Introduction to Accounting Information Systems

(AIS)
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By 
AMY FONTINELLE

 
 
Reviewed by 
DAVID KINDNESS
 
 
Updated Apr 26, 2021
TABLE OF CONTENTS
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 Understanding AIS
 1. AIS People
 2. Procedures and Instructions
 3. AIS Data
 4. AIS Software
 5. IT Infrastructure
 6. Internal Controls
 Real World Examples of AIS
 The Bottom Line

An accounting information system (AIS) is a structure that a business uses to

collect, store, manage, process, retrieve, and report its financial data so it can be
used by accountants, consultants, business analysts, managers, chief financial
officers (CFOs), auditors, regulators, and tax agencies.

Specially trained accountants work in-depth with AIS to ensure the highest level
of accuracy in a company's financial transactions and record-keeping, as well
as make financial data easily available to those who legitimately need access to
it—all while keeping data intact and secure.

KEY TAKEAWAYS

 An accounting information system (AIS) is used by companies to collect,

store, manage, process, retrieve, and report financial data.
 AIS can be used by accountants, consultants, business analysts,
managers, chief financial officers, auditors, and regulators.
 An AIS helps the different departments within a company work together.
 An effective AIS uses hardware and software to effectively store and
retrieve data.
 The internal and external controls of an AIS are critical to protecting a
company's sensitive data.
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Introduction To Accounting Information Systems

Understanding Accounting Information Systems (AIS)

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. Below is a
breakdown of each component in detail.

1. AIS People
The people in an AIS are the system users. An AIS helps the different
departments within a company work together. Professionals who may need to
use an organization's AIS include:

 Accountants
 Consultants
 Business analysts
 Managers
 Chief financial officers
  Auditors

For example, management can establish sales goals for which staff can then
order the appropriate amount of inventory. The inventory order notifies the
accounting department of a new payable. When sales are made in a business,
the people and departments involved in the sales process could include the
following:

1. Salespeople enter the customer orders into the AIS.

2. Accounting bills or sends an invoice to the customer.
3. The warehouse assembles the order.
4. The shipping department sends the order out to the customer.
5. The accounting department gets notified of a new accounts receivable,
which is an IOU from the customer that's typically paid within 30, 60, or 90
days. 
6. The customer service department tracks the order and customer
shipments.
7. Management uses AIS to create sales reports and perform cost analysis,
which can include inventory, shipping, and manufacturing costs.

With a well-designed AIS, everyone within an organization can access the same
system and retrieve the same information. An AIS also simplifies the process of
reporting information to people outside of the organization, when necessary.

For example, consultants might use the information in an AIS to analyze the
effectiveness of the company's pricing structure by looking at cost data, sales
data, and revenue. Also, auditors can use the data to assess a company's
internal controls, financial condition, and compliance with regulations such as
the Sarbanes-Oxley Act (SOX).1

The AIS should be designed to meet the needs of the people who will be using it.
The system should also be easy to use and should improve, not hinder
efficiency.

2. Procedures and Instructions

The procedure and instructions of an AIS are the methods it uses for collecting,
storing, retrieving, and processing data. These methods are both manual and
automated. The data can come from both internal sources (e.g., employees) and
external sources (e.g., customers' online orders). Procedures and instructions will
be coded into the AIS software. However, the procedures and instructions should
also be "coded" into employees through documentation and training. The
procedures and instructions must be followed consistently in order to be
effective.
3. AIS Data
An AIS must have a database structure to store information, such as structured
query language (SQL), which is a computer language commonly used for
databases. SQL allows the data that's in the AIS to be manipulated and retrieved
for reporting purposes. The AIS will also need various input screens for the
different types of system users and data entry, as well as different output formats
to meet the needs of different users and various types of information.

The data contained in an AIS is all of the financial information pertinent to the
organization's business practices. Any business data that impacts the company's
finances should go into an AIS.

The type of data included in an AIS depends on the nature of the business, but it
may consist of the following:

 Sales orders
 Customer billing statements
 Sales analysis reports
 Purchase requisitions
 Vendor invoices
 Check registers
 General ledger
 Inventory data
 Payroll information
 Timekeeping
 Tax information

The data can be used to prepare accounting statements and financial reports,
including accounts receivable aging, depreciation or amortization schedules,
a trial balance, and a profit and loss statement. Having all of this data in one
place—in the AIS—facilitates a business's record-keeping, reporting, analysis,
auditing, and decision-making activities. For the data to be useful, it must be
complete, accurate, and relevant.

