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7.1: Define and Describe the Components of an Accounting Information System

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Today, when we refer to an accounting information system (AIS) , we usually mean a computerized accounting system, because computers and computer software that help us process accounting transactions have become relatively inexpensive. The benefits of using a computerized accounting system outweigh the costs of purchasing one, and almost all companies, even very small ones, can afford to and do use a computerized accounting system. That is not to say that paper-based or manual accounting systems and processes have disappeared. Most businesses have some form of both noncomputerized and computerized systems. QuickBooks is an example of a relatively inexpensive accounting software application that is popular with small and medium-sized businesses.

Manual and Computerized Accounting Information Systems

Interestingly, the term accounting information system predates computers. Technically, an AIS is a system or set of processes for collecting data about accounting transactions; recording, organizing, and summarizing the data; and culminating with the preparation of financial statements and other reports for internal and external users. These systems or processes can exist as a series of paper ledgers, computer databases, or some combination of the two. Examples of external users include banks that might lend the company money, investors, and the Securities and Exchange Commission (SEC), which requires that publicly traded companies submit audited financial statements. Since business enterprises needed to produce financial statements long before computers existed, they used manual accounting systems to gather the data needed. Data is the term for parts of accounting transactions that constitute the input to an AIS. You have examined many forms of data in this course, for example, the cash received upon the sale of an item is one data point, the reduction of the inventory account related to that specific sold item is another data point, and both the revenue and the cost of goods sold would be additional data points associated with that single transaction of a sale. These data points are summarized and aggregated (in other words “processed”) into more meaningful and useful numbers that appear in the financial statements, and all this data is typically referred to as financial information. A company that may have used a manual AIS years ago likely uses a computerized AIS today. It is important to remember that a computerized accounting system does not change what we do with accounting transactions, it only changes how we do it, and how we can present the information to different users.

Let’s consider the example of a company that came into existence before we had computers, the department store Macy’s , which currently operates stores in nearly all fifty US states. Macy’s began as a small, fancy dry goods store that opened in New York City in 1858, became a department store, R.H. Macy & Co., in 1877 using the same red star logo it still uses today. We can assume that even one hundred years ago, Macy’s needed to perform the same tasks it does today:

purchase merchandise inventory to sell to customers;
record returns of some of the inventory;
record sales made to customers at the sales price;
record the cost of the goods sold at the amount Macy’s paid to purchase them;
record payments from customers;
record returns from customers;
purchase other kinds of items needed for operations, like office supplies and fixed assets;
pay for prior purchases;
pay for rent, utilities, and other services;
pay employees;
enter all of these transactions;
post all transactions;
record adjusting journal entries;
record closing journal entries;
keep track of its receivables, payables, and inventory; and
produce financial statements for internal and external users as well as other reports useful to managers in assessing various performance measures needed to evaluate the success of the company.

As you might imagine, doing all this without computers is quite different than performing these tasks with the aid of computers. In a manual system, each business transaction is recorded, in the form of a journal entry in the general journal or one of the four common other special journals described in Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders , using pen and paper. Journal entries are then posted to a general ledger; balances would be computed by hand or with an adding machine/calculator for each general ledger account; a trial balance is prepared; adjusting journal entries are prepared; and finally financial statements prepared, all manually.

CONCEPTS IN PRACTICE

Modernization of accounting systems.

In 1955, in one of the earliest uses of a true computer to facilitate accounting tasks, General Electric Company used a UNIVAC computer to process its payroll. Initially it took the computer forty hours just to process payroll for one pay period. The first modern era spreadsheet software for personal computers, VisiCalc, became available in 1978. Thus, between these time periods there were minor improvements to the use of computerized accounting tools, but it was not until the mid-1980s that comprehensive computerized accounting programs became widely used. Thus, prior to the mid-1980s, much accounting was done manually or using a variety of less-advanced computer systems in conjunction with manual systems. Imagine the number of bookkeepers it would take to record the transactions of many companies. For example, on the first day of business at Macy’s in 1858, the store had revenues of $11.06. 1 The actual accounting ledger used to record those sales is shown in Figure 7.2 , which seems quite simple. Today Macy’s has over $24 billion in sales revenue—can you imagine accounting for all of those transactions (along with all expenses) by hand?

Photograph of an accounting journal from 1858.

Today, Macy’s and other large and small companies perform the same accounting tasks using computer hardware (computers, printers, and keyboards), and software. For example, cashiers can enter transactions into a computer using a keyboard, scanner, or touch screen. The screen displays the data entered or fields available for data entry. As an example, most retail stores have a point-of-sale system (POS) that enters the sale by scanning the item at the point of sale , meaning at the time the transaction is made. This system records the sale and at the same time updates inventory by reducing it based on the number of items purchased.

Later in the section on how to Prepare a Subsidiary Ledger , you will be provided with a series of transactions for a small business and you will be asked to first enter the transactions manually into the appropriate journal, post the information from the journals to the general ledger, prepare trial balances, adjusting and closing entries, and manually produce financial statements just as Macy’s or any other business would have done prior to the use of various computer technologies. You will then perform the same tasks using QuickBooks, a popular accounting software program used by many small and medium-sized businesses. A company as large as Macy’s has stores in locations all over the country and a large volume of transactions, so it is more likely to use a software package designed to meet the needs of a very large business. This is often referred to as an enterprise resource planning (ERP)system which stands for enterprise resource planning (ERP) system. An ERP system integrates all of the company’s computerized systems including accounting systems and nonaccounting systems. That is, large companies have various accounting subsystems such as the revenue system (sales/accounts receivable/cash receipts), the expenditure system (purchasing/accounts payable/cash disbursements), the production system, the payroll system, and the general ledger system. Nonaccounting systems might include research and development, marketing, and human resources, which, while not an integral part of the accounting system, in a large companywide ERP system are integrated with the accounting modules. Examples of popular ERP software systems are PeopleSoft and SAP.

Like many businesses today, Macy’s also maintains a company website and engages in e-commerce by offering the sale of many company products online. Accounting software companies like QuickBooks and larger software vendors have upgraded the ways in which they can provide AIS software to meet these needs. For example, a small local retail shoe store can purchase QuickBooks software provided on an electronic storage device such as a CD and upload it to be stored on the hard drive of the company’s computers, or the store can purchase a “cloud” version. The cloud version provides the shoe store purchasing the software with access to the QuickBooks software online via a user ID and password with no need to load the software on the store’s computers. QuickBooks updates the software when new versions are released and stores the company’s accounting data in the cloud. Cloud computing refers to using the internet to access software and information storage facilities provided by companies rather than, or in addition to, storing this data on the company’s computer hard drive or in paper form. An advantage of cloud computing is that company employees can access the software and enter transactions from any device with an internet connection at any location. The company pays a monthly fee for access to updated software, which can be less costly than buying software stored on individual computers. Potential disadvantages include security concerns because an outside company is storing company programs and data, and if the hosting company experiences technical difficulties, companies paying for these services may temporarily be unable to access their own data or conduct business. Nevertheless, cloud services are increasingly popular.

Here, we illustrate the concepts and practices of an AIS using Intuit QuickBooks, a popular and widely used AIS.

While a company typically selects an AIS to suit its specific needs, all systems should have components capable of:

inputting/entering data (e.g., entering a sale to a customer);
storing data;
processing data and computing additional amounts related to transactions (e.g., computing sales tax on the sale, as well as shipping costs and insurance fees; computing an employee’s pay by multiplying hours worked by hourly pay rate; processing inventory changes from both inventory purchases and inventory sales and data from any other transaction that occurs in the business);
aggregating/summarizing data (e.g., computing total sales for the year);
presenting data (e.g., producing a balance sheet and other financial statements and reports for the year); and
storing data (such as the customer’s name, address, shipping address, and credit limit).

AISs, whether computerized or manual, generally involve three stages: input, processing, and output. We enter raw data into our system at the input stage and try to correct any errors prior to going on to the next stage of processing the data. We ultimately produce “output,” which is in the form of useful information.

Inputting/Entering Data

A source document is the original document that provides evidence that a transaction occurred. If you hire a company to paint your house, it will most likely provide a document showing how much you owe. That is the company’s sales document and your invoice. When you pay, your check or digital transaction record is also a source document for the company that provided the service, in this case, the home painter.

