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An accounting information system is system that keeps record for a business to maintain
its accounting system. Accounting information systems combine the study and practice
of accounting with the design, implementation and monitoring of information systems.
The use of such systems uses modern information technology resources together with
traditional accounting methods to provide the users with the necessary information to
manage their organization. Accounting information systems has its strengths and
weaknesses also, but strengths more so than weaknesses in some cases.

Basic accounting information systems include entering customers' records, billing

customers, collecting customer payments, keeping track of inventory, purchasing new
stock and materials, paying employees' etc. users of this accounting information can
include internal and external parties. Internal users of accounting information include
managers and owners. They would use special purpose reports which are prepared
weekly, monthly, quarterly and are prepared for their specific needs, and what they
need to know about business .external users include investors, customers, clients,
government agencies and employees. They would use general purpose reports which
are prepared half-yearly or annually. It provides general information for general users.


Records other than reports that are kept for accounting systems include purchases, sales
and nominal ledgers, and cash books of the business. Whilst all these records would
have previously recorded using a paper based process, now information technology has
made it more efficient for businesses to prepare all the reports using computerized
accounting systems.


There are very many different types of accounting information systems used in business
organizations today. The size of the organization, the nature of its processes, the extent

of computerization, and the philosophy of management all affect the choice of system.
Simply to organize the study of accounting information systems, we have divided the
systems in place into three categories, as follows:

 Manual systems
 Legacy systems
 Modern, integrated IT systems

3.1 Manual Systems

Certainly, most large or medium-size organizations use computerized accounting

systems rather than manual record-keeping systems. However, there are many small
organizations that use manual systems, in whole or in part, to maintain accounting
records. In addition, even those larger organizations that have computerized aspects of
the accounting information system may still have parts of their processes that involve
manual records. For example, even if the calculation and printing of a paycheck in an
organization are computerized, the employee time card may be completed by hand.

Because small organizations often use manual record-keeping systems—and even

computerized systems may rely on some manual record keeping—it is important to
examine manual processes in accounting information systems. An entirely manual
system would require source documents and paper-based ledgers and journals.

3.2 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.


The accounting cycle refers to nine steps, repeated in each reporting period, to verify
transactions and prepare financial statements for internal and external users. All
accounting systems use some variation of these nine steps to record, analyze and
summarize business transactions and events. This procedure helps organizations ensure
that their financial records are accurate, current and reflect Generally Accepted
Accounting Principles.

Entrepreneurs and business owners should understand the accounting cycle, even if
they do not keep their own books. Accounting is used every day in business to make
projections, secure financing, and assess opportunities and more. Those unfamiliar with
basic accounting principles and processes should take a distance education or
community college course to help ensure their success in business.

Chart: Accounting Cycle

4.1 Accounting Cycle Steps One to Three

 Analyze,
 Journalize, and
 Post a Business Transaction

The first step in the accounting cycle is to first analyze a transaction and its source
documents, then apply double-entry accounting to recognize its effect on account
balances. Next, record transactions in a General Journal.
Journalizing leaves a record of all transactions in one document, helping to prevent
Mistakes and linking the debits and credits for each transaction.

The third step in the accounting cycle is posting. After recording transactions in the
journal, they are transferred and posted to the ledger. It is important to leave this paper
trail (or in computerized accounting, electronic trail) to verify accuracy and
troubleshoot later in the process if accounts are not adding up.

4.2 Accounting Cycle Step Four

Preparing the Unadjusted Trial Balance. In double-entry accounting, each transaction

is recorded with equal debits and credits. If the sums of the debit and credit entries do
not match, this points to an error in one of the first three steps. The fourth step,
preparation of an unadjusted trial balance, checks these account balances and points to
errors before moving to step five in the accounting cycle.

The unadjusted trial balance also compiles the information from the ledger for use in
preparing financial statements. Once each account balance is identified from the ledger,
they are recorded in the same order as the Chart of Accounts. Total up debit and credit
balances and compare to verify that they are equal.

4.3 Accounting Cycle Steps Five & Six:

Adjusting and Preparing the Adjusted Trial Balance. The first four steps of the
accounting cycle recorded and verified external transactions, such as supply purchases
and utility payments.
Fifth step
Adjusting accounts for internal transactions, like the use of prepaid rent or unearned

Sixth step
The preparation of the adjusted trial balance, encompassing all internal and external
transactions for the reporting period and again verifying their accuracy by ensuring the
credit and debit sums are equal.

4.4 Accounting Cycle Step Seven

Preparing Business Financial Statements. From the adjusted trial balance, a number of
important financial statements are created. The Income Statement and Statement of
Owner's Equity are prepared first, followed by the Balance Sheet, which pulls
information from the Statement of Owner's Equity. Organizations may choose to create
other summaries or spreadsheets depending on how they intend to use the information.

