Accounting As An Information System (2022)

Accounting information system (AIS) is an arrangement that an organization or an entity adopts to collect, manage, process, retrieve, and report its financial data so that it can be used by accountants, consultants, business analysts, managers, auditors, regulators, tax agencies, and other financial officers.

What is Accounting Information System (AIS)?

It is a structured system where all the information of an organization (business entity or non-profit organization) is collected, stored, and managed in the form of data which is thereafter processed to prepare financial records of importance.

Users of Accounting Information

The below image depicts who are the users of the accounting information system.

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Functions of the Accounting Information System

The three basic functions of an accounting information system are to collect and process data, to report for the management, and to maintain accuracy and security. They are detailed below.Collection and Processing: The collection phase in an accounting information system is that the accountants or bookkeepers collect and record the data from cash purchases, cash sales, amount receivables, and payables and process them among other transactions. If it a computerized system, the software program processes all the debits and credits into a complete information management database.Reports for Management: After collection of data, the Accounts personnel gives reports to the higher officials responsible for making decisions, such as sales and marketing managers, production managers, financial managers and all department heads in an organization. The information thus generated from the accounting information system supports the management to analyze the current operations and economic condition and make decisions, plan, and set goals for the future.Accuracy and Security: The third main function of the accounting information system is to make sure that the company maintains accurate data securely. The management decides that such data access is limited to authorized persons only.

Explain the Role of Accounting Information System in an Organization

  1. Detailedents Analysis: In this, all end-users of the accounting information system are examined by questions, to make sure that the system is fully understood, including the complete documentation collected.

  2. System Design: After the detailed analysis, a new system is formed. The system is so designed that it incorporates relevant internal controls to provide the management with the necessary information to make important decisions for the organizations.

  3. Documentation: While the system is being made, it is ensured that data is well documented. The detailed documentation provides the users with accurate instructions regarding the new system. Documentation plays an important role and is used for testing and training before rolling out the system.

  4. Testing: The processes are tested before launching the system. The documentation collected ensures the processes are well documented and procedures are followed. This phase is considered a “trial and error” stage. At this stage, some system modifications can be done. Ensure that all processes are tested.

  5. Training: All the staff is provided training to implement the changes as per the AIS software. Also, at this stage staff can give better input to improve the system. Since they are only going to use it.

  6. Data Conversion: In this stage, the existing data is transferred to the new system. Before converting the data, it should be well tested and verified. And also, it is always advisable to have a data backup at the time when it is needed to restart.

  7. Rolling Out the New System: The entire company must know the date of the launch of the new system. And this will be the ideal time for the organizations to switch over from one platform to the other.

  8. Tools: The company should ensure that all possible online resources are made available to the staff involved in using the new Account information system. The company should define the responsibilities of each and every employee involved in this system. Requirem

  9. Support: It should be ensured that the management and its end-users have on-going support available at all times. Since the upper management depends on the AIS to meet the success goals of the organization, system upgrades should be kept monitored at all costs.

Simple and Essential Habits to Understand Accounting

Have trouble revising AIS? Below are listed some condensed points to quickly browse through for the student’s convenience–

  • An accounting Information System is usually used by businesses to manage, collect and process data on finances. It is also used for reporting and retrieving information on finances as well to be used by officials, accountants, analysts, and chief financial officers.

  • Experts use this system in depth to achieve the best results, that is, the highest level of accuracy in financial transactions.

  • AIS is used by several departments in a company for better coordination.

  • AIS requires both the hardware as well as software for better output in operations.

  • AIS has internal and external control that is essential for protecting the company’s sensitive data.

Several people are associated with AIS. They ensure to maximize the output with definitive accuracy as well as smooth operations. Some people may include–

  • Consultant

  • Accountant

  • Managers

  • Business Analyst

  • Auditors

  • Chief Financial Officer (CFO)

The Accounting Information System is used in various other departments for better coordination and results. It can be used in various departments in the following ways—

  • The person in the sales department stores the order from customers in the AIS.

  • The accounting bill sends the invoices to the customer.

  • The orders are assembled in the warehouse.

  • The order is then sent out to the customer by the shipping department.

  • Accounts that are receivable are notified to the accounts department that is an IOU for customers paying for 90, 60, or 30 days.

  • The customer shipments are tracked by the customer service department.

  • The sales reports are created by the management with the help of AIS along with performance cost analysis which may include costs of inventory, shipping, and other branches.

Data is stored and retrieved in the Accounting Information System as it has a data structure such as structured query language (SQL) that is a computer language for databases. AIS is used for containing information corresponding to the business practices of a company. A few types of data that can be found are listed below–

  • Customer billing statements

  • Check registers

  • Inventory data

  • Information on payroll

  • Information on taxes

  • Sales Analysis Reports

  • Vendor invoices

  • Sales orders

Summary

Students can find this topic hard to understand and get confused with the basic concepts. In order to avoid such inconveniences, here are some quick ways to master AIS like a pro–

  1. Always Make Notes.

Yes. Making notes can come in handy at any hour before the final exams. AIS is diversified and the roles and functions have to be revised regularly so a student does not forget the concepts of this topic.

  1. Test After Doubt Clearing.

Students must test their knowledge after clearing their doubts in order to know if they have more doubts and understand their grasp on this topic. It is always better to make mistakes before exams and not in the exams.

  1. Participate in Online Classes for AIS.

Students must participate actively in interactive online classes to develop a sound understanding and sharpen their knowledge regarding this topic. Vedantu offers online classes that help students enhance their knowledge regarding Accounting Information Systems.

  1. Understanding ‘Why’ —

Every knowledge that is perceived has to be questioned for a rational understanding of the topic. Why does AIS play such an important role in business? Why do so many departments depend on AIS? Such questions will help a student memorize this topic in a better way and with a deeper understanding.

  1. Make sure all the Questions in the Textbook are Answerable.

A student must be able to answer most of the questions present in the textbook. Struggling with questions will make a student unsure of the concepts and it will greatly impact the exams.

  1. Solving Sample Papers on AIS–

For a better grip on this vast topic, a student must solve the sample questions aside from the questions present in the textbook. Not knowing how to answer any possible question on this topic can cause a student to panic during exams.

In totality, it is imperative that a student remains in touch with this chapter and begins to work from the first day. It is not tough with correct work and guidance. Vedantu offers online classes for clearing doubts and live sessions for a better understanding of this topic. A student can also download the solutions to the question related to AIS from Vedantu’s official website or simply click the link given above.

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