Questions & Answers for practice questions

ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW

Chapter 2:
1- Discuss why studying accounting information systems is important.

The Financial Accounting Standards Board defined accounting as being an

information system.

The Accounting Education Change Commission recommended that accounting

curriculum should emphasize that accounting is an information identification,
development, measurement, and communication process.
Three essential concepts:
(i) The use of information in decision making
(ii) The nature, design, use and implementation of an Accounting Information
System (AIS)
(iii) Financial information reporting

Accounting Information Systems (AIS) is unlike other accounting classes.

 Other accounting classes involve
 The accounting process
(i) Recording the transaction in a journal
(ii) Posting the journal entries to the general ledger accounts
(iii) Preparing financial statements
(iv) Provide useful information for management decisions and
(v) Yes number crunching

 The AIS focuses on understanding how the accounting system works

AIS Skills Are Important to Your Career Success

If you are considering a career in accounting, you need to understand 1) how a

system is developed, 2) how it operates and 3) how is can be properly
controlled.

Auditors need to evaluate the accuracy and reliability of information produced

by the AIS.

Auditors must be able to evaluate and understand the strengths and weaknesses
of an AIS

The AIS Course Complements Other Systems Courses

The AIS course differs from information systems courses in its focus on
accountability and control.

 Owners have entrusted management with assets and hold them

accountable for their proper use.

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  Controls are also needed to ensure that the information produced
from that data is both reliable and accurate.

The following reasons for studying accounting information systems are not from our
module:

(i) As an accountant, you will be closely involved with AISs during your entire
career. Not only will you be a user of these AISs but you may possibly become a
developer of such systems. Furthermore, as an auditor, you will be expected to
evaluate AISs.
(ii) Almost all business firms have computers as integral parts of their information
systems. As information has become more vial, the management of data and the
preparation of needed reports have become more complex and varied functions.
You need to acquire the knowledge and skills that will enable you to apply
computer-based AISs in effectively achieving these functions. Otherwise, you are
likely to be much less productive in employing your accounting knowledge and
skills.
(iii) Modern-day information systems are also rapidly changing and improving. They
are incorporating new developments from fields like the Internet and e-commerce,
object technology, telecommunications, and control. You should be aware of
these developments and others that are just emerging, since they will be
increasingly common in the future. With adequate knowledge and skills
concerning computer-based information systems, you should be in a position to
take advantage of the opportunities they offer.

2- Explain the role an AIS plays in a company’s value chain and discuss how the
AIS can add value to a business.

The Role of the AIS in the Value Chain

The objective of most organizations is to provide value to their customers.

Note to Instructor: Power point slides #41 through #44 provide an illustration of the
difficulty to measure the dollar amount of the value added to a product or service.

Five Primary Activities that directly provide value to its customers:

1. Inbound logistics consists of receiving, storing and distributing the materials

an organization uses to create the services and products it sells.

2. Operations activities transform inputs into final products or services

3. Outbound logistics activities distribute finished products or services to

customers.
4. Marketing and sales activities help customers buy the organization’s products
or services.

5. Service activities provide post-sale support to customers.

Four Categories of Support Activities

1. Firm infrastructure is the accounting, finance, legal and general

administration activities that allow an organization to function.
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 2. Human resources activities include recruiting, hiring, training and providing
employee benefits and compensation

3. Technology activities improve a product or service

4. Purchasing activities procure raw materials, supplies, machinery and the

buildings used to carry out the primary activities

Supply Chain

Raw Materials Supplier

Manufacturer

Distributor

Retailer

Consumer

How an AIS Can Add Value to an Organization

1. Improving the quality and reducing the costs of products or services.

2. Improving efficiency. A well-designed AIS can make operations more

efficient by providing more timely information.

3. Sharing knowledge. A well-designed AIS can make it easier to share

knowledge and expertise, perhaps thereby improving operations and even
providing a competitive advantage.

4. Improving the efficiency and effectiveness of its supply chain.

5. Improving the internal control structure

6. Improving decision making

3- Explain what an accounting information system (AIS) is and describe the basic
functions it performs.
What Is An Accounting Information System?
An Accounting Information System (AIS) is a system that collects, records, stores,
and processes data to produce information for decision makers.
Another definition that is not in the module: “An accounting information system is a
unified structure within an entity, such as a business firm, that employees physical
resources and other components to transform economic data into accounting
information, with the purpose of satisfying the information needs of a variety of users.

