AIS chapter 1
- A system is a set of two or more interrelated components that interact to
achieve a goal. Most systems are composed of smaller subsystems that
support the larger system.
- Goal conflict occurs when a subsystem is inconsistent with the
goals of another subsystem or with the system as a whole. Goal
congruence occurs when a sub-system achieves its goals while
contributing to the organization’s overall goal.
- See table 1-1
- The process that begins with capturing transaction data and
ends with informational output, such as the financial statements,
is called transaction processing.
- exchanges can be grouped into five major business processes or
o The revenue cycle, where goods and services are sold for
cash or a future promise to receive cash. This cycle is
discussed in Chapter 12
o The expenditure cycle, where companies purchase
inventory for resale or raw materials to use in producing
products in exchange for cash or a future promise to pay
cash. This cycle is discussed in Chapter 13.
o The production or conversion cycle, where raw materials
are transformed into finished goods. This cycle is discussed
in Chapter 14.
o The human resources/ payroll cycle, where employees are
hired, trained, compensated, evaluated, promoted, and
terminated. This cycle is discussed in Chapter 15.
o The financing cycle, where companies sell shares in the
company to investors and borrow money and where
investors are paid dividends and interest is paid on loans.
- It has often been said that accounting is the language of
business. If that is the case, then an accounting information
system ( AIS) is the intelligence— the information- providing
vehicle— of that language.
- There are six components of an AIS:
o 1. The people who use the system
o 2. The procedures and instructions used to collect,
process, and store data
o 3. The data about the organization and its business
o 4. The software used to process the data o 5. The information technology infrastructure, including the
computers, peripheral devices, and network
communications devices used in the AIS
o 6. The internal controls and security measures that
safeguard AIS data
- These six components enable an AIS to fulfill three important
o 1. Collect and store data about organizational activities,
resources, and personnel. Organizations have a number of
business processes, such as making a sale or purchasing
raw materials, which are repeated frequently.
o 2. Transform data into information so management can
plan, execute, control, and evaluate activ-ities, resources,
and personnel. Decision making is discussed in detail later
in this chapter.
o 3. Provide adequate controls to safeguard the
organization’s assets and data. Control concepts are
discussed in detail in Chapters 5– 11.
- How an AIS Can Add Value to an Organization
o 1. Improving the quality and reducing the costs of
products or services. For example, an AIS can monitor
machinery so operators are notified immediately when
performance falls outside acceptable quality limits. This
helps maintain product quality, reduces waste, and lowers
o 2. Improving efficiency. For example, timely information
makes a just- in- time manufactur-ing approach possible,
as it requires constant, accurate, up- to- date information
about raw materials inventories and their locations.
o 3. Sharing knowledge. Sharing knowledge and expertise
can improve operations and pro-vide a competitive
advantage. For example, CPA firms use their information
systems to share best practices and to support
communication between offices. Employees can search the
corporate database to identify experts to provide
assistance for a particular client; thus, a CPA firm’s
international expertise can be made available to any local
o 4. Improving the efficiency and effectiveness of its supply
chain. For example, allowing customers to directly access
inventory and sales order entry systems can reduce sales
and marketing costs, thereby increasing customer
retention rates. o 5. Improving the internal control structure. An AIS with
the proper internal control structure can protect systems
from fraud, errors, system failures, and disasters.
o 6. Improving decision making. Improved decision making
is vitally important and is discussed below in more detail.
- An AIS can help improve decision making in several ways:
o It can identify situations requiring management action. For
example, a cost report with a large variance might
stimulate management to investigate and, if necessary,
take corrective action.
o It can reduce uncertainty and thereby provide a basis for
choosing among alternative actions.
o It can store information about the results of previous
decisions, which provides valuable feedback that can be
used to improve future decisions. For example, if a
company tries a particular marketing strategy and the
information gathered indicates that it did not succeed, the
company can use that information to select a different
o It can provide accurate information in a timely manner. For
example, Walmart has an enor-mous database that
contains detailed information about sales transactions at
each of its stores. It uses this information to optimize the
amount of each product carried at each store.
o It analyzes sales data to discover items that are purchased
together, and it uses such infor-mation to improve the
layout of merchandise to encourage additional sales of
related items. In a similar vein, Amazon. com uses its
database of sales activity to suggest additional books for
customers to purchase. Focus 1- 3 discusses how
information technology adds value to UPS.
- predictive analysis, which uses data warehouses and com-plex
algorithms to forecast future events, based on historical trends
and calculated probabilities.
- The Role of the AIS in the Value Chain
o 1. Inbound logistics consists of receiving, storing, and
distributing the materials an organi-zation uses to create
the services and products it sells. For example, an
automobile manu-facturer receives, handles, and stores
steel, glass, and rubber.
o 2. Operations activities transform inputs into final products
or services. For example, assembly line activities convert
raw materials into a finished car. o 3. Outbound logistics activities distribute finished products
or services to customers. An example is shipping
automobiles to car dealers.
o 4. Marketing and sales activities help customers buy the
organization’s products or serv-ices. Advertising is an
example of a marketing and sales activity.
o 5. Service activities provide post- sale support to
customers. Examples include repair and maintenance
- Support activities allow the five primary activities to be
performed efficiently and effec-tively. They are grouped into four
o 1. Firm infrastructure is the accounting, finance, legal, and
general administration activi-ties that allow an
organization to function. The AIS is part of the firm
o 2. Human resources activities include recruiting, hiring,
training, and compensating employees.
o 3. Technology activities improve a product or service.
Examples include research and development, investments
in IT, and product design.
o 4. Purchasing activities procure raw materials, supplies,
machinery, and the buildings used to carry out the primary
activities. Chapter 2
- Turnaround documents are company output sent to an external
party, who often adds data to the document, and then are
returned to the company as an input document.
- Source data automation devices capture transaction data in
machine- readable form at the time and place of their origin.
- Look at table 2-1
- A general ledger contains summary- level data for every asset,
liability, equity, revenue, and ex