What is Accounting Information System?

A financial and accounting data collection, storage, and processing system is referred to as an
accounting information system. This type of system is utilized by those responsible for making decisions.
An accounting information system, or AIS, is typically a computer-based approach for keeping track of
accounting activity in conjunction with resources provided by information technology. The function of
an accounting information system is the gathering, storing, and processing of financial and accounting
data, also known as an AIS. Internal users utilize this data to convey information to external
stakeholders, such as investors, creditors, and tax authorities.

In most cases, it takes the shape of a computer-based system for monitoring accounting activity
in conjunction with resources provided by information technology. Generally Accepted Accounting
Principles (GAAP) are one example of the old accounting methods that are integrated into an accounting
information system (AIS). An AIS also makes use of other contemporary information technology (IT)
resources.

When it comes to the company's financial transactions and record-keeping, AIS guarantees the
highest level of precision possible. In addition to this, it provides some employees with access to the
information they require while preventing unauthorized access to sensitive company data and
maintaining the integrity of the business's records overall.

Uses of an Accounting Information System

The main function of the Accounting Information System in an organization is to collect and
store financial data. This is conducted by obtaining data from source documents and recording the
transactions in journals, and the transactions are later posted in ledgers. Additionally, an accounting
information system is also used in companies to provide information that companies use for decision-
making purposes. This entails the production of financial statements and managerial reports that
executives use to chart the way forward for the organization. Therefore, it is necessary to have an
updated accounting information system because it provides better tools that aid in the management and
provision of financial data easily and quickly, making the decision-making process efficient.

Types of Accounting Information System

The AIS can be broken down into three distinct types. The basic kinds, the advanced information
systems, and cloud computing.

- Cloud computing- all data are all in the cloud. Can access the information anytime and
anywhere.
- Basic Types

Despite advancements in technology, accounting information systems continue to use journals and
subsidiary ledgers as the basic types of records.

Journals

Two sorts of journals exist: general and special. The general journal can be used to record all
journal entries, but each debit and credit must be manually entered. Special diaries are utilized because
this can soon turn into an uphill task. Transactions of the same nature are recorded in a separate
journal.

Four distinct journals are commonly seen in an accounting information system:

- Credit sales should be recorded in a sales journal.

To keep track of all transactions involving the use of cash, use a cash receipts journal.

- A credit purchase journal to keep track of all purchases (credit to accounts payable)
Recording all transactions in which cash is disbursed
- Subsidiary Ledgers
 Subsidiary ledgers are another typical component of an accounting information system. For each
transaction in the general ledger, a subsidiary ledger is maintained. For example, an accounts receivable
ledger keeps track of every transaction with a certain customer.

- The accounts receivable ledger is where each vendor's transaction is recorded.

There are many relevant reports based on these journals and their sub-ledgers. Consumer and
product profitability accounts payable are essential data. A little extra data in the system makes
compiling its receivables aging and cash flow forecast a lot easier. Insights into the workings of the
company can be gained by sorting accounting data according to numerous parameters. The accounts
payable ledger is another example of the subsidiary ledger, and it entails a collection of invoices
received from suppliers. The ledger provides information on each invoice, including the date, invoice
number, and the amount submitted for payment.

- Advanced Information Systems

The exponential expansion in computer technology has led to an increase in the sophistication
of accounting information systems. Enterprise resource planning software, often known as ERP, and
customer relationship management (CRM) software are two further types of information systems that
businesses have discovered to be indispensable.

Enterprise Resource Planning Software (ERP)

Efficient management of daily company tasks such as risk management, accounting, compliance and
procurement, and project management can all be achieved through the use of enterprise resource
planning (ERP) software. Typically, ERP systems streamline financial reporting by combining all relevant
financial data in one location.

The three primary functions of ERP are:

 Accounts Payable and Receivable.

 Managing people's lives.
 Management of customer relationships.