Assume you go into the university bookstore to purchase a school sweatshirt, and it is sold out. You then fill out a document ordering a size medium sweatshirt in blue. The form you fill out is a purchase order to you, and it is a sales order to the university bookstore. It is also a source document that provides evidence that you have ordered the sweatshirt. Assume the bookstore does not ask you to pay in advance because it is not sure it will be able to obtain the sweatshirt for you. At that point, no sale has been made, and you owe no money to the bookstore. A few days later, the bookstore manages to acquire the sweatshirt you ordered and sends you an email notifying you of this. When you return to the bookstore, you are presented with the sweatshirt and an invoice (also known as a bill) that you must pay in order to take your sweatshirt home. This invoice/bill is also a source document. It provides evidence of the sale and your obligation to pay that amount. Let’s look at an example.

Figure 7.3 is a source document—an invoice (bill) from Symmetry Mold Design for mold design services. Note the terms (agreements about payments) are listed at the top and how the company calculates those outcomes at the bottom.

An example of an Invoice sent to a customer for items the customer purchased.

Some companies send paper bills in the mail, often asking the recipient to tear off part of the bill and return it with the payment. This tear-off portion is a turn-around document and helps ensure that the payment is applied to the correct customer account and invoice. Generally, this document began as printed output, an invoice, from the billing part of the AIS. When the customer tears off a part of it and returns it in the envelope with a check to the company, it has now been “turned around” and will be used as an input source document, called a remittance advice. A remittance advice is a document that customers send along with checks and informs the recipient as to which invoice the customer is paying for. Figure 7.4 is an example of a turn-around document.

An example of the payment slip that customers return to a company with their payment.

Both manual and computerized accounting systems utilized source documents. E-commerce systems have some additional source documents related to online transactions. Source documents help to establish an audit trail , which is a trail of evidence documenting the history of a specific transaction starting from its inception/source document and showing all the steps it went through until its final disposition. The trail of source documents and other records (the audit trail) makes it easier to investigate errors or questions by customers, vendors, employees, and others. For example, when a customer places an order by phone, by mail, or online, the sales order becomes the source document. If the customer does not receive the product ordered, the company can locate the original order, see if a picking ticket was generated (a picking ticket tells warehouse employees what inventory items the customer ordered, that now need to be picked off the shelf), locate the shipping documents, which provide evidence that the product was given to the shipper, and check for customer signature confirming receipt of goods. The trail of documents and entries in journals and ledgers and their electronic equivalent generated by this transaction provides evidence of all the steps that took place along the way. This makes it easy for anyone to verify or investigate, and perhaps find the weak links, where the process may have broken down. It allows the company to identify the reason why the customer never received the goods ordered. Maybe the order was never shipped because the company was out of stock of this specific product, maybe it was shipped and left at the customer’s doorstep with no signature requested, or maybe the order was shipped to the wrong customer or to an incorrect address. An audit trail will help company personnel investigate any of these common issues. It should also help them identify weaknesses in their processes and precipitate improvements.

Businesses need a way to input data from the source document such as a sales invoice or purchase order. This was previously done with pen and paper and is currently done by keying it in on a computer keyboard; scanning, with a scanner such as one that reads MICR (magnetic ink character recognition) symbols (found on bank checks) or POS system scanners at cash registers that scan product bar codes/UPC symbols; or receiving it by e-transmission (or electronic funds transfer [EFT]). Input often involves the use of hardware such as scanners, keypads, keyboards, touch screens, or fingerprint readers called biometric devices. Once data has been input, it must be processed in order to be useful.

Processing Data

Companies need the accounting system to process the data that has been entered and transform it into useful information. In manual accounting systems, employees process all transaction data by journalizing, posting, and creating financial reports using paper. However, as technology has advanced, it became easier to keep records by using computers with software programs specifically developed for accounting transactions. Computers are good at repetition and calculations, both of which are involved in accounting, and computers can perform these calculations and analyses more quickly, and with fewer errors, thus making them a very effective tool for accounting from both an input and an output standpoint.

LINK TO LEARNING

See a list of popular bookkeeping software packages. With this information, potential options for sample accounting software options can be evaluated.

Output: Presenting Information

An AIS should provide a way to present system output (printed page, screen image, e-transmission). Any accounting software application such as that used by large companies (an ERP system) or one used by smaller businesses (QuickBooks) can easily print financial statements and other documents as well as display them on the screen.

Some financial information must be provided to other sources such as banks or government agencies, and though in past decades everything was presented and submitted on paper, today, most of this information is submitted electronically, and AISs help facilitate having the information in the necessary electronic format. Many banks require electronic data, and the Internal Revenue System (IRS) accepts your information as a digital transmission instead of a paper form. In 2017, 92 percent of all taxpayers who filed their own taxes did so electronically. 2 Most corporations choose to file their taxes electronically, and those with assets over $10 million are required to file electronically with the IRS. 3 Since May 5, 1996, all publicly traded companies are required to submit their filings, such as financial statements and stock offerings, to the SEC electronically. 4 The SEC places all the data into an electronic database known as the Electronic Data Gathering, Analysis, and Retrieval System (EDGAR). This database allows anyone to search the database for financial and other information about any publicly traded company. Thus, AISs facilitate not only internal access to financial information, but the sharing of that information externally as needed or required. Just as the EDGAR system used by the SEC stores data for retrieval, an AIS must provide a way to store and retrieve data.

Storing Data

Data can be stored by an AIS in paper, digital, or cloud formats. Before computers were widely used, financial data was stored on paper, like the journal and ledger shown in Figure 7.5 .

As technology has evolved, so have storage systems—from floppy disks to CDs, thumb drives, and the cloud. The hard drive on your computer is a data storage device, as is an external hard drive you can purchase. Data that is stored must have the ability to be retrieved when needed. As you can see from Figure 7.6 , stored data comes from and/or flows through the three main functions of an AIS (input, processes, and output) with the end result being the use of the data in forms needed for decision-making, such as financial statements. Access to the ability to input data, manage processes, or retrieve data requires adequate controls to prevent fraud or unauthorized access and requires the implementation of data security measures. Figure 7.6 illustrates the key functions performed by an AIS.

Three process boxes with arrows points from one to the other, labeled left to right: Input, Processing, Output. To the upper left is a Source Document icon with an arrow pointing to the Input box. To the upper right is a Data Storage icon with arrows pointing to all three process boxes.

The Steps in an Accounting Information System

The three steps of an accounting information system are input, processing, and output. Data is the raw ingredient used in these processes. Some of the data may be obtained from a source document, and other data is obtained from the database where it had previously been stored. When the data has been processed, the final result is usually information. Information is more useful than data. Take, for example, another process that a bakery might use to bake chocolate chip cookies. While computers might not necessarily need to be involved, we begin the process by assembling a bunch of raw ingredients such as eggs, sugar, flour, chocolate chips, and oil, in a large bowl. Taking a spoonful of what is in the bowl at the time is not very pleasing to the taste buds or “useful” to someone craving a chocolate chip cookie. We process the raw ingredients by mixing them well and turning them into dough, cutting them into shapes, baking them, and glazing them. Similarly, raw data about a single sale contained on the sales invoice, such as customer name, date of sale, and amount of sale, is individually not very useful to a financial statement user such as an investor. However, by processing the data related to the sale, making sure it is correct by checking that the number of items ordered were in stock and actually shipped, aggregating it with other sales for the period, and producing an income statement containing the sales for the period is substantially more useful than the individual pieces of data relating to a single sale.

Can you give an example of each of the three steps, as well as a source document that might be used in the input stage and stored data that might be used in the input and processing stages, first for a grocery store, and then a medical office?

Grocery store:

Source Document: This would include a check to be deposited; totals from each cash register, including total cash; an invoice for produce; an application for employment by a potential new employee; time card information; a W-4 form (employment information); and so on.
Input: This includes entering the data from the source document on the computer keyboard, electronically scanning the bar code of each product purchased at the grocery store (at checkout counter and to receive goods from vendor off the truck), maybe fingerprinting at the time clock, or keying in a price on the register.
Processing: A cash register processes (accumulates and totals) different categories of items (coupons, checks, and charges) by the user; inventory can be tracked by RFID (radio-frequency identification); and software programs can process information gathered by individual cash registers as well as employee information.
Output: Data that has been processed can be viewed on a computer screen, printed as a hard copy (paper output), or sent as electronic output from the cash register to the computer (can be done wirelessly or with a cable).
Storage: Data can be stored in the company database on its computer hard drive or as cloud storage. Hopefully the store is also paying for safe backup storage offsite (in case of fire at the store or hackers attempting to obtain information), generally accessed through the internet and stored in “the cloud.” Otherwise, storage can be on paper printouts, the computer hard drive, disks, or external drives. The data that is stored may be retrieved and used at the input, processing, and output stages.

