Accounting information system

ACCOUNTING INFORMATION

SYSTEMS

AIS

LEARNING OBJECTIVES

1. Explain what an accounting information system (AIS) is.

2. Explain why studying AIS is important.

3. Discuss the role played by the AIS in a company’s value

chain and explain how the AIS can add value to a

business.

4. Explain the three basic functions performed by an

accounting information system (AIS).

5. Discuss the types of information that can be provided

by an AIS.

LEARNING OBJECTIVE 1

Explain what an accounting information system (AIS) is.

WHAT IS AN AIS?

An accounting information system (AIS) consists of:

People

Procedures

Data

Software

Information technology

WHAT IS 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.

BASIC SUBSYSTEMS IN THE AIS

1. The expenditure cycle: involves activities of buying and paying for goods or services used by the organization.

2. The production cycle: involves activities converting raw materials and labor into finished goods.

3. The human resources/payroll cycle: involves activities of hiring and paying employees.

4. The revenue cycle: involves activities of selling goods or services and collecting payment for those sales.

5. The financing cycle: involves activities of obtaining necessary funds to run the organization, repay creditors, and distribute profits to investors.

BASIC SUBSYSTEMS IN THE AIS

Expenditure

Cycle

Human

Resources

Production

Cycle

Revenue

Cycle

Financing

Cycle

General Ledger & Reporting System

LEARNING OBJECTIVE 2

Explain why studying AIS is important.

WHY STUDY AIS?

Because :

Accounting is defined as an information system.

The primary objective of accounting is to provide information

useful to decision makers.

Accounting is about information identification, development,

measurement, and communication process, and...

Financial information reporting.

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

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.

A survey conducted by the Institute of Management

Accountants (IMA) indicates that work relating to accounting

systems was the single most important activity performed by

corporate accountants.

INFORMATION TECHNOLOGYAND CORPORATE STRATEGY

The same survey conducted by the Institute of Management

Accountants (IMA) also indicates that the second most

important job activity of corporate accountants is long-term

strategic planning.

One important aspect of this topic is how to align information

technology (IT) with an organization’s strategy.

FACTORS INFLUENCINGDESIGN OF THE AIS

Organizational

CultureStrategy

Information

Technology

AIS

LEARNING OBJECTIVE 3

Discuss the role played by the AIS in a company’s value chain and explain how the AIS can add value to a business.

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.

VALUE CHAIN MODEL AND THE SUPPLY CHAINTypical functional areas mapped on

the value chain of a manufacturing company

Firm Infrastructure(Accounting, Finance, General Management)

Human Resource Management(Human Resources)

Technology Development(Engineering)

Procurement(Material Management-Operations)

Sup

port

Act

ivitie

s

Service

(Service or

Marketing)

Inbound

Logistics

(Material

Management-

Operations)

Operations

(Operations)

Outbound

Logistics

(Material

Management-

Operations)

Marketing

and Sales

(Marketing)

Pri

mary

Act

ivitie

s

SUPPLY-CHAIN MANAGEMENT

Suppliers Inbound Logistics Production

Transaction Delivery Customer

a) Supply Chain direct to customer

Suppliers Manufacturing Distribution Retail Outlet Customer

Transfer Transfer Transfer Transfer

Supply Chain Organization

Information Flow

CashFlow

b) Supply Chain including wholesalers and retailers

HOW AN AIS CAN ADD VALUETO AN ORGANIZATION

An AIS adds value by providing accurate and timely

information so that five primary value chain activities

can be performed more effectively and efficiently.

This is done by: improving the quality and reducing the

costs of products or services.

HOW AN AIS CAN ADD VALUETO AN ORGANIZATION

An AIS can…

improve efficiency.

improve decision making capabilities.

increase the sharing of knowledge.

A well-designed AIS can also help an organization profit by

improving the efficiency and effectiveness of its supply chain.

INFORMATION TECHNOLOGYAND CORPORATE STRATEGY

Develop a basic understanding of…

corporate strategies.

how IT developments can be used to implement existing

organizational strategies.

how IT developments can be used to create an opportunity

to modify existing strategies.

Because an AIS functions within an organization, it should be

designed to reflect the values of that organizational culture.

STRATEGY AND STRATEGIC POSITIONS

What role does the AIS play in helping organizations adopt and

maintain a strategic position?

Data collection about each activity

Transforming data into information that can be used by

management to coordinate those activities

LEARNING OBJECTIVE 4

Explain the three basic functions performed by an accounting information system (AIS).

THE THREE BASIC FUNCTIONS PERFORMED BY AN AIS

1. The efficient and effective processing of data about a company’s transactions:

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.

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

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.

LEARNING OBJECTIVE 5

Discuss the types of information that can be provided by an AIS.

FINANCIAL STATEMENTS

The next function of the AIS is to provide management with

information useful for decision making.

The preparation of financial statements consists of a sequence

of activities.

What are these activities?

FINANCIAL STATEMENTS

A. Prepare a trial balance.

B. Make adjusting entries.

C. Prepare the adjusted trial balance.

D. Produce the income statement.

E. Make closing entries.

F. Produce the balance sheet.

G. Prepare the statement of cash flows.

MANAGERIAL REPORTS

The AIS must also be able to provide managers with detailed

operational information about the organization’s performance.

What reports does management need?

A. Inventory status

B. Budgets

C. Performance reports

INTERNAL CONTROL CONSIDERATIONS

Another main function of an AIS is to provide

adequate internal controls to accomplish three basic

objectives:

Ensure that the information is reliable.

Ensure that business activities are performed

efficiently.

Safeguard organizational assets.

TYPICAL TPS OF A MANUFACTURER

Vendors

Customers

GeneralLedger

PeriodicStatements

Manufac-

turing

Purchasing

Order

Receiving

Goods

Accounts

PayableShipping

Accounts

Receivable

Inventory

Customer

Order

Taxes

Payroll

Fixed

Assets

MANAGING THE ACCOUNTING INFORMATION SYSTEMS

Strategic Systems

Tactical Systems

Operational and

Transaction Processing

System

Internal

Environment

External

Environment

MANAGING THE ACCOUNTING INFORMATION SYSTEMS

TACTIAL SYSTEMSa. Budgeting Preparation and Control

b. Investment Management

c. Capital Budgeting d. Cost Analysis and Control

e. Tax Management f. Auditing

g. Financial Planning

INTERNAL

ENVIRONMENT

Top Management

Operation/

Production

Marketing

HRM

Engineering

EXTERNAL

ENVIRONMENT

IRS

Vendors

Clients

Suppliers

Customers

Business Partners

STRATEGIC SYSTEMSa. Strategic Planning b. Ratios and Financial Health

c. Merger and Acquisition Analysis

OPERATIONAL AND

TRANSACTION PROCESSING

SYSTEMSa. The General Ledger b. Sales Order Processing

c. Accounts Payable and Receivable

d. Receiving and Shipping

e. Payroll f. Inventory Management

g. Periodical Reports & Statements

FINANCIAL PLANNING AND BUDGETING

Financial and economic forecasting

Planning for incoming funds

Budgeting preparation and operation

Capital budgeting decision

CONTROL AND AUDITING

Budgetary control

Auditing

Financial health analysis

Profitability analysis and cost control

Product pricing

THE FUTURE OF AIS

The Internet makes strategy more important than

ever

The important point underlying ERP systems is the

need for and value of cross-functional integration

of financial data and other nonfinancial operating

data.

VIVEK K. SINGHW I W EC K@ GMAI L .C O MTHANK YOU!