A system is a set of two or more interrelated components that interact to achieve a goal. Systems are almost always composed of smaller subsystems, each performing a specific function important to and supportive of the larger system of which it is a part. For example, theCollegeofBusinessis a system composed of various departments, each of which is a subsystem. Yet, at the same time, the college itself is a subsystem of the university.
What is an Accounting Information System?
An accounting information system (AIS) consists of people, procedures, and information technology. Thus, an accounting information system (or simply an accounting system) may be defined as the combination of personnel, records, and procedures that a business uses to meet AIS its need for financial data.
Function of AIS
AIS perform three important functions in any organization
- It collects and stores data about activities and transactions so that the organization can review what has happened.
- It processes data into information that is useful for making decision that enable management to plan, execute, and control activities.
- It provides adequate controls to safeguard the organization’s assets, including its data. These controls ensure that the data is available when needed and that it is accurate and reliable.
Sub Systems of AIS
Most organizations engage in many similar and repetitive transactions. These transaction types can be grouped into the five basic cycles, each of which constitutes a basic subsystem in the AIS:
- The expenditure cycle consists of the activities involved in buying and paying for goods or services used by the organization.
- The production cycle consists of the activities involved in converting raw materials and labor into finished products. (Only manufacturing companies have a production cycle; retail organizations buy finished goods for resale to others.
- The human resources/payroll cycle consists of the activities involved in hiring and paying employees.(part of expenditure cycle)
- The revenue cycle consists of the activities involved in selling goods or services and collecting payment for those sales.
- The financing cycle consisted of those activities involved in obtaining the necessary funds to run the organization and in repaying creditors and distributing profits to investors.
As shown in Figure 1.1, the basic activities in each of the five cycles can be described in terms of a give-to-get relation. For example, the expenditure cycle entails giving up cash in order to get goods and services. Similarly, the revenue cycle entails giving up goods and services in order to get cash. Figure 1.1 also shows how the five cycles (or subsystems) of the AIS are related to one another and how each feeds data to the general ledger and reporting system that provides information to both internal and external users.
Transaction processing system VS Enterprise Resource Planning Systems
Traditionally, the AIS have been referred to as a transaction processing system because it was concerned only with financial data and accounting transaction. For example, when a purchase is made the AIS will record a journal entry showing only the date of the purchase, a credit to either cash or account payable and a debit to stock account. But other important information about the purchase such as purchase order would be processed out side of the AIS. But the existence of multiple systems creates a number of problems, often, the same data must be captured and stored by more than one system, so it creates redundancy across systems and it can also lead to discrepancies if the data is change in one system but not in others. In addition, it is difficult to effectively integrate data from the various systems.
To resolve the above problemsEnterpriseresource planning system recently developed.Enterpriserecourse planning systems integrate all aspect of a company’s operations with its traditional AIS. Thus, when a purchase is made, the effect of transaction automatically flows to all affected parts of the company. Inventory valuation, production schedule, and to other affected area.
The Study of AIS is Fundamental to Accounting
According to statement of financial accounting concepts No. 2, the primary objective of accounting is to provide information useful to decision makers. Therefore, it is highly recommended that the accounting education change commission recommended that the accounting curriculum should emphasize that accounting is an information identification, development, measurement, and communication process. The accounting education change commission suggested that the accounting curriculum should be designed to provide students with a solid understanding of three essential concepts:
- The use of information in decision making
- The nature, design, use, and implementation of an AIS
- Financial information reporting
The other accounting course that you take (financial accounting, managerial accounting, tax and audit) focus on your role as a preparer or reporter of information. In contrast AIS focuses on understanding how the accounting system works: how to collect data about an organization’s activities and transactions; how to transform that data into information that management can use to run the organization. Thus AIS course complements the other accounting courses you will take.
Data and information are among an organization’s most valuable assets. To see why, consider what would happen if an organization lost all information about what its customers owed it or if a list of its most profitable customers was obtained by a competitor. Clearly, the AIS must include controls to ensure safety and availability of the organization’s data. Controls are also needed to ensure that the information produced from that data is both reliable and accurate. These topics usually receive little attention in other system courses. Thus the AIS course complements other system courses you may take.
Concerns about data reliability and security are relevant not only to accountants, but also to all information systems professionals. More over, since typically the AIS is one of the largest systems in most organizations, information systems professionals should have a basic understanding of how it works. Thus the AIS course is an important part of the education of information systems students.