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Chapter 1 Accounting Information Systems: An Overview Learning Objectives Distinguish between data and information. Discuss the characteristics of useful information. Explain how to determine the value of information. Explain the decisions an organization makes and the information needed to make them. Identify the information that passes between internal and external parties and an AIS. Describe the major business processes present in most companies. Explain what an accounting information system (AIS) is and describe its basic functions. Discuss how an AIS can add value to an organization. Explain how an AIS and corporate strategy affect each other. Explain the role an AIS plays in a company’s value chain. 1-2 What Is a System? System A set of two or more interrelated components interacting to achieve a goal Most systems are composed of smaller subsystems . . . . . . And vice versa 3 SYSTEMS, DATA, AND INFORMATION Every organization has goals. The susbsystems should be designed to maximize achievement of the organization’s goals Even to the detriment of the subsystem itself EXAMPLE: The production department (a subsystem) of a company might have to forego its goal of staying within its budget in order to meet the organization’s goal of delivering product on time. 1-4 SYSTEMS, DATA, AND INFORMATION Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger system. Goal congruence occurs when the subsystem’s goals are in line with the organization’s goals. The larger and more complicated a system, the more difficult it is to achieve goal congruence. 1-5 SYSTEMS, DATA, AND INFORMATION The systems concept encourages integration (i.e., minimizing the duplication of recording, storing, reporting and processing). Data are facts that are collected, recorded, stored, and processed by an information system. Organizations collect data about: Events that occur Resources that are affected by those events Agents who participate in the events 1-6 SYSTEMS, DATA, AND INFORMATION Information is different from data. Information is data that have been organized and processed to provide meaning to a user. Usually, more information and better information translates into better decisions. Information 1-7 SYSTEMS, DATA, AND INFORMATION However, when you get more information than you can effectively assimilate, you suffer from information overload. Example: Final exams week! When you’ve reached the overload point, the quality of decisions declines while the costs of producing the information increases. 1-8 Value of Information Benefits Costs Reduce Uncertainty Time & Resources Improve Decisions Improve Planning Produce Information Distribute Information Improve Scheduling Benefit $’s > Cost $’s Value of information occurs when benefits exceed costs Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 9 What Makes Information Useful? ما الذي يجعل المعلومات مفيدة Necessary characteristics: خصائص المعلومات المفيدة Relevant مالئمة “The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations.” It reduces uncertainty by helping you predict what will happen or confirm what already has happened Reliable يعتمد عليها “The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports ()الغاية او الغرضto represent.” Complete كاملة “The inclusion in reported information of everything material that is necessary for faithful representation of the relevant phenomena.” It doesn’t leave out anything that’s important 1-10 What Makes Information Useful? Timely التوقيت المناسب “Having information available to a decision maker before it loses its capacity to influence decisions.” Understandable امكانية فهمها واستيعابها من قبل المستخدم “The quality of information that enables users to perceive its significance.” It’s presented in a manner you can comprehend and use. Verifiable “The ability through consensus among measurers to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias.” the nature of the information is such that different people would tend to produce the same result Accessible امكانية الوصول للمعلومة بالوقت المناسب وبالشكل الذي يمكننا من فهمها Available when needed (see Timely) and in a useful format (see Understandable). 1-11 SYSTEMS, DATA, AND INFORMATION Information is provided to both: External users , investors (المستثمرونcurrent and potential ), creditors المقرضون, Government agencies المؤسسات الحكومية, Securities commission هيئة االوراق المالية, Labor unions االتحادات العمالية, customers العمالء, suppliers …الموردون Internal Users: management ادارة الشركة, employees الموظفين, organization departments دوائر الشركة المختلفة External users primarily use information that is either: MANDATORY INFORMATION—Required by a governmental entity, such as Form 10-K’s required by the SEC; or ESSENTIAL INFORMATION—Required to conduct business with external parties, such as purchase orders. In providing mandatory or essential information, the focus should be on: Minimizing costs Meeting regulatory requirements Meeting minimum standards of reliability and usefulness 1-12 Business