Accounting Information System (AIS). A Model for Processing Accounting Information Chapter No 1

Accounting Information System

(AIS)

A Model for Processing Accounting Information

Chapter No 1

AccountingAccounting

Accounting

Accounting is the process of identifying Recording, Classifying, Summarizing and Interpreting the Financial Results to the interested parties

InformationInformation

What is it?

Information as a Resource In the past, organizations were said to have five

major resources . . .

1. Men(i.e., people)

2. Machines

3. Money

4. Materials

5. Management

The 5

Ms

INFORMATION as a Resource

InformationInformation is now regarded as the sixth resource.

Information . . .

After the human element . . .

Quality, and Timely business information is an important resource.

Information . . .The most generic definition comes from

philosophy . . .

. . . Information is knowledge for the purpose of taking effective action.

Another Definition

. . . Information is useful data, organized such that correct decisions can be based on it.

System

What is a System?

The word system is well used in our society. We have . . .

Stereo systems

Computer systems

School systems

Transportation systems.

Webster Defines…

. . . An orderly, . . . An orderly, interconnected, interconnected, complex complex arrangement of arrangement of parts.parts.

Information System . . .

Now . . .

We know what informationinformation is.

We know what a systemsystem is.

Information System……To provide information that

supports decision making

…To provide information that supports day-to-day operations

internal, and

external users

Information System Functions

Information System

Data Collection

1Data

Processing

2InformationGeneration

3Sources

Users

Accounting information system, identifies, collects, processes, and communicates economic information about a firm using a wide variety of technologies.

Accounting Information System...

Now come to the Main topic………..

Event and Organization

Events or more precisely economic events affect the organization’s accounts, which occurs as a result of its interaction with the environment. The economic event is also known as transaction in the accounting terminology. The Accounting Information System records summarize and report these transactions in order to provide information to the management .

Human and Computer Resources:

. . . Different organizations use different systems, mainly they used human and computer resources to record, summarize and reports the events of organization. There are three types of systems:-

Manual System1.

Computer Based System2.

Computerized System3.

Manual System: Which uses only human resources, is called manual system.

In this system just humans do all the accounting work manually and there is no help or involvement of computers or any technology.

Computer based System: The system which use both human and computer resources.

In this system different types of hardware and software are used to record, summarize and reports all events of organization. The data entry operator enters the data and computer system process the data, but both works together.

Computerized System: The system which uses only computer resources and

systems. There is no intervention of the human resources and all of the work is done by the computer system.

Organization and AISAIS exist in every type of business organizations

which include:- Sole Proprietorship Partnership Corporations Non-Profit OrganizationsThe complexities of AIS in above organizations differs

from each other but still there are the following similarities:-a- Each AIS contains similar structure.b- Each AIS use similar process and same accounting methods.c- Each AIS are used for similar purpose.

It means each AIS uses same structure, process, and same purpose of accounting methods and objectives.

Accounting Cycle

The series of activities are used for recording, summarizing and reporting of economic events (Transactions) is called accounting cycle.

. . . The accounting cycle can be explained by the this figure:-

Accounting Cycle

cJournal Ledger & Trial Balance

Adjustments &Adjusted Trial Balance

FinancialStatement

OrReporting

Transaction

Start from

Closing Entries & Closing Trial Balance

12

34

5

Transaction: The accounting process begins when an economic event

is recognized by an accounting information system, which records the economic event as an accounting transaction. This subject helps how the system’s human and computers components process a transaction.

Journalize: The first step in accounting cycle is analysis of transaction

and determines which account will be affected and whether it is debited or credited by using some certain accounting principles. Every organization has its own chart of accounts according to its own set up and size, each transaction has entered in specific account with debit and credit records.

Posting: The second step is called posting of journal entry in

ledger books, where the transactions are transferred from journal to separate accounts. Ledger books further provide detail summery of separate accounts with balances.

Trial Balance: The third step is preparation of trial balance where we

balanced all debit and credit balances. All the balances of different ledger accounts are forwarded to trial balance with title of accounts. Trial balance is prepared to prove the accuracy of record in initial level.

Adjusting Entries: At the end of every accounting period there are few economic

events which are to be recorded. Such incomes or expenses are adjusted after making some journal entries. Then the accuracy of accounts is possible.

Accounting Reports: After adjusting entries and adjusted trial balance, final financial

reports are prepared. At the end of every accounting period the different accounting reports are prepared to measure the financial position of the business, including income statement, balance sheet and cash flow statement.

Closing Of Books: After preparing the accounting reports accountant

prepares the records for next period, this includes the posting closing and reversing journal entries.

The following table explains the main steps of the accounting cycle in brief:STEPS DESCRIPTIONSJournalize Identify the economic events and record it as

accounting transactionPost Transfer each entry to specific accounts to find

separate balance.Trial Balance All balances of ledger books are accumulated under

debit and credit headings separately and balanced.Adjusting entries

To record all accrued and unearned balances.

Reports Prepare all final reports from adjusted trial balances.Close of Books

Prepare the accounting records for the next period.

Technology And Accounting Information System

We know in the old days accountant were using different journal and ledger books for maintaining and keeping accounting records. That time manual system was popular and there was no use of computers and other technology. Technology independent view of accounting

But With the emerging of new and modern computer technology

the all accounting process are replaced by computers and computer software have been developed which automatically keeps all record of accounting. The accountant has required to learn about such software and must understand how its works. Technology dependent view of accounting.

Why Study AISThe study of accounting information system is as

much important as the accounting itself, it is because more powerful hardware and softwares have been developed which has brought enhancement in the accounting process. The importance of AIS can be explain by following points:- Computer hardware and softwares are used in accounting

information system. The results provided by AIS are more accurate then

manual system.

Continue…. The accounting process is more fast then the manual

system. The AIS is easy and quickly produce the reports at

any time when the any users need it. The AIS is easy to read and understand and use

further work.