroll cycle الرواتب دورة Financing cycle التمويل دورة

BUSINESS Process CYCLES

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The revenue cycle involves interactions with your customers. العمالء مع تفاعالت على تشتمل

You sell goods or services and get cash.

نقد على المقابل في وتحصل خدمات او بضاعة .بيع

REVENUE CYCLE

GiveGoods

GetCash

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The expenditure cycle involves interactions with your suppliers. الموردين مع تفاعالت على تشتمل

You buy goods or services and pay cash.

نقد تدفع المقابل وفي خدمات او بضاعة تشتري انت

EXPENDITURE CYCLE

GiveCash

GetGoods

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In the production cycle, raw materials and labor are transformed into finished goods.

, الصنع تامة بضاعة الى تحويلها يتم والعمالة االولية المواد االنتاج دورة .في

PRODUCTION CYCLE

Give RawMaterials &

Labor

GetFinishedGoods

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The human resources cycle involves interactions with your employees. الموظفين مع تفاعالت على تشتمل

Employees are hired, trained, paid, evaluated, promoted, and terminated.

عنهم االستغناء ويتم االدارة قبل من ويقيمو لهم ويدفع ويدربو يعينو .الموظفين

HUMAN RESOURCES/PAYROLL CYCLE

GiveCash

GetLabor

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The financing cycle involves interactions with investors and creditors. والمقرضين المستثمرين مع تافاعالت على تتضمن

You raise capital (through stock or debt), repay the capital, and pay a return on it (interest or dividends).

,) ( اعادة قروض او سندات االستدانة او االسهم طرح خالل من راسمالها ترفع الشركات , , على والديون ارباح توزيعات شكل على االسهم علية عائد ودفع المال رأس دفع

فوائد .شكل

FINANCING CYCLE

GiveCash

Getcash

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Thousands of transactions can occur within any of these cycles. خالل حدووثها ممكن العمليات من االالف

الدورات هذه

But there are relatively few types of transactions in a cycle. العمليات انواع من محدود عدد هناك نسبيا لكن

دورة اي في

EXAMPLE: In the revenue cycle, the basic give-get transaction is: - خذ اعطي في االساس االيراد دورة في:هو Give goods بضاعة اعطي Get cash نقد خذ

BUSINESS CYCLES

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Other transactions in the revenue cycle include:

BUSINESS CYCLES

• Handle customer inquiries• العمالء استفسارات مع التعامل• Take customer orders• العمالء اوامر أخذ• Approve credit sales• امبيعات قيمة على المصادقة• Check inventory availability• المخازن في البضاعة توفر من التأكد• Initiate back orders • ) ( بيع اوامر عكسية اوامر انشاء• Pick and pack orders االوامر تجهيز• Ship goods البضاعة شحن• Bill customers العمالء فواتير تنظيم

• Update sales and Accts Rec. for sales • بقيمة العمالء حسابات و المبيعات تحديث

المبيعات• Receive customer payments• العميل مدفوعات استالم• Update Accts Rec. for collections• المحصلة بالمبالغ العمالء حسابات تحديث• Handle sales returns, discounts, & bad

debts• والديون والخصومات المردودات معالجة

المعدومة• Prepare management reports• تمت التي بالعمليات ادارية تقارير اعداد• Send info to other cycles• االخرى الدورات الى معلومات ارسال

Note that the last activity in any cycle is to send information to other cycles.

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Every transaction cycle: Relates to other cycles اخرى بدورات متصلة عملية دورة كل Interfaces with the general ledger and

reporting system, which generates information for management and external parties.

, التقارير اعداد ونظام العام االستاذ بدفتر وتتصل ترتبطالخارجية واالطراف االدارة يزودوا بدورهما والذي

القرارات التخاذ يحتاجونها التي بالمعلومات

BUSINESS CYCLES

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General Ledgerand Reporting

System

RevenueCycle

ExpenditureCycle

ProductionCycle

Human Res./Payroll Cycle

FinancingCycle

The revenue cycle Gets finished goods

from the production cycle

البضاعة عاى تحصلاالنتاج دورة من الجاهزة

Provides funds to the financing cycle

باالموال التمويل دورة يزود Provides data to the

General Ledger and Reporting System

ونظام العام االستاذ تزويدبالبيانات التقارير

Finished Goods

FundsD

ata

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System

RevenueCycle

ExpenditureCycle

ProductionCycle


FinancingCycle

The expenditure cycle Gets funds from

the financing cycleمن االموال على تحصل

التمويل دورة Provides raw

materials to the production cycle

بالمواد االنتاج دورة تزويداالولية

Provides data to the General Ledger and Reporting System

Funds

RawMats.

Dat

a

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System

RevenueCycle

ExpenditureCycle

ProductionCycle


FinancingCycle

The production cycle: Gets raw materials

from the expenditure cycle

من االولية المواد على تحصلاالنفاق دورة

Gets labor from the HR/payroll cycle

دورة من العمالة على تحصلالرواتب

Provides finished goods to the revenue cycle

بالبضاعة االيراد دورة تزويدالجاهزة


RawMats.