On the other hand, examples of data that would not go into an AIS include
memos, correspondence, presentations, and manuals. These documents might
have a tangential relationship to the company's finances, but, excluding the
standard footnotes, they are not really part of the company's financial record-
keeping.

4. AIS Software
The software component of an AIS is the computer programs used to store,
retrieve, process, and analyze the company's financial data. Before there were
computers, an AIS was a manual, paper-based system, but today, most
companies are using computer software as the basis of the AIS. Small
businesses might use Intuit's Quickbooks or Sage's Sage 50 Accounting, but
there are others.2  3 Small to mid-sized businesses might use SAP's Business
One.4 Mid-sized and large businesses might use Microsoft's Dynamics GP, Sage
Group's MAS 90, or MAS 200, Oracle's PeopleSoft, or Epicor Financial
Management.5  6  7  8

Quality, reliability, and security are key components of effective AIS software.

Managers rely on the information it outputs to make decisions for the company,
and they need high-quality information to make sound decisions.

AIS software programs can be customized to meet the unique needs of different
types of businesses. If an existing program does not meet a company's needs,
the software can also be developed in-house with substantial input from end-
users or can be developed by a third-party company specifically for the
organization. The system could even be outsourced to a specialized company.

For publicly-traded companies, no matter what software program and

customization options the business chooses, Sarbanes-Oxley regulations will
dictate the structure of the AIS to some extent. This is because SOX regulations
establish internal controls and auditing procedures with which public companies
must comply.9

5. IT Infrastructure
Information technology infrastructure is just a fancy name for the hardware used
to operate the accounting information system. Most of these hardware items a
business would need to have anyway and can include the following:

 Computers
 Mobile devices
 Servers
 Printers
 Surge protectors
 Routers
 Storage media
 A back-up power supply

In addition to cost, factors to consider in selecting hardware include speed,

storage capability, and whether it can be expanded and upgraded.
Perhaps most importantly, the hardware selected for an AIS must be compatible
with the intended software. Ideally, it would be not just compatible, but optimal—
a clunky system will be much less helpful than a speedy one. One way
businesses can easily meet hardware and software compatibility requirements is
by purchasing a turnkey system that includes both the hardware and the software
that the business needs. Purchasing a turnkey system means, theoretically, that
the business will get an optimal combination of hardware and software for its AIS.

A good AIS should also include a plan for maintaining, servicing, replacing, and
upgrading components of the hardware system, as well as a plan for the disposal
of broken and outdated hardware, so that sensitive data is completely destroyed.

6. Internal Controls
The internal controls of an AIS are the security measures it contains to protect
sensitive data. These can be as simple as passwords or as complex as biometric
identification. Biometric security protocols might include storing human
characteristics that don't change over time, such as fingerprints, voice, and facial
recognition.

An AIS must have internal controls to protect against unauthorized computer

access and to limit access to authorized users, which includes some users inside
the company. It must also prevent unauthorized file access by individuals who
are allowed to access only select parts of the system.

An AIS contains confidential information belonging not just to the company but
also to its employees and customers. This data may include:

 Social Security numbers

 Salary and personnel information
 Credit card numbers
 Customer information
 Company financial data
 Financial information of suppliers and vendors

All of the data in an AIS should be encrypted, and access to the system should
be logged and surveilled. System activity should be traceable as well.

An AIS also needs internal controls that protect it from computer viruses,
hackers, and other internal and external threats to network security. It must also
be protected from natural disasters and power surges that can cause data loss.

Real World Examples of Accounting Information Systems

A well-designed AIS allows a business to run smoothly on a day-to-day basis
while a poorly designed AIS can hinder its operation. The third use for an AIS is
that, when a business is in trouble, the data in its AIS can be used to uncover the
story of what went wrong. The cases of WorldCom and Lehman Brothers provide
two examples.

WorldCom
In 2002, WorldCom's internal auditors Eugene Morse and Cynthia Cooper used
the company's AIS to uncover nearly $4 billion in fraudulent expense allocations
and other accounting entries.1 0 Their investigation led to the termination of CFO
Scott Sullivan, as well as new legislation—section 404 of the Sarbanes-Oxley
Act, which regulates companies' internal financial controls and procedures.1 1  1 2

Lehman Brothers
When investigating the causes of Lehman's collapse, a review of its AIS and
other data systems was a key component, along with document collection and
review, plus witness interviews. The search for the causes of the company's
failure "required an extensive investigation and review of Lehman's operating,
trading, valuation, financial, accounting, and other data systems," according to
the 2,200-page, nine-volume examiner's report.1 3

Lehman's systems provide an example of how an AIS should not be structured.

