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Summary AIS - Book: Accounting Information Systems
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Summary of the book 'Accounting Information Systems' by Romney and Steinbart, for the course 'Accounting Information Systems'.
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Accounting Information Systems - Chapter 13 The Expenditure Cycle: Purchasing to Cash disbursements - Summary
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SUMMARY AIS 2018Week 1 – Chapter 1, 2 and 7
Chapter 1: Accounting Information Systems: an overview
Learning objectives:
1. Distinguish data from information, discuss the characteristics of useful information, and explain how to determine the value of
information.
2. Explain the decisions an organization makes, the information needed to make them, and the major business processes present
in most companies.
3. 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.
Important terms:
System: two or more interrelated components that interact to achieve a goal, often composed of
subsystems that support the larger system.
Goal conflict: when a subsystem’s goals are inconsistent with the goals of another subsystem or the
system as a whole.
Goal congruence: when a subsystem achieves its goals while contributing to the organization’s overall
goal. More difficult to achieve when company is larger.
Data: facts that are collected, recorded, stored, and processed by an information system.
Information: data that have been organized and processed to provide meaning and improve decision
making. Higher quantity and quantity of information better decisions.
Characteristics of useful information: relevant, reliable, complete, timely, understandable, verifiable,
accessible.
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. Used to make decision making more effective.
Value of information: the benefit provided by information less the cost of producing it. Benefits reduced
uncertainty, improved decisions, improved ability to plan activities. Costs time and resources to produce
and distribute information.
All organizations need info to make effective decisions and all organizations have certain business
processes. Business processes: a set of related, coordinated, and structured activities and tasks that help
accomplish a specific organizational goal.
To make effective decisions, organizations have to decide what decisions need to be made, what
information is needed and how to get the data needed to produce the info. Information needs: what the
organization needs to make effective (key) decisions for business processes.
Transaction cycles: the give-get exchanges (transactions that happen frequently):
- Revenue cycle goods and services sold for cash
- Expenditure cycle purchase of goods to resale or use in production
- Production/conversion cycle transformation of raw materials in finished goods
- Human resources/payroll cycle activities associated with employees (hiring, firing, paying)
- Financing cycle raising money by selling shares and borrowing money.
,All these cycles are related to each other and all report data to the general ledger and reporting system (
system used to generate information for both management and external parties). The various cycles can
be individually implemented out of the accounting software packages, so you only get what you need.
Accounting information systems: a system that collects, records, stores, and processes data to produce
information for decision makers. Six components of an AIS: (1) people who use the system, (2)
procedures and instructions to collect, process and store data, (3) data about the organization and its
business activities, (4) software to process the data, (5) information technology infrastructure used in the
AIS, (6) internal controls and security measures that safeguard AIS data.
AIS fulfils three important business functions: (1) collect and store data about organizational activities,
resources and personnel, (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.
AIS can add value to an organization by: improving the quality and reducing the costs of
products/services, improving efficiency, sharing knowledge, improving the efficiency and effectiveness of
its supply chain, improving the internal control structure, improving decision making.
Phases of decision making: identify the problem, collect and interpret info, evaluate ways to solve the
problem, select a solution methodology, implement the solution. AIS can improve this process by:
- identifying situations that require management action
- reducing uncertainty and thereby providing a basis for choosing between alternative actions
- storing information about the results of previous decisions (provides valuable feedback for future use)
- providing accurate info in a timely manner
- analysing sales data to discover items that are purchased together, to improve the layout of
merchandise or to encourage additional sales of related items.
The design of an AIS is influenced by the developments in IT, the business strategy, and the organizational
culture. The AIS also influences the organizational culture by controlling the flow of
information within the organization. IT development influences business strategy (e.g.
implementation of Internet).
Predictive analysis (example of gaining competitive advantage by AIS): the use of data
warehouses and complex algorithms to forecast future events, based on historical
trends and calculated probabilities.
Value chain: linking together of all the primary and support activities in a business. Value is added as a
product passes through the chain.
Supply chain: includes value chains of: raw materials supplier manufacturer distributor retailer
customer.
Primary activities: inbound logistics (receiving, storing and distributing materials) operations
(transforming inputs into final products) outbound logistics (distributing finished products) marketing
and sales (helping customers buy the products) service (providing post-sale support).
Support activities: firm infrastructure (activities that allow an organization to function (AIS is a part of
this), e.g. accounting, finance), human resources (activities including employees), technology (activities
that improve a product), purchasing (purchasing raw materials and building that are used for primary).
,Chapter 2: Overview of transaction processing and Enterprise Resource Planning systems
Learning objectives:
1. Describe the data processing cycle used to process transactions, including how data is input, stored and processed and how
information is output.
2. Discuss how organizations use enterprise resource planning (ERP) systems to process transactions and provide information.
Data processing cycle: the four operations (data input, data storage, data processing, and information
output) performed on data to generate meaningful and relevant
information.
