Question

analyze and identify the relevance of the accounting information system and provide academic references.

Answer 1

Accounting information system (AIS) is highly relevant for any organization. AIS is designed for the purpose of recording all transactions of an entity. Once an accounting transaction or a financial transaction is entered into the system then it can be accessed any time when it might be needed in future again. Let us consider that an entity has all information with regards to its accounts payable entered in its system. This will allow for easier payments to be made on accounts payable. AIS, in many instances, are equipped with the feature that as due date for payment arrives it will print the check after receiving authorization from the relevant employees in the organization. This ease is also applicable in case of accounts receivables and AIS enables easier billing. As information with regards to sales is recorded and with regards to credit terms are recorded the system will compute the date on which payment that the entity is entitled to receive becomes due from its debtors and hence the system will generate bills. Another important aspect of AIS is that it generates all financial reports after all transactions are entered. This helps in saving a lot of time and the mechanical work of preparing financial statements are eliminated. AIS also come in handy when preparing year-end closing. This is a tedious process and requires creating an unadjusted trial balance, passing the adjusting entries, creating the adjusted trail balance, making the closing entries and finally generating a post-closing trial balance. AIS enable the computer system to do most of the above mentioned tasks on its own.

Thus we can say that AIS is the backbone of the accounting function of an organization. It helps the management with their decision making process as all financial and accounting related information are available just at the click of a button. Besides producing financial reports AIS can also produce managerial reports like variance reports, flexible budgets, incremental analysis, differential analysis etc.

AIS consist of the following parts:

• People – who use the system
• Procedures – with regards to collection of data, storage and retrieval
• Data – all data related to financial and accounting transactions
• Software – i.e. the computer programs
• Information technology infrastructure – i.e. the hardware
• Internal controls – security measures used to protect the data

References:

Bryan, B.J. and Smith, L.M. (1997) Faculty Perspectives of Auditing Topics. Issues in Accounting Education, 12 (1), 1-14

Dugdale, D. (1994) Theory and Practice: the views of CIMA Members and Students. Management Accounting, 72(8), September, 56-59