What is Accounting Information System, Objectives, Function, Types

Accounting information systems are a mix of technology and accounting principles that help collect, store, process, and output data comprehensively, hence aiding in producing financial statements. The accounting information system is incredibly valuable to a business since many stakeholders use it to evaluate the firm’s success.

Every firm generates a considerable quantity of financial data during its everyday operations. Previously, information was manually stored by keeping journals. Organizations continued to grow as the economy grew increasingly global and manual data storage became unfeasible. Consequently, the accounting information system facilitates the safe storage of financial data generated at different stages of a company’s activities.

Accounting Information System

An organized approach for obtaining, storing, and analyzing financial and accounting data into relevant and insightful reports and communicating that data to aid business decision-making. It is a systematic system that collects, saves, and maintains all of an organization’s (commercial or non-profit) information as data, which is subsequently processed to create essential financial records.

It tracks all accounting and business activities by integrating traditional accounting rules such as Generally Accepted Accounting Principles (GAAP) with cutting-edge information technology. Although an accounting information system may be manual, most accounting information systems are computer-based today.

The Objective of the Accounting Information System’s

1. Deep dive analysis

This entails interrogating all system end users to guarantee that the accounting information system is fully understood, including all collected documentation.

2. System Design

A new system is designed after significant research. The system is designed to include critical internal controls that will give management the information they need to make vital and strategic organizational decisions.

3. Documentation

When the system is developed, data is assumed to be meticulously documented. The extensive documentation provides users with step-by-step guidance on how to utilize the new system. Documentation is essential before installing the system and is used for testing and training.

4. Trials

The procedures are tested before deploying the system. The documentation acquired ensures that the policies are well-documented and follow protocols. This era is known as “trial and error.” At this stage, the organization may make certain system adjustments and verify that all procedures are adequately tested.

5. Instruction

All employees are taught how to utilize the accounting information system to make changes. Staff may also provide better input at this point to aid in the development of the system.

6. Data conversion

During this step, existing data is transferred to the new system. Before converting the data, it should be adequately inspected and validated. Furthermore, maintaining a backup of your information is usually a brilliant idea.

7. The new system is being introduced

The new system’s launch date must be communicated to the whole company. And now is the most significant moment for companies to switch from one platform to another.

8. Tools

The organization should use the new Account information system to make all accessible online materials available to workers. The company should identify the duties of each employee participating in this system.

9. Assistance

Ensure that management and end users have constant access to support; since senior management depends on the accounting information system to fulfill the organization’s success objectives, system enhancements should be continuously evaluated.

Accounting Information System Functions

Accounting information systems serve three primary purposes:

• The first function of an accounting information system is to efficiently and effectively collect, store, and process data about an organization’s financial activities. One job of a data analyst is to extract information from various sources, such as transaction documents and journals. By doing this, the data analyst ensures that the data is accurate and secure. This is important in allowing managers to make sound decisions.
• The dual role of an accounting information system is to give information to aid decision-making, such as by providing management reports and financial records.
• The third job of an accounting information system is to ensure that controls are in place to guarantee proper data capture and processing. It guarantees that the company’s data is always current and safe. Only authorized personnel have access to information, according to management.

Accounting Information System Types

There are several accounting information systems in today’s corporate sector. The system selection is influenced by the organization’s size, the nature of its operations, the degree of computerization, and the management philosophy. We divided accounting information systems into two groups to make the analysis more manageable:

1. Manual System

Most extensive and medium-sized enterprises use automated accounting systems rather than manual record-keeping. On the other hand, many small firms depend entirely or partially on manual accounting methods to keep track of their accounts.

• Even if a company’s payroll and accounting are done on a computer, there may still be some manual records.
• Even if a company has a computerized system for everything, some parts may still be done manually.
• Manual record-keeping systems are standard in small businesses. So, it is essential to study how these systems work.
• Accounting information systems in small businesses are often handled manually. This means that it’s essential to study the process of accounting in this type of system.

A manual system would need source documents and paper-based ledgers.

2. Legacy System

Legacy systems are frequent in established firms and were created before information technology was as sophisticated as it is today. Even though legacy systems seem obsolete, they provide various advantages to the firm.

• Personnel who work with or use the system often understand it well.
• People who work with or use the system often know a lot about it and how it works.

A legacy system is usually adapted to the particular needs of a single organization, and most accounting software does not allow for this degree of customization.

Unfortunately, antiquated systems offer several disadvantages. They typically lack documentation. Hardware and software may become outdated, making it difficult to get new components. Legacy systems often employ an earlier version of the computer language.

Conclusion

As we discussed accounting information systems’ benefits, drawbacks, and limits, it is a blessing for any organization. We were overall, transitioning from manual to accounting information system-based accounting benefits a company. To combat accounting information systems’ many problems and limitations, the software protects the organization’s accounting information system from viruses, hackers, and other risks.

Artificial intelligence (AI), a more sophisticated version of the Accounting Information System, has already started eliminating human involvement and is predicted to accelerate rapidly in the coming years.

FAQs

Q: Who in an organization utilizes an accounting information system?

Ans: The accounting information system is used by a variety of stakeholders in an organization, including analysts, managers, and accountants.

Q: What are the advantages of using an accounting information system?

Ans: It is straightforward to use and access by workers. Accounting information systems’ utilization of time, energy, and resources reduces the cost and duplication of work, ensures security, and is accurate.