Professional Development Programme on Enriching Knowledge of the

Business, Accounting and Financial Studies (BAFS) Curriculum

Course 1 : Contemporary Perspectives on Accounting

Unit 5 : ICT Applications in Accounting

Technology Education Section, Curriculum Development Institute

Education Bureau, HKSARG
August 2008

Learning Objectives
On completion of this unit, you should be able to:
(i)

Explain what accounting information system is.

(ii) Understand the importance of an accounting

information system in management decision
making.
(iii) Identify ICT applications commonly used in
accounting.
(iv) Describe the advantages and disadvantages of
using computerised accounting.

Organisation of Unit 5
ICT Applications in Accounting
Accounting Information
System
Components
General Functions
Subsystems
Importance

Information
Communication
Technology
Traditional Computerbased Technology

Revenue Cycle
Expenditure Cycle
Production Cycle

Advantages and
Disadvantages of
Computerised Accounting

Digital Communication
Technology

Resource Management Cycle

Financial Reporting Cycle

Accounting Information System (1)

Do you know what accounting information system is?

Accounting Information System (2)

AIS

Business
Transaction
Transaction
Data

Data
Processing

Report

Accounting
information

Decision Making

Accounting information system (AIS) is a system designed to transform

transaction data into accounting information for decision-making.
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Accounting Information System (3)

AIS

While AIS was previously a paper-based system (or called manual system),
most modern businesses now use accounting software to maintain their AIS.
This is known as computerised accounting information system.
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Accounting Information System (4)

AIS - Components
Computer
Hardware

Accounting
Software

Accounting Staff

A computerised accounting information system generally comprises

computer hardware, accounting software and accounting staff.

Accounting Information System (5)

AIS General Functions

Data Collection
Transaction
Data

Computer
Hardware

Information Generation

Users

Accounting
Software

Data Maintenance (like classification,

calculation, summarisation and comparison)

Accounting Staff

Data Management (like storage, updating and

retrieval)
Data Control and Security

Generally speaking, the functions of the AIS, whatever the manual AIS
system or the computerised AIS system, include data collection, data
maintenance, data management, data control and security and information
generation.
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Accounting Information System (6)

AIS - Subsystems
Accounting
Computer
Transaction
Processing
Software
Hardware
Cycles
Accounting Staff

The AIS processes transaction data by means of transaction processing cycles,

which are interrelated subsystems of the AIS.
Each cycle is designed to deal with a particular type of transaction. For
example, the revenue cycle, which will be explain more later, is designed to
deal with sales transactions.
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Accounting Information System (7)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software

Transaction
Hardware Processing Cycles
Reporting

Production Cycle

Cycle

Resource Management
Cycle
Accounting
Staff

The transaction processing cycles1, which vary among companies, of a

typical AIS are classified as: revenue cycle, expenditure cycle, production cycle,
resource management cycle and financial reporting cycle.
1 Wilkinson, J. W., Accounting and Information Systems, Wiley

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Accounting Information System (8)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

The Revenue Cycle is used to process sales transactions and related sales
receipts. In particular, the cycle usually possesses the following functions:
- authorising sales transactions;
- recording sales orders;
- verifying customers creditworthiness;
- arranging shipment of goods or performance of services;
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Accounting Information System (9)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

- billing customers;
- verifying and safeguarding sales consideration;
- recording sales transactions and related receipts in the ledgers; and
- preparing sales analysis.