Doctor’s office:

Source Document: This includes a check to be deposited from the patient; the patient’s insurance information on file; a doctor’s record of the diagnosis and procedures performed on the patient, to be submitted to the insurance company; and an invoice for medical supplies.
Input: Data from the source document, for example, containing the diagnosis and a treatment plan, would be entered on the computer keyboard.
Processing: The system might retrieve the treatment codes corresponding to every procedure the doctor performed, so it contains the appropriate information for the insurance company.
Output: The treatment form is printed and then mailed to the insurance company for payment.
Storage: The diagnosis and treatment plan are stored on the computer database for retrieval on the next visit for this patient. The form to be sent to the insurance company is also stored electronically so there can be follow-up until the payment from the insurance company is received. Also note that during processing, the system had to retrieve the treatment codes from a file of all of the codes that was stored in the database.

The Accounting Information System (AIS)

What are some of the types of information the accounting information system should be able to provide to the owners, managers, and employees of business, at the end of the day, or week, or month, which they in turn may need to provide to other external users?

Information for internal purposes will include total sales and how much it cost to generate the sales. Also considered is how much inventory is on hand so a decision can be made as to whether or not to order more inventory.
The company will need to record all of the economic events of the business in order to find total sales, cost of goods sold, expenses, and net income, as well as the number of hours employees worked, the employee’s social security number, and how much the company promised to pay the employee per hour.
Information for external users, such as the IRS or state and local government agencies, would include income tax returns and sales and payroll tax forms. The business owners and managers will need all sales and expenses, sales tax collected, and employees’ earnings.
In other words, the company needs an AIS.

While an AIS has the primary functions of input, processing, output, and storage, each company or system will decide on the exact steps and processes under each of these broad functions. We know that data is used to create the types of information needed by users to make decisions. One way in which a retail organization may obtain, input, process, and store data related to a sales transaction is through a point-of-sale system (POS). When a customer is ready to buy an item, the cashier scans the product being purchased, the price is retrieved from the price file, the sale is recorded, and inventory is updated. Most POS systems include a scanner, a computer screen, or a tablet with a touch screen. Customer payments are stored in the cash drawer. For noncash sales, credit card readers allow customers to insert, swipe, or tap their cards to pay (which also helps prevent keyboard input errors and keeps the information safer).

ETHICAL CONSIDERATIONS

Ethical standards in retail stores.

Professional sales employees operate the POS systems. There is an ethical code for sales professionals created by the Association of Professional Sales to help sales professionals maintain good judgment. 5 The organization sets forth standards such as the following:

Maintain the highest standards of integrity in all business relationships.
Provide our customers with a buying experience in which we “do the right thing and thereby help get the right results.”
Promote and protect good sales practices.
Always act in line with my organization’s codes and within the law.

Accountants can assist sales professionals in creating an ethical environment. The ethical environment will permit the users of accounting data to make solid business decisions and to better operate a company.

However, the POS is just part of the AIS. As each sale is entered into the register, other data is collected, recorded, and processed by the AIS and becomes information. Data about each sale is recorded in the information system: what was sold, how much it cost, the sales price, and any sales tax. It also records the time of day, the clerk, and anything else the company programmed the cash register to record. When all the sales for the day are totaled, it provides information in the form of organized and processed data with meaning to the company. A business might want to see which hour of the day resulted in the most sales, or to know which product was the best seller. An AIS can provide this information.

A system is created when processes work together to generate information for the business. The sales process accesses customers, accounts receivable, and inventory data and updates the appropriate files. The purchases process also accesses inventory and accounts payable and updates them, because most companies buy goods on credit. Since no two companies operate exactly the same way, you would expect each company to have a slightly different AIS. Some businesses do not have a cash register, but they will still have a Sales account. Some companies only have cash sales, so they would not have an Accounts Receivable account. Regardless of the type of business—retail, manufacturing, or service—an AIS is an important component of the business as it is this system that provides the information needed by internal and external decision-makers.

Is This an Accounting Information System?

Do you think your average food truck proprietor has an accounting information system?

Photograph of people purchasing food from a food truck.

Food trucks will have some type of accounting information system whether paper based or electronic. One common method of creating an accounting information system in this type of business environment is to use an app, such as Square Point of Sale ( Square Inc. ). The Square Point of Sale (POS) software system keeps track of the sales. With this type of system, a food truck will likely have a Square Stand (a tablet-based POS), a cash drawer, and printers. The information input into the Square Stand is stored on Square servers using the cloud (online storage space offered by different companies and products) and is accessible by the company via an online dashboard. This system allows the handling of both cash sales and credit card sales. These components—the Square Point of Sale software, the Square Stand, cash drawer, and the printers—make up part of the accounting information system for a food truck.

IFRS CONNECTION

Accounting information systems in an international business environment.

All companies, regardless of whether they are domestic or international, will have an accounting information system with the features described in this chapter. It would be easy to assume that the accounting information systems created by public companies in the United States are created based on US generally accepted accounting principles (GAAP). This implies that these companies design their processes and controls so that in addition to meeting the reporting and monitoring goals of the company, the system also collects, measures, and reports the information that is required under US GAAP. But is this true? What about companies that have subsidiaries or a portion of their operations in another country? Do purely international companies use accounting information systems similar to their US counterparts?

As previously indicated, all companies will create some sort of accounting information system. General Electric (GE) , as a US-based manufacturer, uses an accounting information system that allows it to record, collect, produce, and analyze the operations of its various businesses. Since GE is a US corporation, headquartered in Boston, Massachusetts, its accounting information system is designed around the rules set out by US GAAP. Fiat Chrysler Automobiles (FCA) is headquartered in the United Kingdom, and it designs its accounting information system to produce financials under International Financial Reporting Standards (IFRS). On the surface, it looks as though each company will create an information system based on the accounting rules in its own home country. However, it is not quite that simple. Today, companies take advantage of the ability to borrow money across borders. The lenders often require the financial statements of the borrower to be presented using the accounting rules required by the lender’s country. For example, if GE wanted to borrow money from the Royal Bank of Scotland , it would likely have to present its financial statements based on IFRS rules. Similarly, if FCA wanted to borrow from Citibank , it would need its financial statements in US GAAP form.

Borrowing is not the only reason a company may need to present financial statements based on a different set of accounting principles. As of 2017, GE had over 130 subsidiaries, and these businesses were located across 130 countries. A subsidiary is a business over which the parent company has decision-making control, usually indicated by an ownership interest of more than 50 percent. Many of these GE subsidiaries established their accounting information systems based on the accepted accounting principles in the countries in which they were located, as required in order to be in compliance with local regulations such as for local taxes. Thus, GE must convert the financial information obtained from the subsidiary’s accounting information system, often based on IFRS, to US GAAP in order to consolidate the transactions and operations of all of the subsidiaries with those of the parent company to create one set of financial statements.

We have basically become a two GAAP world—IFRS and US GAAP—and many companies will find it necessary to have accounting information systems that can handle both sets of rules due to the global nature of business and the global nature of raising money through borrowing and issuing stock. This may seem crazy, to have two systems, but a little over ten years ago there were more than seventy different GAAP. Today, since many countries now use IFRS, the quality and consistency of financial reporting have improved. As a result, the cost associated with having accounting information systems that can combine many different sets of accounting rules has decreased.

1 Fraser Sherman. “The History of Computerized Accounting.” Career Trend. January 14, 2019. https://careertrend.com/about-632821...ccounting.html
2 Income Tax Return Statistics. eFile. May 2018. https://www.efile.com/efile-tax-retu...it-statistics/
3 Income Tax Return Statistics. eFile. May 2018. https://www.efile.com/efile-tax-retu...it-statistics/
4 There is a hardship exemption for companies that cannot file their documents electronically. See U.S. Securities and Exchange Commission. Important Information about EDGAR. February 16, 2010. https://www.sec.gov/edgar/aboutedgar.htm
5 Association of Professional Sales. “APS Sales Code of Conduct.” n.d. www.associationofprofessiona...-code-conduct/

Accounting Information Systems

Why fraud occurs, accounting information systems fraud, input fraud, processor fraud, computer instructions fraud, output fraud, types of computer attacks, works cited.

An Accounting Information System (AIS) is a combination of the study of the norms of accounting and the design, execution, and supervision of information systems. AISs use new technological tools together with traditional accounting systems to give users the financial information required to run their firms. An AIS consists of three components: input, process and output. Input devices frequently used in AIS include PCs on which the AIS software is installed, scanning machines for standardized data entry, and electronic communication equipment for sending and receiving electronic data and e-commerce (Wells, 312). Elementary processing is realized using computer systems of varying processing abilities, depending on the magnitude of work. Output devices used in AIS include computer monitors, printers, and electronic communication equipment for sending and receiving electronic data and e-commerce.