During the manufacturing process, material requirements planning (MRP) is a system that assists
manufacturers in the planning, scheduling, and management of their inventories. The system relies
heavily on its software components. The MRP aims to accomplish three things: Ensure that there is a
sufficient supply of raw materials for production at all times. Back-office business tasks can be planned
and automated using ERP and MRP systems, respectively. To put it another way, ERP systems help to
plan and automate these processes. ERP has a direct impact on accounting, production, supply chain
management, customer relationships, quality assurance, process planning, and planning.

Accounting Information Systems - A Practical Exercise:

The following practical exercise is designed to help students apply their knowledge on the various types
of Accounting Information Systems in a real-life context.

Scenario

You are an IT consultant specializing in Accounting Information Systems, and you pride yourself for
offering your clients the most cost-effective solution for their needs. Although any company can buy the
top-of-the-line Accounting Information System, many companies can save money and simplify their IT by
getting an Accounting Information System that fits their needs.

Below are the types of Accounting Information Systems that are available to your clients:
Below are four of your current customers looking for Accounting Information Systems.

- John runs a small bakery in Cleveland, Ohio, and wants to use a computer to record accounting
transactions after he mistakenly threw out his notebook where he hand-recorded all
transactions.
 John may able to use the advance information systems. This way he can easily track
down all the activities in his small bakery.
- Mary runs McDouglas' accounting department, a global fast-food chain with over 500,000
restaurants worldwide. The accounting department very modern and always requires the latest
technology.
 Cloud computing
- Elisa runs a shoe company that manufactures dress shoes and sells them to various stores across
North America. Elisa is particularly interested in knowing which customers provide her company
with the highest mark-up.
 Cloud computing
- Jimmy runs a furniture company that produces kitchen tables for a single customer. Jimmy uses
a costly premium wood and thus wants to be able to track inventory with very high accuracy.
 Advance information systems

Required

For each customer, determine which type of Accounting Information System is most suitable for them.
You can only use each type once!

What is AIS?

- An accounting information system (AIS) is used by companies to collect, store, manage, process,
retrieve, and report financial data.
- AIS can be used by accountants, consultants, business analysts, managers, chief financial
officers, auditors, and regulators.
- An AIS helps the different departments within a company work together.
- An effective AIS uses hardware and software to effectively store and retrieve data.

The Key Components of Accounting Information System

1. AIS People
- The system users, professionals who may require using an organization’s accounting information
systems involving accountants, business analysts, consultants, managers, auditors, and CFOs.
- Ex. consultants may use the information in the accounting information system to analyze the
effective performance of the pricing structure of the company by looking at sales data, cost data,
and revenue.
2. Procedures and instructions
- the techniques and methods that utilize for collecting, saving and storing, retrieving and
processing data.
3. Source Data
- The data included in the accounting information system is all the financial information related to
the business practices of the organization.
- Whatever business data that influence the finances of the firm it should go into the system of
accounting information.
- For the data to be beneficial, it should be complete, correct and relevant.
4. Hardware & Devices
- The equipment and hardware utilized for operating the system of accounting information.
- the hardware selected for an accounting information system must be compatible with the
intended software.
5. Information Processors (Software)
- Ex. Oracle, QuickBooks, Spreadsheets (for basics) made by Microsoft/Google
- The computer software utilized to save, retrieve, store, process and analyze the firm’s financial
data.
- Before computers exist, accounting information systems were hand-operated, paper-based
systems, but nowadays, most firms are applying computer software as the basis of the system of
accounting information.
6. Information Storage
- The cost of these components should consider whether they include a combination of factors
including storage capacity, speed, and memory size and whether they are scalable and
upgradeable. Hard drives. Cloud.
7. Security
- The protection and security procedures and measures it includes to protect critical data.
- Can use Biometrics identification or passwords that only the authorized users in the organization
can access it.
- A system of accounting information involves secret information not relating just to the firm but
further to its customers and employees.
- These data may include credit card numbers, National ID numbers, numbers of social security,
salary information, and so on.
- It must be monitored always to keep it off from viruses, hackers and other inside or outside
dangers.
- It needs firewall system.