4.518 Accounting Cycle Steps Eight & Nine

Closing and the Post-Closing Trial Balance. The eighth step in the accounting cycle is
to close accounts in preparation for the next accounting period. Temporary or nominal
accounts are closed, while permanent or real accounts carry their balances into the next
period. Many accountants and bookkeepers create a worksheet to assist in closing, so
all relevant information from the financial statements is at hand.
Closing entries are recorded and posted to the owner's capital account after they are
transferred to the income summary account. Once completed, all revenue, expense,
withdrawal and Income Summary balances should be zero.

Finally, the post-closing trial balance lists the balances of the accounts that were not
closed, such as assets, liabilities, and owner's equity. This trial balance helps verify that
permanent accounts balance, with equal debit and credit sums, and that all temporary
accounts were closed properly.

Chart: Accounting Information System

AIS Is a system of collection, storage and processing of financial and accounting data
that is used by decision makers. An accounting information system is generally a
computer-based method for tracking accounting activity in conjunction with
information technology resources. The resulting statistical reports can be used
internally by management or externally by other interested parties including investors,
creditors and tax authorities. It includes education in the latest database management
techniques and system modeling approaches, and provides the Internet implementation
experience necessary to practice systems development in today's technological


Revenue process includes-

 Sales
 Sales return
 Cash collection

5.1 Sales process:

Purchase Order

Price Varification

Sales Order

Credit Limit

Inventory & Sales


Prepare Shipment

Update Accounts

Update General

Chart: Seles Process

 Purchase order
A purchase order (PO) is a commercial document issued by a buyer to a seller,
indicating types, quantities, and agreed prices for products or services. Bangladeshi
man’s wear brand Cats eye company ltd submits a purchase order of 500 pcs of shirt
to Micro Fiber Company Limited.

 Price Verification:
Micro fiber company ltd (seller) submit a price quotation of Taka 650 per pcs to Cats
eye (buyer). Buyer verifies the price and confirm the final price at Taka 600 per pcs.

 Sales order
A sales order records the customer's originating purchase order which is an external
document. The customer's PO is the originating documents which trigger the creation
of the sales order. In a manufacturing environment, a sales order can be converted into
a work order.

 Credit Limit:

As a regular customer, The Cats eye company ltd gets a credit facility of Taka 7, 00,000
from Micro Fiber company ltd. After receive the PO, the company immediately verify
the buyers credit limit for future operations.

 Inventory & sales preparation

After checking the credit limit, the seller checks the availability of the product in
warehouse. If the product is available and matches with the buyer’s sample, then the
seller prepares the goods for shipment as per the buyer’s requirement.

 Prepare shipment documents

Seller sends the goods to the buyer after preparing the invoice and packing list. After
that seller update the sales record accordingly.

 Update accounts receivables & General Ledger

Seller updates the accounts receivable as per the sales record and prepare monthly
statement and general ledger accounts.

5.2 Sales return process:

Receive Goods From


Warehouse &

Update sales Record

Update Accounts

Update General Ledger

Chart: Sales Return Process

 Receive goods from customer

Buyer (Cats eye company ltd) returns 50pcs of defective goods (shirt) to the seller
(Micro Fiber Company Ltd). The billing departments of seller match the return goods
with the original sales invoice while receive.

 Warehouse & Inventory

Warehouse checks the condition of the returned goods. If it is in repairable condition
then repair it and send to the buyer or update the inventory and COGS. If it is not in
repairable condition, it consider as scrap.

 Update sales record

After receiving the sales return, seller update the sales return record and prepare a credit
memo and send it to customer.

 Update account receivable

After the sales return, seller updates the account receivable accounts, cash record and
general ledger.

5.3 Cash collection process:

Cash Receive from


Update Accounts

Chat: Cash Flow Process

 Cash receive:
Seller receives cash/ cheese payment from buyer and prepare a cash receipt journal
while it match with the original sales invoice.

 Update account receivable:

After receiving the cash payment, seller updates the accounts receivable accounts and
general ledger.

6.0 Expenditure
Expenditure process includes
 Purchase
 Purchase Return
 Cash Disbursement
 Payroll

6.1 Purchase

Purchase defined as “the acquisition of needed goods and services at the optimum cost
from competent, reliable sources in a timely manner. Though there are several
organizations that attempt to set standards in the purchasing process and the process
can vary between organizations to organization.

