Accounting Information Systems - Example Questions

ACCOUNTING INFORMATION SYSTEM II

INTRODUCTION

Accounting is the basic way of organizing and reporting financial information which is all about inflow and outflow of money. Accounting system is also used to identify, analyse, measure, record, summarize and communicate relevant information to the internal and external users.

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Data is the facts that collected, recorded, stored and processed in information system. While information is the data which is already organized and proceed to provide meaning and help in the process of decision making. Information is data that have been organized and processed to provide meaning to a user. Users typically need information to make decision or to improve the decision making process. As a general rule, users can make better decision as the quantity and quality of information increases. This information helps to understand what an AIS does.

As regarding all the questions given it is basically exploring the information environment of an organization. From these we can look at the types of information used in business, the flow of information through an organization and the relations in the information systems components. Next , it also shows the impact for the organization structure on accounting information system where there is a interrelated function for the business organization.

Questions:

1. A successful accounting information system must provide information for management decision making. In that management’s decisions evolve around an organization’s strategy, the accounting information system should be designed to support the organization’s strategy. Describe the two basic strategies suggested by Michael Porter and identify an organization that you believe follows each strategy. Be sure to describe why you believe that the organization follows the strategy you suggest

Michael Porter, world-renowned professor of business at Harvard claimed that there are two basic business strategies that companies can follow. First of all, a product differentiation strategy entails adding features or services not provided by competitors to a product so that we could charge customers a premium price. Secondly, a low cost strategy entails striving to be the most efficient producer of a product or service. A company can succeed in both producing a better product than its competitors and doing at cost below its industry average. However, company must choose between the two basic strategies. If they concentrate on being the lowest-cost producer, they will have to forego some value-added features that might differentiate their product. If they focus on product differentiation, they most likely will not have the lowest costs in their industry. Thus, a business strategy involves making choices. Porter argues that the fundamental choice companies must make involves selecting a specific strategic position they wish to adopt. He described three basic strategic positions. Firstly, a variety-based strategic position involves producing or providing a subset of the industry’s products or services. For example, Jiffy Lube International focuses on oil changes and lubrication services rather than a wide range of automotive repair services. Secondly, a needs-based strategic position involves trying to serve most or all of the needs of a particular group in a target market. For example, AARP focuses on retirees. The third strategic position is an access-based strategic position involves serving a subset of customers who differ from other customers in terms of factors such as geographic location or size, which creates different requirements for serving those customers. For example, the stock brokerage offices of Edward Jones are located primarily in smaller towns and cities not served by the larger brokerage houses.

Michael Porter also explains that these three basic strategic positions are not mutually exclusive and, indeed, often overlap. For example, Southwest Airlines employs a variety-based strategic position because it only offers a subset of the products provided by the airline industry. Southwest also employs a needs-based strategic position in that it has identified a specific target market for which it designs its services. Finally, Southwest employs an access-based strategic position because it does not service all markets.

2. Within the value chain of an organization there are five primary activities and four support activities. Describe how an accounting information system fits into the value chain of an organization. Where does it add value?

The goal of any business is to offer value to its customers. The profitable of the business is depended on the creation of the value which is greater than the cost of the product or services.

Value chain is the analysis which defines the accomplishments of the organization achieves and joined them to the organizations of the competitive position. The value chain concept can be drawn by distinguishing that organizations must interact with suppliers, distributors, and customers. Accounting information system can add value with providing precise and appropriate information. These will makes that five primary value chain activities can be performed more effectively and efficiently. Five primary value chains stated are inbound logistics, operations, outbound logistics, marketing and sale, and service. Each of these primary activities is linked by another to support actions which help to increase the effectiveness of efficiency. Inbound logistic is like receiving, keeping or storing, and allocating the materials that are inputs to the organization’s product or service. While, operations was of those inputs that can be transform into products or services. Then it will distribute those products or services to customers which is known as outbound logistic. Marketing and sales give function for helping the customer to buy the products or services of the organization. The last one which is service was the post-sale support which is provided to customers, like repair and maintenance function. Support activities are also within the value chain of the organization. These support activities can be classes into four categories. First, firm infrastructures which are like accountants, administration and lawyers which participating in the company’s accounting information system. Second was a human resource which includes of hiring a new employee, training employee and paying employees, and also handling employee benefits. Next is technology of the organizations. This technology can be related to the activity of the organization to improve their products or services. The last one is the purchasing. Organization will purchase some resources which are needed to carry out the entity of the primary activities.

Accounting information system can also add value by improving the quality and reducing the cost of products or services. Next, it can improve the efficiency like just in time. Just in time is an inventory management method which is resources, goods and labour are planned to fill exactly when needed in the process of productions. It can also add value by improving the decision making. The decision maker observes about the information output made by the transaction processing system, the management reporting, and the whether the budgeting systems meets their needs in the organization and the control of tasks. Sharing of knowledge also can be add value to the organization. Accounting information system used to share knowledge within the organization is like using of a business database to assists the staff to identify the appropriate experts who can help with a particular client.

3.Why data and information are among an organization’s most valuable assets?

