Summary Accounting Information Systems 13th edition (Romney &
Steinbart)
Chapter 1: Accounting information systems: an overview
Introduction
System = two or more interrelated components that interact to achieve a
goal, often composed of subsystems that support the larger system.
Goal conflict = when a subsystem’s goals are inconsistent with the goals of
another subsystem or the system as a whole.
Goal congruence = when a subsystem achieves its goal while contributing
to the organization’s overall goal. The large the firm and the more
complicated the system, the more difficult to create goal congruence.
Data = facts that are collected, recorded, stored and processed by a
system.
Information = data that have been organized and processed to provide
meaning and improve decision-making. If quantity and quality of
information goes up, users make better decisions.
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) = computers and other electronic devices used
to store, retrieve, transmit and manipulate data helps decision makers
effectively filter and condense information.
Value of information = the benefit provided by information less the cost of
providing it. Examples benefits: reduced uncertainty, improved decisions
and improved ability to plan and schedule activities. Examples costs: time
and resources spent to produce and distribute information.
Characteristics of useful information (table 1-1 p. 30):
1. Relevant: reduces uncertainty, improves decision making or confirms or
corrects prior expectations.
2. Reliable: free from error or bias; accurately represents organization events
or activities.
3. Complete: doesn’t omit important aspects of the events or activities it
measures.
4. Timely: provides in time for decision makers to make decisions.
5. Understandable: presented in a useful and intelligible format.
6. Verifiable: two independent, knowledgeable people produce the same
information.
7. Accessible: available to users when they need it and in a format they can
use.
Information needs and business processes
Process the data needed to produce information how to gather the data
what information needed to make decisions decide what decisions to make
make effective decisions.
Business process = a set of related, coordinated, and structured activities
and tasks, performed by a person, a computer or a machine that help
accomplish a specific organizational goal.
, Transaction = an agreement between two entities to exchange goods or
services or any other event that can be measured in economic terms by a
firm.
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 many times. For example
give cash for inventory.
Business processes or transaction cycles = major give-get exchanges that
occur frequently in most companies
Five types of transaction cycles: see figure 1-2 The AIS and its subsystems
p. 33.
1. Revenue cycle: activities associated with selling goods and services in
exchange for cash or a future promise to receive cash.
2. Expenditure cycle: activities associated with purchasing inventory for
resale or raw materials in exchange for cash or a future promise to pay
cash.
3. Production or conversion cycle: activities associated with using labor, raw
materials and equipment to produce finished goods.
4. Human resources/payroll cycle: activities associated with hiring, training,
compensating, evaluating, promoting and terminating employees.
5. 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.
The various transaction cycles interface with the general ledger and
reporting system.
General ledger and reporting system = information-processing operations
involved in updating the general ledger and preparing reports for both
management and external parties. The nature of a given transaction cycle differs
across different types of firms and may include different business processes or
activities.
See table 1-3 Common cycle activities p.34.
Accounting Information Systems
Accounting = data identification, collection and storage process as well as an
information development, measurement and communication process.
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. Should be the firm’s primary information system and need to
provide users with information needed to perform their jobs.
Six components AIS:
1. People who use the system
2. Procedures and instructions used to collect, process and store data
2
, 3. Data about the organization and its business activities
4. Software used to process the data
5. Information technology infrastructure
6. Internal controls and security measures that safeguard AIS data
Three important business functions AIS:
1. Collect and store data about organizational activities, resources and
personnel. Organizations have a number of business processes which are
repeated frequently.
2. Transform data into information so management can plan, execute, control
and evaluate activities, resources and personnel.
3. Provide adequate controls to safeguard the firm’s assets and data.
See figure 1-3 An AIS processes data to produce information for decision
makers p.36.
How an AIS can add value to an organization:
1. Improving the quality and reducing the costs of products or services.
2. Improving efficiency (timely information)
3. Sharing knowledge improve operations and provide competitive
advantage
4. Improving the efficiency and effectiveness of its supply chain reduce
sales and marketing costs
5. Improving the internal control structure protect systems from fraud,
errors, system failures and disasters
6. Improving decision making
Decision making steps: identify problem, collect and interpret information,
evaluate ways to solve the problem, select a solution methodology, and
implement the solution. AIS can provide assistance in all phases:
1. It can identify situations requiring management action.
2. It can reduce uncertainty and thereby providing a basis for choosing
among alternative actions.
3. It can store information about the results of previous decisions which
provides valuable feedback that can be used to improve future decisions.
4. It can provide accurate information in a timely manner.
5. It can analyse 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.
The AIS and corporate strategy
Three factors that influence the design of an AIS: developments in IT, business
strategy and organizational culture. The design of the AIS can also influence the
organization’s culture by controlling the flow of information within the firm. IT
developments can influence business strategy. For example: predictive analysis:
the use of data warehouses and complex algorithms to forecast future events,
based on historical trends and calculated probabilities. AIS plays a large role in
helping it adopt and maintain a strategic position. See figure 1-4 Factors
influencing design of AIS p.39.