Examiner Anton R. Valukas' report states, "At the time of its bankruptcy filing,
Lehman maintained a patchwork of over 2,600 software systems and
applications... Many of Lehman's systems were arcane, outdated or non-
standard."1 3

The examiner decided to focus his efforts on the 96 systems that appeared most
relevant. This examination required training, study, and trial and error just to
learn how to use the systems.1 4

Valukas' report also noted, "Lehman's systems were highly interdependent, but
their relationships were difficult to decipher and not well-documented. It took
extraordinary effort to untangle these systems to obtain the necessary
information."1 4

The Bottom Line

The six components of an AIS all work together to help key employees collect,
store, manage, process, retrieve, and report their financial data. Having a well-
developed and maintained accounting information system that is efficient and
accurate is an indispensable component of a successful business.
Accounting Information System (AIS)
By 

ALICIA TUOVILA

Reviewed by 

JANET BERRY-JOHNSON

Updated Nov 19, 2020

What is an Accounting Information System (AIS)?

An accounting information system (AIS) involves the collection, storage, and
processing of financial and accounting data used by internal users to report
information to investors, creditors, and tax authorities. It is generally a computer-
based method for tracking accounting activity in conjunction with information
technology resources. An AIS combines traditional accounting practices, such as
the use of Generally Accepted Accounting Principles (GAAP), with modern
information technology resources.

How an Accounting Information Systems (AIS) is Used

An accounting information system contains various elements important in
the accounting cycle. Although the information contained in a system varies
among industries and business sizes, a typical AIS includes data relating
to revenue, expenses, customer information, employee information, and tax
information. Specific data includes sales orders and analysis reports, purchase
requisitions, invoices, check registers, inventory, payroll, ledger, trial balance,
and financial statement information.

An accounting information system must have a database structure to store

information. This database structure is typically programmed with query language
that allows for table and data manipulation. An AIS has numerous fields to input
data as well as to edit previously stored data. In addition, accounting information
systems are often highly secured platforms with preventative measures taken
against viruses, hackers, and other external sources attempting to collect
information. Cybersecurity is increasingly important as more and more
companies store their data electronically.

The various outputs of an accounting information system exemplify the versatility

of its data manipulation capabilities. An AIS produces reports including accounts
receivable aging reports based on customer information, depreciation schedules
for fixed assets, and trial balances for financial reporting. Customer lists, taxation
calculations, and inventory levels may also be reproduced. However,
correspondences, memos, or presentations are not included in the AIS because
these items are not directly related to a company’s financial reporting or
bookkeeping.

Benefits of Accounting Information Systems

Interdepartmental Interfacing
An accounting information system strives to interface across multiple
departments. Within the system, the sales department can upload the sales
budget. This information is used by the inventory management team to conduct
inventory counts and purchase materials. Upon the purchase of inventory, the
system can notify the accounts payable department of the new invoice. An AIS
can also share information about a new order so that the manufacturing,
shipping, and customer service departments are aware of the sale.

Internal Controls
An integral part of accounting information systems relates to internal controls.
Policies and procedures can be placed within the system to ensure that sensitive
customer, vendor, and business information is maintained within a company.
Through the use of physical access approvals, login requirements, access logs,
authorizations, and segregation of duties, users can be limited to only the
relevant information necessary to perform their business function.

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What are Accounting Information
Systems?
An information system is a formal process for collecting data, processing the data into information,
and distributing that information to users. The purpose of an accounting information system (AIS) is
to collect, store, and process financial and accounting data and produce informational reports that
managers or other interested parties can use to make business decisions. Although an AIS can be a
manual system, today most accounting information systems are computer-based.

Functions of an Accounting Information System

Accounting information systems have three basic functions:

1. The first function of an AIS is the efficient and effective collection and storage of data
concerning an organization’s financial activities, including getting the transaction data from
source documents, recording the transactions in journals, and posting data from journals to
ledgers.
2. The second function of an AIS is to supply information useful for making decisions, including
producing managerial reports and financial statements.
3. The third function of an AIS is to make sure controls are in place to accurately record and
process data.

Parts of an Accounting Information System

An accounting information system typically has six basic parts:

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

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The Reliability of Accounting Information Systems

Because an AIS stores and provides such valuable business information, reliability is vitally
important. The American Institute of CPAs (AICPA) and Canadian Institute of Chartered Accountants
(CICA) have identified five basic principles important to AIS reliability:

1. Security – Access to the system and its data is controlled and limited only to those
authorized.
2. Confidentiality – The protection of sensitive information from unauthorized disclosure.
3. Privacy – The collection, use, and disclosure of personal information about customers is
done in an appropriate manner.
4. Processing integrity – The accurate, complete, and timely processing of data done with
proper authorization.
5. Availability – The system is available to meet operational and contractual obligations.

