M1

• Information system


  The set of formal procedures by which data are collected, processed into information, and distributed to users
• Transaction


  An event that affects or is of interest to the organization and is processed by its information system as a unit of work
• Financial transaction


  An economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms
• Financial transactions


  • Sales of products to customers, purchases of inventory from vendors, and cash disbursements and receipts
• Nonfinancial transaction


  An event that does not meet the narrow definition of a financial transaction
• Nonfinancial transactions


  • Adding a new supplier of raw materials to the list of valid suppliers
• Accounting Information System (AIS)

  Subsystems that process financial transactions and nonfinancial transactions that directly affect the processing of financial transactions

  
• AIS subsystems


  • Transaction processing system (TPS), general ledger/financial reporting system (GL/FRS), management reporting system (MRS)
• Transaction Processing System (TPS)


  Central to the overall function of the information system by converting economic events into financial transactions, recording financial transactions in the accounting records (journals and ledgers), and distributing essential financial information to operations personnel to support their daily operations

  
• Transaction cycles


  Revenue cycle, expenditure cycle, conversion cycle
• General Ledger System (GLS) and Financial Reporting System (FRS)


  Closely related subsystems that are generally viewed as a single integrated system - the GL/FRS
• Management Reporting System (MRS)


  Provides the internal financial information needed to manage a business
• Reports produced by the MRS


  • Budgets, variance reports, cost-volume-profit analyses, reports using current (rather than historical) cost data
• General model for AIS


  Describes all information systems, regardless of their technological architecture. Elements: end users, data sources, data collection, data processing, database management, information generation, and feedback
• External end users


  • Creditors, stockholders, potential investors, regulatory agencies, tax authorities, suppliers, customers
• Internal end users


  • Management at every level of the organization, operations personnel
• Data


  Facts, which may or may not be processed (edited, summarized, or refined) and have no direct effect on the user
• Information


  Processed data that causes the user to take an action that he or she otherwise could not, or would not, have taken
• Data sources


  Financial transactions that enter the information system from both internal and external sources
• External financial transactions


  • Sale of goods and services, purchase of inventory, receipt of cash, disbursement of cash (including payroll)
• Internal financial transactions


  • Movement of raw materials into work-in-process (WIP), application of labor and overhead to WIP, transfer of WIP into finished goods inventory, depreciation of plant and equipment
• Data collection


  The first operational stage in the information system, ensuring that event data entering the system are valid, complete, and free from material errors
• Data processing


  Tasks range from simple to complex, such as mathematical algorithms, statistical techniques, posting and summarizing procedures
• Database


  The organization's physical repository for financial and nonfinancial data
• Data attribute


  The most elemental piece of potentially useful data in the database, a logical and relevant characteristic of an entity about which the firm captures data
• Record


  A complete set of attributes for a single occurrence within an entity class, uniquely identified by a primary key
• File


  A complete set of records of an identical class, such as all the AR records of the organization
• Database management tasks


  Storage, retrieval, deletion
• Information generation


  The process of compiling, arranging, formatting, and presenting information to users
• Characteristics of useful information

  • Relevance, timeliness, accuracy, completeness, summarization
• Accuracy


  Information must be free from material errors. Materiality is a problem-specific concept, so the level of accuracy required can vary.
• Material error


  Inaccuracy in information that causes the user to make poor decisions or fail to make necessary decisions
• We sometimes must sacrifice absolute accuracy to obtain timely information
• Completeness


  No piece of information essential to a decision or task should be missing
• Summarization


  Information should be aggregated in accordance with the user's needs. Lower-level managers need more detailed information, while higher-level managers need more summarized information.
• Feedback


  A form of output that is sent back to the system as a source of data. Can be internal or external and is used to initiate or alter a process.
• Information system objectives


  • Support the stewardship function of management
  • Support management decision making
  • Support the firm's day-to-day operations
• Stewardship


  Management's responsibility to properly manage the resources of the firm
• Ways organizations obtain information systems

  • Develop customized systems from scratch through in-house systems development activities
  • Purchase preprogrammed commercial systems from software vendors
• System development life cycle

  The formal process by which in-house systems development is accomplished