OVERVIEW

MODULE 2.4 “ACCOUNTING INFORMATION SYSTEM (AIS)”

INTRODUCTION
 Accounting
 Information System (IS)
o Component of an IS
o IPO + SF
(Input, Process, Output) + (Storage and Feedback)

ACCOUNTING INFORMATION SYSTEM

 Definition
 6 Basic Parts of AIS
 4 Types of AIS
 3 Main Functions or Responsibilities of AIS
 How is AIS used?
 Why is AIS essential?

GENERAL LEDGER AND REPORTING SYSTEM

 Definition
 5 Basic Subsytems of AIS Under General Ledger
and Reporting System

OVERALL

1|Page
INTRODUCTION
Before understanding the concept of Accounting Information System, we all are
aware of the general idea about the Accounting and Information System distinctively that
the former is the language of business and the latter is a system composed of people and
computers that processes or interprets information.

ACCOUNTING

In a broader sense:

 Accounting can be explained as:

o “the principal way of organizing and reporting financial information.”
o It has been called the language of business.
o The accounting system is used to identify, analyze, measure, record,
summarize, and communicate relevant economic information to
interested parties.”

INFORMATION SYSTEM

 Information System can be explained as:

o “it is a system composed of people and computers that processes or
interprets information.
o The term is also sometimes used in more restricted senses to refer to
only the software used to run a computerized database or to refer to
only a computer system.”

But for an Information System, one must require DATA to process it into proper categorized
INFORMATION when needed. Therefore,

 DATA are raw facts and figures that are processed to produce information.
 INFORMATION is data that have been processed and are meaningful and useful to
users.
o The terms meaningful and useful are set of values such as timeliness,
relevance, reliability, consistency, comparability, etc.”

COMPONENTS OF AN INFORMATION SYSTEM (IPO)

How these system works?

 Input is anything we wish to embed in a system for some type of use.

o A variety of sources are used to input: keyboard, scanner, microphone,
mouse, even another computer.

 Processing takes place in the internal parts of the computer system. It is the act of
taking inputted data and processing or converting it into something useful.
o What we typically see on the screen in today's computer world (known as

2|Page
 what you see is what you get or in short as WYSIWYG) is the result of our
input being processed by some logical program so we can have the required
output: an English paper, an edited photograph, ‘this video you're watching’.

 Output or the processed information in a usable format comes in various forms:

o Monitor or printer for visual work, a speaker for audio.
o Sometimes our output is short-term, such as printing a photo, and sometimes
what we work on needs to be kept around for a while. That's where storage
comes in.

 Storage is the term used to indicate that we will be saving data for a period of time.
We store for many reasons:
o For future reference; to prevent full loss of data; because we forget to purge.
But storage is vital.
o There are several mediums on which we can keep output and processed
data: a hard disk, a USB drive, a CD.

 Feedback is where the output from a system is fed back into the system in order to
influence the input.
o For example, when you try to withdraw too much money from your account
at an ATM a warning on the screen will advise you that it isn’t possible and
will suggest that you try to withdraw a smaller amount. This is a type of
feedback because it is trying to influence your input.

ACCOUNTING INFORMATION SYSTEM

DEFINITION

By combining the two concepts Accounting and Information Systems together, can be
expressed as,
 “An Accounting Information System (AIS) is a structure that a business uses to
collect, store, manage, process, retrieve and report its financial data so that it can
be used by accountants, consultants, business analysts, managers, chief financial
officers (CFOs), auditors and regulatory and tax agencies.

3|Page
In particular, specially trained accountants work with AIS to ensure the highest level of
accuracy in a company's financial transactions and recordkeeping and to make financial
data easily available to those who legitimately need access to it, all while keeping data intact
and secure. This article will describe the primary components of an AIS and some of its real-
life applications.”

(6) SIX BASIC PARTS OF AIS

An accounting information system typically has six basic parts consist of:

1. People who use and operates the system and perform different functions including
accountants, managers, and business analysts.
2. Procedure and instructions are the ways that data are collected, stored, retrieved,
and processed about the organization. It can be both manual and automated or
computerized.
3. Data including all the information like organization’s processes that goes into an
AIS.
4. Software consists of computer programs used for processing data in the
organization.
5. Information technology infrastructure includes all the hardware used to operate
the AIS like computers, peripherals devices and Information communication
technology (ICT) devices.
6. Internal controls are the security measures used to protect data.