Accounting Information System Jobs

Students can pursue bachelor’s, master’s, and doctorate degrees in accounting information systems.
These degrees generally provide students with both accounting knowledge and an understanding of
the technology involved in setting up an AIS. This prepares accounting program graduates to work
with the information technology, information systems, and people needed to set up and maintain an
AIS.
Accounting information system specialist jobs are available in corporations, accounting firms,
consulting firms, non-profit organizations, and government agencies.
The Core Functions of Accounting
Information Systems

    By Lauren Christiansen , January 06, 2021

Table of Contents
 The Major Functions of AIS
 1. People
 2. Procedures
 3. Data
 4. Software
 5. IT Infrastructure
 6. Internal Controls
 Key Takeaways
Before the digital age, small businesses, the American accounting association, and others had no
choice but to use manual accounting methods to collect, store, and manage financial data.

Entire rooms were designed to hold thousands of tax documents, transactional data, or employee
files. The human resource and accounting teams had to verify timesheets, track hours manually,
and spend time calculating overtime. Because all of these methods were ripe for human error, it
was essential for staff members to be meticulous and detailed.

As time progressed, it became more important for employers to ensure accuracy when handling
financial data. Laws to protect employees have increased and become more complicated, the tax
code is more intricate, and it's much easier to make a mistake.

Because there is now technology available to automate manual processes and minimize
paperwork, more organizations are using information systems to handle all of their financial data
and ensure compliance with regulators.

Read ahead for a comprehensive overview of the components of an accounting information

system and how the data used by an organization increases accuracy and efficiency in the
workplace.

The Evolution of Accounting in the Finanical World:

 In 1978, the first spreadsheet software system was developed to enable financial
modeling on a computer
 In early 2000, the financial world experienced the birth of Financial Data Capture
technology which automated the accounts payable process
 Today, the vast majority of all accounting tasks are entirely automated by both small and
large businesses

The Major Functions of AIS

A computer basedaccounting information system is used to gather, store, organize and report
financial data. Professional accountants use an AIS to make certain each financial statement is
secure and audit trails are accurate and reliable. It is also employed to handle the cash flow of an
organization throughout the entire supply chain process.

It also provides a user-friendly and intuitive way for everyone who needs financial data and
financial reports to access it. Organizations need to make certain to safeguard the internal and
external controls of an accounting information system due to the sensitive and confidential data
held within it.

To effectively track all business and financial-related activities, all six components of an AIS
must work together and function properly. These components include-

1. People

All of the individuals who use information in an AIS are included in the people component.
Because AIS handles and stores all of the accounting-related data, many different departments
can work together to accomplish financial goals or projects.

Accountants, business consultants, analysts, accounts receivable, enterprise leaders, auditing

teams, CFO's, and other departments may use the AIS to complete one or more tasks.

For example, a sales team member may enter an order into the system, triggering the accounting
department to send an invoice to that particular client. The warehouse will be notified to begin
producing the product, and the shipper sends the item to the client.
In summary, an information system AIS allows an organization to streamline activities by
housing relevant data that everyone can access to complete a task.

2. Procedures

Procedures include the methods utilized to gather, store, and process financial data and financial
statements so everyone can access it. Data sources vary depending on the particular business
needs or type of industry. It is important to collect accurate and relevant data so stakeholders can
extract actionable and accurate insights from the information.

A specialist will code instructions into the AIS software so it knows how to function properly.
Employees should also be well-trained in how to use the AIS to derive the most benefit from it.
If an AIS is programmed effectively and employees are versed in how to utilize it, the
organization will be able to increase productivity and ensure an accurate outcome.

3. Data

There must be a well-coded database structure so the AIS can properly handle the main content
inside the system. Most analysts use SQL language coding so the data within the system can be
easily retrieved and made into reports.

Various input screens are necessary to ensure every user can input data and view it, along with
specific outputs that address user and information needs. AIS accounting information should
include any financial information handled by different people every day in an organization. This
may include sales orders, a balance sheet, vendor invoices, inventory information, payroll data,
or tax data.

All of this data in an AIS accounting information network is utilized to generate accounting
statements, profit and loss statements, and more. If data is relevant and accurate, employees can
collaborate to complete tasks.