Many instances of data fraud are perpetrated by disgruntled employees, or by employees who seek to sell the information or facilitate insider trading. An employee may also see an opportunity such as promotion or incentive. Perpetrators find some sort of excuse that makes fraud seem normal. Fraud also occurs due to some form of pressure, whether it is financial or attaining company goals (Albrecht et al, 125).

Just like any information technology platform, an AIS is vulnerable to various forms of fraud. An AIS fraud is a deliberate and wrong/incorrect entry of any financial transaction that alters the company’s financial records. AIS frauds originate from various sources, and have different intentions, if ignored, they can destroy the usefulness and reliability of financial information, causing stakeholders to make poor decisions. AIS fraud begins during data collection, at this point, it is imperative that security controls are placed to guarantee that transactions and financial data are valid. Unauthorized access to an AIS and intercepting electronic messages are examples of activities that can gravely affect the validity of the data collection process.

Fraud in AISs can also occur during the input stage. Input fraud is the plainest and the most common form of AIS fraud as it only involves an alteration of the system’s input. Input fraud requires basic computer skills and the fraudster only needs to comprehend how the system functions. This form of fraud can take various forms, these include:

Disbursement fraud- the fraudster causes the firm to pay excess money for goods or pays for goods that were not ordered.
Inventory fraud- the fraudster inputs information into the system with an aim of stealing inventory.
Payroll fraud.
Cash receipt fraud.
Fictitious refund fraud- an employee inputs data indicating an undeserved refund.

Processor fraud involves using a company’s AIS system to transact personal business or other unauthorized system uses. This may comprise theft of computer time and services. Examples of processing fraud include browsing the web using a company computer or to transact private business.

This form of fraud involves interfering with the software that processes the firm’s data. A person may design illegal programs, alter or delete files, damage or corrupt the system’s logic by using a virus or malware, or change a program’s algorithm to process data in an erroneous manner. Computer instructions fraud also includes making illicit copies of the firm’s software and using it in an illegitimate manner. This form of fraud requires intricate computer programming knowledge.

Data fraud involves modifying a firm’s data files or reproducing, using, or accessing the company’s databases and stealing information. Fraud in databases includes unauthorized access that enables a fraudster to alter, delete, corrupt, or steal the firm’s data. If a company does not maintain secure backups or other reliable data recovery systems, database fraud may cause a huge negative impact on the organization’s future.

Output fraud involves pilfering or misusing the AIS system’s output. If the firm doe not institutes adequate security measures, screen output can be transmitted effortlessly to a remote location using cheap electronic equipment. Output can also be seen or duplicated by unauthorized persons, this can be risky if the output information consists of sensitive material. A person may also use a computer and other peripheral devices to generate fake outputs such as invoices and receipts (Kranacher et al, 210).

Output fraud also includes theft, misdirection, or manipulation of the output device in a manner that could dent the competitiveness, usefulness and applicability of the data to the organization.

Perpetrators have devised several methods for committing AIS fraud as shown below:

Data Diddling- altering data after it is entered into the system;
Denial of Service Attacks- overloading an internet service by sending numerous requests, causing the closure of the server;
Hacking- illegal access of company data stored in a computer hard drive or server;
Malware- use of software that is aimed at harming a computer system or network. Malware also enables the creator or user to take partial control of a computer.
Spyware- a form of malware that is installed on a computer and collects information about a computer user without his information;
Phishing- this is the practice of using fake or counterfeit emails or websites masquerading as a genuine entity with the aim of stealing usernames, passwords or credit card information from a person or organization.

Another non-technical form of fraud, known as social engineering, has been employed by persons to commit fraud in businesses. This is an act of psychological control in which a perpetrator convinces a person, such as an employee, to reveal some vital or confidential information.

Albrecht, Steve, Albrecht, Conan, and Albrecht Chad. Fraud Examination, 3 rd Ed. Ohio: South Western Cengage Learning, 2009.

Kranacher, Mary-Jo, Riley, Richard, and Wells, Joseph T. Forensic Accounting and Fraud Examination. New Jersey: John Wiley and Sons, Inc., 2010.

Wells, Joseph T. Principles of Fraud Examination. New Jersey: John Wiley and Sons, Inc., 2010.

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Understanding AIS

2. Procedures and Instructions

4. software, 5. it infrastructure, 6. internal controls, the bottom line.

Corporate Finance

6 Components of an Accounting Information System (AIS)

Amy Fontinelle has more than 15 years of experience covering personal finance, corporate finance and investing.

what is accounting information system essay

An accounting information system (AIS) is a system that a business uses to collect, store, manage, process, retrieve, and report its financial data. This data can then be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors, regulators, and tax agencies.

Specially trained accountants work in-depth with an AIS to ensure the highest level of accuracy in a company's financial transactions and record-keeping. They make financial information easily available to those who legitimately need access to it while keeping that data intact and secure.

Key Takeaways

An accounting information system (AIS) is used by companies to collect, store, manage, process, retrieve, and report financial data.
AIS can be used by accountants, consultants, business analysts, managers, chief financial officers, auditors, and regulators.
An AIS helps the different departments within a company work together.
An effective AIS uses hardware and software to effectively store and retrieve data.
The internal and external controls of an AIS are critical to protecting a company's sensitive data.

Understanding Accounting Information Systems (AIS)

An accounting information system tracks all accounting and business activity for a company. It generally consist of six primary components: people, procedures and instructions, data, software, information technology infrastructure, and internal controls. Below is a breakdown of each component.

The people involved with an AIS are the system users. An AIS helps the different departments within a company work together. Professionals who may need to use an organization's AIS include:

Accountants
Consultants
Business analysts
Chief financial officers

Management can establish sales goals for which staff can then order the appropriate amount of inventory. The inventory order notifies the accounting department of a new payable.

For sales, the ways an AIS is used could include the following:

Salespeople enter the customer orders into the AIS.
Accounting bills or sends an invoice to the customer.
The warehouse assembles the order.
The shipping department sends the order out to the customer.
The accounting department gets notified of a new accounts receivable , which typically is paid within 30, 60, or 90 days.
The customer service department tracks the order and customer shipments.
Management creates sales reports and performs cost analysis, which can include inventory, shipping, and manufacturing costs.

With a well-designed AIS, everyone within an organization can access the same system and retrieve the same information. An AIS also simplifies the process of reporting information to people outside of the organization, when necessary.

For example, consultants might use the information in an AIS to analyze the effectiveness of the company's pricing structure. They'd retrieve and look at cost data, sales data, and revenue. Also, auditors can use the data to assess a company's internal controls, financial condition, and compliance with regulations such as the Sarbanes-Oxley Act (SOX) .

The AIS should be designed to meet the needs of the people who will use it. The system should also be easy to use and should improve, not hinder, efficiency.

The procedures and instructions for an AIS relate to the methods it uses to collect, store, retrieve, process, and report data. These methods are both manual and automated. The data can come from internal sources (e.g., employees) and external sources (e.g., customers' online orders).

Procedures and instructions will be coded into the AIS software. However, the procedures and instructions should also be "coded" into employees through documentation and training. The procedures and instructions must be followed consistently in order for the AIS to be effective.

An AIS must have a database structure to store information. Structured query language (SQL) is a computer language commonly used for databases. SQL allows the data that's in the AIS to be manipulated and retrieved for reporting purposes.

The AIS also needs various input screens for the different types of system users and data entry, as well as different output formats to meet the needs of different users and various types of information.

The data contained in an AIS is all of the financial information pertinent to the organization's business practices. In addition, any business data that impacts the company's finances should go into an AIS.

Types of Data

The type of data included in an AIS depends on the nature of the business, but it may consist of the following:

Sales orders
Customer billing statements
Sales analysis reports
Purchase requisitions
Vendor invoices
Check registers
General ledger
Inventory data
Payroll information
Timekeeping
Tax information

Examples of data that would not go into an AIS include memos, correspondence, presentations, and manuals. These documents might have a tangential relationship to the company's finances, but, excluding the standard footnotes, they are not really part of the company's financial record-keeping.

Use of Data

The data can be used to prepare accounting statements and financial reports, including accounts receivable aging, depreciation or amortization schedules , a trial balance , and a profit and loss statement.

Having all of this data in one place—in the AIS—facilitates a business' record-keeping, reporting, analysis, and auditing. It informs better decision making. For the data to be useful, it must be complete, accurate, and relevant.