(4) TYPES OF AIS

1. By Processing Mode
a. In batch processing systems, you enter transactions when they occur and
periodically process and integrate the transactions into the accounting record
by running a batch process either daily or weekly.
b. Online batch systems are the same as batch processing systems, except
that you record transactions and process batches using online-based
accounting software.
c. When using an online real-time system, the software integrates transactions
into the accounting record when you record them.

2. By System Objectives
a. People purchase accounting information systems for one primary reason: to
record financial transactions. Accounting information systems can also serve
as a tool to help managers make decisions, usually through customized
reports.

4|Page
 3. By Interaction Environment
a. Transformational systems- transform information and generate reports
based on that input.
b. Reactive systems, such as expert systems, are event-driven systems that
react to external and internal stimuli continuously.

4. By Age
a. Manual systems require a source document and a turnaround document.
You record entries in the general ledger, general journal, special journal and
subsidiary ledger.
b. Legacy systems may be difficult to integrate in a newer system because of
their unique structure. Many of these older legacy systems are written in older
computer languages, like DOS.
c. Modern integrated systems are Windows-based and considered much
more user-friendly than legacy accounting systems. They generally cost less
than legacy systems, can be quickly implemented and have fewer bugs.

(3) THREE MAIN FUNCTIONS OR RESPONSIBILITIES OF AIS

 Receiving and keeping data, for later access:

o To collect and store data about the organization’s business activities and capture
data about the transaction on source documents with effectivity and efficiently.

 Converting data into information for decision making:

o Providing management with information which will be useful for decision making
like planning, implementation and monitoring all the accounting data for the
betterment or the future aspects of an organisation in terms of financial stability.
o Financial Statements
o Managerial Reports

 Establishing the appropriate internal controls:

o It is to ensure that the information produced by the accounting system is reliable or
not, if not then corrections required for the smooth accounting system to prevent
accounting errors like errors of commission: a transaction that is calculated
incorrectly or errors of omission: a transaction that is not recorded, so that the
business activities are performed efficiently and in accordance with management’s
objectives and safeguard and proper utilization of all the organizational assets.

5|Page
HOW IS ACCOUNTING INFORMATION SYSTEM USED?

An accounting information system contains various elements important in the

accounting cycle. Although the information contained in a system varies among
industries and business sizes.

A typical AIS includes: Specific data includes:

 data relating to revenue,  sales orders and analysis
 expenses, reports,
 customer information,  purchase requisitions,
 employee information, and  invoices,
 tax information.  check registers,
 inventory,
 payroll,
 ledger,
 trial balance, and
 financial statement
information

WHY IS AIS ESSENTIAL?

 How to collect data about an organization’s activities and transactions

 How to transform that data into information that management can use to run the
organization
 How to ensure the availability, reliability, and accuracy of that information
 Auditors need to understand the systems that are used to produce a company’s financial
statements.
 Tax professionals need to understand enough about the
 client’s AIS to be confident that the information used for tax planning and compliance work
is complete and accurate.
 A survey conducted by the Institute of Management Accountants (IMA) indicates that work
relating to accounting systems was the single most important activity performed by
corporate accountants.

GENERAL LEDGER AND REPORTING SYSTEM

- The General ledger is a subsystem of the AIS. It accumulates financial transaction
data, classifies the data by general ledger accounts, records the data in those accounts
and serves as a basis for financial reporting and managerial reporting subsystems.

(5) FIVE BASIC SUBSYSTEM OF AIS UNDER GENERAL LEDGER AND

REPORTING SYSTEM

1. The expenditure cycle: involves activities of buying and paying for goods or
services used by the organization.

6|Page
 2. The production cycle: involves activities converting raw materials and labor into
finished goods.

3. The human resources/payroll cycle: involves activities of hiring and paying

employees.
4. The revenue cycle: involves activities of selling goods or services and collecting
payment for those sales.
5. The financing cycle: involves activities of obtaining necessary funds to run the
organization, repay creditors, and distribute profits to investors.

OVERALL
 Accounting information systems provides businesses with the ability to record all
types of financial information for future use.

 In addition, these systems are huge time-savers and make the accounting
processes and procedures easily repeatable. Because of that, these systems
save companies money because the number of people needed to complete
accounting processes is reduced.

 Also, the risk of human error is drastically reduced because the computer
systems manage the accounting processes, and documents are automatically
created by the systems. It is imperative that businesses keep accurate books,
and accounting information systems make this requirement much easier to meet.

