Information Systems: Learning Objectives

chapter
Information Systems 1
Learning objectives
–To understand the concept of systems.
–To learn the systems that comprise an
accounting information system.
–To identify the relationship between an
accounting information system and value-
adding activities.
–To understand the various types of decisions
made in businesses, and the structure and
scope of such decisions.
–To understand what a computer-based
accounting information system is.
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 1-1
Kaye Watson.
key terms
• accounting information • open system
system (AIS) • output
• boundary
• subsystem
• closed system
• super system
• data
• system
• economic event
• transaction
• information
• information system • transaction processing
system
• input
• interface • value chain
• management information • value system
system
Kaye Watson.
key terms
• System :
A system is said to be comprise of distinguishable

parts or elements whose relationship to one another
is defined and whose behavior is mutually
supportive towards the achievement of common
goal.
Kaye Watson.
key terms
• Input , Data , Process, Output , Information,
Report, Boundary /Environment , Information
system:
Kaye Watson.
key terms
• Sub systems: A secondary or subordinate
systems which contribute towards the
systems purpose.
• Super system : Collective system can be
termed as super system
Super system
Subsystem
Kaye Watson.
key terms
• Interface : An interface is a shared boundary
or connection between two dissimilar objects,
devices or systems through which information
is passed.
System 1 Interface System 2
Kaye Watson.
key terms
• Closed System : When a system is totally
isolated from environment, it is called closed
system.
• Open system : When a system interactive
with its environment, adapts to any changes
in the environment and hence survives, it is
called open system
Kaye Watson.
key terms
• Economic Resource : is a thing that is scarce,
and has utility for economic agents, and is
something users of business applications
want to plan, monitor, and control. Examples
of economic resources are products and
services, money, raw materials, labor, tools,
and services the enterprise uses
Kaye Watson.
key terms
• Economic Agent : is an individual or
organization capable of having control over
economic resources, and transferring or
receiving the control to or from other
individuals or organizations. Examples of
economic agents are customers, vendors,
employees, and enterprises
Kaye Watson.
key terms
• Economic Event : represents either an
increment or a decrement in the value of
economic resources that are under the
control of the enterprise. Some economic
events occur instantaneously, such as sales
of goods; some occur over time, such as
rentals, labor acquisition, and provision and
use of services.
Kaye Watson.
key terms
• Transaction :
1)An agreement between a buyer and a
seller to exchange goods, services or
financial instruments.
2)In accounting, the events that affect the

finances of a business and must be recorded
on the books. Transactions are recorded in
what are known as "journal entries."
Kaye Watson.
key terms
• Business process is an interrelated set of
tasks that involve data and is carried out by
an organizational unit in a time sequence.
Their starting and ending point are clearly
defined. For example Purchasing process
could starts when store section of an
organization requisitions a particular item and
ends with supplier invoice is paid.
Kaye Watson.
key terms
• Value chain : Activities / Business processes
of an organization are value chain.
Concentrating of activities/business
processes can add value to product/services
of an organization.
• Value system : When organization value
chain is linked with supplier and customer
organization it is called value system
Kaye Watson.
key terms
• Information system :
A system which is used to obtain information
for decision making is an information system.
Characteristic of useful information are :
1) Accurate 4) Reliable 7) Timely
2) Complete 5) Relevant 8 ) Verifiable
3) Flexible 6) Understandable
Kaye Watson.
key terms
• Accounting : The systematic and comprehensive recording
of financial transactions pertaining to a business. Accounting
also refers to the process of summarizing, analyzing and
reporting these transactions. The financial statements that
summarize a large company's operations, financial position and
cash flows over a particular period are a concise summary of
hundreds of thousands of financial transactions it may have
entered into over this period. Accounting is one of the key
functions for almost any business; it may be handled by a
bookkeeper and accountant at small firms or by sizable finance
departments with dozens of employees at larger companies.
Kaye Watson.
Basic accounting equation
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Kaye Watson.
Accounting cycle
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Accounting information systems
Kaye Watson.
• AIS provides information using accounting
methods:
– Management reports for decision making
– Reports for regulatory bodies
– Special reports for potential creditors including
financial institutions and suppliers of goods and
services
Kaye Watson.
• Record
• Process
• Report
events in monetary terms using generally
accepted accounting principles (GAAP)
Kaye Watson.
External Internal
reporting reporting
Financial Management
accounting accounting
system system
Produces Produces budgets