The software for an AIS relates to the computer programs used to store, retrieve, process, and analyze the company's financial data. Before there were computers, an AIS was a manual, paper-based system. Today, most companies use computer software as the basis of their AIS.

Here are just some of the software packages that a business might choose to use for an AIS:

Small to Mid-Sized Businesses

Intuit's Quickbooks
Sage's Sage 50 Accounting
SAP 's Business One

Mid-Sized to Large Businesses

Microsoft's Dynamics GP
Sage Group's MAS 90 or MAS 200
Oracle's PeopleSoft
Epicor Financial Management

Quality, reliability, and security are key aspects of effective AIS software . Managers rely on the information it outputs to be of high quality in order to make sound decisions.

Customization

AIS software programs can be customized to meet the unique needs of different types of businesses. If an existing program does not meet a company's needs, the necessary software can be developed in-house with substantial input from end-users. Or it can be outsourced to a company that specializes in developing accounting information systems.

For publicly-traded companies, no matter what the software program and customization options, Sarbanes-Oxley regulations dictate the structure of the AIS to some extent. This is because these regulations established internal controls and auditing procedures with which public companies must comply.

Information technology infrastructure is just a fancy name for the hardware used to operate the accounting information system. It can include the following:

Mobile devices
Surge protectors
Storage media
A back-up power supply

In addition to cost, factors to consider in selecting hardware include speed, storage capacity and capability, and whether a device can be expanded and upgraded.

Compatibility With Software

Perhaps most importantly, the hardware selected for an AIS must be compatible with the intended software. Ideally, strive for an optimal match—a slow, clunky system will be much less helpful than a speedy one.

One way businesses can easily meet hardware and software compatibility requirements is by purchasing a turnkey system that includes both the hardware and the software that the business needs. A turnkey system means, theoretically, that the business will get the optimal combination of hardware and software for its AIS.

A good AIS should also include a plan for maintaining, servicing, replacing, and upgrading components of the hardware system, as well as a plan for the disposal of broken and outdated hardware, so that sensitive data is completely and securely destroyed.

The internal controls of an AIS are the security measures it maintains to protect sensitive data. These can be as simple as passwords or as complex as biometric identification. Biometric security protocols might include storing human characteristics that don't change over time, such as fingerprints, voice, and facial characteristics.

An AIS must have internal controls to limit access to authorized users and to protect against unauthorized access. Authorized users will include individuals inside and outside the company. Internal controls must also prevent unauthorized file access by individuals who are allowed to access certain select parts of the system.

An AIS contains confidential information belonging not just to the company but also to its employees and customers. This data may include:

Social Security numbers
Salary and personnel information
Credit card numbers
Customer information
Company financial data
Financial information of suppliers and vendors

All of the data in an AIS should be encrypted, and access to the system should be logged and surveilled. System activity should be traceable, as well.

An AIS also needs internal controls that protect it from computer viruses, hackers, and other internal and external threats to network security. It must also be protected from natural disasters and power surges that can cause data loss.

A well-designed AIS allows a business to run smoothly on a day-to-day basis while a poorly designed AIS can hinder its operation. When a business is in trouble, the data in its AIS can reveal the story of what went wrong. The noteworthy cases of WorldCom and Lehman Brothers provide two examples.

Telecom company WorldCom's internal auditors Eugene Morse and Cynthia Cooper used the company's AIS to uncover nearly $4 billion in fraudulent expense allocations and other accounting entries.

Their investigation led to the termination of CFO Scott Sullivan, as well as new legislation—section 404 of the Sarbanes-Oxley Act. Section 404 regulates companies' internal financial controls and procedures.

Lehman Brothers

When investigating the collapse of the venerable global financial services firm Lehman Brothers, an examination of its AIS and other data systems was essential, along with document collection and review, plus witness interviews.

The search for the causes of the company's failure "required an extensive investigation and review of Lehman's operating, trading, valuation , financial, accounting, and other data systems," according to the 2,200-page, nine-volume examiner's report.

Lehman's systems provided an example of how an AIS should not be structured. Examiner Anton R. Valukas' report states, "At the time of its bankruptcy filing, Lehman maintained a patchwork of over 2,600 software systems and applications. . . . Many of Lehman's systems were arcane, outdated or non-standard."

The examiner decided to focus their efforts on the 96 systems that appeared most relevant. This examination required training, study, and trial and error just to learn how to use those systems.

Valukas' report also noted, "Lehman's systems were highly interdependent, but their relationships were difficult to decipher and not well-documented. It took extraordinary effort to untangle these systems to obtain the necessary information."

What Is Meant by Accounting Information System?

An accounting information system refers to a system that collects, stores, and processes financial and business data. This system can then distribute this data to various authorized users who can use it to carry out a business' activities.

What Are Examples of AIS Systems?

They are any of the software tools that relate to the objectives of collecting, storing, processing, and distributing financial data. These can include invoicing, payment processing, and accounting software, as well as reporting and payroll/time-tracking software.

What Duties Does an AIS Analyst Have?

Depending on the company, an AIS analyst may have system-focused duties, including designing the AIS database, system monitoring, fraud detection, forensics, and data analytics. Alternatively, they might do such things as track budgets and spending, perform audits, create custom reports, and train associates to use the AIS.

The six components of an AIS all work together to help key employees collect, store, manage, process, retrieve, and report financial data. Having a well-developed and maintained accounting information system that is efficient and accurate is an indispensable component of a successful business.

American Accounting Association. " Accounting Information Systems (AIS) Mission Statement ."

Franklin, Mitchell, et al. “Principles of Accounting Volume 1 - Financial Accounting,” 12th Media Services, 2019.

U.S. Securities and Exchange Commission. " The Laws That Govern the Securities Industry ."

Taipalus, Toni. "A Notation for Planning SQL Queries," Journal of Information Systems Education , vol. 30, no. 3, 2019, pp. 160-166.

Intuit Quickbooks. " Home ."

Sage. " Sage 50cloud Accounting ."

SAP. " SAP Business One ."

Microsoft. " Microsoft Dynamics GP ."

Sage. " Sage ERP MAS ."

Oracle. " PeopleSoft ."

Epicor. " Epicor Kinetic Financial Management ."

U.S. Congress. " Sarbanes-Oxley Act of 2002 ," Pages 33-34 & 40-42.

U.S. Securities and Exchange Commission. " Report of Investigation by the Special Investigative Committee of the Board of Directors of Worldcom Inc. ," Page 2.

U.S. Securities and Exchange Commission. " Re: WorldCom, Inc., HO-09440 ."

U.S. Securities and Exchange Commission. " Study of the Sarbanes-Oxley Act of 2002 Section 404 Internal Control over Financial Reporting Requirements ," Pages 1-3.

Stanford University. " In re Lehman Brothers Holdings Inc., et al., Chapter 11 Case No. 08‐13555 (JMP) Report of Anton R. Valukas, Examiner Volume 1 of 9 ," Pages 34, 76-77.

