ACC315 CH1 Notes (Accounting as Information)

School: Southern New Hampshire University - Course: ACC 315 - Subject: Accounting

Section 1: Why is accounting information important? •An information system consists of interrelated components including physical hardware like monitors and laptops, the software that users interact with, databases used for storage, and networks that send data and information throughout the system. An information system also includes the people who use and maintain it. Illustration 1.3 shows how an information system: oCaptures raw and unorganized data, which is the input oProcesses and stores that data (action) oReports information in formats that are useful to users, which is the output •A less complex AIS is a stand-alone system used by small businesses that focuses on the accounting equation and financial implications of the underlying business events. •An AIS with higher complexity can fully integrate with the company's enterprise-wide information system •A business model is a company's plan for operations. It includes identifying the customer base, products, operation plans, and sources of revenue and financing. Companies make strategic plans that consider profitability, investor input, risk, and social responsibility to create a business model. Social responsibility is part of a business model that helps a company be socially accountable to its internal and external stakeholders, its community, and the public. The business world has seen a drastic shift in how companies prioritize social responsibility. Initiatives such as sponsoring employees to volunteer on company time, matching employee donations, and eliminating paper products in office buildings have become more popular •A business process is a group of related business events designed to accomplish the strategic objectives of the business. Recall that a business event is an activity that takes place during company operations. oAt a high level, business processes take inputs of resources to create products and services as outputs. These outputs must have value to customers, or they will not sell. In its simplest form, a basic business model consists of three primary types of business processes (Illustration 1.8). o

•There are four types of business events or activities: oOperating events: Occur during the normal operations of a company's business and directly relate to the company's creating and providinga good or service to its customers. Examples include: ▪Collect customer payment ▪Hire employee ▪Pay employee ▪Deliver goods oFinancing events: Help the company operate by acquiring incoming cash flows to fund operating events. Examples include: ▪Issue stocks ▪Declare dividends ▪Apply for a loan ▪Pay loan installment oInvesting events: Provide long-term value to the company by purchasing long- term assets that will deliver value in the future. Examples include: ▪Buy/sell property, plant, and equipment ▪Buy/sell marketable securities ▪Buy/sell other businesses •These three types of business events should seem familiar. They are the three types of activities on the cash flow statement: operating activities, financing activities, and investing activities. The fourth business event is unique in that it does not result in an exchange of economic resources: oInformation events: Involve an exchange of information and never involve an exchange of economic resources. Examples include: ▪Take customer order ▪Create purchase order ▪Interview candidate ▪Print report