ACCOUNTING INFORMATION SYSTEM Accounting- is a system of identifying,recording and summarisning transactions to reflect the financial position of the business.

Incme and Loss is determined through P&L A/c.Balance sheet represents the Assets and Liabilities of the business.Accounting process involves recording of Journal entries,Preparation of ledger accounts,Trial balance and Financial Statements. Information Systems An information system(IS) is typically considered to be a set of interrelated elements or components that collect(input), manipulate(processes), and disseminate (output) data and information and provide a feedback mechanism to meet an objective. Computerised Accounting System Compterised Accounting system refers to a system wherin the accounts of the enterprise are maintained on a computer.

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1 . Software is a system of instructions that drive the computer to perform various functions. 2. Properly trained personnel are critical to the successful operations of the system. 1. Hardware is the electronic equipment that makes up a computer system.

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Designing an Accounting System -Design of the accounting system begins with the chart of accounts. -The chart of accounts lists all accounts and their account number in the ledger.

Menu-Driven Accounting System -Computer systems are organized by function or task. -Computer systems usually have a choice of processing options on a menu.

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Information is different from data. Information is data that have been organized and processed to provide meaning to a user. Usually, more information and better information translates into better decisions. Characteristics that make information useful: Relevance-it reduces uncertainty Reliability-free from errors or bias Completeness- doesnt leave out anything that is important Timeliness get it in time to make the decision Understandability-presented in a manner that one can understand Verifiability-diff. people would tend to produce same result. Information is provided to both: External users Internal users External users primarily use information that is either: Mandatory Information required by a governmental entity, such as Annual Accounts. Essential Informaain- required to conduct business with external parties, such as purchase orders. Internal users Internal users primarily use discretionary information. The primary focus in producing this information is ensuring that benefits exceed costs, i.e., the information has positive value.

Accounting Information System(AIS) An accounting information System(AIS) is a system of records maintained by a business for its accounting system and includes collecting,processing,summarizing and reporting in money terms.The purpose of AIS is to accumulate data and provide information to decision makers(investors,creditors and managers) for the purpose of decision making. Thus the AIS processes the collected data,transforms it into information and makes the information available to the user. Accounting information systems are composed of six main components 1. People: users who operate on the systems 2. Procedures and instructions: processes involved in collecting, managing and storing the data 3. Data: data that is related to the organization and its business processes 4. Software: application that processes the data 5. Information technology infrastructure: the actual physical devices and systems that allows the AIS to operate and perform its functions Benard Kitur

6. Internal controls and security measures: what is implemented to safeguard the data It can: Use advanced technology; or Be a simple paper-and-pencil system; or Be something in between. Technology is simply a tool to create, maintain, or improve a system The functions of an AIS are to: Collect and store data about events, resources. Transform that data into information that management can use to make decisions about events, resources, and agents. Provide adequate controls to ensure that the entitys resources (including data) are: Available when needed Accurate and reliable Initially, accounting information systems were predominantly developed in-house. Today, accounting information systems are more commonly sold as pre built software packages from vendors such as Microsoft, Sage Group, SAP and Oracle where it is configured and customized to match the organizations Advantages and implications of AIS. As the need for connectivity and consolidation between other business systems increased, accounting information systems were merged with larger, more centralized systems known as enterprise resource planning (ERP). Advantages of AIS 1 A big advantage of computer-based accounting information systems is that they automate and streamline reporting. 2. The accounting information system pulls data from the centralized database, processes and transforms it and ultimately generates a summary of that data as information that can now be easily consumed and analyzed by business analysts managers or other decision makers 3 Consolidation is one of the greatest hallmarks of reporting as people do not have to look through an enormous number of transactions. Why study AIS Accounting is an information-providing activity, so accountants need to understand: How the system that provides that information is designed, implemented, and used. How financial information is reported. How information is used to make decisions. How the availability, reliability, and accuracy of the data is ensured Tax accountants must understand the clients AIS adequately to be confident that it is providing complete and accurate information for tax planning and compliance work.

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In management consulting, the design, selection, and implementation of accounting systems is a rapid growth area.

Businesses engage in a variety of processes, including: Acquiring capital Buying buildings and equipment Each Activity requires Hiring and training employees different types of decision Purchasing inventory Doing advertising and marketing Selling goods or services Each decision requires Collecting payment from customers different types of info. Paying employees Paying taxes Paying vendors An effective AIS needs to be able to integrate information of different types and from different sources. Types of information needed for decisions: Some is financial Some is nonfinancial Some comes from internal sources Some comes from external sources

Interaction between external and internal Parties The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies.

