ACCOUNTING INFORMATION SYSTEM - ROMNEY

System - is a set of two or more interrelated components that interact to achieve a goal.
Goal conflict - occurs when a subsystem’s goals are inconsistent with the goals of another subsystem or with the system as a
whole.
Goal congruence - occurs when a subsystem achieves its goals while contributing to the organization’s overall goal.
Data - facts that are collected, recorded, stored, and processed by an information system.
Information - data that have been organized and processed to provide meaning and improve the decision-making process.
As a rule, users make better decisions as the quantity and
quality of information increase.
Information Overload - Exceeding the amount of information a human mind can absorb and
process, resulting in a decline in decision-making quality and an increase in the cost of providing information.
Information technology (IT) - The computers and other electronic devices used to store, retrieve, transmit and manipulate
data.
Vaue of information - the benefit provided by information less the cost of producing it.

Characteristics of useful information

Relevant
- Reduces uncertainty, improves decision making, or confirms or corrects prior expectations.
Reliable
- Free from error or bias; accurately represents organization events or activities.
Complete
- Does not omit important aspects of the events or activities it measures.
Timely
- Provided in time for decision makers to make decisions.
Understandable
- Presented in a useful and intelligible format.
Verifiable
- Two independent, knowledgeable people produce the same information.
Accessible
- Available to users when they need it and in a format they can use.

Business process - a set of related, coordinated, and structured activities and tasks that are performed by a person, a
computer, or a machine, a computer or a machine, and that help accomplish a specific organizational goal.

They need to identify the information then they can identify the types of data and procedures they will need to collect and
produce that information.

Transaction - An agreement between two entities to exchange goods or services, such as selling inventory in exchange for
cash; any other event that can be measured in economic terms
by an organization.
Transaction processing - Process of capturing transaction data, processing it, storing it for later use, and producing
information output, such as a managerial report or a financial statement.
give-get exchange - Transactions that happen a great many times, such as giving up cash
to get inventory from a supplier and giving employees a paycheck in exchange for their
labor.
business processes or transaction cycles - The major give-get exchanges that occur
frequently in most companies.
revenue cycle - Activities associated with selling goods and services in exchange for cash or
a future promise to receive cash.
expenditure cycle - Activities associated with purchasing inventory for resale or raw materials
in exchange for cash or a future promise to pay cash.
production or conversion cycle - Activities associated with using labor, raw materials and equipment to produce finished
goods.
human resources/payroll cycle - Activities associated with hiring, training, compensating, evaluating, promoting, and
terminating employees.
financing cycle - Activities associated with raising money by selling shares in the company to
investors and borrowing money as well as paying dividends and interest.

general ledger and reporting system - Information-processing operations involved in updating

the general ledger and preparing reports for both management and external parties.

Accounting information system - A system that collects, records, stores, and processes data to produce information for decision
makers. It includes people, procedures and instructions, data, software, information technology infrastructure, and internal controls and
security measures.

There are six components of an AIS:

1. The people who use the system
2. The procedures and instructions used to collect, process, and store data 3. The data about the organization and its business activities
4. The software used to process the data
5. The information technology infrastructure, including the computers, peripheral devices, and network communications devices used in
the AIS
6. The internal controls and security measures that safeguard AIS data

These six components enable an AIS to fulfill three important business functions:
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.

2. Transform data into information so management can plan, execute, control, and evaluate activities, resources, and personnel. Decision
making is discussed in detail later in this chapter.

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

A well-designed AIS can add value to an organization by:
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.

2. Improving efficiency. For example, timely information makes a just-in-time manufacturing approach possible, as it requires constant,
accurate, up-to-date information about raw materials inventories and their locations.

3. Sharing knowledge. Sharing knowledge and expertise can improve operations and provide 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.

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.

5. Improving the internal control structure. An AIS with the proper internal control structure can help protect systems from fraud,
errors, system failures, and disasters.

6. Improving decision making. Improved decision making is vitally important and is discussed below in more detail.

Decision making is a complex, multistep activity:

1. identify the problem
2. collect and interpret information
3. evaluate ways to solve the problem
4. select a solution methodology
5. implement the solution

An AIS can help improve decision making in several ways:

● 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.
● It can reduce uncertainty and thereby provide a basis for choosing among alternative actions.
● 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.
● It can provide accurate information in a timely manner. For example, Walmart has an enormous 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.
● It can analyze sales data to discover items that are purchased together, and can use such information to improve the layout of
merchandise or to encourage additional sales of related items. For example, Amazon uses its sales database to suggest additional books for
customers to purchase.

AIS
1. Organizational Culture
2. Information Technology
3. Business Strategy

predictive analysis - The use of data warehouses and complex algorithms to forecast future events, based on historical trends and
calculated probabilities.
value chain - Linking together all the primary and support activities in a business. Value is added as a product passes through the chain.

primary activities - Value chain activities that produce, market, and deliver products and services to customers and provide post-delivery
service and support.
1. Inbound logistics consists of receiving, storing, and distributing the materials an organization uses to create the services and products
it sells. For example, an automobile manufacturer receives, handles, and stores steel, glass, and rubber.
2. Operations activities transform inputs into final products or services. For example, assembly line activities convert raw materials into a
finished car.
3. Outbound logistics activities distribute finished products or services to customers. An example is shipping automobiles to car dealers.
4. Marketing and sales activities help customers buy the organization’s products or services. Advertising is an example of a marketing
and sales activity.
5. Service activities provide post-sale support to customers. Examples include repair and maintenance services.

support activities - Value chain activities such as firm infrastructure, technology, purchasing, and human resources that enable primary
activities to be performed efficiently and effectively.
Support activities allow the five primary activities to be performed efficiently and effectively. They are grouped into four
categories:
1. Firm infrastructure is the accounting, finance, legal, and general administration activities that allow an organization to function.
The AIS is part of the firm infrastructure.
2. Human resources activities include recruiting, hiring, training, and compensating employees.
3. Technology activities improve a product or service. Examples include research and development, investments in IT, and product
design.
4. Purchasing activities procure raw materials, supplies, machineries, and the buildings used to carry out the primary activities. Using IT
to redesign supply chain system
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.
d. There is no difference.

2. Which of the following is NOT a characteristic that makes information useful?

a. It is reliable.
b. It is timely.
c. It is inexpensive.
d. It is relevant.

3. Which of the following is a primary activity in the value chain?

a. purchasing
b. accounting
c. post-sales service
d. human resource management

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

5. Which of the following is NOT a means by which information improves decision making?
a. increases information overload
b. reduces uncertainty
c. provides feedback about the effectiveness of prior decisions
d. identifies situations requiring management action

6. In the value chain concept, upgrading IT is considered what kind of activity?

a. primary activity
b. support activity
c. service activity
d. structured activity

7. In which cycle does a company ship goods to customers?

a. production cycle
b. financing cycle
c. revenue cycle
d. expenditure cycle

8. 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

9. A firm, its suppliers, and its customers collectively form which of the following?
a. supply chain
b. value chain
c. ERP system
d. AIS

10. A report telling how well all approved vendors have performed in the prior 12 months is information that is MOST needed in which
business process?
a. paying vendors
b. acquiring inventory
c. selling merchandise
d. paying employees