Accounting As An Information System

Define Accounting Information System

Accounting information system (AIS) is an arrangement that an organization or an entity adopts to collect, manage, process, retrieve, and report its financial data so that it can be used by accountants, consultants, business analysts, managers, auditors, regulators, tax agencies, and other financial officers.


What is Accounting Information System (AIS)?

It is a structured system where all the information of an organization (business entity or non-profit organization) is collected, stored, and managed in the form of data which is thereafter processed to prepare financial records of importance. 


Users of Accounting Information 

The below image depicts who are the users of the accounting information system.

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Functions of the Accounting Information System

The three basic functions of an accounting information system are to collect and process data, to report for the management, and to maintain accuracy and security. They are detailed below.

  • Collection and Processing: The collection phase in an accounting information system is that the accountants or bookkeepers collect and record the data from cash purchases, cash sales, amount receivables, and payables and process them among other transactions. If it a computerized system, the software program processes all the debits and credits into a complete information management database.

  • Reports for Management: After collection of data, the Accounts personnel gives reports to the higher officials responsible for making decisions, such as sales and marketing managers, production managers, financial managers and all department heads in an organization. The information thus generated from the accounting information system supports the management to analyze the current operations and economic condition and make decisions, plan, and set goals for the future.

  • Accuracy and Security: The third main function of the accounting information system is to make sure that the company maintains accurate data securely. The management decides that such data access is limited to authorized persons only. 


Explain the Role of Accounting Information System in an Organization

  1. Detailed Requirements Analysis: In this, all end-users of the accounting information system are examined by questions, to make sure that the system is fully understood, including the complete documentation collected. 

  2. System Design: After the detailed analysis, a new system is formed. The system is so designed that it incorporates relevant internal controls to provide the management with the necessary information to make important decisions for the organizations. 

  3. Documentation: While the system is being made, it is ensured that data is well documented. The detailed documentation provides the users with accurate instructions regarding the new system. Documentation plays an important role and is used for testing and training before rolling out the system.

  4. Testing: The processes are tested before launching the system. The documentation collected ensures the processes are well documented and procedures are followed. This phase is considered a “trial and error” stage. At this stage, some system modifications can be done. Ensure that all processes are tested. 

  5. Training: All the staff is provided training to implement the changes as per the AIS software. Also, at this stage staff can give better input to improve the system. Since they are only going to use it.

  6. Data Conversion: In this stage, the existing data is transferred to the new system. Before converting the data, it should be well tested and verified. And also, it is always advisable to have a data back up at the time when it is needed to restart. 

  7. Rolling Out the New System: The entire company must know the date of the launch of the new system. And this will be the ideal time for the organizations to switch over from one platform to the other.

  8. Tools: The company should ensure that all possible online resources are made available to the staff involved in using the new Account information system. The company should define the responsibilities of each and every employee involved in this system.

  9. Support: It should be ensured that the management and its end-users have on-going support available at all times. Since the upper management depends on the AIS to meet the success goals of the organization, system upgrades should be kept monitored at all costs.

FAQ (Frequently Asked Questions)

1. What do you mean by the Accounting Information?

Ans. Accounting information is the processed data derived from the transactions of a business entity. Following are the main types of accounting information:

  • Information about the financial position of the business

  • Information about the net profit or loss

  • Information on the total cost and per-unit cost

  • Information on planning and control of the business

  • Information on tax management 

  • Information on social responsibility

2. Explain accounting as a Financial Information System.

Ans. Accounting as a financial information system is an arrangement to gather, store, and process the accounting or financial data that are used by the management. An accounting information system is a computer-based method for tracking accounting activity in association with information technology resources.

A financial information system is an organized approach to gather and interpret information that gets computerized usually. An ideal financial information system is important for a business since the higher management needs the information to make economic decisions about taking the organization towards success.

3. Who are the users of Accounting Information?

Ans. The users of accounting information are people both inside and outside the business. They are termed as internal and external users.

Internal Users: The internal users are owners, managers, and employees of the company. They use this system to compare and work accordingly to make necessary adjustments for its activities in the future. 

External Users: The external users are suppliers, banks, customers, investors, potential investors, and other tax authorities. They use this system to evaluate the performance of the company to know its economic condition and also to take relevant decisions. The external users also include investors, creditors, trading partners, government, other regulatory agencies, etc.