Updated July 20, 2023
Introduction to Accounting Information System
Accounting Information System is a combination of technology and accounting principles that helps in the collection of data, proper storage of data, processing of data and to create a readable output of the data which helps in the preparation of financial statements.
The AIS is very crucial for an organization as it is being used by several stakeholders of the company in order to make an estimate of the company’s performance. Tax Authorities pull data from AIS in order to calculate tax liability.
Every organization generates a huge amount of financial information in their day to day operations. Earlier the information was stored manually by writing them down in journals. As the economy became global and organizations started to expand. It became impossible to store data manually. So Accounting Information System helps in the secure storage of financial information that is generated at several stages of operation by a firm.
Objectives of Accounting Information System
- AIS aims to form a centralized system for all financial data of an organization. Large MNCs have operations throughout the world. So financial information is inserted into the AIS software by authorized personnel from everywhere. AIS helps to form a centralized location, which will give access to all information inserted from any part of the world to be in reach at a single point.
- AIS helps in streamlining of work. There are several departments in an organization. There are sales, accounts receivable, accounts payable, purchases, etc. All these are being dealt by independent teams. AIS helps to pull a report of individual super-heads separately. So a sales team will only pull a report of the sales and check whether the balancing figure is tallying as per their records. So AIS objective is to help in auditing.
- AIS plan to keep a proper channel of information. The origination of any financial information can be tracked in AIS. So it builds a trust of the stakeholders in an organization
Example of Accounting Information System
Company ABC is a small business engaged in the manufacturing of textile. They are planning to opt for a cheap and effective Accounting Information System. The main criteria of an Accounting Information System are storage, which is costly. So if there is an accounting system that will run on the cloud, then the company can save storage cost.
FreshBooks is an Accounting Information System that is built on cloud infrastructure. There are several built in tools in the system which will help the organization to effectively manage its receipts, payments, invoices, etc.
Components and Functions of AIS
Components and functions of AIS are given below:
Components
- Users: Users of AIS are one of its components. Stakeholders who need the information to process and outcome will need access to the AIS in order to perform the task. Higher level management, auditors, consultants, tax authorities, etc. use AIS in order to gather the information they need. So whoever uses AIS is part of AIS
- Methodology: AIS follow set of rules which are programmed into the system. The collection, processing and output of data follow specific instructions. So the methodology is a component of AIS
- Computer Language: The computer doesn’t understand simple English language. So there should be a computer language that is used to insert data in a computer and the same language should be used to pull data and present it in a readable format.
- Hardware: There is the hardware that is used to insert data into the system. Barcode Scanner is hardware that helps to insert sales data.
- Software: The whole system runs on software. The software helps in the smooth operation of data.
- Security: All the data used in AIS are super sensitive and should be protected. So security controls like password protection or other high level protection are also components of AIS
Functions
- It provides financial information that is required to evaluate a company. So financial information is stored in the correct format with proper dates
- All the stakeholders can grab any financial information from anywhere in the world. It increases mobility.
How Accounting Information System is Used?
AIS is used to store data that is related to the business. Important data like revenue, purchases, employee, customer, tax, etc are stored in AIS. All the storage requires a database to perform. There are computer languages that are used to input data in the database and also to generate output as and when required. After all the inputs, the main challenge is security. So several measures are taken for cyber-security in order to protect sensitive data.
Advantages and Disadvantages of AIS
Some of the advantages and disadvantages are given below:
Advantages
Below are the advantages mentioned:
- All the important data of a business can be found in a single centralized location which helps several stakeholders to check vital information as and when required
- Accounting principles are pre-installed which helps account professionals to read data in a globally accepted form
- The output generated helps in preparation of Financial Statements that is required for disclosure and also for tax calculation
- The origination of each entry can be tracked with specific dates which is stored for future reference. This helps in internal as well as external audit
Disadvantages
Below are the disadvantages mentioned:
- The main concern of AIS is security. As all the vital information is updated online, so it is really important that the security of the data is kept intact. There are several scenarios where AIS has been hacked and information stolen.
- As the information that is stored is in computer language, so someone who is trained in computer language can perform the task.
- If there is an issue with the software, then the whole data can get corrupted. This is a severe threat as no manual records are kept as a backup.
Conclusion
Accounting Information System is a modernized form of record keeping that merges hardware and software in order to provide an error free form of record keeping and processing. Almost all the business use AIS. The main concern of AIS is security. One should keep the security factor in mind before choosing an effective AIS.
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