Accounting Explained With Brief History and Modern Job Requirements 1 of 51
What Is the Accounting Equation, and How Do You Calculate It? 2 of 51
What Is an Asset? Definition, Types, and Examples 3 of 51
Liability: Definition, Types, Example, and Assets vs. Liabilities 4 of 51
Equity Definition: What it is, How It Works and How to Calculate It 5 of 51
Revenue Definition, Formula, Calculation, and Examples 6 of 51
Expense: Definition, Types, and How Expenses Are Recorded 7 of 51
Current Assets vs. Noncurrent Assets: What's the Difference? 8 of 51
What Is Accounting Theory in Financial Reporting? 9 of 51
Accounting Principles Explained: How They Work, GAAP, IFRS 10 of 51
Accounting Standard Definition: How It Works 11 of 51
Accounting Convention: Definition, Methods, and Applications 12 of 51
What Are Accounting Policies and How Are They Used? With Examples 13 of 51
How Are Principles-Based and Rules-Based Accounting Different? 14 of 51
What Are Accounting Methods? Definition, Types, and Example 15 of 51
What Is Accrual Accounting, and How Does It Work? 16 of 51
Cash Accounting Definition, Example & Limitations 17 of 51
Accrual Accounting vs. Cash Basis Accounting: What's the Difference? 18 of 51
Financial Accounting Standards Board (FASB): Definition and How It Works 19 of 51
Generally Accepted Accounting Principles (GAAP): Definition, Standards and Rules 20 of 51
What Are International Financial Reporting Standards (IFRS)? 21 of 51
IFRS vs. GAAP: What's the Difference? 22 of 51
How Does US Accounting Differ From International Accounting? 23 of 51
Cash Flow Statement: What It Is and Examples 24 of 51
Breaking Down The Balance Sheet 25 of 51
Income Statement: How to Read and Use It 26 of 51
What Does an Accountant Do? 27 of 51
Financial Accounting Meaning, Principles, and Why It Matters 28 of 51
How Does Financial Accounting Help Decision-Making? 29 of 51
Corporate Finance Definition and Activities 30 of 51
How Financial Accounting Differs From Managerial Accounting 31 of 51
Cost Accounting: Definition and Types With Examples 32 of 51
Certified Public Accountant: What the CPA Credential Means 33 of 51
What Is a Chartered Accountant (CA) and What Do They Do? 34 of 51
Accountant vs. Financial Planner: What's the Difference? 35 of 51
Auditor: What It Is, 4 Types, and Qualifications 36 of 51
Audit: What It Means in Finance and Accounting, and 3 Main Types 37 of 51
Tax Accounting: Definition, Types, vs. Financial Accounting 38 of 51
Forensic Accounting: What It Is, How It's Used 39 of 51
Chart of Accounts (COA) Definition, How It Works, and Example 40 of 51
What Is a Journal in Accounting, Investing, and Trading? 41 of 51
Double Entry: What It Means in Accounting and How It's Used 42 of 51
Debit: Definition and Relationship to Credit 43 of 51
Credit: What It Is and How It Works 44 of 51
Closing Entry 45 of 51
What Is an Invoice? It's Parts and Why They Are Important 46 of 51
6 Components of an Accounting Information System (AIS) 47 of 51
Inventory Accounting: Definition, How It Works, Advantages 48 of 51
Last In, First Out (LIFO): The Inventory Cost Method Explained 49 of 51
The FIFO Method: First In, First Out 50 of 51
Average Cost Method: Definition and Formula with Example 51 of 51

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7.1 Define and Describe the Components of an Accounting Information System

Manual and Computerized Accounting Information Systems

purchase merchandise inventory to sell to customers;
record returns of some of the inventory;
record sales made to customers at the sales price;
record the cost of the goods sold at the amount Macy’s paid to purchase them;
record payments from customers;
record returns from customers;
purchase other kinds of items needed for operations, like office supplies and fixed assets;
pay for prior purchases;
pay for rent, utilities, and other services;
pay employees;
enter all of these transactions;
post all transactions;
record adjusting journal entries;
record closing journal entries;
keep track of its receivables, payables, and inventory; and
produce financial statements for internal and external users as well as other reports useful to managers in assessing various performance measures needed to evaluate the success of the company.

Concepts In Practice

Modernization of accounting systems.

Later in the section on how to Prepare a Subsidiary Ledger , you will be provided with a series of transactions for a small business and you will be asked to first enter the transactions manually into the appropriate journal, post the information from the journals to the general ledger, prepare trial balances, adjusting and closing entries, and manually produce financial statements just as Macy’s or any other business would have done prior to the use of various computer technologies. You will then perform the same tasks using QuickBooks, a popular accounting software program used by many small and medium-sized businesses. A company as large as Macy’s has stores in locations all over the country and a large volume of transactions, so it is more likely to use a software package designed to meet the needs of a very large business. This is often referred to as an enterprise resource planning (ERP) system which stands for enterprise resource planning (ERP) system. An ERP system integrates all of the company’s computerized systems including accounting systems and nonaccounting systems. That is, large companies have various accounting subsystems such as the revenue system (sales/accounts receivable/cash receipts), the expenditure system (purchasing/accounts payable/cash disbursements), the production system, the payroll system, and the general ledger system. Nonaccounting systems might include research and development, marketing, and human resources, which, while not an integral part of the accounting system, in a large companywide ERP system are integrated with the accounting modules. Examples of popular ERP software systems are PeopleSoft and SAP.

Here, we illustrate the concepts and practices of an AIS using Intuit QuickBooks, a popular and widely used AIS.

While a company typically selects an AIS to suit its specific needs, all systems should have components capable of:

inputting/entering data (e.g., entering a sale to a customer);
storing data;
processing data and computing additional amounts related to transactions (e.g., computing sales tax on the sale, as well as shipping costs and insurance fees; computing an employee’s pay by multiplying hours worked by hourly pay rate; processing inventory changes from both inventory purchases and inventory sales and data from any other transaction that occurs in the business);
aggregating/summarizing data (e.g., computing total sales for the year);
presenting data (e.g., producing a balance sheet and other financial statements and reports for the year); and
storing data (such as the customer’s name, address, shipping address, and credit limit).

Inputting/Entering Data

Processing Data

Link to Learning

See a list of popular bookkeeping software packages. With this information, potential options for sample accounting software options can be evaluated.

Output: Presenting Information

Some financial information must be provided to other sources such as banks or government agencies, and though in past decades everything was presented and submitted on paper, today, most of this information is submitted electronically, and AISs help facilitate having the information in the necessary electronic format. Many banks require electronic data, and the Internal Revenue System (IRS) accepts your information as a digital transmission instead of a paper form. In 2017, 92 percent of all taxpayers who filed their own taxes did so electronically. 2 Most corporations choose to file their taxes electronically, and those with assets over $10 million are required to file electronically with the IRS. 3 Since May 5, 1996, all publicly traded companies are required to submit their filings, such as financial statements and stock offerings, to the SEC electronically. 4 The SEC places all the data into an electronic database known as the Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) . This database allows anyone to search the database for financial and other information about any publicly traded company. Thus, AISs facilitate not only internal access to financial information, but the sharing of that information externally as needed or required. Just as the EDGAR system used by the SEC stores data for retrieval, an AIS must provide a way to store and retrieve data.

Storing Data

Data can be stored by an AIS in paper, digital, or cloud formats. Before computers were widely used, financial data was stored on paper, like the journal and ledger shown in Figure 7.5 .

The Steps in an Accounting Information System

Grocery store:

Source Document: This would include a check to be deposited; totals from each cash register, including total cash; an invoice for produce; an application for employment by a potential new employee; time card information; a W-4 form (employment information); and so on.
Input: This includes entering the data from the source document on the computer keyboard, electronically scanning the bar code of each product purchased at the grocery store (at checkout counter and to receive goods from vendor off the truck), maybe fingerprinting at the time clock, or keying in a price on the register.
Processing: A cash register processes (accumulates and totals) different categories of items (coupons, checks, and charges) by the user; inventory can be tracked by RFID (radio-frequency identification); and software programs can process information gathered by individual cash registers as well as employee information.
Output: Data that has been processed can be viewed on a computer screen, printed as a hard copy (paper output), or sent as electronic output from the cash register to the computer (can be done wirelessly or with a cable).
Storage: Data can be stored in the company database on its computer hard drive or as cloud storage. Hopefully the store is also paying for safe backup storage offsite (in case of fire at the store or hackers attempting to obtain information), generally accessed through the internet and stored in “the cloud.” Otherwise, storage can be on paper printouts, the computer hard drive, disks, or external drives. The data that is stored may be retrieved and used at the input, processing, and output stages.

Doctor’s office:

Source Document: This includes a check to be deposited from the patient; the patient’s insurance information on file; a doctor’s record of the diagnosis and procedures performed on the patient, to be submitted to the insurance company; and an invoice for medical supplies.
Input: Data from the source document, for example, containing the diagnosis and a treatment plan, would be entered on the computer keyboard.
Processing: The system might retrieve the treatment codes corresponding to every procedure the doctor performed, so it contains the appropriate information for the insurance company.
Output: The treatment form is printed and then mailed to the insurance company for payment.
Storage: The diagnosis and treatment plan are stored on the computer database for retrieval on the next visit for this patient. The form to be sent to the insurance company is also stored electronically so there can be follow-up until the payment from the insurance company is received. Also note that during processing, the system had to retrieve the treatment codes from a file of all of the codes that was stored in the database.

The Accounting Information System (AIS)

Information for internal purposes will include total sales and how much it cost to generate the sales. Also considered is how much inventory is on hand so a decision can be made as to whether or not to order more inventory.
The company will need to record all of the economic events of the business in order to find total sales, cost of goods sold, expenses, and net income, as well as the number of hours employees worked, the employee’s social security number, and how much the company promised to pay the employee per hour.
Information for external users, such as the IRS or state and local government agencies, would include income tax returns and sales and payroll tax forms. The business owners and managers will need all sales and expenses, sales tax collected, and employees’ earnings.
In other words, the company needs an AIS.

