Accounting Information Systems

Accounting Information Systems
Study Guide
I. What are accounting information systems?

A. An accounting information system (AIS) is a formalized process to collect, store,
and process accounting information. An AIS could be maintained with physical
books (i.e., journals and ledgers). Today, an AIS is typically an electronic system
made of a software, computers, and servers.
B. An AIS captures the pertinent information and recordkeeping needed in order to
produce financial statements (e.g., balance sheet, income statement, statement
of cash flows, statement of owner's equity) and performance reports (e.g.,
budgets, project profitability, product cost, etc.). This information is critical to
understanding an organization's business activities. AIS adds value to an
organization by providing information needed for analysis, evaluation, and
strategic decision making.
C. A primary function of an AIS is to report information. Many stakeholders rely on
information produced by an organization's AIS. These include but are not limited
to the following: executives, accountants, managers, analysts, auditors,
regulators, and tax authorities. Producing accurate and timely information is a
critical feature of an effective AIS.
II. AIS Cycles
An AIS can be broken down into several cycles, or sets of related business transactions.
The AIS collects and stores information about the activities of an organization related to
the following:
A. The Revenue to Cash Cycle is the process of taking orders, shipping products or

delivering services, billing customers, and collecting cash from sales.
B. The Expenditure Cycle is the process of placing orders, receiving shipment of
products or delivery of services, approving invoices, and making cash payments.
C. The Production Cycle is the process by which raw materials are converted into
finished goods.
D. The Human Resources and Payroll Cycle is the process of recruiting, interviewing,
and hiring personnel, paying employees for their work, promoting employees,
and finalizing employees’ status from retirements, firings, or voluntary
terminations.
E. The Financing Cycle is the process of obtaining funding, through debt or equity,
to run an organizations’ activities and to purchase PPE, servicing the financing,
and ultimate repayment of financial obligations.
F. The Property, Plant, and Equipment Cycle is the process of acquiring resources
(e.g., land, buildings, and machinery) needed to enable an organization's
business activities.
G. The General Ledger and Reporting System is the process of recording, classifying,
and categorizing an organization's economic transactions and producing
summary financial reports.
III. Information Systems for Financial and Nonfinancial Data
A. Historically, financial information was the primary, and often only, information
recorded in an AIS. This limitation was primarily a result of technological
limitations. Separate systems for tracking nonfinancial information, such as
inventory tracking systems, customer sales logs, or human resource information,
were maintained as stand-alone systems. The primary challenge of separate
systems for financial and nonfinancial data is data maintenance. Great care is
needed to ensure that any changes in product price, customer contracts, etc. are
reflected in all relevant systems to ensure proper reconciliation.
Modern AIS have greater computing capabilities and larger storage capacity than
previous AIS. This has facilitated an integrated approach wherein financial and
nonfinancial information can be linked within a single information system, which
is an Enterprise Resource Planning (ERP) system, which will be discussed in the
next lesson.
B. An example of a nonfinancial system that runs in parallel with an AIS that

processes financial data is a Customer Relationship Management (CRM) system.
This system captures information about sales calls, shipment tracking, and
customer profiles. An ERP can link the CRM system to AIS to reduce potential
errors and increase information usefulness.
Summary
Companies use accounting information systems to collect, store, and process financial
information. Accounting information systems are usually broken down into types of
transactions, such as revenue, expenditure, and production cycles. A well-functioning
accounting information system allows for the compilation of financial statements and helps
business leaders make good decisions.
FLASHCARDS
What are Accounting Information Systems (AIS)?

 An AIS is a formalized process to collect, store, and process accounting
information.
 The system captures pertinent information and recordkeeping needed in order
to produce financial statements and performance reports.
 An AIS could be maintained on physical books or on an electronic system.
Why are Accounting Information Systems (AIS) important?