Transactions Give–Get exchanges Between two entities Measured in economic terms 1-13 Business Process Systems working toward organizational goals Financing Revenue Human Resources Expenditure Production 14 INFORMATION NEEDS AND BUSINESS ACTIVITIES Businesses engage in a variety of activities, including: Acquiring capital الحصول على االموال Buying buildings and equipment شراء المباني والمعدات Hiring and training employees تعين وتدريب الموظفين Purchasing inventory شراء المخزون Doing advertising and marketing اجراء دعاية وتسويق Selling goods or services بيع بضاعة او خدمات Collecting payment from customers التحصيل من العمالء Paying employees الدفع للموظفين Paying taxes دفع الضرائب Paying vendors الدفع للموردين Each activity requires different types of decisions! Each decision requires different types of information 1-15 INFORMATION NEEDS AND BUSINESS ACTIVITIES Types of information needed for decisions: Some is financial Some is nonfinancial Some comes from internal sources Some comes from external sources An effective AIS needs to be able to integrate information of different types and from different sources. 1-16 INTERACTION WITH EXTERNAL AND INTERNAL PARTIES Internal Parties AIS External Parties The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies. The AIS also interacts with internal parties such as employees and management The interaction is typically two-way, in that the AIS sends information to and receives information from these parties. هذا التفاعل يتم باتجاهين. يتفاعل مع اطراف داخلية وخارجيةAIS 1-17 BUSINESS CYCLES A transaction is: An agreement between two entities to exchange goods or services; OR .اتفاقية بين طرفين لتبادل بظائع او خدمات Any other event that can be measured in economic terms by an organization. كا النقد, او ايحدث يمكن قياسة بالوحدات االقتصادية EXAMPLES: Sell goods to customers بيع بضائع للعمالء Depreciate equipment استهالك المعدات The transaction cycle is a process: دورة االتفاقية تمر بسلسلة اجراءات Begins with capturing data about a transaction Ends with an information output, such as financial statements .تبدا بالحصول على بيانات متعلقة بالعملية وتنتهي بمخرجات على شكل معلومات مثل القوائم المالية 1-18 BUSINESS Process CYCLES Many business activities are paired in give-get exchanges العديد من نشاطات االعمال هي تزاوج لتبادالت اعطي وخذ The basic exchanges can be grouped into five major transaction cycles. Revenue cycle دورة االيراد Expenditure cycle دورة االنفاق Production cycle دورة االنتاج او التحويل Human resources/payroll cycle دورة الرواتب Financing cycle دورة التمويل 1-19 REVENUE CYCLE The revenue cycle involves interactions with your customers. تشتمل على تفاعالت مع العمالء You sell goods or services and get cash. .بيع بضاعة او خدمات وتحصل في المقابل على نقد Give Goods Get Cash 1-20 EXPENDITURE CYCLE The expenditure cycle involves interactions with your suppliers. تشتمل على تفاعالت مع الموردين You buy goods or services and pay cash. انت تشتري بضاعة او خدمات وفي المقابل تدفع نقد Give Cash Get Goods 1-21 PRODUCTION CYCLE In the production cycle, raw materials and labor are transformed into finished goods. . المواد االولية والعمالة يتم تحويلها الى بضاعة تامة الصنع,في دورة االنتاج Give Raw Materials & Labor Get Finished Goods 1-22 HUMAN RESOURCES/ PAYROLL CYCLE The human resources cycle involves interactions with your employees. تشتمل على تفاعالت مع الموظفين Employees are hired, trained, paid, evaluated, promoted, and terminated. .الموظفين يعينو ويدربو ويدفع لهم ويقيمو من قبل االدارة ويتم االستغناء عنهم Give Cash Get Labor 1-23 FINANCING CYCLE The financing cycle involves interactions with investors and creditors. تتضمن على تافاعالت مع المستثمرين والمقرضين You raise capital (through stock or debt), repay the capital, and pay a return on it (interest or dividends). اعادة دفع رأس,)الشركات ترفع راسمالها من خالل طرح االسهم او االستدانة(سندات او قروض . والديون على شكل فوائد, االسهم على شكل توزيعات ارباح,المال ودفع عائد علية Give Cash Get cash 1-24 BUSINESS CYCLES Thousands of transactions can occur within any of these cycles. االالف من العمليات ممكن حدووثها خالل هذه الدورات But there are relatively few types of transactions in a cycle. لكن نسبيا هناك عدد محدود من انواع العمليات في اي دورة EXAMPLE: In the revenue cycle, the basic giveget transaction is: :خذ هو-في دورة االيراد االساس في اعطي Give goods اعطي بضاعة Get cash خذ نقد 1-25 BUSINESS CYCLES Other transactions in the revenue cycle include: • • • • • • • • • • • • • Handle customer inquiries التعامل مع استفسارات العمالء Take customer orders أخذ اوامر العمالء Approve credit sales المصادقة على قيمة امبيعات Check inventory availability التأكد من توفر البضاعة في المخازن Initiate back orders )انشاء اوامر عكسية( اوامر بيع Pick and pack orders تجهيز االوامر Ship goods شحن البضاعة Bill customers تنظيم فواتير العمالء • • • • • • • • • • • • Update sales and Accts Rec. for sales تحديث المبيعات و حسابات العمالء بقيمة المبيعات Receive customer payments استالم مدفوعات العميل Update Accts Rec. for collections تحديث حسابات العمالء بالمبالغ المحصلة Handle sales returns, discounts, & bad debts معالجة المردودات والخصومات والديون المعدومة Prepare management reports اعداد تقارير ادارية بالعمليات التي تمت Send info to other cycles ارسال معلومات الى الدورات االخرى Note that the last activity in any cycle is to send information to other cycles. 