While an AIS has the primary functions of input, processing, output, and storage, each company or system will decide on the exact steps and processes under each of these broad functions. We know that data is used to create the types of information needed by users to make decisions. One way in which a retail organization may obtain, input, process, and store data related to a sales transaction is through a point-of-sale system (POS) . When a customer is ready to buy an item, the cashier scans the product being purchased, the price is retrieved from the price file, the sale is recorded, and inventory is updated. Most POS systems include a scanner, a computer screen, or a tablet with a touch screen. Customer payments are stored in the cash drawer. For noncash sales, credit card readers allow customers to insert, swipe, or tap their cards to pay (which also helps prevent keyboard input errors and keeps the information safer).

Ethical Considerations

Ethical standards in retail stores.

Maintain the highest standards of integrity in all business relationships.
Provide our customers with a buying experience in which we “do the right thing and thereby help get the right results.”
Promote and protect good sales practices.
Always act in line with my organization’s codes and within the law.

Is This an Accounting Information System?

Do you think your average food truck proprietor has an accounting information system?

IFRS Connection

Accounting information systems in an international business environment.

1 Fraser Sherman. “The History of Computerized Accounting.” Career Trend. January 14, 2019. https://careertrend.com/about-6328213-history-computerized-accounting.html
2 Income Tax Return Statistics. eFile. May 2018. https://www.efile.com/efile-tax-return-direct-deposit-statistics/
3 Income Tax Return Statistics. eFile. May 2018. https://www.efile.com/efile-tax-return-direct-deposit-statistics/
4 There is a hardship exemption for companies that cannot file their documents electronically. See U.S. Securities and Exchange Commission. Important Information about EDGAR. February 16, 2010. https://www.sec.gov/edgar/aboutedgar.htm
5 Association of Professional Sales. “APS Sales Code of Conduct.” n.d. https://www.associationofprofessionalsales.com/professional-development/sales-code-conduct-aps-ethical-professional/aps-sales-code-conduct/

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The Impact of Accounting Information System on the Organizations Financial Performance

Conference paper
First Online: 14 July 2022
Cite this conference paper

Thabet Yusuf AlBastaki 11 &
Allam Hamdan 12

Part of the book series: Lecture Notes in Networks and Systems ((LNNS,volume 487))

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International Conference on Business and Technology

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In the face of fast technological progress, increasing knowledge, and difficult demands from businesses and customers, an accounting information system is an essential instrument in the hands of managers seeking to sustainable competitive advantage. The impact of accounting information systems on organizations financial performance is investigated in this study. The primary goal of this paper is to review the theoretical and conceptual basis as well as research findings on accounting information systems and company financial performance. According to the findings of the review, previous studies on the impact of accounting information on financial performance focused on the cost implications of accounting information systems as they relate to corporate financial performance. The vast majority of studies used a survey study methodology to investigate this link, and the rest of the researches were conducted in industrialized economies where accounting information systems technologies have been extensively adopted. As a result, this study suggests that further research should done in this area to close this research gap.

Accounting information system
Financial performance

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AlBastaki, T.Y., Hamdan, A. (2023). The Impact of Accounting Information System on the Organizations Financial Performance. In: Alareeni, B., Hamdan, A. (eds) Sustainable Finance, Digitalization and the Role of Technology. ICBT 2021. Lecture Notes in Networks and Systems, vol 487. Springer, Cham. https://doi.org/10.1007/978-3-031-08084-5_5

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Accounting Information Systems

Updated 10 June 2022

Subject Emotions , Management , Work

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Category Business , Life

Topic Accounting , Responsibility , Skills

An auditor is responsible for objectively voicing an opinion and drawing a judgment on the accurate and fair view of accounting facts as provided in financial statements (Romney, M.B., and Steinbart, P.J., 2012, p. 12). An auditor must follow the rules and requirements outlined by the Auditing and Assurance Standards Board ( AASB). Internal or external auditors are both possible. Although the two categories of auditors are distinct, their roles and tasks are almost identical. As a result, an auditor should have the following five key characteristics: confidentiality; technical skill, professional behavior, independence, and integrity to perform the duties of auditing fraud or errors in an information system. The research paper seeks to critically analyze and evaluate the aspects and features of a corporate accounting information systems audit when focusing on the systems perspectives. The analysis is precipitated by the fraud reported at the Royal Bank of Scotland (RBS). The key aspects of an Accounting System AuditThe corporate accounting information system is among the many Information systems. The corporate accounting system can integrate many systems such as the Transaction Processing System (TPS), the Management Information System (MIS), Expert System (ES), Expert Supporting System (ESS) the Decision Support System (DSS) and the E-Commerce System. The key aspects are as discussed below.Information Technology (IT) GovernanceAccording to Bushman, R.M. and Smith, A.J., (2001, p. 340), IT governance is the integration of the information system strategy into the business strategy. The Royal Bank of Scotland (RBS) has its objectives such as efficiently serving clients and maximizing profits by cutting costs. The auditor would be interested in identifying if the IT strategy was well integrated into the business strategy for instance, if all the employees at the RBS understand the infrastructure of the information system and if the employees appreciate the use of the IT system. If the auditor identifies that the integration of the IT system into the business was not well done, he or she may make an adverse opinion and state in the audit report that the poor integration had a material effect on the management of the Royal Bank of Scotland and that the effect contributed to the reported fraud. IT risk management strategy assessment The auditor can assess the processes and the frameworks embedded in the Information System functions to identify and manage risks. In the risk management strategy assessment aspect of the Information System, the auditor would evaluate the actions taken to mitigate risks, the level of accountability within the process and how the IT team identifies risks using the existing information system. Besides, the management would consider the measures that the information system can take once the risks are identified, whether the IT risk management processes followed and the clarity in risk coverage measures. Management and maintenance of the Information systemAn accounting system's credibility will only be guaranteed if the system is maintained by the IT experts. The possible reasons for management can include obsolescence, change of business strategy addition of other functions into the system. For the fraud to have occurred at the Royal Bank of Scotland, the auditor would assess the processes IT has in place to govern capital allocation decisions and the formalization of the IT governing processes (Hall, J. A. 2012, p. 120). The auditor would also concentrate on the aspect of the information system that might have led to a decline in business confidence in IT governance such as inadequate security measures and the applicability of the Accountings System processes across all information systems at the bank. IT risk assessment There is a slight difference between the risk management strategy aspect of the information system and the Information Technology risk assessment. The IT risk assessment aspect is the ability of the accounting system to internally deal with system risks while the risk management strategy may involve the use of other external systems to help in identifying risks. The questions that an auditor would have to consider when dealing with the corporate accounting systems risk assessment include whether there exist risks unique to the system, the possibility of the system to comprehensively assess risks and the possibility to coordinate the IT's risk assessment and the internal audit risk assessment. The system design The system design is critical in evaluating the ability of an auditor to rely on the corporate accounting system for auditing, especially of fraud. An auditor can only rely on an acco8nting system if he or she can use the system to prove assertions made by the management (Gordon, L.A., and Miller, D., 1976, p. 60). The management can make many assertions such as existence, occurrence, accuracy, and completeness of the accounting information as presented in the balance sheet, income stamen, statement of changes in owners’ equity and any other financial statement. ConclusionThe corporate accounting information system audit focuses on the key areas of risk assessment functions, the system design, the Information System governance, and the maintenance of the information system. An auditor should express his views as to whether the existing accounting system contributed to the fraud at the Royal Bank of Scotland and avoid threats such as intimidation, advocacy, conflict of interest. The threats may prevent an auditor from expressing his views honestly and independently. ReferencesBushman, R.M. and Smith, A.J., 2001. Financial accounting information and corporate governance. Journal of Accounting and Economics, 32(1), pp.237-333.Gordon, L.A., and Miller, D., 1976. A contingency framework for the design of accounting information systems. Accounting, Organizations and Society, 1(1), pp.59-69.Hall, J. A. (2012). Accounting information systems. Cengage Learning.Romney, M.B., and Steinbart, P.J., 2012. Accounting information systems. Boston: Pearson.

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Accounting Information System Summary Essay Example

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Type: Case Study

With the changes in businesses becoming more global and consumers buying online in greater numbers, the rapid and accurate flow of information is vital to accountants. This is where AIS or Accounting Information Systems come in, this practice was originally handled “in house” by most businesses, but as technology changed and businesses became more web-based, software packages from developers such as Microsoft and Oracle are sold to assist businesses with their accounting needs. AIS was developed for the collection, storage, and processing of financial and accounting data.In most organizations A. I. S. are made up of interrelated components that interact to achieve a common goal. Throughout this paper we will look at the history of AIS, why the A. I. S.

is important to corporate America, and what future developments

are necessary to move ahead with the system History of the AIS In order to understand Accounting Information Systems better it is important to break down what the term really means and why it is so important in modern day accounting. The development of AIS dates all the way back to Babylon, in the year 3600BCE, this is when the oldest known record of any business occurred.It is believed that AIS were used in many other countries before making it’s way to the U. S. Countries such as Greece, China, and Rome are all believed to have used this system during trade activities.

