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Accounting Information Systems - Pre-Midterm Textbook Notes

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Wilfrid Laurier University
Kevin Bullock

Chapter 1Accounting Information Systems An OverviewIntroductionSystem is a set of interrelated components that interact to achieve a goal o Most are composed of smaller subsystems o Each subsystem is created to achieve one or more organizational goalsGoal conflict is when a subsystems goals are inconsistent with other subsystems or those of the whole organizationGoal congruence is the oppositeData are facts that are collected recorded stored and processed by an info system o Data is collected about activities that take place people involved etcInformation is data that has been organized and processed to provide meaning and improve the decisionmaking process o As quantity and quality of data increase decisionmaking improves o Information overload is when too much info results in decline in decision makingValue of information is the benefit minus the cost of producing it o Difficult to estimateCharacteristics of useful information o Relevant o Reliable o Complete o Timely o Understandable o Verifiable o AccessibleInformation Needs and Business ProcessesBusiness process is a set of related coordinated and structured activities and tasks that are performed by a person or computer or machine to help accomplish a specific org goalThe data gathering process for making decisions is often tied to the basic business processes in an orgBusiness processKey DecisionsInformation NeedsTransaction is an agreement between two entities to exchange goods or services or any other event that can be measured in economic terms by an orgTransaction Processing the process that begins with capturing transaction data and ends with informational outputGiveGet Exchange an event in which two entities exchange items such as cash for goods and servicesMain business processestransaction cycles not every business requires each of these o Revenue cyclegoods and services are sold for cash or a future promise to receive cash o Expenditure cyclepurchase of inventory for resale or raw material to use in producing products in exchange for cash or a future promise to pay cash o Production or conversion cycleraw materials are transformed into finished goods o Human resourcespayroll cycleemployees are hired trained compensated evaluated promoted and terminated o Financing cyclecompanies sell shares in the company to investors and borrow money and where investors are paid dividends and interest is paid on loansThe nature of the above cycles differs by businessGeneral ledger and reporting systemthe infoprocessing operations involved in updating the general ledger and preparing reports that summarize organizational activitiesAccounting Information SystemsAn AIS collects records stores and processes accounting and other data to produce info for decision makersSix components of an AIS 1 People who use the system 2 Procedures and instructions used to collect process and store data 3 Data about the org and its business activities 4 Software used to process the data 5 IT infrastructure including the computers peripheral devices and network communication devices used in the AIS 6 Internal controls and security measures that safeguard AIS dataThree business functions fulfilled by an AIS and thus the 6 components 1 Collect and store data about org activities resources and personnel 2 Transform data into info so mgmt can plan execute control and evaluate activities resources and personnel 3 Provide adequate controls to safeguard the dataHow an AIS can add value to an org 1 Improving the quality and reducing the costs of products and services 2 Improving efficiency ie JIT 3 Sharing knowledge can improve operations and provide competitive advantage 4 Improving the efficiency and effectiveness of its supply chain 5 Improving the internal control structurecan protect systems from fraud errors system failures and disasters 6 Improving decision makingHow an AIS improves decisionmaking o Identifies situations requiring mgmt action o Reduces uncertainty and provides basis for choosing among alternatives o Stores information about results of previous decisions provides valuable feedback o Provides accurate info in a timely manner o Analyzes sales data to discover items that are packaged together and thus improve layout of merchandiseThe AIS and corporate strategy o With limited resources important to identify the AIS improvements likely to yield the greatest return o Making these wise decisions requires an understanding of overall strategy o Three factors influence the design of an AIS 1 Developments in IT2 Business strategy 3 Org culture o Design of AIS can also influence the orgs culture by controlling the flow of info o IT developments can affect business strategy ie internet has profoundly affected the way activities are performedTechnological advances have also led to predictive analysis uses data warehouses and complex algorithms to forecast future events based on historical trends and calculated probabilitiesThe role of the AIS in the value chain o Primary activities in the value chain1 inbound logistics2 operations 3outbound logistics 4 marketing and sales 5 service o Support activities allow primary activities to be performed efficiently and effectively 1 firm infrastructure 2 human resources 3technology 4 purchasing o Supply chain an extended system that includes an organizations value chain as well as its suppliers distributors and customersOrgs value chain is part of this systemAn org can improve its own performance by helping others in the supply chain to improve their performance
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