Data input
Step 1: capture data and enter into system data must be collected about
three facets of each business activity: (1) each activity of interest, (2) the
resources affected by each activity, (3) the people who participate in each activity.
Source documents: documents used to capture transaction data at its source, when the transaction takes
place. Turnaround documents: records of company data sent to an external party and then returned to
the system as input, after the external party adds data to it. Source data automation: the collection of
transaction data in machine-readable form at the time and place of origin.
Step 2: checking captured data on completeness and accuracy (for example, by using source data
automation or turnaround documents and data entry screens).
Step 3: checking if company policies are followed (e.g. approving or verifying a transaction, checking a
customer’s credit limit and payment history before selling him something).
Data storage
Data have to be stored so that they are easily accessible and ready to be used. This part of the book
discusses a few basic data storage concepts and definitions.
Ledgers. General ledger: contains summary-level data for every asset, liability, equity, revenue and
expense account. Subsidiary ledger: contains detailed data for any general ledger account with many
individual subaccounts (e.g. each individual customer). Control account: a general ledger account that
summarizes the total amounts recorded in a subsidiary ledger.
Coding techniques. Coding: the systematic assignment of numbers/letters to items to classify and
organize them. Types of codes: sequence (items are numbered sequential so that gaps in the sequence
code indicate missing items), block (blocks of numbers that are reserved for specific categories of data),
group (two or more subgroups of digits that are used to code an item digit position has a certain
meaning, often used in conjunction with a block code), mnemonic (letters and numbers are interspersed
to identify an item, is derived from the description of the item e.g. VuNetID).
Guidelines code, it should: be consistent with its intended use, allow for growth, be as simple as possible,
be consistent with the company’s organizational structure and across the company’s divisions.
Chart of accounts: a listing of all the numbers assigned to balance sheet and income statement accounts.
The account numbers allow transaction data to be coded, classified, and entered into the proper
accounts and facilitate the preparation of financial statements and reports. The chart of accounts need to
contain sufficient detail to meet an organization’s information needs. A chart of accounts is tailored to
the nature and purpose of an organization (e.g. a manufacturing company will have accounts for raw
materials, work in process, finished goods).
, Journals. Transaction data are often recorded in a journal before they are entered into a ledger. General
journal: used to record infrequent or non-routine transactions (e.g. loan payment, end-of-period
adjusting, closing entries). Specialized journal: used to record a large number of repetitive transactions
(e.g. credit sales, cash receipts, purchases, cash disbursements).
Audit trail: a path that allows a transaction to be traced through a data processing system from point of
origin to output or the other way around. It is used to check the accuracy and validity of ledger postings
and to trace changes in general ledger accounts from their beginning to their ending balance.
Computer-based storage concepts. Entity: the item about which information is stored in a record.
Attributes: the properties, identifying numbers, and characteristics of interest of an entity that is stored in
a database. Field: the portion of a data record where the data value for a particular attribute is stored.
Record: a set of fields whose data values describe specific attributes of an entity. Data value: the actual
value stored in a field, describes a particular attribute of an entity. File: a set of logically related records.
Master file: a permanent file of records that stores cumulative data about an organization. Transaction
file: a file that contains the individual business transactions that occur during a specific fiscal period.
Database: a set of interrelated, centrally controlled data files that are stored with as little data
redundancy as possible. A database consolidates records previously stored in separate files into a
common pool and serves a variety of users and data processing applications.
Data processing
Type of processing activities: creating, reading, updating, deleting.
Batch processing: accumulating transaction records into groups or batches for processing at a regular
interval such as daily or weekly. Online, real-time processing: the computer system processes data
immediately after capture and provides updated information to users on a timely basis. Online batch
processing: combination of the two other approaches, transaction data are entered and edited as they
occur and stored for later processing
Information output
Information is usually presented in either a document, a report, or a query. Document: a record of a
transaction or other company data. Report: system output, organized in a meaningful fashion, that is
used by employees to control operational activities, by managers to make decisions and design strategies
and by investors and creditors to understand a company’s business activities. Query: a request for the
database to provide the information needed to deal with a problem or answer a question.
Enterprise Resource Planning (ERP) systems: a system that integrates all aspects of an organization’s
activities into one system. An ERP system is modularized (companies can purchase the individual modules
that they need). An ERP facilitates information flow among the company’s various business functions and
manages communications with outside stakeholders.
Typical ERP modules: financial (general ledger and reporting system), human resources and payroll, order
to cash (revenue cycle), purchase to pay (disbursement cycle), manufacturing (production cycle), project
management, CRM, system tools.
Advantages of an ERP: integrated, enterprise-wide view of the organization’s data and financial situation;
data input is captured and keyed once, not in every different system; management gains greater visibility
into every area of the enterprise and greater monitoring capabilities; the organization gains better access
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