Question: Explain, What is Accounting Information system?

Answer:

Accounting Information Systems Explained
Accounting Information Systems (AIS) collect, record, store, and process data to produce information for decision
makers. Accounting information systems are a set of interrelated components, that interact, to achieve a
goal. Most accounting information systems are composed of smaller subsystems and vice-versa, every
organization has goals. Accounting Information Systems can use advanced technology, be a simple paper-and-
pencil system or be something in between. Technology is simply a tool to create, maintain, or improve a
system. An accounting information systems topics impact corporate strategy and culture.

Accounting information systems offers value and is a very
important part of the value chain. Although adding value is a commonly used buzzword, in its genuine sense, it
means making the value of the finished component greater than the sum of its parts. It can mean, making it faster,
making it more reliable, providing better service or advice, providing something in limited supply, providing
enhanced features or customizing it. Value is provided by performing a series of activities referred to as the value
chain which includes primary activities and support activities. These activities are sometimes referred to as line
and staff activities respectively.
Information technology can significantly impact the efficiency and effectiveness with which the preceding activities
are carried out. An organizations value chain can be connected with the value chains of its customers, suppliers,
and distributors.
The functions of Accounting Information Systems are to:
Collect and store data about events, resources, and agents.
Transform that data into information that management can use to make decisions about events, resources,
and agents.
Provide adequate controls to ensure that the entitys resources (including data) are:
Available when needed
Accurate and reliable
Accounting information systems are the structures and architecture on which accounting information is captured,
processed and reported. They happen to be computer-oriented in this day and age. To understand and create
useful systems you must understand business, business processes, accounting, and a bit of technology.
The subsystems should be designed to maximize achievement of the organizations goals.
Even to the detriment of the subsystem itself.
For Example: The production department (a subsystem) of a company might have to forego its goal of
staying within its budget in order to meet the organizations goal of delivering product on time.
Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger
system. Goal congruence occurs when the subsystems goals are in line with the organizations goals. The larger
and more complicated a system, the more difficult it is to achieve goal congruence. The systems concept
encourages integration (i.e., minimizing the duplication of recording, storing, reporting, and processing). Data are
facts that are collected, recorded, stored, and processed by an information system. Organizations collect data
about, events that occur, resources that are affected by those events and agents who participate in the
events. Information is different from data, information is data that has been organized and processed to provide
meaning to a user. Usually, more information and better information translates into better decisions. However,
when you get more information (Site Financial) than you can effectively assimilate, you suffer from information
overload. When youve reached the overload point, the quality of decisions declines while the costs of producing
the information increases.
Accounting Information Systems Characteristics
Characteristics that make information useful:
Relevance
Reliability
Completeness
Timeliness
Understand-ability
Verifiability
Accessibility
Question: What are Accounting Information Systems and what are the different types?
Answer:
Accounting information systems collect and process transaction data and communicates the financial information
to interested parties. There are many types of systems and they vary widely. A number of factors shape these
systems such as the type of business, the size of the business, the volume of data, the type of data management
needs, and other factors.
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Accounting Systems
Most businesses, except for the smallest, use computerized systems,also called electronic data processing or
EDP systems. These systems handle every step in the accounting process from recording the financial
transaction to preparing the financial statements. Businesses are constantly improving their systems technology in
order to remain competitive and to stay in compliance with the Sarbanes-Oxley Act of 2002. Even the smallest
businesses use systems like Quickbooks.
Accounting Information Systems, Business Transactions, and Business Processes
In order to understand how these systems work, you have to understand the accounting terms "business
transactions" and "business processes" and how they come together to generate financial reports. With regard to
accounting information systems, business transactions can be divided into four types of business processes:
Revenue and return processes, systems, and controls
The business transactions that fall under these business processes are large volumes of daily sales, returns,
and cash inflow transactions.
Expenditure and return processes, systems, and controls
The business transactions that fall under these business processes are large volumes of expenditure, returns, and
cash outflow transactions. Payroll and fixed asset purchase transaction are also in this category.
Replacement of Legacy Systems
At some point as your business grows, you may want to completely replace your legacy system. In the long run,
the cost will be lower with fewer bugs.
Every business must have a way to keep track of its financial transactions. In other words, it must have some sort
of accounting information system. You may start out with a simple system and it can grow as your business
grows.
Conversion processes, systems, and controls
The business transaction under this category are raw materials and work-in-progress transactions.
Administrative processes, systems, and controls
The business transactions that are administrative are investments, borrowing, and capital transactions.
All of these business transactions result in T-accounts set up in the General Ledgerprocesses, systems, and
controls. From the general ledger, both internal and external financial statements are developed. Internal financial
reports might be anaging schedule for accounts receivable or a sales inventory status report. External financial
reports would be the income statement, balance sheet, and statement of cash flows.
Types of Accounting Information Systems
There are three types or categories of accounting information systems. What a business firm uses depends on the
type of business, the size of the business, the needs of the business, and the sophistication of the business:
Manual systems
Manual accounting information systems are used mostly by very small businesses and home-based businesses. If
a system is entirely manual, it would require the following: source documents, general ledger, general journal, and
special journals or subsidiary journals you might need.
Legacy systems
Legacy systems are often in existing business firms and were used before information technology got as
sophisticated as it is today. Even though legacy systems may appear to be old-fashioned, they have some definite
advantages to the firm. They contain valuable historical data about the firm. The firm personnel tend to know how
to use the system and understand it. A legacy system has usually been customized to the specific needs of an
individual firm. You won't find this kind of customization in generic accounting software packages.
Unfortunately, legacy system also have significant disadvantages. Often, they have no documentation. It is usually
hard to find replacement parts because hardware and software may become obsolete. Even the computer
language that legacy systems use is usually an older language. Most legacy systems have been built from
scratch.
Replacement of Legacy Systems
You can completely replace your legacy system with a new, up-to-date system. That is quite an expensive
solution. You can also update your legacy system. You can use a procedure called screen scraping, which is a
technique that takes the data displayed on the computer screen and translates it so a newer application can read
it. You can also set up an enterprise application integration system. This type of system networks the different
applications in your legacy system, such as inventory, payroll, and others.
If you are a SMB, unless you are the smallest, hone-based variety, you will want your accounting information
system to be up-to-date in order to keep you competitive within your industry. There are many options to choose
from.