Linh Tran

ACCT 110
11/28/2013

Research Project

AIS in Small Businesses

Accounting Information Systems in Small Businesses

A. Statement of Purpose
My goal in this research project as accounting student was to further my education about AIS
in small business through researching what an AIS is, what types of software are used by small
business for AIS systems and the positives and negative impacts of AIS systems.
We are currently in a growing digital age. What this means for the business environment is
that there is a change in how the processing and delivery of constant new information and
services occur for customers and clients. This is especially true for small businesses. The small
businesses owners are an important entity in the U.S. and other nations because they are a
necessary part of creating a successful economy. They provide local services and help meet the
requirements for bigger companies. It is common knowledge that the main objective of a
business is to maximize profit either in terms of increases in business productivity or by
achieving rapid expansion in market shares domination. The way in which a business responds to
the changes in the information technology revolution determines their capabilities in competing
in the market and obtaining these main goals (Kharuddin, Zariyawati and Annuar 2010, 30).
In order for a small company to stay alive in the highly competitive business environment,
managers of the firm and investors have to have effective information. Small firms compete
against each other, the larger corporations, and multinational ones (Kharuddin, Zariyawati and
Annuar 2010, 29). Effective information helps managers and investors make the best decisions in
order to gain profits. Effective information in the context of this report refers to accounting
information. There is a lot of research providing evidence that accounting information benefits
the decision-making of firms managers and investors (Kneevi n.d., 65).
The two most common ways for a company to acquire this effective accounting information is
through a big accounting firm or through the use of accounting information systems (AIS).
Small business entrepreneurs can't afford to hire a big accounting firm to give consulting advice,
audit their financials, or close their books, but they need updated, accurate, and timely
accounting information to survive (Bressler and Bressler 2006). Studies have shown that the
most widely used information system is the accounting information system (AIS), specifically in
financial reporting aspects. Therefore these small business owners rely on accounting
information systems (AIS) for day-to-day management decisions and effective accounting
information.
As an accountant, our job is not only about prepare the tax report as people always
misunderstand but also many others works related to financial. To be prepared for accountant
career, people really need to understand about the accounting information systems, especially in
small businesses in this project. This research project will describe the primary components of an
AIS, the different types of software used in small business, and the positive and negative impacts
on a small business.
B. Supporting Evidence