I. S. were first comprised of someone jotting down notes with a pencil and paper and now years later it has developed into extensive software programs that take human error out of the equation. The emergence of the AIS discipline has arisen from the

application and of information and communication technology in the accounting portion of the business. Sutton, 1996).AIS are vital to all businesses (Borthick and Clark, 1990) in order to collect raw data and transform it into financial data to be presented to the decision makers.

AIS and decision making in a firm. Information systems are what companies rely on to provide adequate and necessary information to make decisions. AIS are used as a tool designed to help in the controls related to organizations financial areas. There are many different types of AIS, yet there is no specific way for a company to do their accounting.As long as companies are disciplined and compile all the facts, the accounting method may vary. It is very important for companies to identify and collect meaningful information in order to make important business and financial decisions.

Advancements in information and communication technology have made decision-making processes better for management because now it is possible to improve and constantly upgrade the accounting information system. (Pierce, O'Dea. 2003) It is important for companies to reach a common ground between AIS, management, executive functions and external users.This is vital for compatibility of all functions in the company to be established. If a common ground is achieved, coherence between management and accounting information systems leads to the simplification of business and financial decisions.

What do the AIS really do? The AIS has many different functions but the most important task of the AIS is dealing with the following.-Recording monetary forms of business events-Data processing and drawing account reports- Publishing financial statements with financial communitiesIn todays business world besides the General Manager or President of a company the financial

auditor has one of the most important roles in the company. The GM handles the daily operations and decision-making procedures of the operation but the financial auditor working within the AIS is responsible for the accurate and dependable financial reporting of the company. Malinic and Todorovic (2011) believe that within a company comprised of people, equipment, software, and data; the AIS, which includes communication and network solutions that connect all elements of the organization is the most important piece.Different Sub Systems of AIS and the Advantage of this MethodThe AIS is part of a subsystem of a larger system called the business information systems. Within the BIS there are four subsystems dealing with accounting, marketing, HR, and management. The accounting subsystem is the one that we will at closer. Since the first published paper on accounting was written by Luca Paciole, (Schien, E. , Borba, J. , A. , Dal-Ri, Murcia, F. , 2007) there have been basic principals that still remain the same today. The principles are used in the implementation of the AIS.

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The Basic Functions of an Accounting Information System Free Essay
Accounting Information System Free Argumentative Essay Example
Characteristics of the Accounting Information Systems
Accounting Information System (AIS): Definition and Benefits
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Accounting Information Systems (AIS) Introduction

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Accounting Information System

COMMENTS

7.1: Define and Describe the Components of an Accounting Information System
Manual and Computerized Accounting Information Systems. Interestingly, the term accounting information system predates computers. Technically, an AIS is a system or set of processes for collecting data about accounting transactions; recording, organizing, and summarizing the data; and culminating with the preparation of financial statements and other reports for internal and external users.
Accounting Information Systems
An Accounting Information System (AIS) is a combination of the study of the norms of accounting and the design, execution, and supervision of information systems. AISs use new technological tools together with traditional accounting systems to give users the financial information required to run their firms. An AIS consists of three components ...
Accounting Information System (AIS): Definition and Benefits
Accounting Information System - AIS: An accounting information system (AIS) is the collection, storage and processing of financial and accounting data used by internal users to report information ...
6 Components of an Accounting Information System (AIS)
An accounting information system (AIS) is a system that a business uses to collect, store, manage, process, retrieve, and report its financial data. This data can then be used by accountants ...
Accounting Information System
Accounting information system refers to the process of collecting, processing and storing the data related to fiannce and accounts in a systemmatic manner. Such maintainence of data is extremely important for the company because they are used by the management to take decisions as well as communicate to the stakeholders regarding financail ...
Essay on Accounting Information Systems
"An accounting information system is a collection of data and processing procedures that creates needed information for its users", Bagranoff et al (2008 pag.5). Now it is possible to say that AIS is a set of elements (for example, software and computer) used by a business to store and elaborate data in order to produce information useful ...
Manual and Computerized Accounting Information Systems
Interestingly, the term accounting information system predates computers. Technically, an AIS is a system or set of processes for collecting data about accounting transactions; recording, organizing, and summarizing the data; and culminating with the preparation of financial statements and other reports for internal and external users. ...
Accounting Information System (AIS)
An accounting information system (AIS) refers to tools and systems designed for the collection and display of accounting information so accountants and executives can make informed decisions. It is considered a pivotal component of finance offices throughout the world. The systems are largely software-based and can be deployed as a part of a ...
Accounting information system
An accounting information system (AIS) is a system of collecting, storing and processing financial and accounting data that are used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources.
Accounting Information System Essay
Executive Summary Accounting information system is an extremely important role in the enterprise management. As technology advances, the system software is constantly improving, constantly enhance the function of the system, thus improving the efficiency of enterprise management.
Accounting Information Systems Essays (Examples)
The system will support the organization in making critical strategic and business decisions. Having a system that captures, records, processes, and records financial data for an organization will also reduce errors in billing and shipping. This paper analyzes the six main components of an accounting information system.
01-Introduction to Accounting Information Systems
information system. Accounting information is a sub-set of business information prepared and provided to entitled users. To be of value to users, information must have certain qualities. Information systems describe data input, data processing and information output. The purpose of business organisations is to provide returns to investors
The Impact of Accounting Information System on the Organizations
The Account information system is computerized system that assists the firm in the decision-making process that is done by generating the financial statements that are the result of the system's collecting, communicating, and processing the accounting data (Manchilot 2019).Computers provides a platform for storing accounting information and to functionalized environments for the information ...
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Accounting Information System (AIS An accounting information system (AIS) is a system of collection, storage and processing of financial and accounting data that is used by decision makers. accounting information system (AIS) consists of: - People - Procedures - Data - Software - Information technology infrastructure What important functions does the AIS perform in an organization?
Accounting Information System Essay
Essay On Accounting Information System 1216 Words | 3 Pages. The function of accounting information system transforms from simple storage to a supportive tool of decision-making, producing high quality information and detailed analysis, bringing about real economic benefits. However, it also challenges the skills and ethics of modern ...
International Journal of Accounting Information Systems
The International Journal of Accounting Information Systems will publish thoughtful, well-developed articles that examine the rapidly evolving relationship between accounting and information technology. Therefore, submitted articles must be focused on topics that fall within the intersection of …. View full aims & scope.
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Two Essays on Accounting Information Systems and Accounting Choices By Jongkyum Kim Dissertation Director: Professor Bharat Sarath The first essay investigates whether the implementation of enterprise resource planning (ERP) systems affects the audit repot lag, the time period between a company's fiscal year end and the date of the audit report.
Introduction to AIS
Accounting information systems have three basic functions: a. The first function of an AIS is the efficient and effective collection and storage of data concerning an organization's financial activities, including getting the transaction data from source documents, recording the transactions in journals, and posting data from journals to ledgers.
Writing Guide for Accounting Students
Students should avoid boring, overconfident, cliche, or unoriginal writing. Give yourself several days or weeks to write and review your personal statement before submitting your application. Have a trusted friend, adviser, peer, tutor, or family member read over your statement and make revisions based on their advice.
Systems
This paper aims to provide a state-of-the-art overview in research on Accounting Information Systems, analyzing scientific production characteristics and identifying this topic research trends. A quantitative bibliometric analysis is conducted on papers specifically focused on Accounting Information Systems, published in journals indexed on Web of Science database.
Accounting Information System (Ais) Essay
An accounting information system (AIS) is the system of records a business keeps to maintain its accounting system. This includes the purchase, sales, and other financial processes of the business. The purpose of an AIS is to accumulate data and provide decision makers (investors, creditors, and managers) with information to make decision While ...
Accounting Information Systems
The system design The system design is critical in evaluating the ability of an auditor to rely on the corporate accounting system for auditing, especially of fraud. An auditor can only rely on an acco8nting system if he or she can use the system to prove assertions made by the management (Gordon, L.A., and Miller, D., 1976, p. 60).
Accounting Information System Summary Essay Example
Accounting Information System Summary Essay Example 🎓 Get access to high-quality and unique 50 000 college essay examples and more than 100 000 flashcards and test answers from around the world! ... This is where AIS or Accounting Information Systems come in, this practice was originally handled "in house" by most businesses, but as ...