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AIS ch notes.docx

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University of Ottawa
Sheldon Weatherstone

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 transaction cycles: 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 activities 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 business functions: 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 costs. 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 client. 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 marketing strategy. 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 services. - Support activities allow the five primary activities to be performed efficiently and effec-tively. They are grouped into four categories: 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 infrastructure. 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
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