Accounting Information Systems

An information system is a formal process for collecting data, processing the data into information, and distributing that information to users. The purpose of an accounting information system (AIS) is to collect, store, and process financial and accounting data and produce informational reports that managers or other interested parties can use to make business decisions. 

Although an AIS can be a manual system, today most accounting information systems are computer-based. These systems are generally used by executives to make decisions, develop company strategies, and generate reports for shareholders, internal personnel, and regulatory agencies. AIS also streamline accounting cycle sand reduce the incidence of accounting errors.

Elements in the Accounting Cycle

Although the information contained in a system varies among industries and business sizes, a typical accounting information system includes data relating to revenue, expenses, customer information, employee information and tax information. Specific data includes sales orders and analysis reports, purchase requisitions, invoices, check registers, inventory, payroll, ledger, trial balance and financial statement information.

In addition, accounting information systems are often highly secured platforms with preventative measures taken against viruses, hackers and other external sources attempting to collected information. In other words, an accounting information system typically has six basic parts:

• People who use the system, including accountants, managers, and business analysts,
• Procedure and instructions are the ways that data are collected, stored, retrieved, and processed,
• Data including all the information that goes into an AIS,
• Software consists of computer programs used for processing data,
• Information technology infrastructure includes all the hardware used to operate AIS,
• Internal controls are the security measures used to protect data. 

Categories of AIS

There are many different parts and components to any accounting information system, but they can typically be broken up into five main categories,

• Source documents are the original business documents that are used to track business transactions. Documents like invoices, purchase orders, and receipts all track and keep a record of the original transaction.

• Input devices are tools used to enter financial transaction information into the accounting system. Devices like bar code scanners, keyboards, and modems all help employees enter source documents into the system.

• Information processors, like computers and software programs, take the raw data from the input devices and post it to ledgers, journals, and reports that can be used by decision makers.

• Information storage is the component of the system that stores the reports and ledgers that the information processors create. Since most modern accounting systems are computer based, these usually consist of servers and hard drives, but file cabinets are still considered storage devices.

• Output devices like monitors, printers, and projectors are any devices that take information from the system storage and display it in a useful way, so that it can be used.

Characteristics of AIS

These are the qualitative characteristics of accounting information that serve as the basis for decision making purposes in accounting:

• Security: Access to the system and its data is controlled and limited only to those authorized.
• Confidentiality: The protection of sensitive information from unauthorised disclosure.
• Privacy: The collection, use, and disclosure of personal information about customers is done in an appropriate manner.
• Processing integrity: The accurate, complete, and timely processing of data done with proper authorization.
• Availability: The system is available to meet operational and contractual obligations.

In addition to the mentioned characteristics, the following qualities of accounting information affect its usefulness, 

Understanding ability allows the users of accounting information to understand accounting information, given they spend the necessary time.

Materiality refers to a relative significance or importance of an item which is dependent on individual’s judgment to the overall financial condition of a company. 

Conservatism (i.e., accounting practice of prudence when there is business uncertainty) can also affect the usefulness of accounting information.

These qualities make accounting information understandable and useful for decision and reporting purposes especially the goal of financial reporting is to provide useful information to current and potential investors, creditors, and other users of accounting information to make investment, credit, and other decisions. Therefore, AIS is an entire system put in place to take the financial data and turn it into usable financial information.