Topic 1: Overview of AIS & Business Processes

Characteristics that make information useful:

1. Relevant: Reduces uncertainty, improves decision making, or confirms or corrects prior expectations

2. Reliable: Information free from bias

3. Completeness: Does not omit important aspects of events or activities

4. Timely: Information needs to be provided in time to make the decision

5. Understandable: Information must be presented in a meaningful manner 6. Verifiable: Two independent people can produce the same conclusion

7. Accessible: Available to users when when they need it

Business processes (“All cycles are related”):

1. Revenue - Goods & services are sold for cash or a future promise to receive cash.

Transactions in Revenue cycle: Handle customer inquiries | Update sales & A/R for sales | Take customer orders | Receive customer payments | Approve credit sales | Update A/R for collections | Check inventory availability | Handle sales returns, discounts & bad debts | Initiate back orders | Prepare management reports | Pick and pack orders | Send info to other cycles | Ship goods | | Bill customers | |

2. Expenditure - Companies purchase inventory for resale or raw materials to use in producing products in exchange for cash or a future promise to pay cash.

Transactions in expenditure cycle: Requisition goods and services | Approve invoices for payment | Process purchase orders to vendors | Pay vendors | Receive goods and services | Update A/P for payment | Store goods | Handle purchase returns, discounts and allowances | Receive vendor invoices | Prepare management reports | Update A/P for purchase | Send info to other cycles |

3. Production - Where raw materials are transformed into finished goods.

Transactions in production cycle: Design products | Store finished goods | Forecast plan and schedule production | Accumulate costs for products | Requisition raw materials | Prepare management reports | Manufacture products | Send info to other cycles |

4. Human Resource/Payroll - Where employees are hired, trained, compensated, evaluated, promoted and terminated

Transactions in Human Resource/Payroll cycle: Recruit, hire and train employees | Pay employees * Process timecard and commission data * Prepare and distribute payroll | Evaluate and promote employees | Calculate and disburse tax and benefit payments | Discharge employees | Prepare management reports | Update payroll records | Send info to other cycles |

5. Financing - Where companies sell shares in the company to investors and borrow money, and where investors are paid dividends and interest is paid on loans.

Transactions in Financing cycle: Forecast cash needs | Retire debt | Sell securities to investors | Prepare management reports | Borrow money from lenders | Send info to other cycles | Pay dividends to investors and interest to lenders | |
Functions of an Accounting Information System (AIS): * Collect and store data about events, resources & agents * Transform data into information so management can plan, execute and evaluate activities, resources and personnel. * Provide adequate controls to ensure that the entity’s resources (including data) are available when needed, accurate and reliable.

How can an AIS add value? * Improved quality & reduced costs * Improved efficiency * Sharing knowledge (Eg. Sharing of inventory information to suppliers) * Supply chain efficiencies * Improved internal control (Eg. safeguard access → only allow authorised personnel to access) * Improved decision making (Supply chain efficiencies)

Value Chain:
Primary activities: Provide direct value to the customer
Support activities: Enable primary activities to be efficient and effective

Data Processing Cycle:

Data Input
Source documents: 1. Paper source documents
2. Turnaround documents (eg. utility bill)
3. Source data automation (capture data from machines, eg. POS)

Data Storage: Understand how data is organized and stored

Audit Trail: Exist when there is sufficient documentation to allow the tracing of a transaction from beginning to end or from the end back to the beginning (vouching) [Check accuracy & validity of ledger postings]

* Computer - Based Storage Concepts (Entity, Attributes, field, record, file)

Data Processing
1. Creating: new data records
2. Reading: retrieving or viewing existing data
3. Updating * Batch processing (periodic updating eg. payroll) * Store data in temporary file* * On-line Real-time processing (entering and updating immediately) * On-line Batch Processing (Individual transactions data are entered and edited as they occur and stored for later processing) * Store data in temporary file*
4. Deleting: Eg purging the vendor master file of all vendors the company no longer does business with.

Information Output: Online (Soft copy) , Printed out(Hard copy)

Enterprise Resource Planning (ERP) Systems * Integrate all aspects of a company’s operations with a traditional AIS. * Use a centralised database to share information across business processes and coordinate activities . * Collects, processes and stores data and provides the information managers and external parties need to assess the company.

Advantages: * Integration of information * Greater management visibility into every area of enterprise and greater monitoring capabilities * Procedures and reports are standardized across business units * Improved manufacturing efficiencies (manufacturing plants receive new orders in real time and the automation of manufacturing processes leads to increased productivity)

Disadvantages: * Cost and implementation timeframe * Complexity
Resistance to change (take considerable training and experience to use an ERP system effectively → not easy to convince employees to change the way they work and master the new system)