HA2042 - Accounting Information Systems: A Case Study on Adam & Co

This case study provides an overview of accounting information systems (AIS), discussing their principles, components, advantages, and different types, including purchasing, cash disbursement, and payroll systems. It highlights the importance of AIS in collecting, storing, and processing accounting data for decision-making, emphasizing the role of technology and internal controls in ensuring data security and accuracy. The report also examines the planning, controlling, and coordinating functions facilitated by AIS, as well as their impact on customer service, efficiency, and profitability. The case study further delves into the advantages and disadvantages of each type of accounting information system, considering factors such as cost, implementation challenges, and potential risks.

Running head: ACCOUNTING INFORMATION SYSTEM
Accounting information system
Name of the Student:
Name of the University:
Author notes:

1
ACCOUNTING INFORMATION SYSTEM
Executive summary
In this report it is discussed about accounting information system, its principle and
components in an organization. Then it is discussed about different types of accounting
information system. Then different methods of accounting information system is
discussed.

2
ACCOUNTING INFORMATION SYSTEM
Table of Contents
Introduction........................................................................................................................4
Principles...........................................................................................................................4
Components.......................................................................................................................6
Advantages........................................................................................................................7
Types.................................................................................................................................9
Conclusion.......................................................................................................................13
Reference list...................................................................................................................15

3
ACCOUNTING INFORMATION SYSTEM
Introduction
Accounting information system is a system which consist of collecting, storing
and processing of accounting data to be used by the stakeholders for decision makings.
It is a computer based software with information technology combined with generally
accepted accounting principles. It contains various elements of accounting cycle which
varies from industry to industry and business size. It also includes data related items
like revenue, customer information, expenses, payroll, ledger, inventory, financial
statement and tax information. It has a database to store all information which can be
programmed according to the need of the users (Apostolou et al., 2014). It is highly
secured programed to protect the user’s data against hackers, virus and other internal
or external sources. It contains information which can be manipulate and cause great
loss of the firm. In this competitive environment high quality information system is
required to gain the competitive advantage. It ensures a high quality accounting
information by ensuring a well-trained accountant for recording the financial data’s.
Basic function that an accounting information system does is collecting and storing data
from different sources, then process the collected data and then provide information for
decision making. Without this system both company and the stakeholders will have to
face threats.
Principles
Accounting information system consist of set of rules and regulation which is to
be maintained by the company. The main goal of this system is to record the financial
transaction of the company by following proper accounting standards (Appelbaum et al.,

4
ACCOUNTING INFORMATION SYSTEM
2017). It arranges all the financial records by following certain principles which are as
follows:
1. Control principle – Among the five principles of accounting information system
this one is the control principle which control the internal system of the
organization. This is used to monitor the activity of the business by checking the
bank reconciliation system, changing computer passwords to secure the
confidential and important information. It also protect the data collected and
processed by the system (Awosejo et al., 2014).
2. Relevance – This principle of the accounting system helps to provide right
information at the right time. It produce quarterly or monthly basis information for
the higher management by which they will take important decisions. In this
competitive environment financial data are made available as fast as possible.
This system can provide dashboard and flash report.
3. Compatibility principle – There is a requirement of this principle of matching the
accounting system with the companies’ activity and internal structure. It provide
system generated report which match the company structure. This system is
designed to work with the available resources with proper functioning.
4. Flexibility – This system is flexible enough to get compatible with the company
changes. It can be programed according to the need of the users which can deal
with the changing environment and technology. It can regulate with the
competition pressure and change according to the future.
5. Cost benefit – It is the Last principle in the accounting information system which
looks at the cost benefit decisions. It is a cost effective accounting information

5
ACCOUNTING INFORMATION SYSTEM
system which will give necessary output (Collier 2015). It gives cost and profit
from the user given financial information. Companies gather this reports from the
financial statement by spending huge amount so there must be a cost effective
system.
Components
Accounting information system is made up of some components which makes it
a proper system which includes computer, accounting software, scanners and printer.
1. People – It is the main component without witch it cannot operate alone though it
is a computer based system. People is important to manage the proper
functioning of the system. Human resources is the backbone of any company.
This system helps the users of it by meeting their needs (De Haes, Van
Grembergen and Debreceny, 2013). A well designed system can help every
department by providing same information so that the decision making gets easy.
2. Procedure and instruction – This system includes the method of collecting,
processing, storing and providing data to both internal and external sources by
including all aspects of the company.
3. Data – It includes all information that are processed by the system to store in it.
Inputs of different users and entities are collected and processed in it for using it
when required. It contains information which includes sales report, payroll
information, customer information and other reports needed to the management.
This data’s are useful for decision making and during audit procedures.
4. Software - Accounting information system is a computer based software which
uses different process to retrieve, store and process the inputted data. It is also a