4. Software

The accounting system software component includes the computer programs utilized to gather,
handle, process, and assess all organization-related financial information. Though small and
large businesses may have different AIS systems, it's essential for all of them to be high-quality,
reliable, and secure.

An organization can improve decision-making, pinpoint inefficiencies, and ensure accuracy in

payroll and tax documents if it invests in a highly functional and reliable software for their AIS
system.

5. IT Infrastructure

This component encompasses all of the hardware utilized to ensure an AIS operates effectively.
It may include computers, routers, servers, printers, and more. Though many organizations focus
on finding the most cost-effective hardware solution, they should remember that speed and
storage capacity are the most critical factors.

An efficient and quick AIS with a high storage capacity allows a growing company to ensure it
can handle new quantities of external and internal data without losing its ability to be user-
friendly and intuitive. There should also be a strategy to maintain, service, and upgrade the
hardware in case a system breaks down.

6. Internal Controls

The internal controls include all of the information security measures utilized to ensure data is
kept safe and secure. IT may create specific passwords or generate biometric identification
requirements to make certain that the person handling the information is who he/she claims to be.

There must also be internal controls put in place to ensure that only authorized individuals can
access sensitive data, such as social security numbers, salary data, or the financial information of
a vendor.

It's also essential to make sure that the hardware is protected from a potential natural disaster,
such as a hurricane or fire. If information or hardware is damaged, hacked, or stolen, it can result
in a ruined reputation, bankruptcy, or litigation.

Examples of Internal Controls Used in a Business:

  Separation of duties (no person can hold sole control over a lifetime of a transaction)
 Pre-approval of actions and transactions
 Access controls, such as passwords
 Physical controls (locks and safes)

Key Takeaways
In conclusion, here are the key takeaways to remember about accounting information systems-

 An accounting information system is used by an organization to collect, store, and report

sensitive financial-related data. Businesses use an AIS accounting information system to
optimize efficiency and ensure workers can collaborate to complete essential tasks. It also
helps to ensure information is accurate, reliable, and up-to-date.
 There are six components of accounting systems that work together to ensure the network
is functional.
 The people component are all of the users who handle the data, the procedures are the
methods used to collect and store the information, the data component includes both
internal and external financial sources, the software component encompasses all of the
computer programs used to make the system functional, IT infrastructure is all of the
hardware of accounting software, and internal controls encompass all of the security
measures to protect the information.
What is an Accounting Information System (AIS)?
An accounting information system (AIS) refers to tools and systems designed
for the collection and display of accounting information so accountants and
executives can make informed decisions. It is considered a pivotal component
of finance offices throughout the world. The systems are largely software-
based and can be deployed as a part of a company’s IT solutions.

 
 

Accounting information systems help with the flow of information regarding

all the aspects of a company’s financials, including taxes, reporting, or, if need
be, an audit. The software-based solutions allow large and small businesses
greater control of their finances and provide a competitive method for in-
house accounting for small businesses where resources are scarce.

 
Deploying an Accounting Information System

Deploying an accounting information system shares many similarities with

other styles of IT deployment. The software must be created, tested, and
onboarded in a way to ensure minimal disruption to existing operations, as
well as simultaneously ensuring that there are no catastrophic errors that can
disrupt productivity or cause an outage.

Software deployment of any kind comes with a high likelihood of failure, and
special care should be taken by large corporations when they deploy such a
system that involves its critical components. There is a continual feedback
loop after the software is deployed to ensure that it is continually tested so
that bugs, errors, and vulnerabilities are quickly found and rooted out.

Below, we see a visual representation of a simplistic deployment and feedback

loop:

When to Use

Information systems of all types are lowering the barriers to entry for many

businesses with regard to utilizing software as a tool to streamline operations
and remain competitive. Accounting information systems are no different.

For example, if you are someone who is starting a small business or growing
an existing one, a software-based solution that displays your accounting data
to help you make managerial-level decisions is an incredibly useful tool to
gather, analyze, and display information.
In the hands of the informed user, the accounting information system can help
to provide insights into business deficiencies or areas for improvement. It can
also aid in reconciliation and in keeping track of capital. For larger companies,
it can help boost investor confidence and make it easier to practice regulatory
compliance.

Sarbanes-Oxley and Accounting Information Systems

The Sarbanes-Oxley Act was a regulation passed after the financial scandals at

WorldCom and Enron. The scandals involved largely accounting-based fraud
and loss of confidence, resulting in the creation and passage of the law on July
30, 2002.

The legislation requires that public companies implement strong audit and
regulatory controls that can be provided partially by deploying effective
compliance and accounting information systems. It helps create market and
investor confidence, reassuring the public that the financials are transparent
and accurate.

