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CHAPTER 1
ACCOUNTING INFORMATION SYSTEMS:
AN OVERVIEW
Instructor’s Manual
Learning Objectives:
1. Distinguish between data and information, discuss the
3. Identify the information that passes between internal and
external parties and an AIS.
5. Explain what an accounting information system (AIS) is and
describe its basic functions.
7. Explain how an AIS and corporate strategy affect each other.
8. Explain the role an AIS plays in a company’s value chain.
Systems, Data, and Information
Systems
Learning Objective One
Distinguish between data and information,
discuss the characteristics of useful
information, and explain how to determine the
value of information.
Each subsystem is designed to achieve one or more
organizational goals.
When the Systems Concept is used in systems development, changes
in subsystems cannot be made without considering the effect on
other subsystems and the system as a whole.
Data
Data are facts that are collected, recorded, stored, and
processed by an information system
Several kinds of data need to be collected in businesses,
such as:
2. The resources affected by the activities
3. The people who participate in the activity
Information
Information is data that have been organized and processed to
provide meaning to a user.
1. Keeping track of the 3,000 items sold in each store
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2. Keeping track of customers (what and when they buy).
If their best customers are single men, for example,
3. Ordering sandwiches and rice dishes from suppliers
automatically. Orders are placed and filled three
4. Coordinating deliveries with suppliers. This allows
5. Preparing a color graphic display that indicates
which store areas contribute the most to sales and
profits.
Table 1-1 on page 4 provides the seven characteristics that
make information useful and meaningful for decision making.
2. Reliable
4. Timely
6. Verifiable
7. Accessible
Multiple Choice 1
Data differ from information in which way?
a. Data are output and information is input.
b. Information is output and data are input.
c. Data are meaningful bits of information.
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d. There is no difference.
Multiple Choice 2
Which of the following is not a characteristic that makes information
useful?
a. It is reliable. c. It is inexpensive.
b. It is timely. d. It is relevant.
Key Decisions and Information Needs
Using S&S case we can use business processes to delineate the key
decisions that will need to be made within each process and determining
those decisions, ascertaining what information will be needed to reach
Multiple Choice 3
Which of the following is not a means by which information improves
decision making?
a. increasing information overload
Reorganize Business Processes
Learning Objective Two
Explain the decisions an organization makes
and the information needed to make them.
Learning Objectives Three and Four
3. Identify the information that passes
between internal and external parties and an
AIS.
4. Describe the major business processes
present in most companies
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2. The Expenditure Cycle—Purchase of inventory for resale or raw
3. The Production or Conversion Cycle—Raw materials are converted
into finished goods.
5. The Financing Cycle—How companies acquire capital by selling
shares or borrowing money and where investors are paid
dividends or interest.
For each of these processes there is a basic give-get relationship that
is called transaction processing. Figure 1-2 provides a description of
the basic give-get exchanges.
1. Revenue Cycle—Give goods, get cash or A/R
3. Production Cycle—Give labor and raw materials, get finished
goods
5. Financing Cycle—Give cash, get cash
The figure also shows the relationship between these cycles and the
general ledger and reporting system function.
Multiple Choice 4
Which transaction cycle includes interactions between an organization
and its suppliers?
a. revenue cycle
b. expenditure cycle
c. human resources/payroll cycle
d. general ledger and reporting system
Multiple Choice 5
In which cycle does a company ship goods to customers?
a. production cycle
b. financing cycle
c. revenue cycle
d. expenditure cycle
Learning Objective Five
Explain what an accounting information system
(AIS) is and describe its basic functions.
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What Is an Accounting Information System?
An Accounting Information System (AIS) is a system that collects,
records, stores, and processes data to produce information for
decision makers.
Six components of an Accounting Information System
1. The people who operate the system and perform various
functions
3. The data about the organization and its business processes
5. The information technology infrastructure, including
6. The internal controls and security measures that safeguard
the data in the AIS.
These six components enable an Accounting Information System to
fulfill three important business functions:
1. Collect and store data about organizational activities,
resources, and personnel.
2. Transform data into information that is useful for making
3. Provide adequate controls to safeguard the organization’s
assets, including its data, to ensure that the assets and
data are available when needed and the data are accurate
and reliable.
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Multiple Choice 6
Which of the following is a function of an AIS?
a. reducing the need to identify a strategy and strategic position
b. transforming data into useful information
c. allocating organizational resources
d. automating all decision making
How an AIS Can Add Value to an Organization
2. Improving efficiency. A well-designed AIS can make
3. Sharing knowledge. A well-designed AIS can make it easier
4. Improving the efficiency and effectiveness of its supply
chain.
6. Improving decision making
The AIS and Corporate Strategy
Information Technology and Business Strategy
Learning Objective Seven
Explain how an AIS and corporate strategy
affect each other.
Figure 1-4 on page 15 shows how IT developments can affect
business strategy.
For example, the growth of the Internet has affected
the way many value chain activities are performed.
The Internet makes a company’s products available
almost anywhere
The Role of the AIS in the Value Chain [Figure 1–3 on Page
11]
The objective of most organizations is to provide value to their
customers.
Five Primary Activities that directly provide value to its
customers:
1. Inbound logistics consists of receiving, storing, and
2. Operations activities transform inputs into final products
or services
4. Marketing and sales activities help customers buy the
organization’s products or services.
Four Categories of Support Activities
1. Firm infrastructure is the accounting, finance, legal, and
Learning Objective Eight
Explain the role an AIS plays in a company’s
value chain.
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2. Human resources activities include recruiting, hiring,
training, and providing employee benefits and compensation
4. Purchasing activities procure raw materials, supplies,
machinery, and the buildings used to carry out the primary
activities.
Supply Chain [Figure 1-4 on Page 11]
1. Raw Materials Supplier
3. Distributor
5. Consumer
Multiple Choice 9
Which of the following is a primary activity in the value chain?
a. purchasing c. post-sales service
b. accounting d. human resource management
References Used:
1. Michael E. Porter and Victor E. Millar, “How Information Gives
2. Michael E. Porter, “What Is Strategy?” Harvard Business Review
(November-December 1996), pp. 61-78.
3. Statement of Financial Accounting Concepts #2 on the Quality