3
Steinbart)
Chapter 1: Accounting information systems: an overview
Introduction
System = two or more interrelated components that interact to achieve a
goal, often composed of subsystems that support the larger system.
Goal conflict = when a subsystem’s goals are inconsistent with the goals of
another subsystem or the system as a whole.
Goal congruence = when a subsystem achieves its goal while contributing
to the organization’s overall goal. The large the firm and the more
complicated the system, the more difficult to create goal congruence.
Data = facts that are collected, recorded, stored and processed by a
system.
Information = data that have been organized and processed to provide
meaning and improve decision-making. If quantity and quality of
information goes up, users make better decisions.
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) = computers and other electronic devices used
to store, retrieve, transmit and manipulate data helps decision makers
effectively filter and condense information.
Value of information = the benefit provided by information less the cost of
providing it. Examples benefits: reduced uncertainty, improved decisions
and improved ability to plan and schedule activities. Examples costs: time
and resources spent to produce and distribute information.
Characteristics of useful information (table 1-1 p. 30):
1. Relevant: reduces uncertainty, improves decision making or confirms or
corrects prior expectations.
2. Reliable: free from error or bias; accurately represents organization events
or activities.
3. Complete: doesn’t omit important aspects of the events or activities it
measures.
4. Timely: provides in time for decision makers to make decisions.
5. Understandable: presented in a useful and intelligible format.
6. Verifiable: two independent, knowledgeable people produce the same
information.
7. Accessible: available to users when they need it and in a format they can
use.
Information needs and business processes
Process the data needed to produce information how to gather the data
what information needed to make decisions decide what decisions to make
make effective decisions.
Business process = a set of related, coordinated, and structured activities
and tasks, performed by a person, a computer or a machine that help
accomplish a specific organizational goal.
, Transaction = an agreement between two entities to exchange goods or
services or any other event that can be measured in economic terms by a
firm.
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 many times. For example
give cash for inventory.
Business processes or transaction cycles = major give-get exchanges that
occur frequently in most companies
Five types of transaction cycles: see figure 1-2 The AIS and its subsystems
p. 33.
1. Revenue cycle: activities associated with selling goods and services in
exchange for cash or a future promise to receive cash.
2. Expenditure cycle: activities associated with purchasing inventory for
resale or raw materials in exchange for cash or a future promise to pay
cash.
3. Production or conversion cycle: activities associated with using labor, raw
materials and equipment to produce finished goods.
4. Human resources/payroll cycle: activities associated with hiring, training,
compensating, evaluating, promoting and terminating employees.
5. 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.
The various transaction cycles interface with the general ledger and
reporting system.
General ledger and reporting system = information-processing operations
involved in updating the general ledger and preparing reports for both
management and external parties. The nature of a given transaction cycle differs
across different types of firms and may include different business processes or
activities.
See table 1-3 Common cycle activities p.34.
Accounting Information Systems
Accounting = data identification, collection and storage process as well as an
information development, measurement and communication process.
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. Should be the firm’s primary information system and need to
provide users with information needed to perform their jobs.
Six components AIS:
1. People who use the system
2. Procedures and instructions used to collect, process and store data
2
, 3. Data about the organization and its business activities
4. Software used to process the data
5. Information technology infrastructure
6. Internal controls and security measures that safeguard AIS data
Three important business functions AIS:
1. Collect and store data about organizational activities, resources and
personnel. Organizations have a number of business processes which are
repeated frequently.
2. Transform data into information so management can plan, execute, control
and evaluate activities, resources and personnel.
3. Provide adequate controls to safeguard the firm’s assets and data.
See figure 1-3 An AIS processes data to produce information for decision
makers p.36.
How an AIS can add value to an organization:
1. Improving the quality and reducing the costs of products or services.
2. Improving efficiency (timely information)
3. Sharing knowledge improve operations and provide competitive
advantage
4. Improving the efficiency and effectiveness of its supply chain reduce
sales and marketing costs
5. Improving the internal control structure protect systems from fraud,
errors, system failures and disasters
6. Improving decision making
Decision making steps: identify problem, collect and interpret information,
evaluate ways to solve the problem, select a solution methodology, and
implement the solution. AIS can provide assistance in all phases:
1. It can identify situations requiring management action.
2. It can reduce uncertainty and thereby providing a basis for choosing
among alternative actions.
3. It can store information about the results of previous decisions which
provides valuable feedback that can be used to improve future decisions.
4. It can provide accurate information in a timely manner.
5. It can analyse 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.
The AIS and corporate strategy
Three factors that influence the design of an AIS: developments in IT, business
strategy and organizational culture. The design of the AIS can also influence the
organization’s culture by controlling the flow of information within the firm. IT
developments can influence business strategy. For example: predictive analysis:
the use of data warehouses and complex algorithms to forecast future events,
based on historical trends and calculated probabilities. AIS plays a large role in
helping it adopt and maintain a strategic position. See figure 1-4 Factors
influencing design of AIS p.39.
3