6.2 The Golden Rule of Purchasing:

Purchasing must acquire needed goods and services:

 Of the right quality

 In the right quantity
 At the right price
 At the right time

6.3 Purchase process:

Where information technology is not heavily ingrained - Traditional Purchasing

processes tend to be characterized by high levels of bureaucracy, encumbered with
manual authorization (often requiring multiple signatures independent of the order
value.), slow communications and a focus on unit price rather than long term
commodity arrangements. The diagram below provides an example of a traditional
purchasing process-

Purchase Requisition

Athorized Purchase

select Vendor

Pepare Purchase Order

and Send to Vendor

Receive Goods and

Prepare Receiving

Received Invoice from

vendor andupdate

Update accouts

Purchase Return(if

Update Inventory
Record(after return)

Update general Ledger

Chart: Purchase Process

 Purchase requisition & Authorized purchase requisition
A purchase requisition provides authorization for the Procurement Department to
initiate a purchasing transaction. The requisition form is available from the
Procurement Department, and contains a complete list of information that is required
to complete a purchasing transaction.

 Vendor selection
The vendor selection process can be a very complicated

 Purchase order
A completed purchase requisition will be reviewed and approved in the Procurement
Department according to the organization’s policy for requisition approval. Once the
requisition has been approved, it will be used to create a Purchase Order (PO).

 Receive goods
Vendor prepares to supply the goods and service to the buyer after receives the PO.
Buyer prepare a receiving record after receive the goods.
 Update inventory record
Buyer receive invoice from seller (supplier) and update the inventory records.

 Update accounts payables

Buyer updates the accounts payable after the new purchase record.

 Sales return & update accounts payables (if need)

Buyer updates the accounts payable if any purchase return occur.
 Update General Ledger
Buyer updates the general ledger as per the purchase records.

6.4 Purchase return process

A purchase return occurs when a buyer returns merchandise that it has purchased
from a supplier.

 Rejected goods return from customer

Goods can be return to vendor for various reasons with a authorization of return.

 Return goods with a debit memo

Return goods after match with the purchase invoice and send a debit memo to the

 Update account payable, inventory record & general ledger
Update account payable and inventory record after receiving refund or credit memo
from vendor against return.

6.5 Cash Disbursement process

Cash disbursement means the payment of money against purchase.
 Identify the due invoices
Identify the vendors invoices which payment is still due and prepare for payment.

 Payment to vendor and update the cash record

Payment of the vendor against the due payments after cheque sign and update the cash

 Update account payable and general ledger

Account payable and general ledger accounts will upgrade after payment to vendor.

6.6 Payroll process

The payroll is the amount of money that a company pays its employees at any given
time. Sometimes every two weeks, or sometimes once every month
 Time sheet submission & checking
Employee submits there time sheet where there working time was recorded. Authority
will approve that after checking/correction the working hours.

 Prepare payroll register & voucher

The payroll register will prepare as per the corrected working hours.

 Payroll voucher and transfer fund in payroll bank

Payroll voucher will create as per the payroll register. The fund will transfer to the
payroll bank and update general ledger.

Conversion process includes-
 Planning
 Resource Management
 Logistics

7.1 Planning:
Business planning is a process that involves the creation of a mission or goal for a
company. The process of business planning can be very broad, encompassing each
aspect of the operation.

7.2 Resource Management

The process of using a company's resources in the most efficient way possible is
considered as resource management. These resources can tangible resources such as
goods and equipment, financial resources, and labor resources such as employees.
Resource management can include ideas such as making sure one has enough physical
resources for one's business.
7.3 Logistics:
Logistics is defined as a business planning framework for the management of material,
service, information and capital flows.

Administration process includes-

 Capital
 Investment
 General Ledger

8.1 Capital:

Capital is the money that is going to be invested in a business. Some of the money
will come out of from personal investment. Some of the money may come from

another source of financing, such as a bank or a small business center loan. That’s the
capital for starting a business. Knowing how much capital needs to start a business
will be a deciding factor on the type of business might be start.

Here we consider tk 50 lac as our capital, where tk 25 lac from personal investment
and tk 25 lac from bank loan.

8.2 Investment:

Investment encompasses a wide variety of funding options. While funding for capital
investment is generally in the form of common or preferred equity issuance, it may
also be through straight or convertible debt. Funds invested in a firm or enterprise for
the purposes of furthering its business objectives. Capital investment may also refer to
a firm's acquisition of capital assets or fixed assets such as manufacturing plants and
machinery that is expected to be productive over many years.

8.3 General Ledger:

The general ledger is a collection of the group of accounts that supports the value
items shown in the major financial statements. It is built up by posting transactions
recorded in the sales daybook, purchases daybook, cash book and general journals
daybook. The general ledger can be supported by one or more subsidiary ledgers that
provide details for accounts in the general ledger. For instance, an accounts receivable
subsidiary ledger would contain a separate account for each credit customer, tracking
that customer's balance separately. This subsidiary ledger would then be totaled and
compared with its controlling account (in this case, Accounts Receivable) to ensure
accuracy as part of the process of preparing a trial balance.