Financial reporting is a critical part of accounting information systems, helping

to ensure the ethical allocation and discussion of capital in the investment
community and the public. Financial regulations globally make the effective
deployment of an accounting information system a near necessity for any
small, medium, or large-sized business.
Accounting Information System: Types, Uses And
Examples

Accounting information system is a system which collects, stores and processes financial
and accounting data that are used by the decision makers. It is a mixture of accounting
data and information technology. The data provided by this system is used by the
managers, accountants, consultants, business analysts, auditors and regulatory
authorities. In other words, it is a formal process for collecting data, processing the data
into information and distributing that information to its users. Main objective of AIS is to
provide the management with enough information so that they can make decisions on
the basis of it. Resulting information can be used by the internal sources like managers,
CFO, CEO and also the external users like investors, creditors who are one of the
important parts of the business organization.
Accounting information system is designed in such a way which supports all the
accounting functions and activities including auditing, financial accounting & reporting,
managerial accounting and taxation.
Traditionally people used to do accounting on a manual basis. In manual approach, skill
and knowledge of an accountant was very important. And due to the presence of
Human Element, it was ineffective and inefficient. Due to huge amount of data,
accountant used to fully occupy with these things that he could not get time to make
decision. Then Accounting Information System arrives, which resolves the issues that
was faced in manual approach of accounting. It supports an automation of processing
large amount of data and produce timely result and accurate information.
In 1970, it was designed for payroll function. It was developed in house and was
expensive and difficult to maintain. Therefore, people preferred manual approach to get
rid of the cost.
Today so many software like Oracle, SAP and etc. are sold as prebuilt software where it
is configured and customized to match the organization’s business processes.
Today, Cloud-based accounting information systems are increasingly popular for both
SMEs and large organizations for lower costs. With adoption of accounting information
systems, many businesses have removed low skills, transactional and operational
accounting roles.
Functions Of AIS

1) Efficient and Effective Collection of Data- Earlier, there should be manual approach of
accounting which makes it difficult for the managers to record each and every
transaction in the book. It was more like a boredom for the accountant but due to the
establishment of the Accounting Information System, accountant do not need to keep
tones of files to keep their data. What they need is just a system which stores the
accounting data of the organization.
2) Supply Information- Second important function of AIS is to supply the information
that could be used to make decisions. Financial statement, managements report is
procured through accounting information system which helps the manager in the future
course of action.
3) Adequate controls- Accounting Information System make sure that the data provided
by the accounting information system is reliable. And also ensures that the business
activities that are performed are according to the management’s objectives. And it also
safeguard’s management assets.

Reliability Of AIS
Due to the storage of important information of the organization, reliability is very
important. There are 5 principles which are important to AIS reliability: -
1. Security- Access of the data and system should be limited to the authorized persons only.
2. Confidentiality- Data should not be disclosed to any unauthorized party.
3. Privacy- Collection, storage of data of the customers should be done in an appropriate
manner.
4. Processing Integrity- The accurate, timely and complete processing of data done with
proper authorization.
5. Availability- The system is available to meet operational and contractual obligations.

Accounting Information System Advantages-

a) Speed- Main benefit of information system in accounting is the speed. Data entered
once can be reused again and again. And can be used in compiling reports by just
pressing a button. Even a correction can be done in just a few seconds and reports can
be generated at a speed which is impossible in manual accounting.
b) Safety- Once the data entered into the system, it becomes safe. Chances of losing of
data are removed especially when you perform regular backups. In manual accounting,
data can easily be manipulated and can be lost. But it is not the case in computerized
accounting; it cannot be touched by any unauthorized person.
c) Automation- Since the calculations are handled by the software, it eliminates many
boring and time-consuming process which were there in manual accounting approach.
d) Accuracy- Accuracy of the data is improved as the calculation is done by the
software only, so chances of getting wrong information is eliminated in the process.
e) Efficient- Accounting information system is efficient in a way that it saves time and
also the resources in saving the data. In manual accounting approach, accountant need
to maintain heavy files with him but in accounting information system, they do not need
to maintain files and whenever they require any data; they can simply login to the
computer.

