ais chapter 1 lecture notes

Chapter 1: Goals/Learning Objectives

1. Distinguish between data and information, Discuss the characteristics of useful information, Explain how to determine the value of information.

2. Explain the decisions an organization makes and the information needed to make those decisions.

3. Identify the information that passes between internal and external parties and an AIS.

4. Describe the major business processes present in most companies.

5. Explain what an accounting information system (AIS) is and describe its basic functions.

6. Discuss how an AIS can add value to an organization.

7. Explain how an AIS and corporate strategy affect each other.

8. Explain the role an AIS plays in a company’s value chain.

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Homework Questions: chapter 1

Discussion questions: 1.1, 1.2, 1.3, 1.7

Problems: 1.3 (USAA), 1.4 (for your practice), and 1.5 (will be answered in chapter 12).

Internet exercises: read the document at this link: quality standard for accounting information: write a summary

(1page) http://www.fasb.org/pdf/aop_CON2.pdf

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Goal #1

After finishing this learning objective the student should be able to:

1. Define a System, data, and information

2. Distinguish Data and Information

3. Understand the value of Information versus cost of information

4. List and explain all Useful Characteristics of Information


Systems (Definition, Terms)

System A set of two or more

interrelated components interacting to achieve a goal

Goal Conflict Occurs when components

act in their own interest without regard for overall goal

Goal Congruence Occurs when components

acting in their own interest contribute toward overall goal


Data vs. Information in AIS

Data are facts that are collected, recorded stored and processed by IS. Note data by itself in not in the form that facilitate decision making.

Information is data after it has been organized and processed to provide meaning and improve decision making. Note: there is a human limit

to absorbing amounts of information. Too much of it can lead to Information Overload.


Use of IT to produce Information

Information Technology

1. Designer use IT to help decision makers more effectively filter and condense information

2. Because tons of data can exist in large databases and data warehouse1. Walmart – 500 terabytes of data (2000 miles of

book shelfs or 100 million digital photos)Can you imagine any accounting company putting

together an accounting group of employees to sort thru these miles and miles of data?

2. Because of IT we can now collect, sort, organize, and filter these data and customize the information for any user group

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Value of Information

Benefits Reduce Uncertainty

Improve Decisions

Improve Planning

Improve Scheduling

Costs Time & Resources

Produce Information Distribute Information

1-7

Benefit $’s > Cost $’s

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What Makes Information Useful?

Necessary characteristics:1. Relevant

“The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations.”

2. Reliable“The quality of information that assures that information

is reasonably free from error and bias and faithfully represents what it purports to represent.”

3. Complete“The inclusion in reported information of everything

material that is necessary for faithful representation of the relevant phenomena.”


What Makes Information Useful?

4. Timely“Having information available to a decision maker before

it loses its capacity to influence decisions.”5. Understandable

“The quality of information that enables users to perceive its significance.”

6. Verifiable“The ability through consensus among measurers to

ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias.”

7. AccessibleAvailable when needed (see Timely) and in a useful format

(see Understandable).


Goals #2, #3, and #4

After finishing these learning objectives the student should be able to answer questions such as:1. What decision does an organization make

2. What information is needed to make those decisions

3. What information passes between internal and external parties and an AIS

4. What are the major business processes (students must master this subject to do well in this class).

1. What are transaction cycles (AIS Subsystems)

2. What are transactions (what AIS collects data about (REA))


Business Process and AIS

Business processes are a set of related, coordinated, and structured activities and tasks performed by a person, computer, or machine to achieve the organization’s goal. Data gathering in AIS is tied to the business processes of an organization.

AIS collects data about these activities and provides useful information to each decision maker of each activity to help make effective decision


Business Process Cycles: Pairs of events

1. Revenue: Sales/Sell and Collections

2. Expenditure: Purchases/Acquire and Payments

3. Production: Labor and Material and Finished Goods

4. Human Resources: Hiring People and Getting Labor

5. Financing: Acquiring Capital (Cash) and Giving Capital (Cash) – the opposite is Investing giving cash and making more cash.

Note: Information is needed to make effective decisions about all five of these activities. So, data has to be collected about them. These data have to be organized and provided to the right users for them to make effective decisions.


Business Transactions: Cycles

1. Give–Get exchanges

2. Between two entities

3. Measured in economic terms

For Example: Revenue Cycle1. Give (a product or service)– Get (or collect cash)

2. Between the company (entity 1) that sells the product and the customer (entity 2)

3. Economic terms (is the dollar amount and when will it be paid, all in cash now or in smaller amounts plus finance charge and interest over 2 years).


Business Process, Key Decisions, and Information Needs

1. Examples: (see table 1-2) Process = acquire capital, Decision = How much, which investor, and Information Needs = cash flow projections, amortization

schedules

2. Users of the information:

a. Internal: management, accounting staff, and employees

b. External: vendors, customers, government, investors, creditors, banks, etc(figure 1-1).


Business Cycle Give–Get


Common Activities related to each business process: table 1-3

1. Revenue: 14 common activities (for both transactions –sales and collections

2. Expenditure: 12 common activities for most types of purchases and payments

3. Human resources and payroll: 9 common activities

4. Production: 8 common activities

5. Financing: 7 common activities


Goals #5 and 6:

After finishing these learning objectives the student should be able to answer questions such as:

5. What is an AIS1. What is Accounting and therefore what is AIS.

2. What are the functions of an AIS

6. How does an AIS add value to any organization


Accounting Information Systems

1. Accounting is about: Collecting, processing, storing, and reporting data and about information development: measurement, and communication process – AIS is the same thing (collects, records, stores, processes accounting data to produce information for decision makers)– so accounting must be AIS

2. If Accounting = language of business

3. AIS = information providing vehicle it is therefore

the intelligence of the language

4. AIS can be pencil/paper based or sophisticated IT based – it does not matter it still is about the same thing.


Components of an AIS

1. People using the system

2. Procedures and Instructions1. For collecting, processing, and storing data

3. Data

4. Software

5. Information Technology (IT) Infrastructure1. Computers, peripherals, networks, and so on

6. Internal Control and Security1. Safeguard the system and its data


AIS and Business Functions

1) Collect and store data about organizational:1) Activities, resources, and personnel

2) Transform data into information enabling1) Management to:

1) Plan, execute, control, and evaluate

1) Activities, resources, and personnel

3) Provide adequate control to safeguard1) Assets and data


AIS Value Add

1. Improve Quality and Reduce Costs

2. Improve Efficiency

3. Improve Sharing Knowledge

4. Improve Supply Chain

5. Improve Internal Control

6. Improve Decision Making


Improve Decision Making

1. Identify situations that require action.

2. Provide alternative choices.

3. Reduce uncertainty.

4. Provide feedback on previous decisions.

5. Provide accurate and timely information.


Goals #7, and 8

After finishing these learning objectives the student should be able to answer questions such as:

1. Explain how an AIS and Corporate Strategy affect each other

2. What is an organizations Value Chain, Role of AIS in the Value Chain


Value Chain

1. The set of activities a product or service moves along before as output it is sold to a customer

a. At each activity the product or service gains value


Value Chain—Primary Activities


Value Chain—Support Activities


Value Chain


AIS and Corporate Strategy

Organizations have limited resources, thus investments to AIS should have greatest impact on ROI.

Organizations need to understand:

IT developments

Business strategy

Organizational culture

Will effect and be effected by new AIS


ais chapter 1 lecture notes

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