Accounting Information Systems: Definition, Functions, and Examples – Desiliciouskitchen

Accounting Information Systems: Definition, Functions, and Examples

Desiliciouskitchen-Understanding Accounting Information Systems (AIS) is a system designed to collect and display accounting information so that accountants and company executives can make the right decisions. These systems are considered as essential components of financial offices around the world where most of them are software based and can be implemented as part of enterprise information technology solutions.

Accounting Information System (AIS) is needed by companies engaged in any field. The reason is because it contains a process to report the company’s financial condition accurately and correctly to all parties who need it.

The process is related to information technology to advance the business or business. SIA will make it easier for companies to do most of the company’s activities. By providing precise and accurate information, production costs can be reduced and become more effective and efficient.

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What is an Accounting Information System (AIS)?

Accounting Information System (AIS) is a system consisting of various forms, records and reports that have been prepared and produce financial information needed by the company.

The purpose of an accounting information system (AIS) is to process financial and accounting data and produce financial reports that can be used by managers or other interested parties to make business decisions.

This system includes data relating to income, expenses, customer information, employee information, and tax information from your company.

Other specific data such as sales orders and analysis reports, purchase requisitions, invoices, inventory, payroll, and trial balances must be entered into this system.

A good Accounting Information System must have the following criteria:

  • Security – Access to the system and its data is controlled and restricted to authorized persons only.
  • Confidentiality – Protection of sensitive information from unauthorized disclosure.
  • Privacy – The collection, use and disclosure of personal information about customers is carried out in an appropriate manner.
  • Processing integrity – Accurate, complete and timely processing of data is carried out with proper authorization.
  • Availability – The system is in place to meet operational and contractual obligations.
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Accounting Information System Function

The following are some of the functions of the Accounting Information System:

  • Collect all data on the company’s business activities and store the data effectively and efficiently. In addition, SIA can also record all resources that affect the business and all parties involved. With this function, there will be nothing in the company that is not listed.
  • Retrieve the necessary data from various sources of documents related to business activities. The stored data will be easier to retrieve because every detail of the data has been recorded with the SIA.
  • Make and record transaction data correctly into the required journals in the accounting process in accordance with the order and date of the transaction. This recording aims to make it easier for parties who need to check all transactions so that if an error occurs it can be corrected easily and the cause can be identified quickly.
  • Converting a set of data into financial information that the company needs. This information is in the form of financial reports both manually and online which are required by all parties.
  • As a financial control system, to prevent fraud from occurring. With this system, the company’s finances can be tracked with certainty because of a detailed accountability system. This function can safeguard the company’s assets and reduce the risk for the embezzlement of assets by all related parties.

Although the information contained in the system varies between industry and business size, the AIS includes data relating to:

  • Income
  • Expenditure
  • Customer data
  • Employee data
  • Tax information
  • Invoice

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Accounting Information System Components

  1. The people who operate the system and perform various functions.
  2. The procedures, both manual and automated involved in collecting, processing, and storing data about an organization’s activities.
  3. Data about the organization’s business processes.
  4. Software used to process organizational data.
  5. Information technology infrastructure, such as computers, equipment for network communications, and other supporting equipment

Each component of the above accounting information system is a continuity. Each component helps other components so that it becomes an Accounting Information System that runs smoothly.

Basic Business Processes and Transactions in SIA

To understand how an accounting information system works and what are the benefits of an accounting information system, you must first understand the basic accounting terms “business transactions” and “business processes or cycles”. You must understand how business transactions and business processes are integrated to produce financial reports.

Business transactions are divided into several types of processes or business cycles, namely:

  • Revenue control. All business transactions that occur in this process consist of daily sales, sales returns, and other transactions related to the entry of cash flows.
  • Control expenses. All business transactions that occur in this process consist of purchases, purchase returns, costs, and other transactions related to cash outflows. Payment of salaries and purchase of fixed assets are also included in this process category.
  • Conversion control. Consists of costs related to the purchase of raw materials and materials in process.
  • Administrative controls. Consists of all transactions related to equity: investments, bonds, and the like. All of these business processes will lead to the system, process, and control of the General Ledger. From the Ledger will produce internal and external financial reports. Examples of internal financial statements are accounts receivable aging reports and inventory status in warehouses. Meanwhile, external financial reports are in the form of balance sheets, profit and loss reports, and cash flows.
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The Information Accounting System provides two basic types of accounting records, namely Journals and Subsidiary Ledgers.

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There are two types of journals, namely general journals and special journals. All journal entries can be recorded in the general journal, which requires that each debit and credit be entered manually. Special journals are used to record similar types of transactions. Accounting information systems typically have four specialized journals:

  • Sales journal to record credit sales
  • Cash receipts journal to record all transactions that have a debit to cash
  • Purchases journal to record all purchases made on credit (credit to accounts payable)
  • Cash disbursements journal to record all cash credit transactions

Subsidiary Ledger

The second common feature of accounting information systems is the use of subsidiary ledgers. A subsidiary ledger is a list of all transactions that make up a general ledger account.

Two of the most common subsidiary ledgers are:

  • Accounts receivable ledger, where transactions with each individual customer are recorded
  • Accounts payable ledger, where transactions with individual vendors are recorded

These journals and subsidiary ledgers are components of many other reports, for example:

  • Accounts Receivable
  • Decreasing asset
  • Trial balance
  • Ledger
  • Inventory of goods stock
  • Etc

With some additional information captured elsewhere in the system, important information such as customer and product profitability, accounts payable and accounts receivable aging, and cash flow projections, and bookkeeping becomes easier to do.

In addition, the bookkeeping system can produce financial reports such as balance reports, income statements, cash flow statements or cash flow reports, as well as tax return reports. Accounting information can be sorted according to a variety of criteria, providing management with important insights into business operations, enabling them to make informed decisions.

That is more or less the meaning of an Accounting Information System (AIS) and an explanation of its function.

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