What is AIS?
Investopedia.com, a respected and trusted website that provides up to date investing
education defines AIS as the following:
An accounting information system (AIS) is a structure that a business uses
to collect, store, manage, process, retrieve and report its financial data so
that it can be used by accountants, consultants, business analysts,
managers, chief financial officers (CFOs), auditors and regulatory and tax
agencies. In particular, specially trained accountants work with AIS to
ensure the highest level of accuracy in a company's financial transactions
and recordkeeping and to make financial data easily available to those
who legitimately need access to it, all while keeping data intact and secure
(Fontinelle 2011)
In general, financial accounting data has been commonly defined as information prepared for
external users such as creditors, investors and suppliers. An AIS system is designed to meet the
needs of any person who can make use of it such as managers, accountants, consultants, business
analysts, chief financial officers, and auditors (Kharuddin, Zariyawati and Annuar 2010, 30).
The main objectives of many businesses that adopt this system of acquiring financial accounting
are to improve their organizational efficiency and increase competitiveness ability. Prior research
has shown that AIS adoption does increases firms performance and operations efficiency.
(Kharuddin, Zariyawati and Annuar 2010, 30).
Some of the research done includes showing how AIS helps the different departments within a
company work together. For example, management can establish sales goals for which staff can
then order the appropriate amount of inventory. The inventory order notifies the accounting
department of a new payable. When sales are made, sales people can enter customer orders,
accounting can invoice customers, the warehouse can assemble the order, the shipping
department can send it off, and the accounting department gets notified of a new receivable. The
customer service department can then track customer shipments and the system can create sales
reports for management. A well-designed AIS, allows everyone within an organization who is
authorized to access the same system and get the same information such as inventory costs,
shipping costs, manufacturing costs and so on (Fontinelle 2011).
The procedures and instructions for the implementation of AIS are the methods it uses for
collecting, storing, retrieving and processing data, which will be coded into the AIS software.
Employees need necessary training and documentation of these procedures; consistency is the
only way to achieve effectiveness.
The software component of AIS would be the computer programs used to store, retrieve, process,
and analyze the company's financial data. The data contained in AIS is all the financial
information that is necessary for the business practices. Business data that impacts the company's
finances should be included in AIS such as: sales orders, customer billing statements, sales
analysis reports, purchase requisitions, vendor invoices, check registers, general ledger,
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inventory data, payroll information, timekeeping, and tax information. The hardware necessities
are items a business would typically need to have anyway - they include personal computers,
servers, printers, surge protectors, routers, storage media, and possibly a backup power supply.
The hardware selected for AIS must also be compatible with the software they intend to use.
Types of Software are used by small businesses for AIS systems
The main software component of AIS is the computer Software used to save, backup,
handle and analyze the companys financial data. So basically it is core part of any business.
Before computers even existed, AIS were manual; basically everything had to be done by hand.
But today computers do everything. Most Small businesses use Intuits QuickBooks, Quicken,
excel and many other AIS software. But these three are the most popular. For Every type of
business there are different types of Software and for different levels. Basically for small
business the software package doesnt need to be as advanced as a large business accounting
system.
The most important things when choosing accounting Software for a business is to look for,
quality, reliability and security. These are the main components any software must offer. For any
person managing a business, information has to be of high quality in order to make all the good
business decisions.
Most AIS programs can be customized by the user for easier use and better understanding of how
business data is handled by the AIS software. This type of software can also be built from
scratch for specific purposes; everything depends on the needs of a business. The only problem
here is that this software is limited to certain things because of the Sabanes-Oxely regulations.
These regulations indicate the structure of the AIS. The SOX is a United States federal act that
set new rules, and standards for public companies to prevent fraudulent actions. (Fontinelle
2011)
The other most important thing other than the Software is the Hardware, basically the type of
computers that are going to be used such as servers, printers, surges protectors, routers, storage
media, and maybe a backup power supply. These things are the most important physical parts for
any accounting System. Additionally the AIS must have a plan for maintaining, replacing and
upgrading components of the hardware system, and also a plan in case the business owners ever
need to get rid of any data, so sensitive information is not leaked.
As mentioned before the programs that are most used in small business are QuickBooks,
PeachTree Accounting, and Microsofts Small Business Accounting, and other such as Wave
Accounting, Sage 50/100 US edition, Xero, and FreshBooks. There are so many programs
available in the market, so how do business owners know what to choose? Well first of all, based
on research made by Linda Bressler and Martin Bressler (Bressler and Bressler 2006), people
were asked what type and how many AIS software packages they were using. They selected 175
Small businesses, which 75 business owners responded to the survey. Out of the 75, 41
responded that they used QuickBooks, 16 users
reported to use Microsoft Excel. When asked how
many AIS systems they used? 25% answer they used
more than one. One of the answers were I use

