Accounting Information System

Definition:
A system, typically computer-based, used for storing, collecting, and analyzing a company's financial and accounting data. Accounting information systems are generally used by executives to make decisions, develop company strategies, and generate reports for shareholders, internal personnel, and regulatory agencies. Accounting information systems also streamline accounting cycles and reduce the incidence of accounting errors. Or, An electronic system containing all documents that a company uses to prepare financial statements and that one may use to defend against an audit. Accounting records include receipts, ledgers, sales records, and so forth. An accounting information system has become a major means for a company to maintain accounting records.

Function:
Collect and Store Data: One function of an accounting information system is to efficiently and effectively collect and store data about business activities and transactions. The system must capture transaction data on source documents, record transaction data in journals to present a chronological record of transactions, and post data from journals to ledgers that sort the data by account type. Provide Information: The second function of an accounting information system is to provide information useful for making decisions. This information usually involves reports in the form of financial statements and managerial reports. Provide Controls: The third function of an accounting information system is to incorporate controls to ensure the accurate recording and processing of data. The system must make certain that the information that comes out of the system is reliable, ensure that business activities are efficient and in line with management's objectives and keep business assets safe. Traditionally, bookkeepers and accountants did the work of accounting systems by hand on paper, but today much of the work is automated with computers. According to Maryville University, setting up an accounting information system requires knowledge of topics such as

1 Lahore College for Women University

database design and development, business process analysis, accounting applications, internal control requirements, information technology (IT) auditing and accounting requirements.

Goals of Accounting Information

Timeliness:
Time is a resource that should never be wasted, since it can never be recovered. An accounting system that is timely is an asset to any organization, because it presents information to users as and when required. A timely accounting system is able to produce the required reports for decision making just in time to make major decisions.

Cost-Effective:
Accounting systems have the goal of saving costs, especially when training staff. When implementing a new accounting system, the cost of operating it should not be greater than the benefits it provides. It is therefore essential to tailor the accounting system to the specific needs of the firm to avoid waste generated by a system with functions that the company will not need.

Informative:
The primary goal of an accounting system is to ensure that management, the board of directors and other users of financial statements get sufficient information necessary to enable them to make informed decisions for the business. Information is power, and a firm with a highly informative accounting system is able to make effective plans to make the firm grow in its industry. In short, an informative accounting system should be able to satisfy the needs of various users like managers, creditors, owners and government.

Reliability:
A reliable accounting system produces information that is free from bias. It faithfully represents what is seeks to represent. This information should be trustworthy and dependable so users can make decisions. For the information to be reliable, it must be neutral and faithful in representing the general condition of the firm.

Other Purposes:
An accounting system actually has several purposes in any company. Although one might think the only real importance to an accounting system was to keep track of income and expenses, there are actually other factors that require a solid accounting system. Those in
2 Lahore College for Women University

charge of the company rely on data from the accounting system in many ways throughout the course of normal business. The main and most well known reason for an accounting system is so that the company has a record of all revenue and expenses for the company. This information is used in typical ways such as providing reports to investors and creditors. Anyone that is doing business with the company will want to know the financial state that it is in. Shareholders will also be interested in knowing the bottom line after all of the expenses have been paid. With this system in place it becomes easier to make bigger decisions in the company. Hiring and firing, purchases, sales, investments, mergers and more can all be affected by the financial state of the company at the time. The data that is produced by the accounting system will let the right people know what major decisions need to be made and which ones need to be avoided. A viable accounting system is also an excellent way for a business to keep track of employees and monitor their habits to ensure they are on track with the goals of the company. It is a system of checks and balances.

Role of Accounting Information in Business Field

Business entities use an Accounting Information System. This is commonly used by businesses for collecting, storing, managing, processing, retrieving, and reporting financial data so that it may be useful for accountants, consultants, business analysts, managers, chief financial officers, auditors, and tax and regulatory agencies. Moreover, there are specially-trained accountants who work closely with AIS to ensure that the highest level of accuracy in a companys financial transactions is maintained and to make available all necessary reports to people who have legitimate access to such papers. Accounting information helps individuals understand how well the company uses its economic resources or business inputs to produce goods and services. This information helps business owners understand their company's profitability and helps lenders or investors determine if they want to invest money in the company for a future financial return. Financial accounting information is usually the best way for companies and investors to determine the overall financial health of businesses.

