Summary Accounting Information Systems
Chapter 1 – Accounting Information Systems: an overview
System: a set of two or more interrelated components that interact
to achieve a goal. Most systems are composed of smaller
subsystems that support the larger system.
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. The larger the
organization and the more complicated the system, the more
difficult to achieve goal congruence.
Data: facts that are collected, recorded, stores and processed by an
information system.
Information: data that have been organized and processed to
provide meaning and improve decision-making. 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.
Value of information: the benefit produced by information less the
cost of producing it. Benefits of information include reduced
uncertainty, improved decisions and improved ability to plan and
schedule activities.
Relevant Reduces uncertainty, improves decision-
making or confirms or correct 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 to
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 preformed 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 an organization.
Transaction processing: the process of capturing transaction
data, processing it, storing it for later use and producing information
output, such as 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 process or transaction cycles
The major give-get exchanges that occur frequently in most
companies.
1. Revenue cycle
Goods and services are sold for cash or a future promise to receive
cash.
2. Expenditure cycle
Companies purchase inventory for resale or raw materials to use in
producing products in exchange for cash or a future promise to pay
cash.
, 3. Production or conversion cycle
Raw materials are transformed into finished goods.
4. Human resources/payroll cycle
Employees are hired, trained, compensated, evaluated, promoted
and terminated.
5. Financing cycle
Companies sell shares in the company to investors and borrow
money and where investors are paid dividend and interest is paid on
loans.
General Ledger / Financial Reporting System (GL/FRS):
information-processing operations involved in updating the general
ledger and preparing reports for both management and external
parties.
Accounting information system: set of formal procedures by
which data are collected, processed into information, and distributed
Chapter 1 – Accounting Information Systems: an overview
System: a set of two or more interrelated components that interact
to achieve a goal. Most systems are composed of smaller
subsystems that support the larger system.
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. The larger the
organization and the more complicated the system, the more
difficult to achieve goal congruence.
Data: facts that are collected, recorded, stores and processed by an
information system.
Information: data that have been organized and processed to
provide meaning and improve decision-making. 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.
Value of information: the benefit produced by information less the
cost of producing it. Benefits of information include reduced
uncertainty, improved decisions and improved ability to plan and
schedule activities.
Relevant Reduces uncertainty, improves decision-
making or confirms or correct 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 to
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 preformed 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 an organization.
Transaction processing: the process of capturing transaction
data, processing it, storing it for later use and producing information
output, such as 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 process or transaction cycles
The major give-get exchanges that occur frequently in most
companies.
1. Revenue cycle
Goods and services are sold for cash or a future promise to receive
cash.
2. Expenditure cycle
Companies purchase inventory for resale or raw materials to use in
producing products in exchange for cash or a future promise to pay
cash.
, 3. Production or conversion cycle
Raw materials are transformed into finished goods.
4. Human resources/payroll cycle
Employees are hired, trained, compensated, evaluated, promoted
and terminated.
5. Financing cycle
Companies sell shares in the company to investors and borrow
money and where investors are paid dividend and interest is paid on
loans.
General Ledger / Financial Reporting System (GL/FRS):
information-processing operations involved in updating the general
ledger and preparing reports for both management and external
parties.
Accounting information system: set of formal procedures by
which data are collected, processed into information, and distributed
