Investigating Accounting Information Systems: An Overview
As businesses and sectors go the digital way, powerful & agile software systems have become commonplace. Augmenting our capabilities and making processes & operations exceedingly efficient, software systems are nigh indispensable in this new decade.
Accounting information systems are digital information environments that allow for enhanced storage & manipulation of accounting data. Data and information are as vital as any other business resource, evident from the essentiality of information systems and the recent proliferation of data science. Information systems in accounting fulfill different requirements and enable effective decision making & management.
In this article, we cast an inquisitive glance at the different aspects & components of generic accounting systems. Let’s begin with a concise overview.
What Are Accounting Information Systems?
The basic framework of information systems can be defined as a set of formal procedures by which data are collected, processed into information, and distributed among users.
Alongside management information systemsand enterprise resource planning systems, accounting information systemsare among the most common decompositions of information systems.
So, how do AIS differ from its other counterparts?
- Accounting information systems accept financial transactions as a primary input. For example, sales of products, inventory purchases, cash disbursements, and monetary incentives—AIS monitors, memorizes and manipulates financial transactions.
However, given the intricately close connections between financial and non-financial transactions, advanced accounting systems work in tandem with non-financial systems for optimal operations.
- AIS has proliferated across several business sectors in the past few years. So much so that almost every major chartered financial and business accounting and auditing courses have information systems as a core subject.
Solving assignments and assessment answers for students of the subject are an excellent way to develop long-term skills.
- There are three significant sub-systems in AIS: the transaction processing system, the general ledger/financial reporting system, and the management reporting system.
As evident from the terms, each sub-system fulfills key responsibilities and works under a standard system, supporting daily operations and managerial decision-making.
- It is essential to distinguish between accounting information systems and business information systems. Given the highly integrative nature of modern information systems, decision makers & auditors need a proper conceptual overview of these systems that helps them distinguish critical processes.
This is necessary to identify vital areas of risk and legal responsibilities.
Let’s now look at the three core sub-systems of an accounting information system.
The AIS Subsystems
- Transaction Processing Systems
The TPS or Transaction Processing System is central to the overall functioning of information systems. It converts & tallies different economic events into financial transactions, records actual monetary transactions into journals & ledgers, and makes essential financial information available to operations personnel.
The TPS deals with frequent and day-to-day business events. Thousands of daily transactions are handled efficiently via transaction cycles, namely, the revenue cycle, the expenditure cycle, and the conversion cycle. Every cycle captures and processes information regarding different kinds of transactions.
- General Ledger/Financial Reporting Systems
The general ledger and financial reporting systems are considered a single integrated & operationally interdependent system.
The GL/FRS sub-system receives input from transaction cycles. Summaries of transaction cycle activities get processed by the GL/FRS, which updates the AIS general digital ledger accounts. The sub-system also tracks less frequent events such as stock transactions, mergers, settlements, etc., through alternate sources.
The FRS measures and creates reports of financial resources & exchanges primarily to external users. Most of this information is distributed via reports such as traditional financial statements, tax returns, and legal documents.
- Management Reporting System
The management reporting system makes essential internal financial information necessary for effective management.
Managers deal with different kinds of problems and scenarios, both immediate & long-term. Naturally, they require a wide variety of flawless, insightful information to make various decisions. The MRS provides decision makers with typical discretionary reports such as budgets, variance reports, cost-volume-profit analyses, etc.
The above three form the heart of all major accounting information systems. They accumulate & analyze varied business-specific financial AND non-financial data from various sources with a singular aim: improved auditing & accounting.
Data Handling In Accounting Information Systems-
Primary data sources for an AIS are financial transactions from both internal and external sources.
- External financial transactions are invariably the most common data sources for most businesses. These generally involve economic exchanges with other business entities.
Examples of external transactions include sales of products & services, inventory purchases, cash receipts & disbursements, etc.
- Internal financial transactions involve exchanging or moving assets or resources within a business. Examples include the movement of raw materials to a WIP, applying labor & overhead to a project, depreciation of assets, salary disbursements, etc.
- Data Collection
Data collection is the FIRST STAGE of the operational system.
Though AI has become an integral aspect of business information systems, it is essential to double-check the validity, accuracy, relevancy, and completeness of entered data. This ensures reliable output and practical actions.
Two things govern the design of data collection procedures in AIS, relevancy and efficiency. First, system designers and users need to ensure the capture of only relevant & accurate data. Analyzing needs and requirements is vital to ensure the acquisition of correct data.
Storage and processing capabilities can be prominent bottlenecks for information systems. Therefore, optimal data collation is necessary to reduce system load and improve overall efficiency.
- Data Processing
Once appropriate data has been collected, the processing is the next phase. The system follows formal procedures to analyze data and produce information. If AI/Machine Learning/Deep Learning modules have been integrated, automated intelligence generation occurs.
Examples of typical processing techniques involve mathematical techniques such as linear programming for production scheduling, statistical learning for sales forecasting, summarizing procedures for accounting, etc.
- Database Management
Databases act as central repositories for all kinds of financial and non-financial data. Digital information systems work in close cohesion with databases and acquire & store information within them.
Attributes, records, and files are three primary hierarchy levels in databases. Files store a complete set of records of different classes, and records contain a complete set of attributes of various occurrences in a single class. Attributes are the most elemental piece of data, akin to an entity’s logical and relevant characteristic.
Genetic database management tasks carried out by AIS include storage, retrieval, and deletion.
- Information Generation
After due processing, information systems compile, arrange, format, and present information for user consumption. Typical formats of presenting information are a structure report, a sales order, a detailed presentation, or even a message on a screen.
Whatever be the physical form, the presented information must be relevant, accurate, complete, and delivered timely in a well-summarized manner.
- Feedback Systems
Effective feedback can make information systems much more prudent. They can be internal or external and be used to initiate or alter processes & sub-systems.
Every organization will tailor its accounting information systems in their way. Their needs and requirements will dictate the design, objectives, features, & capabilities of the system. However, the following three outcomes are fundamental to all systems:
- Supporting stewardship functions of the management,
- Supporting the decision-making functions, and
- Supporting day-to-day operations of a business
And that brings us to the end of this write-up. Hope it offered a concise yet detailed overview of accounting information systems.
If you are a student struggling with your AIS assignment or bsb40515 Assessment Answers, consult with your teachers and seek professional assignment help services.
All the best!
Author-Bio: Jillian McKenna is a certified public accountant from Miami. Florida. She works with a prominent auditing firm and offers Physics assignment help via MyAssignmenthelp.com in her free time.