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Accounting Information System (10)

AIS - Subsystems
Revenue Cycle

Accounting
Computer
Financial
Expenditure
Cycle
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

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The Expenditure Cycle is used to process purchases/other expenses

transactions and related payments. In particular, the cycle usually possesses
the following functions:
- authorising purchases transactions;
- placing purchases orders;
- verifying and safeguarding the goods/services received;
- verifying the validity of purchase invoices;

Accounting Information System (11)

AIS - Subsystems
Revenue Cycle

Accounting
Computer
Financial
Expenditure
Cycle
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

- authorising payments for the purchases and other expenses;

- arranging the payments for the purchases and other expenses;
- recording purchases/other expenses transactions and related payments in the
ledgers; and
- preparing purchases analysis and expenses analysis.
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Accounting Information System (12)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

The Production Cycle, mainly found in manufacturing companies, is used to

provide information related to the conversion of raw materials into finished
goods. In particular, the cycle usually possesses the following functions:
- performing the production planning;
- managing the inventory level;
- maintaining and controlling the production operations;
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Accounting Information System (13)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

- maintaining the cost records for work-in-process;

- recording the resources used in production and completion of finished goods
in the ledgers; and
- preparing inventory analysis and production analysis.

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Accounting Information System (14)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

The Resource Management Cycle concerns with the capital asset

management. The cycle involves fund management, facilities management and
personnel management. In particular, the cycle usually possesses the following
functions:

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Accounting Information System (15)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

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Fund Management
- authorising acquisition and use of the funds;
- acquiring funds from various sources, like sales of goods, bank loans, shares
issuance and debenture issuance;
- using funds to meet obligations due;
- safeguarding and controlling funds on hand; and
- recording the acquisition and use of funds in the ledger.

Accounting Information System (16)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management Cycle

Accounting Staff

19

Facilities Management
- identifying the needs of acquiring fixed assets;
- preparing the capital investment proposals;
- authorising the acquisition, use or disposal of fixed assets;
- placing orders;
- verifying and safeguarding the fixed assets received;
- verifying the validity of suppliers invoices;

Accounting Information System (17)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

Facilities Management
- authorising payments for the acquisition;
- arranging the payments for the acquisition;
- safeguarding and controlling the fixed assets;
- maintaining the records concerning fixed assets; and
- recording the acquisition and disposal of the fixed assets in the ledger.
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Accounting Information System (18)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

Personnel Management
- establishing pay status of staff;
- measuring the services rendered by the staff, for example: timekeeping;
- authorising the payments for the services rendered by the staff;
- arranging the payments for the services rendered by the staff; and
- recording the staff costs in the ledger.
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Accounting Information System (19)

AIS - Subsystems
Revenue Cycle

Computer CycleAccounting
Financial
Expenditure
Software
Hardware

Production Cycle

Reporting
Cycle

Resource Management
Cycle
Accounting
Staff

Finance Cycle

The Financial Reporting Cycle is the process of transforming data generated

by the aforesaid transaction cycles into accounting information like trial balance,
income statements and balance sheets.

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Importance of AIS (1)

Management
After understanding the key components and features of
the AIS, could you figure out why the AIS is important in
management decision making?

23

Importance of AIS (2)

Management

The AIS provides relevant and timely accounting information to the

management for strategic and tactical planning. In particular, the AIS
processes the transaction data and generates reports to the management for
further analysis and decision making.

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Importance of AIS (3)

Management
Can you think of any examples that the management uses
the output of AIS to make decision?

25

Importance of AIS (4)

Management
For example, the management of a retail store is required to make a decision
on the amount of year-end bonus to be paid to Steven, a salesman.
The management:
- determines that the total amount (5% of profit) of bonus entitled by all
salesmen basing on the profit ($10 million) for the year is $500,000 ($10
million x 5%); and
- evaluates the performance of Steven based on the sales analysis report
and finds that Steven contributes 3% of total sales for the year; and
- determines that the amount of year-end bonus to be paid to him is
$15,000 ($500,000 x 3%).
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ICT Applications in Accounting (1)

Do you know what Information Communications

Technology (ICT) is and how it is applied in accounting?

27

ICT Applications in Accounting (2)

ICT is the uses of digital technology to help individuals, businesses and

organisations to use information.
ICT covers products which store, retrieve, manipulate, transmit or
receive digital data, e.g. personal computers, digital camera, palm and
email.