financial & other reports
statements for management
Kaye Watson.
Levels within the AIS super system
Expert
system
Decision support
system
Management information
system
Transaction processing system
Kaye Watson.
• Transaction processing system is
incorporated into fundamental structure of
accounting information system where every
economic event or business transaction gets
recorded. Business transaction are generally
grouped into five categories.
1) Revenue 3) Production 5) Reporting
2) Expenditure 4) Human resource Management
Kaye Watson.
• Management information system draws
information from the transaction processing
system to provide meaningful aggregate
information to managers. This enables
managers to run day to day business affairs
of the organization on a more informed basis.
Kaye Watson.
• Decision support system also draws
information from the transaction processing
system to produce information for the needs
of individuals.
Management information system Decision support system
Produces aggregate of data Produces information primarily to

meet the needs of individual
managers in order to help them in
their decision making.
Kaye Watson.
• Expert system are enhanced decision
support system in which computer software
helps the user. This type of system asks
question from the user. Answer given by the
user are used to provide information to assist
decision making.
Kaye Watson.
AIS super system – another view
Comprises only three systems:
1. Transaction processing system
• Records transactions
2. Budgeting system
• Produces control information used by management
3. Responsibility reporting system
• Summarises historical data and provides reports to
compare with budgets or set management targets
Kaye Watson.
Decision Making activities
• There are three basic levels of managerial
activities
1)Strategic planning activities – these activities are

primary concern of a top management (e.g. identification of
major markets and product lines)
Kaye Watson.
Decision Making activities
2)Management control activities – these activities are
primarily concern of middle management. Their aim is to
operate their segments efficiently while achieving the
objectives identified by top management
3)Operational control activities – these activities are

implemented by department heads and supervisors, the
lowest - level managers in an organization. Their aim is to
achieve those specific tasks assigned to them by middle
management
Kaye Watson.
Activity levels and decision
Problem
• The managers at each level face different
decisions. This fact creates differences in the
kinds of information systems that are needed
1) Unstructured problems : The problems faced by top
management are usually unstructured with many
alternatives. But there is a little guidance concerning the
best one to pursue. The decisions of top management
impact the long - term success of the organization.
Kaye Watson.
Activity levels and decision
Problem
2)Structured problems : The decisions that managers face at
the operational level are significantly different. At this level,
managers are assigned specific task by middle management
and are often given clear directions about how to carry out
each task.
3)Semi-structured problems : Many decisions management
faces cannot easily be classified as structured or
unstructured. Information systems used for these decisions
tend to combine the characteristics of systems used for
structured and unstructured decision
Kaye Watson.
Decision making
Strategic Management Operational
planning control control
•Trends in balance of •Accounts receivable

Structured accounts receivable balances
•Budget preparation •Production

Semistructured •Personnel scheduling
management •Cash management
•New products
•Opening a factory
Unstructured site
•Mergers and
acquisitions
Kaye Watson.
Transaction cycle interconnection
Finance cycle
(acquisition & use
of capital)
Payroll cycle (Human Resource) Expenditure cycle (expenses)
General ledger &

reporting system
Conversion cycle
(converting raw
material into finish
good)
Revenue cycle
(income)
Kaye Watson.
Summary
• An Accounting information system must be able to
1) Record all applicable data,

2) Process it efficiently,
3) Produce relevant reports
on Financial and management information for
1) Internal use
2) External parties.
Kaye Watson.
Summary
• The reports must assist the various managers in making
1) Strategic decisions
2) Operational decisions,
The reports must assist the External parties in their decision to

deal with the organization.
Kaye Watson.
Summary
• Transaction processing system is the basic accounting

information system that provides information to make
decisions at the operational level.
Kaye Watson.
Summary
• Transaction processing system is classified into cycles designed
to handle common business transactions that are generally
grouped into five categories:
1) Revenue, 3) Conversion, 5) Financial.

2) Expenditure, 4) Payroll
Operational control can be maximized by obtaining a thorough

grasp of these cycles.
Other activities that occur within an organization include strategic

planning activities and management control activities.
Kaye Watson.
Summary
• The accounting information system should also be able to produce

reports that are suitable for each level of management to satisfy
the nature of any decisions being made, whether they are
structured, semi structured or unstructured.
• In this age of advance information technology. a computerized

accounting system is a must for any organization striving to
maintain a competitive edge.
Kaye Watson.

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chapter

A system is said to be comprise of distinguishable

System 1 Interface System 2

2)In accounting, the events that affect the

Produces Produces budgets

Transaction processing system

Produces aggregate of data Produces information primarily to

1)Strategic planning activities – these activities are

3)Operational control activities – these activities are

•Trends in balance of •Accounts receivable

•Budget preparation •Production

Payroll cycle (Human Resource) Expenditure cycle (expenses)

General ledger &

1) Record all applicable data,

on Financial and management information for

• The reports must assist the various managers in making

The reports must assist the External parties in their decision to

• Transaction processing system is the basic accounting

1) Revenue, 3) Conversion, 5) Financial.

Operational control can be maximized by obtaining a thorough

Other activities that occur within an organization include strategic

• The accounting information system should also be able to produce

• In this age of advance information technology. a computerized

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