ACT 3114-ACCOUNTING INFORMATION SYSTEMS

DEPARTMENT OF ACCOUNTANCY

FACULTY OF BUSINESS STUDIES AND FINANCE

WAYAMBA UNIVERSITY OF SRI LANKA

LECTURED BY: HIRANYA DISSANYAKE

UNIT 01- INTRODUCTION TO

ACCOUNTING INFORMATION SYSTEMS
In this unit , you were presented with an overview of Accounting Information Systems
(AIS). Important terms, concepts, and principles of AIS included the following:

System

A system is set of two or more interrelated components that interact to achieve a

goal. Systems are almost always composed of smaller subsystems, each performing
a specific function important to and supportive of the larger system of which the
subsystem is a part.

ex:

Goal congruence is achieved when a subsystem achieves its goals while

contributing to the organizations overall goal.
The systems concept encourages integration to eliminate duplication in recording,
storage, reporting and other processing activities in an organization.

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DATA

Data is the facts that are collected, recorded, stored and processed by an information
system. Represent observations or measurements of activities that are of importance to
information system users. Facts about the activities, the resources affected by the
activities, and the people who participate in the activity are collected in businesses.

INFORMATION

Data that has been organized and processed to provide meaning to users; usually to be
used in making decisions or in improving the decision making process. Some
information is mandatory and some is discretionary. Both external and internal users
needs for information should be considered.

CHARACTERISTICS OF INFORMATION MAKES USEFUL

Seven characteristics of information that makes it useful and meaningful to internal and
external users:

1) relevant

2) reliable

3) complete

4) timely

5) understandable

6) verifiable

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 7) accessible.

The value of information is the benefit produced by the information minus the
cost of producing it.
The benefits of information include
1. the reduction of uncertainty
2. improved decisions, and
3. a better ability to plan and schedule activities.
The costs include the time and resources spent on
1. collecting, processing, and storing data
2. Distributing that information to users

ACCOUNTING INFORMATION SYSTEM

Accounting Information System is a system that collects, records, stores, and processes
data to produce information for decision makers.

Six components of AIS include

1) people, 5) information technology

2) procedures and infrastructure, and
instructions, 6) Internal controls and
3) the data, security measures.
4) software,
Information overload occurs when the limits to the amount of information the human
mind can effectively absorb and process. Decision-making quality declines while the
cost of providing that information increases.

Advances in information technology (IT) should be considered that assist the user in
effectively filtering and condensing information to avoid overload.

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 AIS involves a solid understanding of
1) the use of information in decision making;
2) the nature, design, use, and implementation of an AIS; and financial
information reporting.
AIS focus on
1) how the AIS works;
2) how to collect data about the organizations activities and transactions
3) how to transform that data into information that management can use to
run the organization; and
4) How to ensure the availability, reliability, and accuracy of that
information.
The AIS course focuses on accountability and control.
The design of AIS is influenced by
1) developments in IT,
2) business strategy, and
3) organizational culture.

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ACCOUNTING INFORMATION SYSTEM AND STRATEGY
VALUE CHAIN

A value chain consists of five primary activities

1) inbound logistics,
2) operations,
3) outbound logistics,
4) marketing and sales, and
5) service.

Support activities allow the five primary activities to be performed efficiently and
effectively. The four categories of support activities include

1) firm infrastructure,
2) human resources,
3) technology, and
4) purchasing.

SUPPLY CHAIN

Includes the supplier of raw materials, the manufacturer of the goods, the distributor,
the retailer, and the consumer

VALUE-ADDED BY AIS

As a support activity, the AIS adds value by providing accurate and timely information
so that the five primary value chain activities can be performed more effectively and
efficiency. This is accomplished by:

1) improving the quality and reducing the costs of products or services,

2) improving efficiency,
3) sharing knowledge,

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 4) improving the efficiency and effectiveness of the supply chain,
5) improving the internal control structure, and
6) improving decision making.

DECISION-MAKING PROCESS

1. Identify the problem

2. Collect and interpret the information

3. Evaluate ways to solve the problem

4. Select a solution methodology

5. Implement the solution

The AIS can improve decision making by

1) identifying situations requiring management action,

2) providing a basis for choosing among alternative actions by reducing
uncertainty,
3) providing feedback about previous decisions, and
4) providing accurate and timely information to improve decision making.

Decisions can be viewed as

1) structured,
2) semi-structured, and
3) unstructured.

Decisions can vary in scope and include

1) strategic planning,
2) management control, and
3) operational control.

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STRATEGIES

a. Product differentiation strategy

b. Low-cost strategy (focus on efficiency)

STRATEGIC POSITIONS (NOT MUTUALLY EXCLUSIVE)

1) Variety-based strategic position (subset of industry products or services)

2) Needs-based strategic position (meet most or all needs of a group of
customers)
3) Access-based strategic position (customers differ in terms of factors such
as geographic location)

IT developments affect strategy, e.g. the Internet

Inbound and outbound logistics can be streamlined for products that can
be digitized, like books and music.

