Professor Adams' Lecture Materials

Learning Objective 1-01: Define an Accounting Information System and Explain Characteristics of Useful Information

Definition of an Accounting Information System (AIS)

An Accounting Information System (AIS) is a system that

records,
processes,
summarizes,
reports, and
communicates

the results of business transactions to provide financial and nonfinancial information to facilitate decision making. It ensures appropriate levels of internal controls to protect the integrity and privacy of sensitive data.

Starbucks

Input: Sales at Starbucks.
Storage: Database of all Sales at Starbucks.
Processing: Queries of What Sells Best at Night.
Output: Reports of What Sells Best at Night.

Characteristics of Useful Information

To be useful for decision makers, information from an AIS must exhibit two primary qualities: Relevance and faithful representation.

Relevance

- Confirmatory or Feedback Value: Information should help confirm or correct past predictions.
- Predictive Value: It should assist in forecasting future outcomes.
- Materiality: The information should be significant enough to influence decisions; it must be above a certain threshold where its omission or inaccuracy would affect decisions .

Faithful Representation

- Completeness: Information should include all necessary data to reflect the true state of affairs.
- Neutrality: It should be unbiased and impartial.
- Free from Error: The information should be accurate and free from mistakes .

These characteristics ensure that the information provided by the AIS is both relevant to the decision-making process and a true representation of the business events it aims to capture.