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ICT Applications in Accounting (3)

Digital
Communication
Technologies

Traditional
Computer-based
Technologies

ICT is categorised into:

- the Traditional Computer-based Technologies; and
- the Digital Communication Technologies.

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ICT Applications in Accounting (4)

Traditional
Computer-based
Technologies

In office, the application of the Traditional Computer-based Technologies

allows us to do what we are typically using to do with a personal computer, like:
- word processing (eg Microsoft Word);
- performing calculation with spreadsheet (eg Microsoft Excel);
- conducting a presentation (eg Microsoft Powerpoint); and
- managing data (eg Microsoft Access).

30

ICT Applications in Accounting (5)

Traditional
Computer-based
Technologies

In accounting, the application of Traditional Computer-based

Technologies allows us to manage a businesss accounting records
with accounting application software.

31

ICT Applications in Accounting (6)

A wide range of accounting application software is available for businesses

of various nature and sizes, like:
- ACCPAC;

32

ICT Applications in Accounting (7)

A wide range of accounting application software is available for businesses

of various nature and sizes, like:
- ACCPAC;
- MYOB;
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ICT Applications in Accounting (8)

34

A wide range of accounting application software is available for businesses

of various nature and sizes, like:
- ACCPAC;
- MYOB; and
- DacEasy.

ICT Applications in Accounting (9)

Digital
Communication
Technologies

The Digital Communication Technologies refers to the technologies of data

communication by electronic means. This is often achieved via networks of
sending and receiving equipment, wires and satellite links.
Typical examples of the application are Internet and Intranet.

35

ICT Applications in Accounting (10)

Via an internal network, generally referred to as a Local Area

Network (LAN), a user can share accounting application software and
accounting data with other users at the same location.

36

ICT Applications in Accounting (11)

Via an external network, generally referred to as a Wide Area Network

(WAN), a user can communicate with other users outside their internal network.
For example, a user in Country A can access accounting data input by another
users located in Country B via WAN. Another example is that the public places
orders and makes payments to supermarkets via Internet.

37

Advantages and Disadvantages of

Computerised Accounting (1)

Can you state the advantages and disadvantages of

computerised accounting (ie using the ICT in accounting) ?

38

Advantages and Disadvantages of

Computerised Accounting (2)
Advantages
Reduce repetitive routine manual accounting work
Reduce cost and human resource for maintaining
the accounting information system
Enhance the efficiency in the preparation of financial
statements and the decision making of management
Enhance the consistency and reliability of
the accounting system and its output
Allow users to access the accounting information
system simultaneously

39

In the early stage of computerisation, the main benefits of computerised

accounting came from the reduction in the number of accounting personnel
needed to process routine transactions as repetitive accounting work could be
processed by computers in batches.

Advantages and Disadvantages of

Computerised Accounting (3)
Advantages
Reduce repetitive routine manual accounting work
Reduce cost and human resource for maintaining the
accounting information system
Enhance the efficiency in the preparation of financial
statements and the decision making of management
Enhance the consistency and reliability of
the accounting system and its output
Allow users to access the accounting information
system simultaneously

Besides, the efficiency and reliability of computerised accounting considerably

improve the efficiency of financial reports preparation and the accuracy of
accounting data.
40

Advantages and Disadvantages of

Computerised Accounting (4)
Advantages
Reduce repetitive routine manual accounting work
Reduce cost and human resource for maintaining the
accounting information system
Enhance the efficiency in the preparation of financial
statements and the decision making of management
Enhance the consistency and reliability of
the accounting system and its output
Allow users to access the accounting information
system simultaneously

Furthermore, the innovation and popularisation of Digital Communication

Technologies allows different users, in the same or different locations, to input
and access accounting data simultaneously.
41

Advantages and Disadvantages of

Computerised Accounting (5)
Disadvantages

High initial cost

The application software may not totally fit the
needs of a business
High risk of attacks by hackers and fraudsters

However, computerised accounting has also thrown up a number of recurring

problems to users. First of all, the initial setup cost and staff training cost for a
computerised accounting information system are expensive.