Accounting Information System Disadvantages-

1) Learning the system- Accounting information system mainly comprises of recording

and storing of data in a system. So, for that employees need to get training. This is once
again a costly and time-consuming process.
2) Loss of Information- Information is always recorded on the computers. Because of
this, there is always a risk of losing the information through system crashes.
3) Health Dangers- Excessive use of computers may lead to many health problems
such as headache, back pain etc. which reduces the efficiency of the employee and also
increases the cost of medical expenditure on the side of employer.
Components Of Accounting Information System

People- People are the users of Accounting Information System. Accountants,

consultants, business analysts, CFO and auditors are the examples of users of
accounting information system. An AIS helps the different departments within a
company work together. For example, management can establish sales goals for which
staff can then order the appropriate amount of inventory. The inventory order notifies
the accounting department of a new payable. When sales are made, sales people can
enter customer orders, accounting can invoice customers, the warehouse can assemble
the order, the shipping department can send it off, and the accounting department gets
notified of a new receivable. The customer service department can then track customer
shipments and the system can create sales reports for management. Managers can also
see inventory costs, shipping costs, manufacturing costs and so on.
Procedure and Instructions- It is the methods AIS uses for collecting, storing retrieving
and processing of data. Methods can be both manual and automated and the sources
are internal (employees) as well as external (customers).
Data- Data refers to the financial information pertaining to a business organization. Any
information related to the finance of the business must go in the accounting
information system. Example of Data- Sales Order, Customer Billing statements, Sales
analysis reports, purchase requisition, vendor invoices, inventory data etc. This data can
be used to prepare financial statements like profit and loss accounting, balance sheet
trial balance and so on.
Software- Software components on AIS is the computer programs used to store,
retrieve, process and analyze the computer financial data. Before this approach, manual
method was prevailing to store and collect the financial data of the company. But now,
almost all the companies are using software to store, collect and procure the accounting
data. Quality, Reliability and Security is the key component of the software. Managers
rely on the information it provides to make quality decisions.
Information Technology Infrastructure- It is nothing but the hardware that is used in
the process of accounting information system. Hardware items include- personal
computers, printers, servers, routers, storage devices etc. In addition to cost, factors to
consider in selecting hardware include speed, storage capability and whether it can be
expanded and upgraded. Most important is the compatibility of the hardware with the
software. Software must be compatible with the hardware. A good accounting
information system includes a plan for maintaining, servicing, repairing and upgrading
the hardware.
Internal Controls- Internal controls refers to security measure taken by the organization
to preserve the data. This can include a password or even biometric identification. AIS
not only contain the information of the organization but also of its customers and
employees. Credit card numbers, pay slips etc. is included in this. Internal control is
needed to protect the data from the virus, hackers and internal and external threats to
network security.
Output- It refers to the information generated by the Accounting Information System in
the form of reports. Output includes profit and loss account, balance sheet, ledge
accounts etc.

Types Of Accounting Information System

Manual Systems- Manual accounting information system is generally used by small

business firms and home-based companies. If a system is entirely manual, it would
require source documents, general ledger, general journal.
Legacy Systems- Legacy systems are often in existing business firms and were used
before information technology got as sophisticated as it is today. It is an old-fashioned
accounting information system but still it has got some advantages. A legacy system has
actually been customized to the specific needs of individual firms. It also has some
disadvantages. They have no documentation. Usually replacement parts are hard to find
because hardware and software becomes obsolete.
Replacement of Legacy System- Legacy system can be replaced with the up to date
system. It is an expensive solution of the problem but you can always update your
system. You can use a procedure called screen scraping, which is a technique that takes
the data displayed on the computer screen and translates it so a newer application can
read it. You can also set up an enterprise application integration system. This type of
system networks the different applications in your legacy system, such as inventory,
payroll, and others.

Uses Of AIS

Performance Creating Budgets Business Decisions Investment Decision

a) Information provided by
a) Measuring the performance of various a) It is commonly used for making a) External users often use this data t
accounting is generally used for
business operations. decision of the business. make investment decision.
creating budgets.
b) Managers can make use of b) AIS provides cost of various b) Banks and other financial institutio
b) Past data tells the company
information provided by ratios after the operations and thus these can be reviews company’s accounting
about the expenditure of the
information provided by Financial compared with the return from these information to check the financial
company.
Statements. operations. soundness.
c) Business owners develop future
c) High Cost and Low income is c) Inability to provide the external
c) Ratios can be compared with ratios of budgets on the basis of the
often rejected and Low Cost and environment with information may
other company or industry standard. information to ensure healthy
High income is accepted. limit the finance.
financial route.