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The AIS also interacts with internal parties such as employees and management.

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The interaction is typically two way, in that the AIS sends information to and receives information from these parties.

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Business Cycle The business transaction cycle is a process that: Begins with capturing data about a transaction. Ends with an information output, such as financial statements. Many business processes are paired in give-get exchanges. Basic exchanges can be grouped into five major transaction cycles: Revenue cycle- Give goods ------ Get cash Expenditure cycle- Give cash----------Get goods Production cycle- Give raw mat. And labour------- Get finished goods Human resources/payroll cycle- Give cash-------------Get labour Financing cycle- Give cash-------------Get cash

Every transaction cycle: Relates to other cycles.

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Interfaces with the general ledger and reporting system, which generates information for management and external parties.

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Many accounting software packages implement the different transaction cycles as separate modules. Not every module is needed in every organization, e.g., retail companies dont have a production cycle. Some companies may need extra modules. The implementation of each transaction cycle can differ significantly across companies. However the cycles are implemented, it is critical that the AIS be able to: Accommodate the information needs of managers. Integrate financial and nonfinancial data.

Data Processing Cycle An important function of the AIS is to efficiently and effectively process the data about a companys transactions. In manual systems, data is entered into paper journals and ledgers. In computer-based systems, the series of operations performed on data is referred to as the data processing cycle. The data processing cycle consists of four steps: Data input Data storage

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Data processing Information output

1. Data Input The first step in data processing is to capture the data.

2. Data StorageData needs to be organized for easy and efficient access. Lets start with some vocabulary terms with respect to data storage. -(A) LedgerIt is a book or register which contains,in a summarized and classified form,a permanent record of all transctions. We typically use the word ledger to describe the set of t-accounts ( B)Coding techniques Coding is a method of systematically assigning numbers or letters to data items to help classify and organize them. There are many types of codes including: (a) Sequence codes-With sequence codes, items (such as checks or invoices) are numbered consecutively to ensure no gaps in the sequence. The numbering helps ensure that: All items are accounted for. There are no duplicated numbers, which would suggest errors or fraud (b)Block codes -When block codes are used, blocks of numbers within a numerical sequence are reserved for a particular category. Eg. 001-003 004-007 Group codesWhen group codes are used, two or more subgroups of digits are used to code an item. EXAMPLE: The code in the upper, right-hand corner of many checks is a group code organized as follows: Digits 12 Bank number Digit 3 District Digits 47 Branch office Digits 89 State Group coding schemes are often used in assigning general ledger account numbers. ( C)Chart of Accounts

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The chart of accounts is a list of all general ledger accounts an organization uses. Group coding is often used for these numbers, e.g.: The first section identifies the major account categories, such as asset, liability, revenue, etc. The second section identifies the primary sub-account, such as current asset or longterm investment. The third section identifies the specific account, such as accounts receivable or inventory. The fourth section identifies the subsidiary account, e.g., the specific customer code for an account receivable. The structure of this chart is an important AIS issue, as it must contain sufficient detail to meet the organizations needs. (D) Journals In manual systems and some accounting packages, the first place that transactions are entered is the journal. (E) Audit trail An audit trail exists when there is sufficient documentation to allow the tracing of a transaction from beginning to end or from the end back to the beginning

3. Data Processing Once data about a business activity has been collected and entered into a system, it must be processed Updating data to record the occurrence of an event, the resources affected by the event, and the agents who participated, e.g., recording a sale to a customer. Changing data, e.g., a customer address. Adding data, e.g., a new customer. Deleting data, e.g., removing an old customer that has not purchased anything in 5 years. 4 Information Output The final step in the information process is information output. This output can be in the form of: Documents-eg-employees paycheque or purchase order.These can be printed or stored. Reports-Reports are used by employees to control operational activities and by managers to make decisions and design strategies Output can serve a variety of purposes: Financial statements can be provided to both external and internal parties. Some outputs are specifically for internal use: For planning purposes-Budgets,Sales forecasts. For management of day-to-day operations-eg delivery schedule For control purposes- Comparing standard with actual output

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For evaluation purposes- Survey of customer satisfaction,employees error rate.

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