Purposes of Accounting Information Systems
The accounting information system of a business is the collection of people, policies, procedures, information
technology, and processes that identifies, classifies, processes, summarizes, and distributes economic and
financial information to its various users.
A business’ management accounting information should describe
its economic performance and resources with respect to its:
 Operating units (such as divisions and departments),
 Processes,
 Products, and
 Customers
A business’ accounting information system should provide this information in a manner that permits managers
to plan and control the activities of the business in pursuit of its strategy.2
To be appropriate to a particular
business, managers must tailor its accounting information system to its particular industry characteristics,
organization, products, and requirements for planning and control. In turn, a business’ planning and control
requirements depend on its strategy and objectives. Management accounting information is useful to
managers in examining and reducing the costs of a business’ processes, products, and operating units,
thereby leading to increased market share, profits, or both. Examples of ways businesses reduce costs
 Renegotiating terms with suppliers
 Outsourcing manufacturing activities to third parties that have lower operating costs
 Redesigning products (so that they require fewer or lower-cost components) or manufacturing
processes to shorten production cycle times (by implementing just-in-time manufacturing methods that
reduce excessive production and warehousing of goods and excessive material handling during
 Pursuing total quality management (TQM) by reducing product defects and the associated costs of
rework and waste

The Topic 3-4 background paper examines further the accounting information system, as well as the uses and desired qualities of
accounting information.
A business’ strategy is the operational approach by which its managers try to achieve their objectives for the business. Those
objectives relate principally to the interests of the business’ customers and owners.
3 Managerial accounting courses examine target costing, a methodology managers sometimes use to help determine the engineering
design and features of products and production processes, along with their expected costs, in those situations where market factors
primarily determine the prices of the products, rather than a business’ cost-plus-target profit.
Topic 1
As examined further below, a business’ management accounting system should provide managers with
information useful for:
 Setting the prices of or promotion strategies for its products and services
 Determining which products or services it should offer or discontinue
 Deciding whether to acquire a competitor or supplier business
 Projecting the required level of productive capacity and deciding whether to acquire additional, or close
existing, plants
 Evaluating and enhancing the quality or timely delivery of products or customer service4
As described below, a business’ management accounting system may take the form of a process cost
system or a job order cost system (or, in some cases, a combination of both), depending on the nature of its
products and manufacturing processes. In addition, a business may use a standard cost system, which is
compatible with both process cost or job order cost systems.

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