Accounting Information System

This report explains about the accounting information system of Adam & co and its field of operation in the market. Next it is discussed about the different types of accounting information system by analyzing and comparing them. Then it is discussed about the different methodology to evaluate various types of accounting information system.

Running Head: ACCOUNTING INFORMATION SYSTEM
Accounting information system
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ACCOUNTING INFORMATION SYSTEM
Executive summary
This report explains about the accounting information system of Adam & co and its field
of operation in the market. Next it is discussed about the different types of accounting
information system by analyzing and comparing them. Then it is discussed about the
different methodology to evaluate various types of accounting information system.

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ACCOUNTING INFORMATION SYSTEM
Table of Contents
Introduction........................................................................................................................3
Principles...........................................................................................................................4
Components.......................................................................................................................5
Types.................................................................................................................................7
Conclusion.......................................................................................................................12
Reference list...................................................................................................................13

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ACCOUNTING INFORMATION SYSTEM
Introduction
Accounting information system or AIS is a system that a business uses to
process the accounting, financial data and store to keep the business financial records
in order. It involves collecting and storing the financial data useful for the users in
reporting the financial information to the shareholders or owners and other. In this
modern rapid changing companies environment there is a need of high quality
information for making strategic decision which can be achieved only by an Accounting
information system (Belfo and Trigo 2013). It has a built in intelligent system which can
be customized capable of displaying the required information for a business. A well-
developed accounting information system with a well-trained accountant ensures a
highest level of accuracy in the financial statement of a company and record the
financial data easily. There are three basic functions which is available for performing
the accounting information systems like an AIS must collect and store all companies’
transaction data including recording data from the source, then AIS should be able to
provide useful and accurate information for decision making purpose in the business
and should be able to collect and process the financial data according to the
requirements. These AIS function provides the framework on which a business or
organization can rely of their information system is up to the mark. Without proper AIS
function there will be a larger threat for a company and its customers of having no
accounting information system (Brandas, Megan and Didraga 2015).

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Principles
Accounting information system consist of five basic principles operates on flexibility,
compatibility and cost benefit following the General Accepted Accounting Principles are
as follows:
1. Source documents – This is an important principles of accounting system that
refers to the document which contains the business transaction. They are
tangible documents which includes purchase order, invoice, sales order and
other related documents which are created during a business process (Daoud
and Triki 2013).
2. Device to collect input data – Accounting information system is connected with a
device which collects all input data received from the accountant of a business. It
has the ability to store bulky accounting data in seconds. Then this system
processes it and saves it in its digital file. All information is stored in it for decision
making and utilizing the information when required.
3. Processing device – Processing device is also connected to the AIS input device
which receives the input data from the collecting device and then process them
to store it in a customized digital format. Its main important objective is to
transform the accounting information into a decision making report. It has the
capability of processing huge information in few seconds (Galliers and Leidner
2014).
4. Storage device – Under this system it stores the information processed from the
processing device in a computer based storage device, flash drives, memory

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cards and also cloud storage. This system can help to store data for giving
backup and also for decision making process.
5. Output – Accounting information system stores the processing data and provides
information when decision making is required and also provide backup in case of
any loss of data. This data are provided to the organization by a output media
which includes printer, projector, computers and other available technologies
(Hilton and Platt 2013).
Components
Accounting information consists of six components that help them to operate
efficiently are as follows:
1. People – This are the one who uses the information system. They are the
professionals who use the AIS which include an accountant, manager, auditor or
financial officers of the organization. This system helps every department to work
together to control the financial matter efficiently. With well-designed AIS within
an organization everyone can access the same information as all are using the
same system. This system is designed to meet the user’s needs, improve
efficiency without any obstruction (Ismail and King 2014).
2. Procedure and instruction - This includes the methods of collecting, processing,
storing and retrieval of data made up of both automated and manual component
after compiling data from the internal and external sources. This includes all
aspects of how a company’s AIS actually work.
3. Data – It includes all the information that is processed by the AIS by storing the
information into its database structure. AIS have various inputs for different users

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and entries as different output is needed to different users. Data’s in AIS contains
all financial information of a business which contains information like sales order,
customer information, sales report, payroll information and tax information. This
data helps to create accounting statements and reports which facilitates auditing
and decision making (Mancini, Vaassen and Dameri 2013).
4. Software – AIS uses computer programing software which is used to store,
retrieve, analyze and process the financial data. It is a user friendly, efficient and
reliable system for a big organization. Reliability and quality are the key
components of AIS software on which the organization rely on for outputs to help
decision making. This software can be customized to meet the user’s needs and
according to their business types.
5. IT Infrastructure - Information technology infrastructure consist of normal office
equipment’s like computers, monitors, routers, software’s and other required
equipment. IT infrastructure helps the organization to run efficiently by optimizing
all software requirements. IT infrastructure also has a backup plan in case of
hardware crash, power failure or any equipment failure. It is an important part as
hardware selection is a vital component for AIS (Neogy 2014).
6. Internal control – AIS has internal control system to provide securities measure to
protect sensitive information or data’s. These internal controls protect the data
from viruses, hacker and other who wants to take advantage of the business
data. So AIS must have an internal control system to protect from unauthorized
access. AIS consist of not only companies’ data but also customer’s information
and it is an important part of the accounting system. These controls can be taken

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ACCOUNTING INFORMATION SYSTEM
by applying different types of securities measures like applying password in the
system or by providing biometric (Otley and Emmanuel 2013).
Types
Accounting information system of Adam & co that helps to simplify the making of
financial reporting to make a decision making purpose including all the components of
the accounting process. AIS are basically computer based device using software. There
are three types of accounting information system which are as follows:
1. Purchasing system – It is a system or set of processes used to purchase goods
and services for an organization which includes purchase requisition, evaluating
suppliers, negotiating for price, purchase order and disposal of assets.
Purchasing system is an important component of the management that helps the
companies to determine what to buy, how much to buy and when to buy. This
system is based on economic order quantity which helps to control the
companies’ cash outflow and reduce supply cost to ensure effective use of
resources and cash (Rikhardsson 2017). Purchasing system is a computerized
based system which helps the company to reduce administrative cost, human
errors and also minimize shortage of stock. The key element of purchasing
system is planning the production system which can automatically know the need
of purchase to restore the stock supplies. But there are still some disadvantage
of this system like as follows:
 Sending purchase requirement from purchase department to the creditor
is a time consuming process.