4
Bressler, Martin S.Strategic
Finance87.12(Jun 2006):
56-60.

QuickBooks to track jobs, generate invoices and

estimates. I used Quicken to track checking info, credit
card accounts, etc. And other answers included
flexibility, because this type of programs can be used
anywhere and are easy to use. So these findings suggest
that most of the small business owners use easy to use
and flexible programs.
Another important thing about Software is that it
should be easy to use, so that entrepreneurs dont spend lots of money hiring someone trained
specially to use an accounting program. As seen in the research results, most small business
entrepreneurs use QuickBooks, and Microsoft Excel to do their periodic accounting.
I did a small survey with three people from different companies. My friend work as audit at
Deloitt and she is using Excel to work. (Becky Ngo, personal communication, Nov 1 st 2013)
Another friend from my country Vietnam work at a small business, Tay Do Construction
Company and she is using a software call CAD, the software that customized design for her
company at work. (Yen Tran, personal communication, Nov 1 st 2013) The last one work for
another small company, Thai Binh Duong, and she is using QuickBooks at work. (Trang Nguyen,
personal communication, Nov 1st 2013) From the survey, I can conclude that choosing the right
AIS package has become one of the important decisions an entrepreneur has to make. If by any
chance the wrong program is chosen no matter how many futures it has, or how popular it is, if
its not right for your business or if people cannot understand how to use it, major business
changes have to be made. Some may be happy to see how productive their business has become,
and some others may not be happy with the software because they might have to spend lots of
money to hire specialized people to use the software or training their staff and themselves to
learn to use the program. Also, they might have to buy another AIS software.
Positive effect of AIS on small business
In most firms one will find that the accounting information system software will be
valuable to their business. However, sometimes a business doesnt understand and value the
benefits of the system as a whole. There is a lot of research regarding the benefits of the
accounting information system (AIS). The information will be discussed in detail regarding the
specific areas a firm benefits from by using AIS.
In the past accountants were forced to do things manually, with the application of an AIS many
accounting tasks can be automated. The AIS has the tools to build a variety of object categories,
such as a list of grouping categories of materials and goods, jobs, and the list of tax money. Once
a firms unique business system is built, there is minimal repetition of tasks, there wont be
wasted time to recreating the format for the same task. In addition, for having the automatic
system, the business will help the accountants reduce the effort to build the bookkeeping reports.
The automatic, cost, and immediate inventory program will also significantly reduce the amount
of manual work for the accountants and manager (Fontinelle 2011).
Accuracy is very important part of running a successful business. The AIS can help to maintain
very accurate accounting information. The use of the AIS can ensure the accuracies of the data,
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commodities and price. AIS allows for the collection and comparison of data in one place. It is
also provides an easier way to check for and identify any errors that may occur during the
accounting process (Bressler and Bressler 2006)
AIS can be a good reference tool. Users are able to quickly look up the account, tariffs list,
portfolio fess, fixed assets, as well as any data used during the accounting process by using the
AIS. This is not only helpful to new accountants in learning new skills but its useful for an
experienced accountant because it is faster and saves (Bressler and Bressler 2006)
Fraud and theft are issues every company has to deal with. AIS can help the business prevent
fraud, and theft of cash or property from the business. With the data and information from the
system, the forensic accountants can check and monitor the supplies, goods, scrap or the
efficiency performance of labor from different parts (Fontinelle 2011). AIS can perform
scheduled maintenance and random checks to reduce the fraud or prevent further fraud or theft
from happening. In many cases fraud happens because of the lack of management skill. The AIS
helps improve management skills and abilities to make decision by providing them with easy
access to necessary data.
Time is one of the most important parts of managing a business. The AIS will help management
spend less time fixing problems from a manual system. The manager will have more time for
analysis, forecasting, building strategy or business plan. Creating solutions to improve
management efficiency will bring the business benefits such as profit for themselves and society.
(Lohrey).
There are the benefit of using this system is that the AIS software program can be customized for
the different requirements of a different company. If existing software doesnt meet the
requirement and satisfy the businesss need, they can develop and further the program to meet
the specific needs of the company (Fontinelle 2011).
Negative effects of AIS on small businesses
In computerized accounting systems, system security is the most important that thing has
to be set up before anything is done with the system. If the system is setup correctly but has poor
security anyone can get access to sensitive information and jeopardize business productivity by
leaking information to other rivals. Password authentication is a good way to keep every
employee in check and also make sure that they have limited access to certain things. Unlike
manual accounting information is not kept in a file cabinet locker with a key, but instead in
computers with passwords, which can be easily hacked or stolen.
One of the most important decisions a business owner makes is choosing AIS, once this decision
is made, the business will have to pay for its cost. Cost is really important when choosing an
accounting system. Even though for small business the programs may not be too expensive, in
the case of QuickBooks, which has numerous software packages ranging from $12 a month for
the online version, up to $600 for the enterprise version. When it comes to cost, for a small
business the cost of the software is just a small fraction of the total amount of buying an AIS.
The things to worry most about are the hardware parts of the System. Depending on how big a