Six components of an Accounting Information System

(i) The people who operate the system and perform various functions
(ii) The procedures and instructions, both manual and automated, involved in
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 collecting, processing, and storing data about the organization’s activities
(iii) The data about the organization and its business processes
(iv) The software used to process the organization’s data
(v) The information technology infrastructure, including computers, peripheral
devices and network communications devices used to collect, store, process
and transmit data and information
(vi) The internal controls and security measures that safeguard the data in the
AIS.

These six components enable an Accounting Information System to fulfill three

important business functions:

(i) Collect and store data about organizational activities, resources, and
personnel
(ii) Transform data into information that is useful for making decisions so
management can plan, execute, control and evaluate activities, resources and
personnel
(iii) Provide adequate controls to safeguard the organization’s assets, including
its data, to ensure that the assets and data are available when needed and the
data are accurate and reliable.

Chapter 3:
4- List and describe four reasons why information systems are so important for
business today?
Answer:
- Capital Management
- Foundation of doing business
- Productivity
- Strategic opportunity and advantage

5- Describe five technology and business trends that have enhanced the role of
information systems in today’s competitive business environment:
Answer: (chapter 1: page 8)
- Internet growth and technology convergence
- Transformation of the business enterprise
- Globalization
- Rise of the information economy
- Emergence of the digital firm

6- Describe the capabilities of a digital firm. Why are digital firms so powerful?
Answer:
- Digital firm is one in which nearly all of the organization’s significant business
relationships with customers, suppliers, and employers are digitally enabled
and mediated.
- Digital firms are so powerful because all companies can use internet
technology for e-commerce transactions with customers and suppliers, for
managing internal business process, and for coordinating with suppliers and
other business partners. E-commerce includes e-commerce as well the
management and coordination of the enterprise. And also digital management
of key corporate assets.

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7- What is information system? Distinguish between a computer, a computer
program, and an information system. What is the different between data and
information?
Answer:
- An information system can be defined technically as a set of interrelated
components that collect, process, store and distribute information to support
decision making and control in an organization.
- Data: streams of raw facts representing events such as business transactions.
- Information: clusters of facts meaningful and useful to human beings in the
processes such as making decisions.

8- What activities convert raw data to make information in information systems?

What is their relationship to feedback?
Answer:
- Three basic activities produce the information organizations need: Input,
processing and output.
- Feedback is output returned to appropriate people or activities in the
organization to evaluate and refine the input.

9- What is purpose of an information system from a business perspective? What

role does it play in the business information value chain?
Answer:
- From a business perspective, information systems are part or a series of value-
adding activities for acquiring, transforming, and distributing information that
managers can use to improve decision making, enhance organizational
performance, and, ultimately, increase firm profitability.
- Using information systems effectively requires an understanding of the
organization, management, and information technology shaping the systems.
An information system creates value for the firm as an organizational and
management solution to challenges posted by the environment.

10- What is information systems literacy? How does it differ from computer literacy?
Answer:
- Information systems literacy: broad-based understanding of information
systems that includes behavioral knowledge about organization, management
and individuals using information systems as well as technical knowledge
about computers.
- Computer literacy: Knowledge about information technology, focusing on
understanding how computer technologies work.
11- What are the organizational, management, and technology dimensions of
information systems?
Answer:
- Organizational dimension: people, structure, business processes, politics, and
culture.
- Management dimension: Sense makers, decision makers, planners, innovators
or new processes, and leaders (set agendas).
- Technology dimensions: Hardware, software, storage, communication
technology, and network.

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12- What are the Internet and the World Wide Web? How have they changed the
roles played by information systems in organizations?
Answer:
- Internet is the world’s largest and most widely used network.
- World Wide Web is a system with universally accepted standards for storing,
retrieving, formatting, and displaying information a networked environment.

13- Why do some firms obtain greater value from their information systems than
others? What role do complementary assets and organizational and management
capital play?
Answer:
- Some firms obtain greater value from their information systems than others
because……………………………………………..
- Role of complementary assets play: New business processes, Management
behavior, Organizational culture and training.
- Role of organizational and management capital play: supportive business
culture that values efficiency and effectiveness, Efficient business processes,
decentralization of authority. Highly distributed decision rights and a strong
information system development team.

14- Distinguish between a behavioral and a technical approach to information

systems in terms of the questions asked and the answers provided. What major
disciplines contribute to an understanding of information systems?
Answer:
- The technical approach to information systems emphasizes mathematically
based models to study information systems. And Behavioral approach
concentrates on changes in attitudes, management and organizational policy,
and behavior.