Primary Role:
A primary role of AIS is to fasten the financial transaction recording, accountants that input the financial transaction into the AIS that will create information and financial reporting for review. Besides, AIS also important in support management to get timely information in decision making. AIS are usually web or server based which provide a centralized place
3 Lahore College for Women University

where financial data stored, allowing managers have quicker access to review the financial information for that organization. Accountants play roles of tremendous significance in the economy. Without information expertise of accountants, business will be unable to evaluate their cost and profit position, gauge product or business unit performance, or to plan future financial success. Wellorganized AIS will make everyday business a lot easier and more effective. Use of Accounting Information in Business Field: Accounting Information systems are useful for companies and businesses wanting to make the accounting process easier by utilizing a computer program or other system that will perform payroll and other functions. These systems, commonly including accounting software, make it easier to compile financial data for use in taxes, payroll, and other bookkeeping requirements. The use of information systems is very important in recording vital financial data that will be used in the future. Major corporations, especially in the retail industry, will keep such data as sales, profits, expenses, and many other items for future use in financial reports. This is very important also because it will not only be used for daily practices, but will be necessary for tax purposes for the remainder of the year. Much of this data has to be kept on file for a number of years, in the event of an audit or other financial issues that may arise. Legal issues can cause severe problems and even end in the destruction of the company. By using computerized accounting information systems to organize and retain this data, companies have a much better chance to survive and succeed. The use of these systems is a very big part of businesses and corporations. Using resources available through accounting information systems allows major corporations and small businesses to record transactions and other financial information for use in the future. These tools can make the process much smoother, save money for the business, and save a great deal of time. Accounting reports can be analyzed to provide management with financial information that can be used to run a business, plan ahead and to make changes when business is not going as expected. If sales of a certain item are flat and not as expected, accounting reports show this reality and management can make decisions about it--a clear advantage of accounting information.

4 Lahore College for Women University

Other roles of Accounting information: Cost saving:

Reducing the level of redundancy equates to cost-savings. When redundancy is reduced and/or eliminated, this saves on man hours worked and frees up employees to take on other tasks. In addition, processes can be streamlined through information systems which further reduce redundancy.

Efficiency:
Efficiency is another tangible benefit of assimilating information systems. When computers can take over some of the tedious, detailed and mundane tasks, this makes processes move more quickly with a higher degree of accuracy. While it's true employees still play an importance role in ensuring data is entered correctly, once entered in the program, the management information system can effectively increase efficiency and data integrity.

Decreasing overhead costs:

With proper planning a company can maximize profit while decreasing overhead costs. Implementing a new system typically comes with a large price tag, but if business requirements and processes are properly and accurately identified, the payoffs can be big.

Without IS a business will more than likely fall rapidly behind.

Investing in information systems keeps a business competitive and helps an organization carry the ability to maintain visible status in the global economy. Without IS, a business will more than likely fall rapidly behind.

Role of Accounting Information on Globalization:

The following are the users of accounting information system; Shareholders of a company: Company's shareholders are the real owners of a business and needs information from those that manage the business on their behalf. Government: It is the duty of government to protect lives and property and in so doing will need information concerning every facet of her jurisdiction. Information from businesses in the form of financial report will help government properly formulate her strategic plan. Suppliers/ Creditors: Suppliers and creditors of a company need information concerning the financial position of a company. They need to be convinced that the company is liquid enough to meet with her obligations upon maturity.
5 Lahore College for Women University

General public: The general public will some time need information about the finance of a company in order to protect their interest. Students: students need information about company's finance to take some decisions that relates to courtesy visit and demand for bursary Employees: Employees and lower cadre managers are only interested in a company's financial statements because they want the safety of their daily bread. They may also want increase in wages and salaries. Management: Management in this are the top level managers and they have similar interest with ordinary managers. The only difference is that management also need this information to make economic decision that concerns the running of the business. Tax authority: They are only concerned about the returns that comes to them in the form of tax revenue. Trade union: Their concern is to seek a fair wage for their members. Knowing what a company is making will give them an insight of what to agitate for as fair wage Professional bodies: Professional bodies need accounting information as a tool that will be used to educate her members. Potential investors: For potential investors to be in a position to make investment decision some analysis has to be made and this can only be made from accounting information.

6 Lahore College for Women University