Accounting information system Submitted to: Sir.

Muhammad Farooq Submitted by : Shumaila Shairf Roll # BCM-09-32 Date : 04-10-2011

Accounting Information System

A system is a group of two or more interrelated components or a sub group that serves a common purpose. A system has a objective (that is why it exists), inputs (it is produced by environment and effect system ,is a cause of change in system), process (through which results produced),output (it is produced by the system and it effects environment).1 The information system is the chain of formal procedures by which data are collected, processed into information and distributed to its users.2 Accounting information system is responsible for providing timely and accurate financial and statistical reports for internal management decision making, and for external parties such as creditors, investors, regulatory and taxation authorities.

Application of system approach

Purpose. The purpose of accounting information system is to process accounting data and to support decision activities. It also communicates financial and other related data to internal as well as external users of information. Environment. The accounting information system exists in an organization environment which consists of people, technology, data, informational requirements, and organizational objective and management policies. Structure. Its structure comprises three main subsystems. General ledger/Financial reporting system, Transaction processing system, Management reporting system. Performance. The effectiveness of the accounting information system is measured by its ability to provide timely information to its users to meet their informational needs. Quality. The information provided by the accounting information system must be accurate, trust worthy, and timely.3

Development
The development of accounting information system has five phases.

1. Planning It is the documentation of the scope, objective, project responsibilities, project budget etc. 2. Analysis This phase includes data analysis(comparing current data with data that organization should be using for managerial purpose), decision analysis(review of decisions a manager is responsible for making), process analysis(review of organization business process) 3. Design These phases takes the conceptual results of analysis phase and develop the design which involve the detail of all inputs, processing, storage and output. 4. Implementation It includes two primary parts (i) Construction: means selection of hardware, software, vendors for the implementation, building and testing the network communication system and of database. (ii) Delivery: it is the process of conducting final system and user acceptance testing. 5. Support It has two objectives. First is to update and maintain the AIS. Second is to continue development by improving business through AIS.4

Components of accounting information system

The accounting information system is broken down into components. These are:1. Transaction processing system It is the core of the information system. Whenever any economic event occurs, this system converts it to financial transaction. Then it records these financial transactions into journals and ledgers or we can also say it as in accounting records.

2. General ledger/Financial reporting system These are two but closely related subsystem. These are interdependent. Summaries of transaction cycle activity are processed by general ledger to update general ledger control accounts. The financial reporting system is also called non discretionary because in this the organization has no or few choices. 3. Management reporting system It provides information to the managers they need. This information is internal financial information. This type of reporting is also called discretionary reporting because in this the organization can choose what information to report and hoe to present it.5

Subsystems of transaction processing system

The transaction processing systems further have subsystems, these are given below:Purchasing The purchasing subsystem is responsible for the issuance of the purchase order for procurement of raw material. Sales order processing It involves order taking, establishment of credit terms, the preparation of paper work for shipping of the product, the recording of sales tax data. Account receivables It is responsible for the maintenance of account receivable record, preparation of customer invoice, statement of goods and services sold on account. Account payable It is responsible for the preparation of payment vouchers for cash disbursement for goods and services purchased. Inventory control

It is related to raw material, finished goods, and merchandise inventories. Its main purpose is to monitor the stock level so as to provide consistent supply. Payroll It is responsible for the wages, salaries, and sales commission to the employees of the organization. It is also responsible for the deposit of tax withholding General ledger and financial state ment It is responsible for the maintenance of journals, ledgers for recording and classifying the financial transactions. Cost accounting It monitors the flow of cost information related to production. It deals with the accumulation of the product cost data in a manufacturing organization. Budgeting It relates to the tracking of budget means the comparison between actual and budget operating data. Responsibility accounting It is basically extension of budge subsystem. It provides information for the reporting of operating data and budget comparisons to the individuals and groups who have organizational responsibility for controlling items in question. Sales analysis This subsystem provides information for the analysis of sales data for management planning and control. This subsystem involves the analysis of sales data by customer group, product category, territory, sales representative.6

Advantages

Automatic generation of accounting documents like invoices, cheques, and account statements. There is less errors because only one accounting entry updates other entries. So there is more accuracy. The accounting records are updated automatically. Data entry on computer and built in database are far more quickly and speedy. Computerized accounting programs reduce staff time doing accounts and reduce audit expenses. The reports produced in this are helpful management monitoring and control in business. By using this employees can easily motivated due to introduction of new technology. Resources and time is more efficiently be used.6

Disadvantages
Power failure, hackers and viruses can cause loss of data or damages important data. Once you put data into computer, this data now automatically produce output and update all documents. So the input data must be accurate and complete. There is a danger of computer fraud if there is no proper control and security.7

References
1. Accounting information system, Edward lee summers 2. & 5 .Accounting information system, James A. Hall, 6th edition 3. & 6.Accounting information system, F. Nash/Martin B.Robrt 4.http://www.enotes.com/business- finance-encyclopedia/accounting- informationsystems. (Access time : 9pm)

7.http://basiccollegeaccounting.com/what-are-the- usual- features-advantages-or-benefitsand-examples-of-management-reports-obtained- from-a-computerized-accountingsystem 8.http://basiccollegeaccounting.com/what-are-the-advantages-and-disadvantages-ofcomputerised-accounting-systems-part-2