The Internet allows companies to cut costs, which impacts strategy and
strategic position.

Because the Internet is available to everyone, intense price competition

can result. The outcome may be that many companies shift from low-cost
to product-differentiation strategies.

The Internet may impede access-based strategic positions

Real-world applications considered in

1) Wal-Mart, 6) Jiffy Lube,

2) 7-11, 7) AARP,
3) TVA, 8) Edward Jones,
4) Limited Brands, 9) Southwest Airlines,
5) UPS 10) FedEx

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AC330 Chapter 2 Instructor Outline

In Chapter 2, you are provided an overview of business processes. It is important for

you to identify and understand the business processes of each organization, key
decisions that must be made, and information needs of external and internal users.

Table 2-1 on page 29 identifies the business processes, key decisions, and information
needs of the integrated case relating to S & S. These vary for different organizations.
Figure 2-1 demonstrates how S & S interacts with external and internal parties (vendors,
investors, creditors, banks, customers, employees, management, and government
agencies) in various give-get exchanges.

Transaction and Transaction Processing

Agreement between two entities to exchange goods or services that can be measured in
economic terms is a transaction.

Transaction processing captures transaction data and ends with an informational

output.

As shown in Table 2-2, basic exchanges can be grouped into five major business or
transaction cycles: 1) revenue cycle, 2) expenditure cycle, 3) production cycle, 4) human

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resources/payroll cycle, and 5) financing cycle. These cycles relate to each other and
interface with the general ledger and reporting system. See Figure 2-2 on page 32.

Data Processing Cycle

The operations performed on data to generate meaningful and relevant information is

the data processing cycle. See Figure 2-3 on page 35.

Four steps: 1) data input, 2) data storage, 3) data processing, and 4) information output

Data input (accurate, efficient, complete, controlled, and verified)

Use source documents to collect data about business activities (purchase order, check,
sales ticket, credit or debit memos, W-4 Form, and time cards).

Turnaround documents, in machine-readable form, can improve data input accuracy

and efficiency.

Source data automation, which capture transaction data in machine-readable form at

the time and place of their origin (ATMs, POS scanners, and bar code scanners), can also
improve data input accuracy and efficiency.

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Control is also improved by using pre-numbered source documents, well-designed
paper forms, data entry screens, and programming systems to check for information.

Data storage

Must have ready and easy access to data; knowledge of the organization of data is
important.

Ledgers are files used to store cumulative information and include general (every asset,
liability, owners equity, revenue and expense) and subsidiary (detailed data for general
ledger account that has many subaccountsAccounts Payable, Accounts Receivable,
Inventory, and Fixed Assets). The general ledger account is the control account.

Coding techniques are the systematic assignments of numbers or letters to items to

classify and organize data and may include sequence, block, or group codes. These
codes allow for data to be organized in a logical fashion.

Sequence codesnumbered consecutively (pre-numbered checks, invoices, and

purchase orders).

Block codesblocks of numbers within a numerical sequence are reserved for

categories having meaning to the user (product codes).

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Group codestwo or more subgroups of digits are used to code the items within a
block code.

Codes should be consistent with its intended use; allow for growth; as simple as
possible to minimize costs, facilitate memorization and interpretation, and ensure
employee acceptance; and consistent with the companys organizational structure and
across the different divisions of an organization.

A Chart of Accounts is an example of coding. See Table 2-4. Each account in the
general ledger is given a specific number. Charts of accounts will differ depending on
the business entity.

Each account in subsidiary ledgers should have its own unique number.

Journals

Books of original entry and may include the general journal, sales journal (See Table 2-5
on page 40), purchases journal, cash receipts journal, and cash payments journal.

Transactions are typically recorded in journals before being transferred or posted to

accounts in the general ledger and subsidiary ledgers.

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Audit trailrevealed by the posting references and document numbers; provides
a means for checking accuracy and validity of ledger postings.

Computer-based Storage Concepts

Entitysomething about which information is stored (employees, customers, inventory

items)

Attributescharacteristics of interest (pay rate, customer address

Fielddata values stored in physical space

Recordset of fields containing attributes of the same entity

Filegroup of related records

Master file (general ledger); permanent

Transaction file (journal); temporary

Databaseset of interrelated files

Data Processing (CRUD)

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To keep the data stored in files or databases current, there are four different types of
data processing: 1) creating, 2) reading, 3) updating, and 4) deleting.

Figure 2-7 on page 45 demonstrates the differences in batch; online, batch; and online,
real-time.

Information Output

Final step in the data processing cycle and includes 1) documents, 2) reports, and 3)
response to a query.

Both internal and external user needs for a variety of reports, as well as the behavioral
implications, should be considered.

Enterprise Resource Planning (ERP) Systems

Integrate all aspects of a companys operations, financial and non-financial.

Real world applications in this chapter include 1) Toyota, 2) FedEx,

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 3) Eli Lilly, 4) Bell Telephone, and 5)Wal-Mart.

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