 The information captured by an AIS is critical to understanding an
organization's business activities.
 Many stakeholders (executives, accountants, managers, analysts, auditors,
regulators, and tax authorities) rely on information produced by an
organization's AIS.
List the cycles, or sets of related business transactions, of an
AIS.
The cycles of an AIS:
 Revenue to Cash Cycle

 Expenditure Cycle
 Production Cycle
 Human Resources and Payroll Cycle
 Financing Cycle
 Property, Plant, and Equipment Cycle
What is a General Ledger and Reporting System?

 The General Ledger and Reporting System is another subsystem of the AIS.
 The General Ledger and Reporting System has fewer operational functions than
the AIS cycles and focuses primarily on information functions.
 The General Ledger and Reporting System is the process of recording,
classifying, and categorizing an organization's economic transactions and
producing summary financial reports.
What is a Customer Relationship Management (CRM) system?

 A CRM is a nonfinancial system that runs in parallel with an AIS.
 The system captures information about sales calls, shipment tracking, and
customer profiles.
 An enterprise resource planning system can be used to link the CRM system to
AIS.
Question 1
aq.acc.inf.sys.001_1906
All of the following are a function of an AIS (Accounting Information
System) except:
Collect and store data.
Transform data to aid in decision support.
Provide controls to ensure that the data is available and maintains integrity.
Recommend several scenarios from which to base a well-informed decision.
This Answer is Correct
The purpose of an AIS is not to provide scenarios but to provide information for
management to make a well-informed decision.
Question 2
All of the following are benefits of AIS except:
Improves efficiency
Improves decision-making capabilities
Improves the recovery ability for disaster recovery
Improves the sharing of knowledge
You Answered Correctly!
This system will be more likely a candidate for disaster recovery and business
continuity.
Question 3
What item below best describes the role of an AIS in the value chain?
An AIS could connect an organization with the value chains of its customers.
An AIS could connect an organization with the value chains of its suppliers and
distributors.
An AIS could connect an organization with the value chains of its distributors.
An AIS could connect an organization with the value chains of its customers, suppliers,
and distributors.
You Answered Correctly!
This is one of the key advantages of an AIS and its influence on the value chain.
Question 4
Accounting Information Systems will implement different transaction cycles in
separate modules. All of the following basic exchanges would most likely be part of a
retail company's AIS implementation except:
Expenditure Cycle
Production Cycle
Revenue Cycle
Human Resources/Payroll
Cycle
During the Production Cycle, raw goods would be supplied by the Expenditure Cycle
where the finished product would be handed over to the Revenue Cycle. In a retail
business, goods would be processed by the Expenditure Cycle and provided directly
to the Revenue Cycle for potential resell, eliminating the need for the module that
provides services related to the Production Cycle.
Question 5
Which of the following are the major challenges in maintaining separate financial
systems and nonfinancial systems?
 I. Two sets of books

 II. Unsynchronized data
 III. Inconsistent results
 IV. Conflicting decisions

I and II
II and III
III and IV
I, II, III, and
IV
All four choices are correct. In the past, financial systems and nonfinancial systems
were viewed as two separate islands with rigid physical and logical borders
superficially built around them. It is like maintaining two separate books for the same
organization, which resulted in data synchronization problems, inconsistent results,
and conflicting decisions. Examples of major challenges in integrating financial
systems and nonfinancial systems include cultural barrier, organizational turf
protection (organizational politics), and lack of trust between the managers who are
managing these two diverse systems. Technology is not the challenge or problem here
as it can simply integrate these two diverse systems.

Accounting Information Systems

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Accounting Information Systems

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Accounting Information Systems

I. What are accounting information systems?

A. The Revenue to Cash Cycle is the process of taking orders, shipping products or

B. An example of a nonfinancial system that runs in parallel with an AIS that

What are Accounting Information Systems (AIS)?

Why are Accounting Information Systems (AIS) important?

 Revenue to Cash Cycle

What is a General Ledger and Reporting System?

What is a Customer Relationship Management (CRM) system?

 I. Two sets of books

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