Data

Finished Goods

Labo

r

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System

RevenueCycle

ExpenditureCycle

ProductionCycle


FinancingCycle

The HR/payroll cycle: Gets funds from

the financing cycle

دورة من اموال تأخذالتمويل

Provides labor to the production cycle

االنتاج دورة تزويدبالعمالة


Labo

r

Funds

Data

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System

RevenueCycle

ExpenditureCycle

ProductionCycle


FinancingCycle

The Financing cycle: Gets funds from

the revenue cycleمن اموال على تحصل

االيراد دورة Provides funds to

the expenditure and HR/payroll cycles

االنفاق دورة تزويدباالموال .والرواتب


Funds

Data

Funds

Funds1-36


System

RevenueCycle

ExpenditureCycle

ProductionCycle


FinancingCycle

The General Ledger and Reporting System: Gets data from all of

the cycles

جميع من بيانات تحصلالدورات

Provides information for internal and external users

الداخلية االطراف تزودبالمعلومات والخارجية

Information forInternal & External Users

Dat

aData

Data

Data

Data

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Many accounting software packages implement the different transaction cycles as separate modules.

منفصل بشكل الدورات هذة تطبق المحاسبية البرمجيات من .الكثير Not every module is needed in every organization, e.g., retail

companies don’t have a production cycle.

, بالتجزئة للبيع المتاجر شركات مثال الدورات جميع وجود تتطلب الشركات كل ليسلالنتاج دورة وجود .اليتطلب

Some companies may need extra modules.

اضافية اجزاء تتطلب الشركات .بعض The implementation of each transaction cycle can differ significantly

across companies.

الخرى شركة من تطبيقها يختلف دورة كل .تطبيق

However the cycles are implemented, it is critical that the AIS be able to:

, على قادرة تكون ان يجب المحاسبية النظم فأن الدورات لهذه تطبيق :اي Accommodate the information needs of managers

المعلومات من باحتياجاتهم المدراء تزويد Integrate financial and nonfinancial data.

المالية وغير المالية المعلومات بين التكامل تحقق ان على قادرة وايضا

BUSINESS CYCLES

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Business Cycle Give–Get

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Accounting Information Systems

Collect, process, store, and report data and information

If Accounting = language of business

AIS = information providing vehicle

Accounting = AIS

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An AIS is a system that collects, records, stores, and processes data to produce information for decision makers.

It can: Use advanced technology; or Be a simple paper-and-pencil system; or Be something in between.

Technology is simply a tool to create, maintain, or improve a system.

WHAT IS AN AIS?

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The functions of an AIS are to: Collect and store data about events, resources, and agents. Transform that data into information that management can use

to make decisions about events, resources, and agents. Provide adequate controls to ensure that the entity’s resources

(including data) are: Available when needed Accurate and reliable

WHAT IS AN AIS?

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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, and so on

Internal Control and Security Safeguard the system and its data

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AIS and Business Functions

Collect and store data about organizational: Activities, resources, and personnel

Transform data into information enabling Management to:

Plan, execute, control, and evaluate Activities, resources, and personnel

Provide adequate control to safeguard Assets and data

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AIS Value Add

Improve Quality and Reduce Costs

Improve Efficiency

Improve Sharing Knowledge

Improve Supply Chain

Improve Internal Control

Improve Decision Making

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Improve Decision Making

Identify situations that require action.

Provide alternative choices.

Reduce uncertainty.

Provide feedback on previous decisions.

Provide accurate and timely information.

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The objective of most organizations is to provide value to their customers.

What does it mean to deliver value?

ROLE OF THE AIS IN THE VALUE CHAIN

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While “adding value” is a commonly used buzzword, in its genuine sense, it means making the value of the finished component greater than the sum of its parts.

It may mean: Making it faster Making it more reliable Providing better service or advice Providing something in limited supply (like O-

negative blood or rare gems) Providing enhanced features Customizing it


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Value is provided by performing a series of activities referred to as the value chain. These include: Primary activities Support activities

These activities are sometimes referred to as “line” and “staff” activities respectively.


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Value Chain—Support Activities

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Value Chain

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Primary activities include: Inbound logistics


Receiving, storing, and distributing the materials that are inputs to the organization’s product or service.

For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs.

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Primary activities include: Operations


Transforming those inputs into products or services.

For the pharmaceutical company, this step involves combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers.

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Primary activities include: Inbound logistics Operations Outbound logistics


Distributing products or services to customers.

For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals.

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Primary activities include: Marketing and sales


Helping customers to buy the organization’s products or services.

A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders.

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Primary activities include: Service


Post-sale support provided to customers such as repair and maintenance function.

A pharmaceutical firm will typically not be repairing it’s product (though the product may be periodically reformulated). The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc.

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Support activities include: Firm infrastructure


Accountants, lawyers, and administration. Includes the company’s accounting information system.

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Support activities include: Firm infrastructure Human resources


Involves recruiting and hiring new employees, training employees, paying employees, and handling employee benefits.

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Support activities include: Firm infrastructure Human resources Technology


Activities to improve the products or services (e.g., R&D, website development).

For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones.

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Support activities include: Purchasing


Buying the resources (e.g., materials, inventory, fixed assets) needed to carry out the entity’s primary activities.

In the pharmaceutical company, the purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations.

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Information technology can significantly impact the efficiency and effectiveness with which the preceding activities are carried out.

An organization’s value chain can be connected with the value chains of its customers, suppliers, and distributors.


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Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer Pharmacy

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

And the outbound logistics of Pharmaceuticals, Inc., links to the inbound logistics of its customers.

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Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer Pharmacy

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

The linking of these separate value chains creates a larger system known as a supply chain.

Information technology can facilitate synergistic linkages that improve the performance of each company’s value chain.

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AIS and Corporate Strategy

Organizations have limited resources, thus investments to AIS should have greatest impact on ROI.

Organizations need to understand:

IT developments

Business strategy

Organizational culture

Will effect and be effected by new AIS

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Documents

Chapter 1 Accounting Information Systems: An Overview