small business is; the hardware part can be very costly because any business that has at least 15
employees must have at least 15 computers, one for each user. Aside from computer, you need a
database to backup all your data, and also you need devices such printers, scanners, fax
machines, Routers, and more. Another problem also surfaces when you buy hardware and it is
not compatible with your system, you may also have connectivity issues resulting in a decline in
productivity of a business. In case some of these things get damaged the business will have to
spend more money in repairing or replacing equipment. A business has to pay for an annual
subscription for a Antivirus program, it also has to pay for network maintenance, staff training,
and maybe a monthly fees that some companies charge for using their accounting systems on the
cloud or web-based. On top of everything else you also need to spend money in energy to power
up your AIS, and also to buy supplies like ink and paper that is used to present reports, or just to
keep a physical copy of important documents. (Deborah Beard 2007)
An additional downside of AIS in small business is that in the hand of the wrong person, bad
things can happen like fraud for example. Because all the business data is digitized, it can be
easily tampered with. Meaning that the information a file hold can be altered, this can cause
business big losses. In case AIS is not set up correctly errors made can be made repeatedly and it
will take a long time to figure that out. This can also cause accounts to be unbalanced. (Deborah
Beard 2007)
C. What I Learn From The Project
Nowadays, small businesses have a hard time striving to succeed in this economy, in
order to succeed changes and implementations have to be made, in order to maintain a business
in good shape. AS we saw in this research, AIS one of the most useful tools a small business
can use in order to keep all the financial history of the business in a safe place and organized.
When choosing for a AIS software package a business owner has to make sure that the program
he ends up choosing fits his/her business needs. AIS as any other accounting tools, has its
benefits and risks. However, as long as you have a good system setup and trust worthy people
working for the organization, AIS can help the business become successful and more productive.

REFERENCES:
1.Kneevi, Sneana, Aleksandra Stankovi, and Rajko Tepavac. "Accounting Information
System As A Platform For Businesses and Financial Decision-Making In The Company." Edited
by Business Source Complete. Management 1820-0222, no. 54: 63-69.
2.Bressler, L. A., and M. S. Bressler. "HOW ENTREPRENEURS CHOOSE AND USE
accounting information systems." Strategic Finance (Strategic Finance) 87, no. 12 (2006): 56-60.
3.Deborah Beard, H. Joseph Wen. "Reducing The Threats Levels of Accounting Information
Systems." The CPA Journal, May 2007.
4.Fontinelle, Amy. Introduction To Accounting Information Systems. Edited by Amy Fontinelly.
Investopedia. July 2011, 2011.
http://www.investopedia.com/articles/professionaleducation/11/accounting-informationsystems.asp (accessed December 2, 2013).
5.Intuit. QuickBooks Enterprise. Edited by Intuit. QuickBooks. 2013. (accessed 12 02, 2013).
6.Kharuddin, Saira, Mohd Ashhari Zariyawati , and Nassir Annuar. ". "Information System And
Firms' Performance: The Case Of Malaysian Small Medium Enterprises." "International
Business Research (International Business Research) 3.4 (2010): 28-35.
7.Lohrey, Jackie. "What Are the Negative & Positive Impacts of Computerizing an Accounting
Department?."Chron. . http://smallbusiness.chron.com/negative-positive-impacts-computerizingaccounting-department-31404.html (accessed December 2, 2013).