Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 4 Accounting Information Systems 153

BASIC ACCOUNTING SYSTEMS

Anaccounting information systemprocesses financial and operational data into re-

ports useful to internal and external stakeholders. As shown in Exhibit 2, accounting

information systems normally consist of the following three subsystems: (1) the

management reporting system, (2) the transaction processing system, and (3) the fi-

nancial reporting system.

Themanagement reporting systemprovides internal information to assist man-

agers in making decisions. The form and content of the information will vary, de-

pending upon the decisions. The information may include either financial information,

such as the effects of a proposed acquisition on the financial statements, or nonfinan-

cial information, such as the number of back orders, on-time deliveries, or customer

returns. Examples of such reports could include budgets, variance analyses, cost-

volume-profit analyses, sales mix analyses, and employee turnover. The area of ac-

counting that focuses on developing management reporting systems is called managerial

accounting.

Thetransaction processing systemrecords and summarizes the effects of financial

transactions on the business. Large businesses enter into thousands and, in some cases,

Describe the nature of
accounting information
systems.

2

ACCOUNTING INFORMATION SYSTEMS

Management Reporting System

Transaction Processing System

Financial Reporting System

Financial and

Operational Data

Stakeholders

Stakeholders

Stakeholders

Exhibit 2

Accounting Information System

Integrity and Honesty Make a Difference

Herb Kelleher, chairman and former chief executive of
Southwest Airlines, is known for his honesty and integrity
among Southwest employees. In the mid-1990s, Kelleher ne-
gotiated a 10-year union contract with Southwest pilots in
which the pilots agreed to freeze their wages for the first five
years of the contract. A primary reason Kelleher was able to
successfully negotiate the contract was that he constantly
worked at building trust among his employees. When he was
negotiating the contract, he told the pilots he would freeze his

own pay for the same five years. The pilots’ union believed

him, knowing that Kelleher wouldn’t ask them to do something

he wouldn’t do. Jackie Freiberg, co-author of the book, Nuts!

Southwest Airlines’ Crazy Recipe for Business and Personal

Success, says: “Kelleher is a man of his word. He thinks straight

and talks straight, so people respect and trust him.”

Source:Steve Watkins, “Leaders and Success,” Investor’s Business

Daily, November 5, 2004.

INTEGRITY, OBJECTIVITY, AND ETHICS IN BUSINESS