 The accounting information systems profession is growing rapidly with the

advent of businesses computerizing their accounting processes. As a result,
businesses are seeking professionals with not only an information systems
background, but also people who understand accounting concepts like system
and managerial accountants and auditors, system analysts and industrial
engineers.

7|Page
 Although students pursuing an accounting information systems degree are faced
with pretty rigorous coursework, pursuing this line of study will reap many
rewards because the career outlook for this profession is excellent in terms of
job growth and financial rewards.

 Professional certifications are also increasing like Certified Computing

Professional, Certified Information Systems Auditor, Certified Managerial
Accountant, Certified Fraud Examiner, etc.

8|Page
 OVERVIEW
MODULE 2.5 “FINANCIAL MANAGEMENT SYSTEM (FMS)”

Financial Management System

What is Financial Management System?

A Financial Management System is made up of both software and strategies that

companies can use to supervise and manage all finances, including income, expenses
and assets, with the goal of increasing profits and maintaining steady income.

A Financial management system is the methodology and software that an organization

uses to oversee and govern its income, expenses, and assets with the objectives of
maximizing profits and ensuring sustainability.

Examples of best Financial Management Systems:

• HarmonyPSA

• Dynamics 365 for Finance and Operations

• Brokermint

• Workday

• E2 Shop System

• NetSuite

• Deltek Vision

• Sage 300 Construction and Real Estate

• Odoo

• Sage Intact

• Sage 100 Contractor

• Sap Business ByDesign

• JobBOSS

• Deltek Costpoint

• Jonas Premier

9|Page
• IQMS Manufacturing ERP

Difference between financial management and accounting?

To put it simply, accounting is record keeping, and financial management is using

those records to actually manage your money. Where accounting software is designed
to document and classify all of your business transactions, financial management
software goes a step further to track, analyze and report financial data that can help you
do a lot of things, such as:

• Make informed decisions about where to spend money

• Present your business to potential investors

• Accurately calculate your company’s value, including nonmonetary assets and

resources

Common features of Financial Management Systems:

Activity dashboard - a centralized location within the software where users can
come to get a broad overview of all financial activity. Often, dashboards will include
easily digestible graphs of data, yearly, monthly or daily breakdowns of income and
expenses, year-over-year comparisons etc.

Invoicing - Managing receivables. Often made up of both invoice management-

controlling things such as invoice workflow and tracking – and invoice processing –
actually processing the invoices when they come in.

Expense Tracking - Track, process, pay and record all expenses incurred in
the course of business.

Profit Tracking - Keep tabs of income and determine what products or services
are bringing in the majority of profit. Can also help assess return on investment for
purchases you may be considering.

Cost Analysis - Usually comes hand-in-hand with profit tracking. This feature
takes a close look at where you’re spending money, analyzing procurement etc.

Investment tracking - Sometimes tied into asset tracking, this feature keeps
track of ROI and investments you may need to make.

Projections - Looks at past performance and external market factors to build a

forecast of potential revenue and expenses

10 | P a g e
 Real-time data - Helps create reports, consolidate financial data into one place,
maintain compliance and easily present information related to the financial status of
your company.

Accounting integration - Removes the ness for a separate accounting systems

to records things such as general ledger entries, accounts receivable and accounts
payable.

Benefits of Financial Management Systems

Things happen faster. – Information is made available in real time, so you get
an instant view of what’s happening with your finances at any given moment. Also, you
can make decisions quicker without having to wait for information.

Revenue goes up, expenses go down. – By being able to see exactly what’s
bringing in money and what’s taking it out, you’ll be able to cut any unnecessary costs
and focus your resources on improving what you do best.

Everything happens in one place. – a designated financial management

system can handle processing and tracking all of your transactions to ensure
consistency and accuracy.

REFERENCES:

ACCOUNTING INFORMATION SYSTEM (AIS)

https://www.investopedia.com/terms/a/accounting-information-system-ais.asp
https://www.accountingedu.org/accounting-information-systems.html
https://www.techwalla.com/articles/types-of-accounting-information-systems
https://www.slideshare.net/HabibUllahQamar/lecture-1-accounting-information-system-an-
overview
https://www.slideshare.net/abhishekghosh376/introduction-to-accounting-information-system
https://www.slideshare.net/wiweck/accounting-information-system-18527651
https://www.softwareadvice.com/erp/financial-management-system-comparison/

11 | P a g e