Examples Of Accounting Information System

1) Account Mate- Account Mate develops and markets fully modifiable business
accounting software. Systems range from single user versions to those that support
hundreds of users simultaneously. Account Mate software is available for local
installation or as SaaS.
2) CYMA- CYMA Accounting Software provides the perfect accounting software
solution for growing mid-sized businesses through flexible user environments, a full
suite of useful accounting software modules, robust reporting, industry leading security,
and advanced customization options.
3) Intacct- Intacct is a cloud financial management company. Intacct accounting
software, in use by more than 7,300 organizations from startups to public companies, is
designed to improve company performance and make finance more productive.
Hundreds of leading CPA firms and Value-Added Resellers also offer Intacct to their
clients.
4) Red Wing Software- Red Wing Software develops and distributes accounting and
payroll software for small to mid-sized businesses, agribusinesses, municipals and
nonprofits in North America. Center Point Accounting has many convenient, time–saving
features such as pop–up reminders, quick lists, keyboard commands for “heads–down”
data entry, and the ability to skip fields to speed up entry.
5) SAP- SAP provides the right foundation for your accounting and reporting teams.
Their financial accounting solution unifies robust financial accounting functionalities to
help you manage the complexities of your company's global accounting and reporting
requirements – for greater efficiency and transparency across the enterprise.
The Business Owner's Guide to Accounting
Information Systems
Learn What Accounting Information Systems Do

•••

BY 

ROSEMARY CARLSON

Updated November 30, 2019

Accounting information systems collect and process transaction data and

communicate the financial information to interested parties. There are many types of
accounting information systems and, as a result, they vary greatly. A number of factors
influence these systems such as the type of business, the size of the business, the
volume of data, the type of data management needs, and other factors.

Electronic Data Processing (EDP) Systems

Most businesses, except for the smallest, use computerized systems, also called
electronic data processing (EDP) systems. These systems handle every step in the
accounting process from recording the financial transaction to preparing the financial
statements. Businesses are constantly improving their systems technology in order to
remain competitive and to stay in compliance with the Sarbanes-Oxley Act of 2002.
Even the smallest businesses may choose to use systems like Quickbooks.

Basics of Business Transactions and Business Processes 

In order to understand how these accounting information systems work, you have to
understand the basic accounting terms "business transactions" and "business
processes." Most importantly, you need to understand how business transactions and
processes come together to generate financial reports. With regard to accounting
information systems, business transactions can be divided into several types of
business processes:

1. Revenue and Return Processes, Systems, and Controls

The business transactions that fall under these business processes are large volumes
of daily sales, returns, and cash inflow transactions.

2. Expenditure and Return Processes, Systems, and

Controls
The business transactions that fall under these business processes are large volumes
of expenditure, returns, and cash outflow transactions. Payroll and fixed asset purchase
transactions are also in this category.

3. Conversion Processes, Systems, and Controls

The business transactions under this category are raw materials and work-in-progress
transactions.

4. Administrative Processes, Systems, and Controls

The business transactions that are administrative are investments, borrowing, and
capital transactions.
All of these business transactions result in T-accounts set up in the General
Ledger processes, systems, and controls. From the general ledger, both internal and
external financial statements are developed. Internal financial reports might be an aging
schedule for accounts receivable or a sales inventory status report. External financial
reports would be the income statement, balance sheet, and statement of cash flows.

Types of Accounting Information Systems

There are multiple types or categories of accounting information systems. What a
business firm uses depends on the type of business, the size of the business, the needs
of the business, and the sophistication of the business.

Manual Systems

Manual accounting information systems are used mostly by very small businesses and
home-based businesses. If a system is entirely manual, it would require the following:
source documents, general ledger, general journal, and special journals or subsidiary
journals you might need.

Legacy Systems

Legacy systems are often in existing business firms and were used before information
technology got as sophisticated as it is today. Even though legacy systems may appear
to be old-fashioned, they have some definite advantages to the firm. They contain
valuable historical data about the firm. The firm personnel tend to know how to use the
system and understand it. A legacy system has usually been customized to the specific
needs of an individual firm. You won't find this kind of customization in generic
accounting software packages.

Unfortunately, legacy systems also have significant disadvantages. Often, they have no
documentation. It is usually hard to find replacement parts because hardware and
software may become obsolete. Even the computer language that legacy systems use
is usually an older language. Most legacy systems have been built from scratch.
Replacement of Legacy Systems
You can completely replace your legacy system with a new, up-to-date system. That is
quite an expensive solution. You can also update your legacy system. You can use a
procedure called screen scraping, which is a technique that takes the data displayed on
the computer screen and translates it so a newer application can read it. You can also
set up an enterprise application integration system. This type of system networks the
different applications in your legacy system, such as inventory, payroll, and others.

If you are an SMB, unless you are the smallest, home-based variety, you will want your
accounting information system to be up-to-date in order to keep you competitive within
your industry. There are many options to choose from.