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ACCOUNTING INFORMATION SYSTEM

BASIC CONCEPTS

Accounting Information System which is a subsystem of the Financial Information System refers to the orderly arrangement of procedures, personnel, records, equipment and devices utilized for a logical and orderly gathering, processing and reporting of financial and other information essential to the efficient conduct and evaluation of the activities of a business enterprise.

An accounting information system (AIS) is the information subsystem within an organization that accumulates information from the entity’s various subsystems and communicates it to the organization’s information processing subsystem. The AIS today is an enterprise-wide information system focused on business process. It is the combination of procedures, personnel, records, equipment and devices that a business uses to meet its need for financial data. The word information in the title indicates that a company can get more reports, such as sales by product, and cash-flow projections provide valuable information for their business decisions.

Accounting information system evolves over time and becomes more formalized as a firm grows and becomes more complex. Information technology must be compatible and support the other components of an accounting information system.

OBJECTIVE OF AN ACCOUNTING INFORMATION SYSTEM

The basic objective of an accounting system is to collect, process and provide financial information needed by management and other interested parties in conducting and evaluating the business activities. The reports containing the financial information should be accurate, timely and prepared at the lowest cost possible.

ESSENTIAL ELEMENTS OF AN ACCOUNTING INFORMATION SYSTEM

The basic elements of an accounting system are:

1. Procedures or a set of interrelated activities involving the originating processing and reporting of financial and other data. 2. Statement of accounting policies and standards.
3. Records and reports necessary to gather, process, store and transmit financial and other information 4. Bookkeeping system or pro-forma accounting entries including computational requirements. 5. Personnel directly involved in accounting work.

6. Equipment and devices used in the system to expedite the work, provide controls and minimize if not totally prevent fraud and errors.

CHARACTERISTICS OF AN EFFECTIVE ACCOUNTING INFORMATION SYSTEM

An effective accounting information system encompasses those principles, methods and procedures, as well as records that will:

1. Identify properly and record all valid transactions.
2. Describe the transactions on a timely basis and in sufficient detail to permit proper classification of transactions for financing reporting. 3. Determine the time period in which the transaction occurred so as to permit recording in the proper accounting period. 4. Measure the value of the transaction in a manner that permits their recording in their proper monetary value in the financial statement. 5. Permit proper presentation of the transactions and related required disclosures in the financial statement. 6. Assist management in planning, controlling and decision-making.

To be able to achieve the above goals, the Accounting Information System should possess the following characteristics.

1. Compatibility to the company’s organization.
The system should suit the business firm’s organizational structure and policies. 2. Provision of necessary reports.
The system should be able to provide timely, pertinent, accurate and effective reports needed by management and other interested parties. 3. Provision for controls.
The system should provide adequate controls to ensure the reliability and accuracy of financial data, safeguard assets and minimize errors and fraud. 4. Adequacy of provision for audit trail.
The system should be designed to facilitate the tracing of data processing steps from the...
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