Accounting Information System

Study Material
Chapter 01
 Table of Contents

# Name of the Topic Page#

1 Meaning and Concept

2 Definition of Accounting Information System

3 Types of Accounting Information System

4 Functions of Accounting Information System

5 Benefits of AIS

6 Principles of AIS
 Introduction to Accounting Information System /All You Need to
Know about Accounting Information Systems (AIS)?

Concept and Meaning

The study of accounting information systems (AISs) is, in large part, the study of the
application of information technology (IT) to accounting systems. This chapter describes
the ways that information technology affects financial accounting

In today’s job market, accounting employers expect new hires to be computer literate. In
addition, a large number of specialized employment opportunities are available to those
students who possess a deeper understanding of computer subjects and can bring advanced
computer skills to accounting jobs. The last part of this chapter describes a number of special
career opportunities for those with an interest in AISs.

Many years ago, accounting information systems were paper-based journals and ledgers that
were recorded manually by employees. Today, nearly every organization uses computer
systems for maintaining records in its accounting information system. The accounting
information system has several important components.

An accounting Information system (AIS) is the systematic process of collecting, storing,

and processing financial & accounting data which is used by internal accountants to

report the information to investors, creditors & tax authorities. The entire process is

termed an accounting information system. This system disseminates the

company-related information to the stakeholders for faster decision-making.

It is the responsibility of an accountant to work in-depth with the AIS and ensure perfect
accuracy in the company’s accounts & books. All financial records should be clean and
recorded properly in the books. The information should be stored in a manner that is

readily available & accessible to the users as & when required.

 Accounting Information System (AIS)/What is Accounting Information
System

Accounting Information Management System is a method business use to assemble,

store, and process financial data so that the internal management and stakeholders can

use it to their benefit.

This computer-based accounting system strives to furnish accurate financial and

accounting information for the company’s internal users to make a report. Based on this

report, the stakeholders–creditors or investors, and the company’s management–top

managers, Chief Financial Officers (CFOs), or auditors, make business decisions. For

outsiders, the decisions are regarding potential investment, whereas for insiders, it’s

about improvising the company’s future operations.

For outsiders, the decisions are regarding potential investment, whereas for insiders, it’s

about improvising the company’s future operations. For instance, you are expanding

your online grocery delivery store. For that, you require details regarding the company’s

financial transactions, annual profit earned over the past years, estimated profits for the

next financial year, and so on. But the problem is that you’ve been recording transactions

manually, making it supremely challenging to collect information and predict future

profit based on the same. Also, your business’s internal controls are not streamlined,

which might lead to losses in the future.

Here’s when an AIS comes in. With this system, your business’s financial information is just a

click away, and that too in an organized manner. Predicting future profit and revenue trends are

also a part of the deal. You see how using an AIS streamlines the company’s financial data and

allows you to access it without wasting time searching for it.

 Types of Accounting Information Management Systems.

Multiple types of Accounting Information Systems are floating in the market, but

businesses often choose the one that suits their business type, size, and needs. Here are

three major kinds of AIS:

1.Manual systems/Manual AIS

A manual system is one where all the accounting processes are done with human effort

and have no technological integration. Small businesses with simple operations that

accountants can effectively manage still rely on this system. However, with the

introduction of modern accounting information system software, the use of manual

systems has significantly dropped. Why? Because 56% of executives say they owe their

high-profit margins to digital improvements

So, you see how adapting to the new is highly significant in a business’s growth.
To work with this system, you must have documents–general ledger and journals, special
journals, etc. to record the data systematically. Manual systems are comparatively
cheaper than integrated Accounting Information Systems (AIS) software and don’t
disrupt work in power or internet outages. But they are highly susceptible to errors and
require extensive manual work, increasing time and cost expenditure.
These are primarily used by small businesses where the entire system is managed
manually. The software is not integrated with hardware & accounting requires the
support of documents. This is done because the business size is small, and it doesn’t need
a complex system to work upon. However, the manual system must have documents, a
general ledger, special journals, general journals, etc.

Activities#2

Problems of Manual Accounting System, Advantage, Is-advantage and Difference

between Manual and Electronic Accounting.

2.Legacy systems

A legacy system is a type of AIS that stores the company’s historical data using

information technology, which can be accessed when needed. This system was adapted

by businesses as an upgraded version of the manual system when information technology

was not as developed.

Legacy systems use software, hardware, and a computer language to operate smoothly,

which is hard to find today. Although this system’s performance has deteriorated due to

a lack of maintenance, businesses still use it as one of the security measures to keep their

historical data safe. Legacy systems used to lend flexibility in customizing the system

according to your business-specific needs. But now its disadvantages far outweigh its

advantages. For
Legacy systems used to lend flexibility in customizing the system according to your

business-specific needs. But now its disadvantages far outweigh its advantages. For

example, today, you cannot update a legacy system according to your company’s

accounting procedures and instructions.