- Major disciplines contribute to an understanding of information systems are:

+ Technical approaches: computer science, management science and
Operations research.
+ Behavioral approaches: Psychology, sociology and economics.

15- What are the key management challenges involved in building, operating and
maintaining information systems today?
Answer:
- The information systems investment challenge: How can organization obtain
business value from their information system?
- The strategic business challenge: What complementary assets are needed to
use information technology effectively?
- The globalization challenge: How can firm understand the business and system
requirements of a global economic environment?
- The information technology infrastructure challenge: How can organization
develop an information technology infrastructure that can support their goals
when business conditions and technologies are changing so rapidly?
- Ethic and security: The responsibility and control challenge: How can
organization ensure that their information systems are used in an ethically and
socially responsible.

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16- Identify and describe the three levels of the organizational hierarchy. Which
types of information systems serve each level?
Answer:
The three levels of the organizational hierarchy:
- Senior Managers
- Middle Managers
- Operational Managers
Types of information systems serve each level:
- Operational-level systems: support operational mangers, keeping track of the
elementary activities and transactions.
- Management-level systems: serve the monitoring, controlling, decision-
making, and administrative activities of middle managers.
- Strategic-level systems: help senior management tackle and address strategic
issues.

17- List and briefly describe the major types of system in organization?
Answer:
- Transaction Processing Systems (TPS): are the basic business systems that
serve the operational level of the organization. And it is also a computerized
system that performs and records the daily routine transactions necessary to
conduct business.
- Management Information Systems (MIS): serve the management level of the
organization, providing managers with reports and often-online access to the
organization’s current performance and historical records and primarily serve
the functions of planning, controlling, and decision-making.
- Decision-Support System (DSS): also serve the management level or the
organization. DSS help mangers make decisions that are unique, rapidly
changing, and not easily specified in advance.
- Executive Support System (ESS): serve the strategic level of the organization.
They address nonroutine decisions requiring judgment, evaluation, and insight
because there is no agreed on procedure for arriving at a solution.

18- What are the five types of TPS in business organizations? What functions do they
perform? Give example of each.
Answer:
Five types of TPS with example:
- Sale/Marketing Systems (eg. Sale management, customer service…)
- Manufacturing/Production Systems (eg. Purchase order, scheduling,…..)
- Finance/Accounting Systems (eg. General ledger, payroll…….)
- Human Resources Systems (eg. Personnel records, training,…….)
- Other types of TPS that are unique to a particular industry. (eg. University:
admissions, grade records,…..)

19- What are the characteristics of MIS? How do MIS differ from TPS? From DSS?
Answer:
- Characteristics of MIS: (Inputs: high volume transaction level data;
Processing: simple models; Outputs: summary reports; Users: Middle
Manager)
- MIS differ from TPS: MIS serve at management level and TPS serve at
Operational level.
- MIS differ from ESS: MIS serve at management level and ESS serve at
strategic level.
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20- What are the characteristics for DSS? How do they differ from those of ESS?
Answer:
- Characteristics for DSS: (Inputs: transaction level data; Processing: Interactive;
Outputs: Decision analysis; Users: Professional and staff)
- DSS differ from ESS: DSS serve at management level and ESS serve at
strategic level and its characteristics are: Inputs: Aggregate data; Outputs:
projections; Users: senior managers.

21- Describe the relationship between TPS, MIS, and ESS.

Answer:
- The relationship between TPS, MIS, and ESS: TPS are typically a major
source of data for other systems, data also be exchanged to MIS to produce
reports, whereas ESS are primarily a recipient of date from lower-level
systems.