42

Advantages and Disadvantages of

Computerised Accounting (6)
Disadvantages

High initial cost

The application software may not totally fit the
needs of a business
High risk of attacks by hackers and fraudsters

Businesses usually acquire ready-made accounting application software to

computerise their accounting information systems. However, the features of the
software may not totally fit the operation needs of the businesses.

43

The businesses have to adapt their operations to fit in with the software, or to
seek for special modifications to the software, which is an expensive option.

Advantages and Disadvantages of

Computerised Accounting (7)
Disadvantages

High initial cost

The application software may not totally fit the
needs of a business
High risk of attacks by hackers and fraudsters

To enable the public to transmit orders and make payments directly to

suppliers system electronically, some businesses have opened up their
systems and allow the public to access them. However, this makes the
systems vulnerable to attacks by hackers and fraudsters.
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Recapitulation
Now, you have come to the end of the unit.
Let us recapitulate the essential points of the following in
the next five slides:

What accounting information system (AIS) is

Components of a computerised AIS
Functions of the AIS
Transaction processing cycles of AIS
Information Communications Technology (ICT), its
category and applications in accounting
ICT applications in accounting advantages and
disadvantages
45

Recapitulation - AIS (1)

Accounting information system (AIS) is a system

designed to transform transaction data into accounting

information for financial decision-making.

Components of a computerised AIS:

computer hardware,
accounting software and
accounting staff.

Functions of the AIS:

46

data collection,
data maintenance,
data management,
data control and security and
information generation.

Recapitulation - AIS (2)

Transaction processing cycles of AIS:

revenue cycle,
expenditure cycle,
production cycle,
resource management cycle, and
financial reporting cycle.

47

Recapitulation - ICT (1)

Information Communications Technology (ICT) is the uses of digital

technology to help individuals, businesses and organisations to use

information.

ICT is categorised into:

the Traditional Computer-based Technologies, which allows us to
do what typically we are using to do with a personal computer at
home or at work; and
the Digital Communication Technologies, which allows us to
communicate by electronic means.

ICT applications in accounting:

manage a businesss accounting records with accounting
application software; and
share of accounting application software and accounting data by
different users.
48

Recapitulation - ICT (2)

ICT applications in accounting:
Advantages:
Reduce repetitive routine manual accounting work.
Reduce cost and human resource for maintaining the
accounting information system.
Enhance the efficiency in the preparation of financial
statements and decision making of management.
Enhance the consistency and reliability of the accounting
system and its output.
Enhance the accessibility of the accounting information system.

49

Recapitulation - ICT (3)

ICT applications in accounting:
Disadvantages:
High initial cost.
The application software may not totally fit the needs of a
business.
High risk of attacks by hackers and fraudsters.

50

References

Wilkinson, J. W. (2000), Accounting and

Information Systems, Wiley, 4th Edition,
Chapter 1, 3, 11-13.

51

Further Readings

Stair and Reynolds (2006), Principles of

Information Systems: A Managerial

Approach, Thomson Publishing, 7th Edition,
Chapter 6 & 9.

James A Hall (2004), Accounting Information

Systems, South-Western College Publishing,

4th Edition, Chapter 2, 4 - 8.

52

Further Readings

ERP / ,
, 2003

/ , ,
, 1999

53

End of the Unit

End-of-unit Assessment
This is the end of Unit 5.
Please go to the Unit
Assessment before
attempting the next unit.

54

Additional Learning Resources

If you would like to experience a computerised accounting system,
you may download the free trial version of DacEasy and MYOB
from the following links:
MYOB:
http://www.myob.com.hk/eng/products/premier_free_trials.aspx
DacEasy:
http://www.daceasy.com.hk/v14/demo/download.htm

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