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 If the company is situated in a geographical diversified area then it may
not be able take local advantages.
 It is difficult to manage a centralized purchasing system department as it
become too large and complex to manage.
 It is very expensive system for small companies as it requires lots of
capital investment (Sačer and Oluić 2013).
 There are many hidden cost which may arise in future and can cause high
cash outflow.
 Decision making becomes very difficult as this process is an automatic.
2. Cash disbursement system – Companies have many disbursements like loan
payment, salary payment, petty expenses and others to run daily operations. So

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to handle these payment accountants uses cash disbursement system which
involves repeatable process of payment with tracking of all expenditures. This
process requires the approval of manger to optimize the use of company’s capital
(Sledgianowski, Gomaa and Tan 2017). This system efficiently and securely
controls all of the companies’ cash payments as it is important to record all
financial information. Some of the disadvantages of this system are as follows:
 If internal control system is not strong then this system may not be
effective or serve the purpose for which it should be used.
 If a single department fails in internal control then there is a potential of
creation of weakness.
 There is a chance of fraud if duties are not properly assigned.
 Proper documents may not be available for every cash disbursement.
 Without a proper book keeping department it would not be possible to
reflect the cash balance in the books of accounts.

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3. Payroll system – Payroll is a document where employers keep record of the
payments of employee. Payroll system is computer based software which keeps
track of employees’ payments and taxes including their working hour, taxes and
deductions (Simkin, Norman and Rose 2014). This software requires little
information from the employer like wage and working hour details and the

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remaining calculation will be done by the software. If any businesses have more
than one employee they must have this system to automatically process the
payroll which will simplify the legal and tax matters also. Some of the
disadvantages of payroll system are as follows:
 Small business firms cannot implement this system as it is an expensive
system.
 Choosing wrong payroll system may hamper the business as it is difficult
to decide the perfect system. Choosing system depends on some factors
like the size of the business and price of the payroll software.
 Proper trained employees are required to handle this system or it can
hamper the business processes (Worrell, Wasko and Johnston 2013).
 It requires some investment on computer equipment’s, resources and
skilled operators.
 Using third party payroll system can cause security problems.
 It is difficult to fix if any error occurred especially human error and
software error with inefficient customer care service.

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Conclusion
AIS are designed to make accounting job easier by increasing the efficiency of
work and cost effectiveness. It also supply information that is useful for decision making
and manage the records and its data processing. So from this report we can conclude
that a well-managed accounting information system helps a business or an organization
to run smoothly by tackling the obstacles in its way and helps the business to recover
form troubles by providing the data present in accounting system. Mainly the six
important components of the accounting information system works together to support
the business to collect, store, process, report and retrieve financial data. So a well-
developed AIS system with proper maintenance is the reason behind a successful
business.

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Reference list
Belfo, F. and Trigo, A., 2013. Accounting information systems: Tradition and future
directions. Procedia Technology, 9, pp.536-546.
Brandas, C., Megan, O. and Didraga, O., 2015. Global perspectives on accounting
information systems: mobile and cloud approach. Procedia Economics and Finance, 20,
pp.88-93.
Daoud, H. and Triki, M., 2013. Accounting information systems in an ERP environment
and tunisian firm performance. International Journal of Digital Accounting Research, 13.
Galliers, R.D. and Leidner, D.E., 2014. Strategic information management: challenges
and strategies in managing information systems. Routledge.
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Ismail, N.A. and King, M., 2014. Factors influencing the alignment of accounting
information systems in small and medium sized Malaysian manufacturing firms. Journal
of Information Systems and Small Business, 1(1-2), pp.1-20.
Mancini, D., Vaassen, E.H. and Dameri, R.P., 2013. Accounting information systems for
decision making.
Neogy, D., 2014. Evaluation of efficiency of accounting information systems: A study on
mobile telecommunication companies in Bangladesh. Global Disclosure of Economics
and Business, 3(1).

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Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management
control. Springer.
Rainer, R.K., Cegielski, C.G., Splettstoesser-Hogeterp, I. and Sanchez-Rodriguez, C.,
2013. Introduction to information systems: Supporting and transforming business. John
Wiley & Sons.
Rikhardsson, P.M., 2017. Information systems for corporate environmental
management accounting and performance measurement. In Sustainable Measures (pp.
132-150). Routledge.
Sačer, I.M. and Oluić, A., 2013. Information Technology and Accounting Information
Systems' Quality in Croatian Middle and Large Companies. Journal of Information &
Organizational Sciences, 37(2).
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Simkin, M.G., Norman, C.A.S. and Rose, J.M., 2014. Core concepts of accounting
information systems. John Wiley & Sons.
Sledgianowski, D., Gomaa, M. and Tan, C., 2017. Toward integration of Big Data,
technology and information systems competencies into the accounting
curriculum. Journal of Accounting Education, 38, pp.81-93.
Worrell, J., Wasko, M. and Johnston, A., 2013. Social network analysis in accounting
information systems research. International Journal of Accounting Information
Systems, 14(2), pp.127-137.