1-26 BUSINESS CYCLES Every transaction cycle: Relates to other cycles كل دورة عملية متصلة بدورات اخرى Interfaces with the general ledger and reporting system, which generates information for management and external parties. والذي,ترتبط وتتصل بدفتر االستاذ العام ونظام اعداد التقارير بدورهما يزودوا االدارة واالطراف الخارجية بالمعلومات التي يحتاجونها التخاذ القرارات 1-31 Finished Goods Revenue Cycle Expenditure Cycle General Ledger and Reporting System Human Res./ Payroll Cycle Financing Cycle Production Cycle The revenue cycle Gets finished goods from the production cycle تحصل عاى البضاعة الجاهزة من دورة االنتاج Provides funds to the financing cycle يزود دورة التمويل باالموال Provides data to the General Ledger and Reporting System تزويد االستاذ العام ونظام التقارير بالبيانات 1-32 Expenditure Cycle Data Revenue Cycle General Ledger and Reporting System Human Res./ Payroll Cycle Financing Cycle Raw Mats. Production Cycle The expenditure cycle Gets funds from the financing cycle تحصل على االموال من دورة التمويل Provides raw materials to the production cycle تزويد دورة االنتاج بالمواد االولية Provides data to the General Ledger and Reporting System 1-33 Finished Goods Revenue Cycle Expenditure Cycle Raw Mats. General Ledger and Reporting System Human Res./ Payroll Cycle Financing Cycle Production Cycle The production cycle: Gets raw materials from the expenditure cycle تحصل على المواد االولية من دورة االنفاق Gets labor from the HR/payroll cycle تحصل على العمالة من دورة الرواتب Provides finished goods to the revenue cycle تزويد دورة االيراد بالبضاعة الجاهزة Provides data to the General Ledger and Reporting System 1-34 Expenditure Cycle Revenue Cycle General Ledger and Reporting System Human Res./ Payroll Cycle Funds Financing Cycle Production Cycle The HR/payroll cycle: Gets funds from the financing cycle تأخذ اموال من دورة التمويل Provides labor to the production cycle تزويد دورة االنتاج بالعمالة Provides data to the General Ledger and Reporting System 1-35 Expenditure Cycle Revenue Cycle General Ledger and Reporting System Human Res./ Payroll Cycle Funds Financing Cycle Production Cycle The Financing cycle: Gets funds from the revenue cycle تحصل على اموال من دورة االيراد Provides funds to the expenditure and HR/payroll cycles .تزويد دورة االنفاق والرواتب باالموال Provides data to the General Ledger and Reporting System 1-36 Revenue Cycle Expenditure Cycle Production Cycle Data Data General Ledger and Reporting System Human Res./ Payroll Cycle Information for Internal & External Users The General Ledger and Reporting System: Gets data from all of the cycles تحصل بيانات من جميع الدورات Financing Cycle Provides information for internal and external users تزود االطراف الداخلية والخارجية بالمعلومات 1-37 BUSINESS CYCLES Many accounting software packages implement the different transaction cycles as separate modules. .الكثير من البرمجيات المحاسبية تطبق هذة الدورات بشكل منفصل Not every module is needed in every organization, e.g., retail companies don’t have a production cycle. . مثال شركات المتاجر للبيع بالتجزئة اليتطلب وجود دورة لالنتاج,ليس كل الشركات تتطلب وجود جميع الدورات Some companies may need extra modules. .بعض الشركات تتطلب اجزاء اضافية The implementation of each transaction cycle can differ significantly across companies. .تطبيق كل دورة يختلف تطبيقها من شركة الخرى However the cycles are implemented, it is critical that the AIS be able to: : فأن النظم المحاسبية يجب ان تكون قادرة على,اي تطبيق لهذه الدورات Accommodate the information needs of managers تزويد المدراء باحتياجاتهم من المعلومات Integrate financial and nonfinancial data. 1-38 وايضا قادرة على ان تحقق التكامل بين المعلومات المالية وغير المالية Business Cycle Give–Get 39 Accounting Information Systems Collect, process, store, and report data and information If Accounting = language of business AIS = information providing vehicle Accounting = AIS 1-40 WHAT IS AN AIS? An AIS is a system that collects, records, stores, and processes data to produce information for decision makers. It can: Use advanced technology; or Be a simple paper-and-pencil system; or Be something in between. Technology is simply a tool to create, maintain, or improve a system. 1-41 WHAT IS AN AIS? The functions of an AIS are to: Collect and store data about events, resources, and agents. Transform that data into information that management can use to make decisions about events, resources, and agents. Provide adequate controls to ensure that the entity’s resources (including data) are: Available when needed Accurate and reliable 1-42 Components of an AIS People using the system Procedures and Instructions For collecting, processing, and storing data Data Software Information Technology (IT) Infrastructure Computers, peripherals, networks, and so on Internal Control and Security Safeguard the system and its data 1-43 AIS and Business Functions Collect and store data about organizational: Activities, resources, and personnel Transform data into information enabling Management to: Plan, execute, control, and evaluate Activities, resources, and personnel Provide adequate control to safeguard Assets and data 1-44 AIS Value Add Improve Quality and Reduce Costs Improve Efficiency Improve Sharing Knowledge Improve Supply Chain Improve Internal Control Improve Decision Making 1-45 Improve Decision Making Identify situations that require action. Provide alternative choices. Reduce uncertainty. Provide feedback on previous decisions. Provide accurate and timely information. 