3.Modern systems/ Modern Computerized Accounting system/Integrated System

A modern integrated AIS stores and processes your business’s entire financial data in one
place. It is considered far better than a legacy system for the data accuracy and security
it brings to medium to large publicly traded companies. This system needs no additional
key components(add-ons), is easy to adapt for the user, and can run smoothly on your
computer system.
Modern accounting information systems truly save your time while accelerating your
business processes and growth. The market will be flooded with efficient accounting
software in 2023. Here’s one of the best real-world examples:

Using a top modern Accounting Information Systems (AIS) software

like FreshBooks saves 553 hours and up to $7000 billable hours annually. With modern
solutions like these, you can free up time to do what you are skilled at instead of
struggling with something that can easily be automated. Also, businesses using the
modern system do not need to maintain separate records for different accounting
purposes. Customizing the software according to your business’s accounting procedures
and instructions is an added advantage
A modern integrated AIS software allows you to manage all your accounting needs

efficiently. This software works effortlessly after procedures and instructions or

transactions and mapping rules are fed into the system.

For your convenience, you can link your business’s bank account for the software to pick

up and process all the transactions automatically. It then syncs and updates the

information automatically in the ledger and journal accounting sheets. You can even

pre-define the tax codes for accurate accounts and reports. So, you see how software can

streamline your accounting database structure and provide you with analytical charts

and reports to gauge the company’s overall financial operations. Feel free to explore the

various open-source accounting software available today.

These are windows-based technologies that are more user-friendly than legacy
accounting systems. They are cheaper as compared to legacy systems and can be installed
quickly with very few bugs.
 What Are the Functions of an Accounting Information System?

There are basic 3 main functions of an AIS (accounting information system) i.e.A. Efficient &

effective storage of financial data.B. Manage the data & produce information in form of

useful reports.C. Ensure 100% control over data & accurately process it.D. Data collection

and organization and Processing E.Curtain Reports F.Keeping Data Accuracy and Security

intact G.Interdepartmental data Sharing.

 What are the Benefits of an Accounting Information System?

The accounting information system provides finance-related information across the

organization, it also has several other benefits & advantages that help the business
owners to run their business smoothly & effortlessly. Let’s discuss the benefits further
(1)-Improved Interdepartmental Communication- AIS helps in building a proper &
concrete flow of information path across various departments within a company. For
instance, the sales department uploaded the sales budget, which can be readily accessible
to the inventory department which is very important for further process. (2) User-wise
Data Access Controls: - Unlike the manual method, which is likely to be a risk to
outsiders, the business owners can set user-wise data access controls in AIS. It ensures
that the data will be available to only responsible users and not to any outsider. ( 3 ):-
Business Insights:- Another very important benefit that accounting software brings in is
displaying the actual business insights. Business insights are very important for business
owners to know the exact good & worst performing areas of the business.

Activities#3

HISTORY OF ACCOUNTING INFORMATION SYSTEM

Data security: - If you’ve been relying on manual accounting processes, you must

reconsider. We say this because manual processing puts your sensitive data at varying

risks. Shifting to an Accounting Information System can keep the company’s internal

controls intact, wherein only authorized personnel can access financial data.

Enhanced internal communication: - With AIS, all departments can access centralized

accounting. They can perform their respective tasks based on their individual budgets.

This enables relevant departments to have a real-time update on the tasks and reduces

the communication gap (which occurs in the absence of an integrated AIS).

Cost minimization: - Adopting integrated AIS to keep a record of all your business

finances in one place reduces the need for separate employees managing accounts for

different departments. This drastically reduces your resource costs.

Time conservation:- As a business owner, hundreds of tasks are waiting to be ticked off

your to-do list—customer relationship management, for instance. To remove that extra

accounting burden off your shoulder, you can rely on modern AIS to record, sort, and

organize financial information. It automates your repetitive tasks, allowing you to focus

on strategic tasks better.

Increased accessibility: - You cannot take your physical books of accounts everywhere
you go, or it might just slip from your mind to carry it along. An integrated AIS eases
this hassle. You can quickly walk through your business’s finances even on a flight, as
you can access these accounting systems via the internet on your phone or laptop.

Higher data accuracy: -A modern integrated AIS runs on predefined instructions and involves
minimum human intervention, leaving no room for errors in the financial reports. Why do
we say that? This accounting information system software alerts you if a difference in new
entries and related past data is found. You can simply change the same system before moving
ahead, leading to accurate reports and more informed business decisions.
 Principles of Accounting Information System

Useful Output / Necessity

Accounting information system must be able to provide a necessary result. Working

information must be understandable, relevant, reliable, timely and accurate. The
designer of information system will always take the necessity and knowledge of
accounting information users into consideration.

Flexibility

In accounting information system there must be provision for inclusion of changed

information needed by different users.

Cost Effectiveness

Accounting information must be cost-effective. It must outweigh information cost. If the

accounting information system is cost-effective, it can provide desired output and if
flexible, it can contribute much in achieving the objective of a person or an organization