Accounting information helps users to make better financial decisions. Users of

financial information may be both internal and external to the organization. The
major users of accounting information are:

The users of accounting information include the present and potentials investor,
creditors, managements, suppliers, tax authorities, government and public as well as.

 Investors:

Both present and potentials investor need the information to judge the prospect of
present and potentials investment in the business. Present investor need the information
in order to decide whether they should continue in the presents or not. Future investors
may require the information to determine whether they should buy the shares of
company or make investment somewhere else.

 Creditors:

Creditors are the person who owes money to the business. Both short term and long
term creditors need the information. Long term creditors are interested in both the
solvency and liquidity of the business. On the other hand short term creditors are
interested to determine whether the amount owing to them will be paid when due.

 Employees:

The interest of the employees in accounting information is related to that they want
more salary and other monetary incentives like bonus, overtime payments, etc. They
are interested in financial statements on account of various profit and bonus schemes
negotiation with the management.

 Managers:

Managers or management are the main internal users of accounting information.

Managers need the information for making various decisions. Managers need the
information to protect the property of business from fraud, mismanagement, to make
specific decision, to plan for future, to measure the performance.

 Customers:

Customers are interested to judge the profitability and solvency of the business for
knowing the ability of the company to survive so that they are supplied with to goods
on regular basis. Strong financial background also implies quality products and more
money on innovation of products.

 Governments:

Government needs the information for various regulatory purposes. They are interested
in the accounting information on account of taxation, labor and corporate laws.
Different agencies like Registrar of Company, Company Law Board, and Ministry of
Finance use the information for framing policies for the betterment of the economy.

 General Public:

General public may be interested in the accounts of the business for social obligation
of business. The public is interested in pollution abatement, community welfare
program, ecological benefits or hazards out of operation of the business. Public is
interested to know how the national resource are being utilized by the organization and
their contribution in the economy.



Information systems changed forever the way accounting tasks are processed. The days
of green paper pads are gone, and instead businesses have a centralized place where all
accounting transactions are entered and saved. No more looking for paper journals or
adding up long columns--computer software does that for you, error-free. Thanks to
reasonably priced hardware and software, even small businesses can benefit from
computerized accounting.

 Speed

The main benefit of information systems in accounting is the speed of processing tasks.
Data is entered once and can then be used and reused in compiling reports by literally
pressing a button. If a transaction needs correction, it is easily done, with reports
generated afterward at speeds never possible with manual accounting systems.

 Classification

When data is entered in an accounting system, manual or computerized, an accountant

needs to classify it in a detailed fashion. For example, a transaction could be a sales
revenue or an interest revenue. Using information systems, this classification process
is easily accomplished with a drop-down menu from which you choose the proper
category. You can also quickly generate reports involving classifications. With a
manual system, this process takes much more time.

 Safety

Once data is entered into a computer, it is safe. The chances of losing data are remote,
especially when you perform regular system backups. In manual systems, paper pads
can be lost or damaged more easily. You can save data on the Internet, where it will not
only be accessible anytime you need it but will also still be secure even if your computer
is lost or damaged.

11.0 Conclusion

The transfer of Accounting Information Systems from pen and paper to computers, have
major advantages and the most important one is less error. Effectiveness of Accounting
Information System (AIS) The past decades, accounting information system (AIS)
focus on recording, summary, and validations of data business financial transaction.
System of accounting that are previously performed manually, can now be performed
with help from computer. Information technologies have been paramount in recent
decades and have been leading developments in the globalization and societies.
Information technology plays a vital role in the accounting profession. It can be strategy
weapons to support the objective and strategy organization. The most organization get
competitive advantage by new information system. In the view of the fact, the key to
organization's survival is the continuous improvement of its performance. The need to
integrate these often diverse systems led to the accountant's appreciation of shared
databases that provide a picture of the organization's data, eliminating duplications and
reducing data conflicts. Moreover, the research tradition in the accounting field,
concentrating on, for example, transaction processing, data structure modeling,
computer fraud and security as well as system development methodologies, seems not
to have produced a useful understanding of the interplay between modern IT and
accounting/management control . The effectiveness of accounting information systems
can be received providing management information to assist concerned decisions. It
can be evaluated as added value of benefits. The effectiveness of accounting
information system (AIS) is a measure of success to meet the established goals. The
success of accounting information system (AIS) implementation is defined as profitably
applied to area of major concern to the organization, is widely used by one or more

satisfied users, and improves the quality of their performance. An information system
is means of collecting, entering, and processing data and storing, managing, controlling,
and reporting information so that an organization can achieve its objectives or goals.
The definition of information system indicates that an information system has following
components. The information system is designed to accomplish one or more objectives
or goals. For example, an information system may be designed to collect and process
data about financial to help accountant prepare financial statements.