Accounting Information Systems: What, Functions, Importance and Role (Part 1)

October 18th, 2006 Comments off
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As accounting has it primary objective of providing information useful to decision makers, the understanding of the role play by Accounting Information Systems is critical to many accountants.

It’s important to understand how the accounting systems work: how to collect data about an organization’s activities and transactions; how to transform that data into information that management can use to run the organization; and how to ensure the availability, reliability and accuracy of that information.

1. What is an Accounting Information Systems?

A system is a set of two more interrelated components that interact to achieve a goal.

For an Accounting Information Systems, it comprises the following components:

  • People operating and performing the various function of the system;
  • Procedures in terms of both manual and automated;
  • Data about the organization’s business processes;
  • Software used to process the organization’s data and
  • Lastly the information technology infrastructure which includes computers, peripheral devices and network communication devices.

2. Functions of An Accounting Information Systems (AIS):

·      Collation and processing data about the organization’s business activities efficiently and effectively;

·      Converting data into accurate, timely and useful information for management to make decisions and

·      Establishing adequate controls to ensure that data about business activities are recorded and processed accurately and safeguard both that data and other organizational assets

3.   Contributions Or Value Added Roles Of A Well Designed Accounting Information Systems:

·      Improving efficiency of operations by providing more timely information

Example like a just-in-time manufacturing approach requires constant, accurate,up-to-date information about raw materials, inventories and their locations.

·      Improve organization profit by improving the efficiency and effectiveness of its supply chain

Example like allowing customers to directly access the company’s inventory and sales order entry systems can reduce the costs of doing business re: cost of sales, marketing activities. By doing so, customer’s cost and time of ordering hence improving sales and customer retention.

·      Improve decision making by providing accurate information in a timely manner

Example like giants like Wal-Mart and Amazon.com are able to improve sales by using their enormous database on sales transaction to study the customers’ needs.

·      Facilitates or make easier sharing of knowledge and expertise

Example:

The Accounting Big Four use their information systems to share best practice and to support communication between people located at different offices.

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