Accounting for technologists

• S. Shazhana Saleeth
• Department of Multidisciplinary Studies
• Faculty of Technology
• University of Ruhuna
Lesson 2: Accounting as an Information System

• Difference between data and Information.

• Systems Vs Information Systems.

• Accounting Information System.

• Usage of Accounting Information.

• Key concepts related to AIS…

Learning Outcomes
• Distinguish data and information.

• Explain the meaning of Accounting

Information System.

• Describe how/ who an Accounting

Information System be used.
Types of Resources in Management

Physical Human

Financial Information
 Difference between data and
Information
• Data means the facts may consist numeric, texts, pictures,
graphs, etc.
• It may be represented by symbols.
• Data is the input.
Ex: data about a sale (date, total amount), the resource sold (good or
service, quantity sold, unit price)

• Information is organized and processed data.

• More meaningful and has a context for users
• Can improve the decision-making process
• Information is the output
Ex: Information in the financial statements
 Systems & Information Systems
• System
A system is a set of detailed methods, procedures, and routines that carry out
specific activities, perform a duty, achieve goals or objectives, or solve one or
more problems.
Ex: A college of business is a system composed of various departments, each of which is a
subsystem. Moreover, the college itself is a subsystem of the university

• Information System
An information system is the combination of the people and the technologies
in an organization that collect, record, store, and process data to produce the
Information needed to make informed decisions.
Accounting is….
AIS: At the intersection of Accounting & IS

ACCOUNTING
 Accounting Information System (AIS)

Output –
Input- Source Process – Double
Financial
documents entry, bookkeeping
Statements

A set of input, processing and output procedures designed to provide the financial
information required by stakeholders of a business.
A systematic process of collecting, storing, and processing financial and accounting data is
used by internal users to report information to investors, creditors, and tax authorities..
 Continued…

• Accounting is the language of business.

• Accounting information system (AIS) is the intelligence—the

information-providing vehicle—of that language.
Main components of AIS
Accounting information systems are composed of six
main components.
• People: Users who operate on the systems.
• Procedures and instructions: Processes involved in
collecting, managing and storing the data.
• Data: Data that is related to the organization and
it's business.
• Software: Application that processes the data.
• Information Technology Infrastructure: The actual
physical devices and systems that allows the AIS to
operate and perform its function.
• Internal Controls & Security Measures: What is
implemented to safeguard the data.
Types of Accounting Information Systems
• Manual systems are primarily used by smaller organizations where
the entire system is manual, with no technological integration.
• Legacy systems any outdated system, hardware or software that is
still in use. (have been prevalent before the advent of high-end
technology).
• Have some benefits of knowing the historical data
• But lacks flexibility and reliability that modern technology can
offer.
• Modern/Integrated systems are windows-based technologies that
are considered to be much more user-friendly than legacy accounting
systems.
• Internal Users:
Involve in decision
making
❖Management group:
Board of Directors
Partners
Managers
Officers
External Users:
Not involve in decision making
Financing group:
Investors (present and potential)
Lenders
Suppliers
Public Group:
Govt and Regulatory Authorities
Employees and Trade Unions
Customers
Rating Agencies
Others:
Security Analysts
Academics
Researchers
Continued…
• For any business, irrespective of its size, to run smoothly, it
requires optimum cash flow and proper flow of reports and
information across channels.
• AIS don't just support accounting and finance business processes.
They often create information that is useful to non-accountants.

• Finance: Cash forecasts and actual payment and receipt

information
• Marketing: Sales, summary analyses, cost information, and
sales forecasts.
• Human Resources: Payroll analyses (including employee
benefit information) and projections of future personnel
costs.
• Production: Inventory summaries and product cost analyses
 Use of Artificial Intelligence to improve
decision making
• Artificial intelligence (AI) uses computer systems to simulate human
intelligence processes such as learning (acquiring information and
rules for using it), reasoning (interpreting data and using its rules to
arrive at conclusions), and self-improvement (learning from the
information and past experiences to improve its rules)
• Ex: Business. AI-driven robots now perform many highly repetitive tasks. AI
algorithms determine how to better serve customers. Website chatbots provide
immediate customer service.
• Ex: Finance. Robo-based stock picking algorithms give advice on what stocks to
buy and sell. Software executes most stock market trades. Personal finance
applications use AI to advise their users and keep track of their finances.
 Use of Data Analytics to improve
decision making
• Data Analytics - use of software and algorithms to find and solve
problems and improve business performance.
• To identify a problem for management to resolve.
• To collect the data, analyze it, and make recommendations to
management.
• Actionable insights can be integrated into the systems used to make
decisions.
• Analytics can be embedded into AIS components, such as
databases, applications, and devices, and operationalized to
automatically resolve problems that occur and communicate
solutions to manage.
Importance of Accounting Information.
• Identify the • To know the
accuracy of return for their
decisions investment

Management Owners

Employees Creditors

• To know the • To understand

security of the repayable
their capacity of the
employment debtor
 How an AIS can add value to
an organization
• A well-designed AIS can add value to an organization by:
1. Improving the quality and reducing the costs:
For example, an AIS can monitor machinery, so operators are
notified immediately when performance falls outside acceptable
quality limits.
2. Improving efficiency.
For example, timely information makes a just-in-time
manufacturing approach possible, as it requires constant,
accurate, up-to-date information about raw materials inventories
and their locations.
3. Sharing knowledge.
Sharing knowledge and expertise can improve operations and
provide a competitive advantage.
4. Improving the efficiency and effectiveness of its supply chain.
Continued…

5. Improving the internal control structure.

• An AIS with the proper internal control
structure can help protect systems from fraud,
errors, system failures, and disasters.
6. Improving decision making.
• Improved decision making is vitally important
and is discussed below in more detail.
Some key concepts related
to AIS…
Accounting Environment
• Factors affect in the accounting process
Economic and Political
environment
e.g: tax, exchange rates

Professional environment Legal environment

e.g: Accounting Standards and Accounting e.g: Acts and laws
techniques
Process

Social and Cultural

Technical environment
environment
e.g: use of technology
e.g: culture
Types of Accounting
Financial Accounting
• Mostly used by external parties
• Mainly financial information
• Produce periodically (annually/ quarterly)
• Mainly prepare for the whole organization.
• Legal requirement
Management Accounting
• Used by the Management
• Both Financial and non-financial information
• Periodically as well as whenever needed for the Management
• As per the requirement of the Management (for the organization or even for the
departments)
• Not a legal requirement.
 Types of Businesses : According to the ownership

❑ Single ownership ❑ Own by two or more individuals ❑ “Artificial entity” created

through the investment of
shareholders
❑ Owner has the control over the ❑ Partners are the active ❑ Shareholders usually not
business managers in the business involve in daily operations
operations
❑ Unlimited liability ❑ Unlimited liability ❑ Limited liability
❑ No continuity of existence ❑ No continuity of existence ❑ Continuity of Existence
 References
• Marshall Romney, Marshall B. Romney, Paul John Steinbart, Scott L.
Summers (Professor), David A. Wood (Professor). Edition, 15,
Illustrated. Publisher, Pearson. 2020.
• Fifth Edition, Financial and Management Accounting: An Introduction
By: Pauline Weetman Professor of Accounting, University of
Edinburgh.
Thank you!