1-46 ROLE OF THE AIS IN THE VALUE CHAIN The objective of most organizations is to provide value to their customers. What does it mean to deliver value? 1-47 ROLE OF THE AIS IN THE VALUE CHAIN While “adding value” is a commonly used buzzword, in its genuine sense, it means making the value of the finished component greater than the sum of its parts. It may mean: Making it faster Making it more reliable Providing better service or advice Providing something in limited supply (like Onegative blood or rare gems) Providing enhanced features Customizing it 1-48 ROLE OF THE AIS IN THE VALUE CHAIN Value is provided by performing a series of activities referred to as the value chain. These include: Primary activities Support activities These activities are sometimes referred to as “line” and “staff” activities respectively. 1-49 Value Chain—Support Activities Firm Infrastructure Technology Human Resources Purchasing 1-50 Value Chain 51 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Inbound logistics Receiving, storing, and distributing the materials that are inputs to the organization’s product or service. For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs. 1-52 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Operations Transforming those inputs into products or services. For the pharmaceutical company, this step involves combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers. 1-53 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Inbound logistics Operations Outbound logistics Distributing products or services to customers. For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals. 1-54 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Marketing and sales Helping customers to buy the organization’s products or services. A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders. 1-55 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Service Post-sale support provided to customers such as repair and maintenance function. A pharmaceutical firm will typically not be repairing it’s product (though the product may be periodically reformulated). The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc. 1-56 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Firm infrastructure Accountants, lawyers, and administration. Includes the company’s accounting information system. 1-57 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Firm infrastructure Human resources Involves recruiting and hiring new employees, training employees, paying employees, and handling employee benefits. 1-58 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Firm infrastructure Human resources Technology Activities to improve the products or services (e.g., R&D, website development). For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones. 1-59 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Purchasing Buying the resources (e.g., materials, inventory, fixed assets) needed to carry out the entity’s primary activities. In the pharmaceutical company, the purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations. 1-60 ROLE OF THE AIS IN THE VALUE CHAIN Information technology can significantly impact the efficiency and effectiveness with which the preceding activities are carried out. An organization’s value chain can be connected with the value chains of its customers, suppliers, and distributors. 1-61 ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service And the outbound logistics of Pharmaceuticals, Inc., links to the inbound logistics of its customers. Pharmaceuticals, Inc. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Customer Pharmacy Inbound Logistics Operations Outbound Logistics Marketing & Sales Service 1-62 ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service The linking of these separate value chains creates a larger system known as a supply chain. Pharmaceuticals, Inc. Inbound Logistics Information technology can facilitate synergistic linkages that improve the performance of each company’s value chain. Operations Outbound Logistics Marketing & Sales Service Customer Pharmacy Inbound Logistics Operations Outbound Logistics Marketing & Sales Service 1-63 AIS and Corporate Strategy Organizations have limited resources, thus investments to AIS should have greatest impact on ROI. Organizations need to understand: IT developments Business strategy Organizational culture Will effect and be effected by new AIS 64