Accounting information systems (AIS) is a combination of technology and accounting principles that assist in the collating, storage, processing, and output of data in a comprehensive way that aids in the compilation of financial statements. The AIS is extremely beneficial for a company because numerous stakeholders use it to assess the company’s performance.
In their daily operations, every company creates a large amount of financial data. Earlier, information was manually stored by recording it down in journals. Organisations began to expand as the economy got more global, and manual data storage became impossible. As a result, the accounting information system aids in the secure storing of financial data created at various phases of a company’s operations.
Did you know?
‘Bookkeeping’ is the only English word to contain three sets of double letters back-to-back!
Also Read: What Is Royalty in Accounting? Types & Working Criteria
Accounting Information System
An information system is a structured procedure for gathering, storing, and processing financial
and accounting data into informative and insightful reports and disseminating that data to assist in company decision-making. It is a systematic system in which all of an organisation’s (commercial or non-profit) information is collected, saved, and maintained in data, which is then processed to generate important financial records. It keeps track of all accounting and company activity by combining classic accounting principles like Generally Accepted Accounting Principles (GAAP) with modern information technologies. Although an accounting information system (AIS) can be a manual system, the majority of accounting information systems nowadays are computer-based.
Main Objective of Accounting Information System
- Deep dive analysis: This involves questioning all end-users of the accounting information system to ensure that the system is completely understood, including all acquired documentation.
- System Design: A new system is created following an extensive study. The system is developed so that it incorporates relevant internal controls to provide management with the information they need to make crucial and strategic organisational choices.
- Documentation: Data is guaranteed to be carefully documented when the system is being built. The comprehensive documentation offers users clear instructions on how to utilise the new system. Before deploying the system, documentation is crucial and is used for testing and training.
- Trials: Before launching the system, the processes are tested. The paperwork gathered guarantees that the processes are well-documented and followed by the protocols. This period is referred to as “trial and error.” The company can make some system changes at this point and ensure that all processes are thoroughly tested.
- Instruction: All employees are given training on using the AIS programme to make adjustments. Staff can also provide better input at this point in order to improve the system. They’re just going to use it once.
- Data conversion: This stage involves transferring existing data to the new system. The data should be thoroughly examined and confirmed before being converted. Furthermore, having a data backup when it is needed is always a good idea.
- Introducing the new system: The entire firm must be aware of the new system’s launch date. And now is the best time for businesses to transfer from one platform to the other.
- Tools: The organisation should make all accessible online resources available to the employees utilising the new Account information system. Each individual involved in this system should have their roles defined by the firm.
- Support: Ensure management and end-users have access to continuous support; because senior management relies on the AIS to achieve the organisation’s success goals, system improvements should be closely monitored.
Benefits of Accounting Information System
- Cost-effectiveness – In this age of digitalisation and artificial intelligence, every company is looking for ways to save money by implementing artificial intelligence. AIS has aided in reducing physical labour and the cost-effectiveness of the same procedure.
- Time effectiveness – AIS has aided businesses in lowering the amount of time they spend recording, classifying, and reporting financial data. AIS can do many manual tasks with significantly less effort and time.
- Easy access (Portability) – Data saved in AIS can be obtained at any time and from any location using an information system connected to the internet. AIS data can be carried where manually generated books of accounts cannot. The system is up and running in order to meet operational and contractual requirements.
- Accuracy – The accuracy of data is improved when AIS is involved. As we described before in this essay, an AIS follows a set of established instructions. As a result, the possibilities of inaccurate data are reduced, and AIS provides the extra benefit of reliable data.
- Security – Only those given permission have access to the system and its data. Confidentiality helps safeguard sensitive data from unauthorised disclosure. Personal information about consumers is collected, used, and disclosed appropriately.
Functions of an Accounting Information System
Accounting information systems have three basic functions:
The first function of an AIS is to collect, store, and process data about an organisation’s financial activities efficiently and effectively, including extracting transaction data from source documents, recording transactions in journals, and posting data from journals to ledgers for managers to make decisions while maintaining accuracy and security. An AIS’s second duty is to provide information to help make decisions, such as producing managerial reports and financial accounts. An AIS’s third function ensures that controls are in place to ensure correct data recording and processing. It ensures that the company’s data is kept up to date and secure. The management keeps data access restricted to only authorised individuals.
