An information system is designed to provide information to people in the company who might need it. For example, the human resource (HR) information system and materials requirements planning (MRP) system are both information systems. The HR system tracks people as they are hired. It includes data on date of hire, entry-level title and salary/wages, and any information needed for determining employee benefits. The MRP is a computerized system that keeps track of all raw materials used in manufacturing.
An accounting information system is one that consists of interrelated manual and computer parts and uses processes such as collecting, recording, summarizing, analyzing, and managing data to provide information to users. Like any system, an accounting information system has objectives, interrelated parts, processes, and outputs. The overall objective of an accounting information system is to provide information to users. The interrelated parts include order entry and sales, billing accounts receivable and cash receipts, inventory, general ledger, and cost accounting. Each of these interrelated parts is itself a system and is therefore referred to as a subsystem of the accounting information system. Processes include such things as collecting, recording, summarizing, and managing data. Some processes may also be formal decision models models that use inputs and provide recommended decisions as the information output. The outputs are data and reports that provide needed information for users.
Two key features of the accounting information system distinguish it from other information systems. First, inputs for an accounting information system are usually economic events. Second, the operational model of an accounting information system is critically involved with the user of information, since the output of the information system produces user actions. In some cases, the output may serve as the basis for action. This is particularly true for tactical and strategic decisions but less true for day-to-day decisions. In other cases, the output may serve to confirm that the actions taken had the intended effects.1 Another possible user action is feedback, which becomes an input for subsequent operational system performance. The operational model for an accounting information system is illustrated in Exhibit 2-2. Examples of the inputs, processes, and outputs are provided in the exhibit. (The list is not intended to be exhaustive.) Notice that personal communication is an information output. Often, users may not wish to wait for formal reports and can obtain needed information on a more timely basis by communicating directly with accountants.
An accounting information system is one that consists of interrelated manual and computer parts and uses processes such as collecting, recording, summarizing, analyzing, and managing data to provide information to users. Like any system, an accounting information system has objectives, interrelated parts, processes, and outputs. The overall objective of an accounting information system is to provide information to users. The interrelated parts include order entry and sales, billing accounts receivable and cash receipts, inventory, general ledger, and cost accounting. Each of these interrelated parts is itself a system and is therefore referred to as a subsystem of the accounting information system. Processes include such things as collecting, recording, summarizing, and managing data. Some processes may also be formal decision models models that use inputs and provide recommended decisions as the information output. The outputs are data and reports that provide needed information for users.
Two key features of the accounting information system distinguish it from other information systems. First, inputs for an accounting information system are usually economic events. Second, the operational model of an accounting information system is critically involved with the user of information, since the output of the information system produces user actions. In some cases, the output may serve as the basis for action. This is particularly true for tactical and strategic decisions but less true for day-to-day decisions. In other cases, the output may serve to confirm that the actions taken had the intended effects.1 Another possible user action is feedback, which becomes an input for subsequent operational system performance. The operational model for an accounting information system is illustrated in Exhibit 2-2. Examples of the inputs, processes, and outputs are provided in the exhibit. (The list is not intended to be exhaustive.) Notice that personal communication is an information output. Often, users may not wish to wait for formal reports and can obtain needed information on a more timely basis by communicating directly with accountants.
The accounting information system can be divided into two major subsystems: (1) the financial accounting information system and (2) the cost management information system. We will emphasize the second, although it should be noted that the two systems need not be independent.2 Ideally, the two systems should be integrated and have linked databases. Output of each of the two systems can be used as input for the other system.
Financial Accounting Information System
The financial accounting information system is primarily concerned with producing outputs for external users. It uses well-specified economic events as inputs, and its processes follow certain rules and conventions. For financial accounting, the nature of the inputs and the rules and conventions governing processes are defined by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). Among its outputs are financial statements such as the balance sheet, income statement, and statement of cash flows for external users (investors, creditors, government agencies, and other outside users). Financial accounting information is used for investment decisions, stewardship evaluation, activity monitoring, and regulatory measures.
The Cost Management Information System
The cost management information system is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives. The cost management information system is not bound by externally imposed criteria that define inputs and processes. Instead, the criteria that govern the inputs and processes are set by people in the company. The cost management information system has three broad objectives that provide information for:
1. Costing out services, products, and other objects of interest to management
2. Planning and control
3. Decision making
The information requirements for satisfying the first objective depend on the nature of the object being costed and the reason management wants to know the cost. For example, product costs calculated in accordance with GAAP are needed to value inventories for the balance sheet and to calculate the cost of goods sold expense on the income statement. These product costs include the cost of materials, labor, and overhead. In other cases, managers may want to know all costs that are associated with a product for purposes of tactical and strategic profitability analysis. If so, then additional cost information may be needed concerning product design, development, marketing, and distribution. For example, pharmaceutical companies may want to associate research and development costs with individual drugs or drug families
Cost information is also used for planning and control. It should help managers decide what should be done, why it should be done, how it should be done, and how well it is being done. For example, information about the expected revenues and costs for a new product could be used as an input for target costing. At this stage, the expected revenues and costs may cover the entire life of the new product. Thus, projected costs of design, development, testing, production, marketing, distribution, and servicing would be essential information.
Finally, cost information is a critical input for many managerial decisions. For example, a manager may need to decide whether to continue making a component internally or to buy it from an external supplier. In this case, the manager would need to know the cost of materials, labor, and other productive inputs associated with the manufacture of the component and which of these costs would vanish if the product were no longer produced. Also needed is information concerning the cost of purchasing the component, includingany increase in cost for internal activities such as receiving and storing goods.
Financial Accounting Information System
The financial accounting information system is primarily concerned with producing outputs for external users. It uses well-specified economic events as inputs, and its processes follow certain rules and conventions. For financial accounting, the nature of the inputs and the rules and conventions governing processes are defined by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). Among its outputs are financial statements such as the balance sheet, income statement, and statement of cash flows for external users (investors, creditors, government agencies, and other outside users). Financial accounting information is used for investment decisions, stewardship evaluation, activity monitoring, and regulatory measures.
The Cost Management Information System
The cost management information system is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives. The cost management information system is not bound by externally imposed criteria that define inputs and processes. Instead, the criteria that govern the inputs and processes are set by people in the company. The cost management information system has three broad objectives that provide information for:
1. Costing out services, products, and other objects of interest to management
2. Planning and control
3. Decision making
The information requirements for satisfying the first objective depend on the nature of the object being costed and the reason management wants to know the cost. For example, product costs calculated in accordance with GAAP are needed to value inventories for the balance sheet and to calculate the cost of goods sold expense on the income statement. These product costs include the cost of materials, labor, and overhead. In other cases, managers may want to know all costs that are associated with a product for purposes of tactical and strategic profitability analysis. If so, then additional cost information may be needed concerning product design, development, marketing, and distribution. For example, pharmaceutical companies may want to associate research and development costs with individual drugs or drug families
Cost information is also used for planning and control. It should help managers decide what should be done, why it should be done, how it should be done, and how well it is being done. For example, information about the expected revenues and costs for a new product could be used as an input for target costing. At this stage, the expected revenues and costs may cover the entire life of the new product. Thus, projected costs of design, development, testing, production, marketing, distribution, and servicing would be essential information.
Finally, cost information is a critical input for many managerial decisions. For example, a manager may need to decide whether to continue making a component internally or to buy it from an external supplier. In this case, the manager would need to know the cost of materials, labor, and other productive inputs associated with the manufacture of the component and which of these costs would vanish if the product were no longer produced. Also needed is information concerning the cost of purchasing the component, includingany increase in cost for internal activities such as receiving and storing goods.
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