6
ACCOUNTING INFORMATION SYSTEM
user friendly system due to its reliability and quality of output. It can be
customized according to the user needs (Dillard, Yuthas and Baudot, 2016).
5. IT infrastructure – This system consist of information technologies like computer,
monitor, accounting software’s and other related items. It help the organization
to run efficiently by fulfilling the technological requirements. It has backup
equipment’s that keeps the data secured in case of any loss of it due to hard
drive crash or equipment failure. It is the important part of an accounting system
(Esmeray 2016).
6. Internal control – Accounting information system consist of internal control
system that protect the system by providing securities. It protect sensitive data’s
from hacker’s, virus and other internal and external factors. It protect the system
from unauthorised access by protecting the customers and company vital data.
This control applies different types of securities measures like applying password
or bio-metric.
Advantages
There are few advantage of accounting information system which are as follows:
1. Planning – Management prepares in advance plans to execute its objectives by
operating business efficiently. Accounting information system consist of pre-
planned programed for every department, product and section of the business to
achieve the goal.
2. Controlling – Every business activity needs controlling department which
measures all the actual performance with the standard performance. Controlling
department exercise control over the decisions of the management. Controlling

7
ACCOUNTING INFORMATION SYSTEM
department uses both standard costing and budgetary control to help the
management (Galliers and Leidner 2014).
3. Service to customer – Accounting information system helps the management to
satisfy the customer’s wants by improving its system.
4. Organization – Authority and responsibility are the key method of executing the
management accounting system. It is responsible for what is to be done and how
to be done. It helps the company to organize its activities (Guffey and Harp
2013).
5. Coordinating – Coordination is very important is every work of the company to
achieve its objective. It is required in all stages of the business activities like form
purchase, production and sales. It is done by preparing proper budget and
planning.
6. Improving efficiency – Accounting information system helps to improve the
efficiency of the company by eliminating all types of wastage and defects.
7. Motivating – It keeps on motivating its employee which will indirectly increase the
efficiency of the firm. Work plans are made by the top management to achieve
their goals by motivating employees. Promotion, rewards, etc. are the different
forms of motivation.
8. Communication - Accounting information system are the mediator between the
top management and employees. It is a two way communication system which
informs and reports about the performance to the management. Then it shares
the work and responsibility to the employees at the lower level (Guragai et al.,
2015).

8
ACCOUNTING INFORMATION SYSTEM
9. Regulation of business activities – Proper controlling, organizing, and
coordinating helps the business activities to run systematically.
10. Maximizing profit – As standards are fixed by the management, employees are
motivated accordingly to achieve their objective by maximizing profits. With
proper control and reasonable action management can maximize their profit (Hair
et al., 2017).
11. Reliability – Tools which are used by the accounting information system are
always reliable in accuracy. It provide accurate data to the management when
required.
12. Marginal costing – It helps the management in fixing selling price of the product
by using different tools of management. It helps to maintain resources which are
based on fixed cost and contribution.
Types
Accounting information is not just for making financial reports but also for
decision making purpose. It includes all the component of accounting system basically
computer based devices. The types of accounting system mainly available for business
use are as follows:
1. Purchasing system – This system is related to the purchase of goods and
services which provides purchase requisition, purchase order, disposal of asset
and price negotiation. The key component of the management by using purchase
system is to determine what to buy, when to buy and the right amount to buy. It
follows economic order quantity which helps the company to reduce the cost and
cash flow by ensuring its effectiveness (Mancini 2016). It is a computer based

9
ACCOUNTING INFORMATION SYSTEM
technology which ensures cost reduction and human error. Purchasing system
helps in planning the production without any loss of time by ensuring proper
stock availability. But still there are some disadvantage of this system which are
as follows:
 Wastage of time in checking the stock requirement and then sending it to
the creditor is a time consuming process.
 Geographical diversified area company does not get local market
advantage (O'Leary 2017).
 A centralized purchasing system is difficult to manage in big firms as it
become a complex process.
 It is a very expensive system for a small company as it requires initial
investments.
 Its maintenance cost is high which may arise in future and can make huge
cash outflow (Patel 2015).
 It’s difficult to make decisions from it as it is an automated system.

10
ACCOUNTING INFORMATION SYSTEM
2. Cash disbursement system – Disbursements that a company have are mainly
loan payments, salary payment, petty expenses and other expenses required to
maintain daily operation. So this accounting system uses cash disbursement
system to keep record of all its expenditure. It need the manager approval to use
company capital (Sačer and Oluić 2013). This system ensures efficient and
secured controls of all payments of a firm. As every coin has two side there are
some disadvantage of this system which are as follows:
 A strong control system will not ensure effective and efficient use of this
system.
 If a single department of the firm fails in internal control then the whole
system will become weak.
 There are many ways to fraud in this system by the internal peoples.

11
ACCOUNTING INFORMATION SYSTEM
 There may be a loss of document for a transaction which will create
problem for the cash disbursement system (Trigo, Belfo and Estébanez
2016).
 Fraud in book keeping will not be possible for this system to catch.
3. Payroll system – It is the part of the accounting system which helps in keeping
the payment related records of the employees. It works on computer based
system using different software’s by tracking employees’ payment and taxes with
their working hour and deductions if any (Tayeh, Al-Jarrah, and Tarhini 2015). It