Question

For Accounting Information System.What are explanatory notes and why are they required?

Answer 1

Accounting Information System

1. Accounting Information system is generally computerized accounting program to keep records of business transactions for a company. It can be used by accountants, chief financial officers, consultants, auditors and tax authorities.
2. They are commonly sold as software packages from Microsoft, SAP and Tally.
3. Accounting Information Systems support auditing, financial accounting, financial statements analysis and tax purposes.

Components of Accounting Information System

Without the following components, The Accounting Information System cannot function smoothly.

1. People: System Users. (accountants, chief financial officers, consultants, auditors and tax authorities)
2. Procedure and Instructions: The methods/ procedures for collecting, storing, retrieving and processing data. This includes commands, options, keys and buttons used in the software terminal.
3. Data: Financial information relevant to the company’s business practices inputted into Accounting Information System. (Purchases, Sales, Expenses, Income, Assets purchcased, Borrowings etc)
4. Software: Computer Programs which store, retrieve, process and analyse the company’s above mentioned financial data.
5. Hardware Infrastructure: Hardware configuration and devices that support smooth working of Accounting Information system. Hard Disk capacity, RAM speed, Advanced Version Operating system, Printers etc.
6. Security Measures: It refers to protect financial data. Using user name and password or biometric identification to access data and Antivirus software.

Why are Accounting Information Systems required?

1. Well designed Accounting Information System allows a business to run smoothly on a day to day basis by automating accounting process.
2. Accounting Information systems support processing large amount of data and produce timely and accurate information.
3. An accounting clerk enters all business transactions into the accounting software and the transactions are automatically posted to the respective accounts. This reduces the manual work of posting and preparation of reports. The information is ready at any time within seconds.
4. Accounts payables and accounts receivables are managed and paid/collected properly because at any time you can view the total accounts receivables and total account payables with parties’ break-ups with overdue, if any.
5. Financial statements are prepared without manual intervention. Once the transactions are entered, the same time they are automatically posted to ledgers and financial statements(Profit and Loss account and Balance sheets, Cash flow statement) are ready at any time. You can view them for any duration. (for days, weeks, months and year)
6. Effective Inventory management is possible only by Accounting Information system. Because, Accounting information system records all the purchases and sales. So the value of inventory of raw materials, packing material, accessories and finished goods are properly accounted and monitored by accounting information system. This helps us to track inventory and make them available and sufficient quantity in the store or godown.
7. Whenever, there are reports required for auditing and taxation purpose, with required query, you can have any type of reports with more flexibility in data columns. You can add or remove any required or unnecessary fields in the report. You can have reports for any duration.
8. Tracking is possible with the least information you have about particular transaction. Date, Party name, quantity sold or purchased, the value of the transaction or bill no or voucher no.
9. The Accounting Information systems reduces the job of accountant and helps him to concentrate on some key areas of financial management like cost reduction, waste reduction and other areas of financial management.