Question

Read and summarize:

Accounting Information System

Accounting information system according to Manchilot (2019) may be a computer-based electronic system used for collecting, storing, processing and communicating financial and accounting data through financial statements with the aim of supporting and guiding organizational decision making process. Computers are the hub of accounting information as they provide a platform for the workability of all information systems.For an accounting information system to be operational, its appropriate software application must be on thecomputer system intending to be used.Borhan and Bader (2018) defined accounting information system is a system which contains a group ofharmonized business, components, and resources which processes, manage, and control the data for producingand carrying the relevant information for decision makers in the organization. Accounting information requiresseries of processes to carry out its function just like any other system. It is a connected and homogeneous set ofthe resources and different components (human, equipment, finance, etc) that interact simultaneously inside aspecific framework to work towards the achievement of organizational goals.According to Borhan and Nafees (2018) accounting information system is the process of collecting,analyzing and converting data into action. This definition justifies accounting information system as a computerbased system that collects data, process and analyses data and produces results or output.Kashif (2018) states that accounting information system is a combination of people, equipment,policies, and procedures that work together to collect data and transform it into useful information. AIS is asystem that provides people with either data or information relating to an organization's operation to support theactivities of employees, owners, customers, and other stakeholders in the organization's environment byeffectively supplying information to authorized people in a timely manner. Financial PerformanceFinancial performance is a composite of an organization’s financial health, its ability and willingness tomeet its long-term financial obligations and its commitment to provide services in a foreseeable future (Weber,2008). Financial performance refers to the act of performing financial activity. In broader sense, financialperformance refers to the degree to which financial objectives being or has been accomplished. It is the processof measuring the results of a firm's policies and operations in monetary terms.Financial performance is broadly viewed as the ability of the firm to meet its financial objectives. Twoprominent indicators of financial performance are investor’s return and accounting returns. The investors returnis measured from the perspective of the shareholders, whereas accounting return focus on how the firm’searning respond to different managerial policies (Ofoegbu, 2003).According to Farah, Farrukh, and Faizan (2016) financial performance is an extent to which a companyfinancial health over a period of time is measured. In other words, it is a financial action used in order togenerate higher sales, profitability and worth of a business entity for its shareholders through managing itscurrent and non-current assets, financing, equity, revenues and expenses. Its main purpose is to provide financial information to shareholders and stakeholders so as to enable them make well informed investment decisions. It can be used to evaluate similar companies from the same industry or to compare industries in aggregation.

Measures of Financial Performance

According to Encyclopedia of Business (2011) performance measures can be grouped into two thosethat relate to results (outputs or outcomes such as competitiveness or financial performance) and those that focuson the determinants of the results (inputs such as quality, flexibility, resource utilization, and innovation). Thissuggests that performance measurement frameworks can be built around the concepts of results anddeterminants. Zuriekat, Salameh and Alrawashdeh (2011) on the other hand opined that performancemeasurement systems are considered information systems that are used to evaluate both individual andorganizational performance. Measuring the performance of the company is done using different measures. The literature review ofFiori, Di'Donato and Izzo (2009) indicated that financial performance can be measured based on the firm’s:solvency, repayment capacity, profitability, efficiency and liquidity.According to Lin and Liu (2005) financial ratios are usually one of the indicators used to evaluate a firm’sperformance. Generally, the financial information of a company’s business operations will be reported in theyearly financial statements, and a financial ratio simply constitutes one item divided by another in the financialstatement. Financial ratios can be viewed as a preliminary reference for the analysis of the businessperformance.Traditionally, the measurement of a firm’s performance usually employs the financial ratio method,because it provides a simple description about the firm’s financial performance in comparison with previousperiods and helps to improve its performance of management. However, Glautier and Underdoon (2009)maintained that there are two aspects of a company’s financial performance of interest to investors. First, itsfinancial performance may be assessed by reference to its ability to generate profit. This agrees with Pandey(2004) who asserts that it is assumed that profit maximization causes the efficient allocation of resources underthe competitive market conditions, and profit is considered as the most appropriate measure of a firm’sperformance. Thus, ratios of financial efficiency in this respect focus on the relationship between profit andsales and profit and assets employed. Second, the company’s financial performance may be assessed in terms ofthe value of its shares to investors. In this way, ratios of financial performance focus on earnings per share,dividend yield and price/ earnings ratios. The ratios used to measure the overall profit performance of a firm aretermed financial ratios.

Answer 1

An accounting information system is a way of tracking all accounting and business activity for a company. Accounting information systems generally consist of six primary components: people, procedures and instructions, data, software, information technology infrastructure, and internal controls.

Parts of AIS:

1. People who use the system, including accountants, managers, and business analysts
2. Procedure and instructions are the ways that data are collected, stored, retrieved, and processed
3. Data including all the information that goes into an AIS
4. Software consists of computer programs used for processing data
5. Information technology infrastructure includes all the hardware used to operate the AIS
6. Internal controls are the security measures used to protect data

Financial performance measures

One of the most important financial areas you should review is your profitability. This is your capacity to make a profit, ie generate revenue that exceeds your overall expenditure (all costs, taxes and expenses). Most growing businesses ultimately target increased profits, so it's important to know how to analyse your profitability ratios.

Profitability ratios typically fall under two broad categories: margins and returns. Most common profitability ratios are:

• Gross profit margin - how much money is made after direct costs of sales have been taken into account, or the contribution as it is also known.
• Operating expenses margin - this lies between the gross and net measures of profitability. Overheads are taken into account, but interest and tax payments are not. For this reason, it is also known as the EBIT (earnings before interest and taxes) margin.
• Net profit margin - this is a much narrower measure of profits, as it takes all costs into account, not just direct ones. All overheads, as well as interest and tax payments, are included in the profit calculation.
• Return on capital employed - this calculates net profit as a percentage of the total capital employed in a business. This allows you to see how well the money invested in your business is performing compared with other investments you could make with it, like putting it in the bank.

Accounting ratios to measure performance

As well as measuring profit, you should consider other standard financial ratios to help you to analyse your business' performance. These ratios look at:

• liquidity - assessing your ability to meet your short-term financial obligations
• solvency - measuring long-term debt against assets and equity to determine financial stability
• efficiency - measuring things like stock turnover to determine how well you are using your business assets