Accounting Information Systems - Chapter 1

The study of systems that produce accounting information.

Accounting Information Systems

Typically quantitative information about the performance or position (e.g., income statement and balance sheet) of a business.

Accounting Information

Typically made up of data that is organized into something useful.

Information

The collective efforts of People, Processes, and Technologies to accomplish a task.

System

What are systems used for?

Used to Observe, Record, Store, and Process/Update data so they can be appropriately Reported (i.e., classified and aggregated) as reliable accounting information.

Consists of interrelated components (hardware, software, databases, networks, and even people)

Information System

What does an information system do?

1. Observe and record

2. Process/Update and store

3. Report

A stand-alone system used by small businesses that focuses on the accounting equation and financial implications of the underlying business events.

Less Complex AIS

Higher Complexity AIS

Can fully integrate with the company's enterprise-wide information system

What is AIS specific to?

Accounting and financial data

What are the three business operations?

1. Business Model (highest level)

2. Business Process

3. Business Event (most basic)

A company's plan for operations and making a profit

Business Model

Allows individuals to purchase and run a franchise of a popular food chain (e.g., McDonalds)

Franchise business model

Involves charging a monthly subscription fee for unlimited access to a service or product (e.g., Netflix)

Subscription business model

Involves offering free services but charging a fee to access upgraded features (e.g., Dropbox)

Freemium business model

Connects individuals with one another (e.g., Airbnb)

Peer-to-peer business model

Involves selling directly to consumers (e.g., a local restaurant)

Direct-to-consumers business model

Selling to consumers via a retailer (e.g., many products sold at Walmart)

Retailer business model

A group of related business events designed to accomplish the strategic objectives of the business

Business Processes

What are the three types of business processes?

1. Acquisitions and payment processes

2. Conversion processes

3. Marketing, Sales, and Collections processes

Process that adds value by converting the resources into goods and services that customers want to buy.

Conversion processes

Process for acquiring and paying for the resources that the business needs.

Acquisitions and payment processes

Process that finds and keeps customers or clients, selling and delivering goods and services, and collecting payments.

Marketing, Sales, and Collections processes

This process can also capture sustainability data, which is used to measure a company's environmental footprint and societal and economic impacts.

Conversion process

Definable business activities that take place during the normal operations of a business. There events generate data, which become inputs to the AIS.

Business Events

What are the 4 types of business events?

1. Operating Events

2. Financing Events

3. Investing Events

4. Information Events

Used to fund operating events, long-term liabilities and owners equity.

Financing Events

Exchanges of information, not economic resources (e.g., take customer order, print report)

Information Events

Day-to-day operations, impacts current assets or current liabilities.

Operating Events

Buying/Selling assets

Investing Events

These systems were limited in that they ignored nonfinancial data and the relationships between business events and business processes. (Require journal entries)

Transaction-Based System / Legacy AIS System

In this system the accounting system is part of the overall information system (No journal entry required)

Process-Based System / Modern Integrated System

What does management use information for?

Decision Making

Management oversees business processes through:

1. Planning

2. Implementing

3. Monitoring

4. Changing and improving processes

Quantifiable metrics used to measure and evaluate the success of a company based on its objectives

Key Performance Indicators (KPIs)

Information must be capable of influencing a decision

Relevance

Applicable to future events

Predictive Value

Ability to either confirm or change previous decisions

Confirmatory Value

Significant impact on the decision (not including it would influence the decision)

Materiality

Information must be unbiased and accurate.

Faithful Representation

Information results in the same conclusions by independent and

knowledgeable individuals.

Verifiability

Information is recent and available in time to influence relevant decisions.

Timeliness

Information is easy to understand by being properly classified and presented clearly.

Understandability

Information presents similar items in the same manner to make it easy to identify similarities and differences when necessary.

Comparability

The preferences, constraints, and other factors that affect how a decision is made

Decision Context

The process of aggregating data into information on the activities and performance in a company

Reporting

The process of using technology to transform raw data, or facts, into useful information

Data Analytics