Data are about the facts which are not processed, edited, summarized, or redefined and which do not have direct effect on the users. It is important to have the data because it is used to represent the observation or measurement of the business activities. Different kind of data that can be collected in the business can be about the facts on activities that take place, the resources affected by the activities and the people who participate in the activity. For instance, data that is collected during a sales event which states on the date and amount of sales of goods and services based on the quantity and the price per unit. Where else, information is basically about the data that have been organized systematically to provide meaningful information for the relevant users. With the information that is given we can easily make decision for an organization and information is also known as mandatory and essential. For example, a sales agent will receive the daily report on the sold item that are being out in daily transaction. Both data and information are an important asset for all the organization. Firstly, with this data and information, an organization are able to protect themselves from being in financial losses. If there are any circumstances on the losses than they will know it by checking the data and information and they can secure their company from bankruptcy. Next, these data and information can help to improve the efficiency of an organization. This can be done because with the relevant data and information an organization are able to well designed their information by providing timely information as needed on time. For instance, a manufacturing company are able to provide up to date information on their raw materials and inventories with the location as because it is well managed and being organized. Followed by, the ability to make a decision, where as an organization they are able to make relevant decision with the data and information available because with this data and information organization are able to make a decision to solve their problem. For example, with the data and information from the organization on the results of previous decision provides value feedback that can be improved to make future decision, where if a particular marketing strategy is tried in organization and with the data and information gathered indicates that it will be a success full business in an organization. Lastly, data and information are an important asset because there can be a misappropriation of data and information if they are not protected. Every organization will use they own method to protect their data and information from being stolen by internally and externally as well. As an information the security, control and privacy of data and information are being an important issue worldwide. Therefore, with proper internal and external control they can be aware of fraud, error, software failure and natural and political disasters.

4. THE AIS PLAYS AN IMPORTANT ROLE IN MAINTAINING A STRATEGIC POSITION, HOW???

There are two basic strategies which are To be a lower cost producer than competitor and To differentiate product and services from competitors. The three basic strategic position included of variety – based strategic position, need – based strategic position and access – based strategic position. Variety based strategic position is more to provide a subsets of the industry’s products and services. Need based strategic position will offer most or all of the needs of a particular group of customers in a target market. Access – based strategic position will provide a subset of customer who differ from others in terms of factor such as geographic location or size. Accounting information system plays its role in maintaining strategic position by collecting data about each activity and by transferring data into information which can be used by managements to coordinate those activities. A well designed Accounting Information system can maintain a strategic position of an organization by Improving the quality and reducing the cost of product or services. Normally, sales of a firm will increase if they provide goods or services in less price with high quality. This will be the main issue that arise among the competitors. For example, an accounting information system can monitor all the machines activities. It can immediately detect the problem occurred if there is any. This will help to maintain the goods quality and reduces the number of waste products. Besides that, It is also improving efficiency. It can be explained by just – in – time concept. This approach is mainly based on time information. This approach requires constant, accurate, and up to date information about the raw materials and their location in order to make sure the availability of raw materials to produce goods. It is also help by sharing knowledge. The main difficulties faced by many firm is the employee will never receive the accurate information based by the upper level management. Sharing knowledge can improve company operation and provide a competitive advantage. It is also plays an important role in improving efficiency and effectiveness of supply chain. It is can be explained by allowing customers to directly access in inventory and sales order entry system. This approach will lead to reduce in sales and marketing cost. It will also increase customer retention rates. Other than all this, it is also improving the internal control structure. An accounting information system with the good internal internal control structure can help the system to protect by fraud, errors, system failure and disasters. Lastly, it is also improving a good decision making. Decision making is a complex activity. Improved decision making is very important.

5. How to provide more information to get better decision maker?

Decision making is a complex, multistep activity, identify the problem, collect and interpret information, evaluate ways to solve problem, select a solution methodology and implement the solution. AIS can help decision making in its all phases. Reports could help in identifying problems. Differentiation in decision models and analytical tools can be given to users. Information can help to get better decision if it identifies situations requiring management action.

Besides that, large information could help make better decision when it presents a basis for choosing among alternative actions by decreasing uncertainty. For example, information is used to establish prices and verify credit policies. Information about the result of past decision postulates a valuable respond that can be used to improve future decision. For example, if a particular marketing strategy is tried and the information gathered indicates that it did not succeed, a different marketing strategy is selected.

AIS can improve decision making by stipulating perfect information to a timely manner. For example, Wal-Mart has invented a huge database that contains all information about daily sales transactions at each of its stores. The information helps to enhance the amount of every product collected at each store.

CONCLUSION

An effective accounting information system provides the management information for decision making. Management’s decisions can develop an organization’s strategy of the accounting information system which designed to support the organization’s strategy. There are two basic strategies that are suggested by Michael Porter, that are product differentiation strategy which is adding features to charge customer at premium price and also low cost strategy which help to determine the efficient producer of the resources. Michael Porter decide that there are three basic strategic position that are variety-based strategic, needs-based strategic and access-based strategic, that are not mutually limited and often overlap.

For addition, accounting information system can add value to the organization. These can help to provide organization accurate and precise information. It also can add value to improve the quality and reducing the cost, improve the efficiency, improving the decision making and also can share knowledge towards the organizations.

All organization has data and information to continue as long as to be operated. These data and information is most valuable asset of an organization. In the case of manufacturing company, data and information will make organization well managed and being organized. It also can improve the efficiency of an organization and these data will able to secure themselves from being in financial losses. An accounting information system with the good internal control structure can help the system to protect by fraud, errors, system failure and disasters. Lastly, it is also improving a good decision making. Decision making is a complex activity. Improved decision making is very important.