22- List and describe the information systems serving each of the major functional
areas of a business.
Answer:
- Sale and Marketing Systems:
System Description Organizational
Level
Order processing Enter, process, and track orders Operational
Pricing analysis Determine prices for products Management
and services
Sale and forecasting Prepare 5 years sales forecasts Strategic
- Manufacturing and Production Systems
System Description Organizational
Level
Machine control Control the actions of machines Operational
and equipment
Production planning Decide when and how many Management
products should be produced
Facilities location Decide where to locate new Strategic
production facilities.
- Finance & Accounting Systems
System Description Organizational
Level
Account Receivable Tracks money owed the firm Operational
Budgeting Prepares short-term budgets Management
Profit planning Plans long-term profits Strategic
- Human Resource Systems
System Description Organizational
Level
Training and Tracks employee training, Operational
Development skills, and performance
appraisals
Compensation analysis Monitors the rang and Management
distribution of employee wages,
salaries, and benefits
Human Resource Plans the long-term labor force Strategic
planning needs of the organization
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23- What is a business process? Give two examples of processes for functional areas
of the business and one example of a cross functional process.
Answer:
- Business process refer to sets of logically related activities for accomplishing a
specific business result, and also refer to the unique ways in which organization
and management coordinate these activities.
- Example for functional area of business process: (Finance and Accounting: paying
creditors, creating financial statements and managing cash accounts); (Human
Resources: hiring employees, evaluating employees’ job performance and
enrolling employees in benefits plans)
- Example of a cross functional process: Order fulfillment process (Sales
Department: Generate order and submit order; Accounting Department: Check
credit and approve credit and then Manufacturing & Production department:
Assemble product and ship product, and finally Accounting Department: Generate
invoirce).
24- Why are organizations trying to integrate their business processes? What are the
four key enterprise applications for organization-wide process integration?
Answer:
- Organizations are trying to integrate their business processes because they
want to enhance the performance of the organizations as a whole. The system
takes advantage of corporate intranets and web technologies that enable the
efficient transfer of information within the firm and to partner firms. And these
systems are inherently cross-level, cross-functional, and business process
oriented.
- The four key enterprise applications: Enterprise Systems, Supply Chain
Management Systems, Customer Relationship Management Systems, and
Knowledge Management Systems.

25- What are enterprise systems? How do they change the way an organization
work?
Answer:
- Enterprise Systems, also known as enterprise resource planning systems,
provide a single information system for organization-wide coordination and
integration of key business processes.
- Information that was previously fragmented in different systems can
seamlessly flow throughout the firm so that it can be shared by business
processes in manufacturing, accounting, human resources, and other areas.

26- What are supply chain management systems: How do they benefit business?
Answer:
- Supply chain management systems are more outward facing, focusing on helping
the firm manage its relationship with suppliers to optimize the planning, sourcing,
manufacturing, and delivery of products and services. Theses systems provide
information to help suppliers, purchasing firms, distributors, and logistics
companies coordinate, schedule, and control business processes for procurement,
production, inventory management, and delivery or products and services.
- Benefit to business: Decide when and what to produce, store, and move; Rapidly
communicate orders; Track the status of orders; Check inventory availability and
monitor inventory levels; Reduce inventory, transportation, and warehousing costs;
Track shipments; Plan production based on actual customer demand; Rapidly
communicate changes in product design.
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27- What are customer relationship management systems? How do they benefit
business?
Answer:
- Customer Relationship Management Systems focus on coordinating all of the
business processes surrounding the firm’s interactions with its customers in
sales, marketing, and service to optimize revenue, customer satisfaction, and
customer retention.
- Users can manage and evaluate marketing campaigns across multiple channels,
including e-mail, direct mail, telephone, the web, and wireless message.

28- What is the role of knowledge management systems in the enterprise? What
organizational processes are supported by knowledge management applications?
Answer:
Role of Knowledge Management Systems:
- Collects relevant knowledge and make it available wherever and whenever it is
needed.
- Support business processes and management decisions
- Also link the firm to external sources of knowledge
- Support processes for acquiring, storing, distributing, and applying knowledge.
Organizational process that supported by KM applications:
- Acquiring knowledge
- Storing knowledge
- Distributing knowledge
- Apply knowledge

29- What are the challenges posed by the existence of various types of information
systems in the enterprise? How can these challenges be addressed?
Answer:
Challenges:
- Integration and the whole firm view: Given the different interests and
perspectives within a firm, it is difficult to achieve consensus about the need
for the whole firm viewpoint.
- Management and employee training: Training a large number of employees on
many systems in a large organization involves commensurately large
investments.
- Accounting for the cost of systems and managing demands for systems: Given
the large number of different types of systems in a firm, and the large number
of people involved with using them. It is a complex task to understand which
systems are truly necessary and productive with high returns on investment.
Challenges be addressed:
- Inventory the firm’s information systems: Develop a list of firm-wide
information requirements to give a 360-degree view of the most important
information needs of the firm.
- Employee and Management education: Ensure that you understand how much
training is required.
- Account for the costs and benefits: Develop an accounting system for
information services firm-wide.

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