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LEARNING OBJECTIVES1. 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 1Explain what an accountinginformation 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 anorganization?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 AIS1. 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 Financing Expenditure Human Cycle Cycle Resources General Ledger & Reporting System Production Revenue Cycle Cycle
LEARNING OBJECTIVE 2Explain 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 Strategy Culture AIS Information Technology
LEARNING OBJECTIVE 3Discuss the role played by the AIS in acompany’s value chain and explainhow the AIS can add value to abusiness.
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 CHAIN Typical functional areas mapped on the value chain of a manufacturing company Firm Infrastructure Support Activities (Accounting, Finance, General Management) Human Resource Management (Human Resources) Technology Development (Engineering) Procurement (Material Management-Operations) Primary Activities Inbound Operations Outbound Marketing Service Logistics Logistics and Sales (Material (Operations) (Material (Marketing) (Service or Management- Management- Marketing) Operations) Operations)
SUPPLY-CHAIN MANAGEMENTa) Supply Chain direct to customer Suppliers Inbound Logistics Production Transaction Delivery Customerb) Supply Chain including wholesalers and retailers Information Flow Transfer Transfer Transfer Transfer Suppliers Manufacturing Distribution Retail Outlet Customer Cash Flow Supply Chain Organization
HOW AN AIS CAN ADD VALUETO AN ORGANIZATIONAn AIS adds value by providing accurate and timelyinformation so that five primary value chain activitiescan be performed more effectively and efficiently.This is done by: improving the quality and reducing thecosts of products or services.
HOW AN AIS CAN ADD VALUETO AN ORGANIZATIONAn AIS can… improve efficiency. improve decision making capabilities. increase the sharing of knowledge.A well-designed AIS can also help an organization profit byimproving the efficiency and effectiveness of its supply chain.
INFORMATION TECHNOLOGYAND CORPORATE STRATEGYDevelop 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 bedesigned to reflect the values of that organizational culture.
STRATEGY AND STRATEGIC POSITIONSWhat role does the AIS play in helping organizations adopt andmaintain a strategic position? Data collection about each activity Transforming data into information that can be used by management to coordinate those activities
LEARNING OBJECTIVE 4Explain the three basic functionsperformed by an accountinginformation system (AIS).
THE THREE BASIC FUNCTIONS PERFORMED BYAN AIS1. 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 BYAN AIS2. 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 BYAN AIS3. 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 5Discuss the types of information thatcan be provided by an AIS.
FINANCIAL STATEMENTSThe next function of the AIS is to provide management withinformation useful for decision making.The preparation of financial statements consists of a sequenceof 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 REPORTSThe AIS must also be able to provide managers with detailedoperational information about the organization’s performance.What reports does management need? A. Inventory status B. Budgets C. Performance reports
INTERNAL CONTROL CONSIDERATIONSAnother main function of an AIS is to provideadequate internal controls to accomplish three basicobjectives: Ensure that the information is reliable. Ensure that business activities are performed efficiently. Safeguard organizational assets.
TYPICAL TPS OF A MANUFACTURER PurchasingVendors Order Receiving Manufac- Goods turing Payroll Inventory Accounts Shipping Payable TaxesCustomers Customer Order General Fixed Ledger Assets Accounts Receivable Periodic Statements
MANAGING THE ACCOUNTINGINFORMATION SYSTEMS Strategic Systems Internal Tactical Systems ExternalEnvironment Environment Operational and Transaction Processing System
MANAGING THE ACCOUNTING INFORMATION SYSTEMS STRATEGIC SYSTEMS a. Strategic Planning b. Ratios and Financial Health c. Merger and Acquisition Analysis INTERNAL EXTERNAL ENVIRONMENT TACTIAL SYSTEMS ENVIRONMENT a. Budgeting Preparation and ControlTop Management IRS b. Investment ManagementOperation/ c. Capital Budgeting d. Cost Analysis and Control VendorsProduction e. Tax Management f. Auditing ClientsMarketing g. Financial Planning SuppliersHRM CustomersEngineering OPERATIONAL AND Business Partners TRANSACTION PROCESSING SYSTEMS a. 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.