Parts of Accounting Information System (AIS)
- Person ( Stakeholders)
Every accounting component has a beginning and an end. There is a stakeholder who feeds data into the system, collects, analyses, and reports data, and there is a stakeholder who requires data, such as accountants, managers, and business analysts.
- Data
It’s all about financial transactions, events, and other monetary objects in accounting. AIS will not save any data that does not have a monetary value. Data can be anything from a sales ledger to a customer account to a vendor account to financial reports like a profit and loss statement and a balance sheet to a cash flow statement.
- Procedures
The description states that AIS follows predetermined processes and procedures to fulfil various functions. Data is collected, saved, retrieved, and processed using procedures and instructions. One of the most basic requirements of an AIS is consistency. AIS can be programmed to complete a task manually or automatically. In the case of automatic systems, this action must be communicated to the person processing the data or code in the system.
- Computer software (ERP)
The term “software” refers to computer programmes used to process data. In larger terms, a computer-based programme, or ERP, that accomplishes the stated functions is known as software. ERP stands for Enterprise Resource Planning, and it is a database software package system that supports corporate processes and operations such as manufacturing, marketing, financial, and human resources.
- Infrastructure for Information Systems
All hardware required to run the AIS is included in the information technology infrastructure. IT infrastructure is a collection of different IT and IS gear, tools, and accessories. Computers, printers, scanners, and other similar devices are examples.
- Internal Controls
Internal controls are an essential component of any firm, and they are the safeguards put in place to keep data safe. These are the tools, checks, procedures, and systems that an organisation uses to assure the integrity of financial data, fraud prevention, asset protection, and so on.
Types of Accounting Information Systems
In today’s business world, there are many accounting information systems to choose from. The scale of the organisation, the nature of its activities, the degree of computerisation, and the management philosophy all influence the system selection. To make the study of accounting information systems more manageable, we’ve classified the systems into three categories:
Manual System
Most large and medium-sized businesses rely on automated accounting systems rather than human record-keeping. On the other hand, many small businesses rely on manual accounting systems in whole or in part to keep track of their finances. Furthermore, even larger firms with computerised portions of their accounting information system may still have manual records in certain procedures even if a company’s payroll calculation and printing are computerised.
It’s critical to look at manual processes in accounting information systems since small businesses frequently utilise manual record-keeping systems—and even computerised systems may rely on manual record-keeping. Source documents and paper-based ledgers would be required for a manual system.
Also Read: What is Inventory Accounting? A Comprehensive Guide
Legacy System
Legacy systems are commonly found in established businesses and were developed before information technology became as powerful today. Even though legacy systems appear to be outdated, they offer several benefits to the company. They contain important historical information about the company, and the firm’s employees are usually familiar with and comprehend the system. A legacy system is frequently tailored to the specific requirements of a single company, and this level of customisation is not available in most accounting software systems.
Unfortunately, outdated systems have several drawbacks. They frequently lack paperwork. Hardware and software might become obsolete, making replacement parts difficult. Even the computer language used by legacy systems is usually an older version.
How Is an Accounting Information System (AIS) Used?
An accounting information system (AIS) is a comprehensive organisational structure that collects, stores, and processes financial and accounting data for decision-makers. It creates a centralised system in which authorised people store financial data, then transmitted to various stakeholders within the organisation. Revenue, purchases, employee, customer, tax, and other important data are all kept in AIS. A database structure is used to store information in an accounting information system, and a query language is often used to programme this structure, enabling table and data manipulation. Since AIS has so many fields that need to be filled in (whether new or old), the security must be top-notch to prevent harmful virus attacks.
Conclusion
As we reviewed both the pros and downsides and the limitations of AIS, it is a godsend to any business. Overall, though, migrating from manual to AIS-based accounting is tremendously helpful to a firm. There is software that protects the organisation’s AIS against viruses, hackers, and other threats to overcome the different disadvantages and limits of AIS. Artificial intelligence (AI), a more advanced version of the Accounting Information System (AIS), has already begun to reduce manual intervention and is expected to increase at a breakneck speed shortly.
Follow Legal Tree for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.