Question

The text defines an Accounting Information System as software that "collects and processes transaction data and then disseminates the financial information to interested parties."

Find a real-life example of an AIS and provide a short review of the software based on that definition.

Answer 1

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.

QuickBooks Online (Accounting Information System)

Every business organization looks forward to incorporating customized means that eases overall workability and increases productivity. QuickBooks is one of the modern, scalable, and rich featured accounting software which fulfills work obligations by boosting efficiency. This software aids small and medium scale business through various customized plans. QuickBooks is easy to use software that tracks, calculates, organizes financial aspects, and making them perfectly effective to transmit over various departments. With QuickBooks, it becomes easier to import transactions, reconcile bank accounts, and know where the money is invested.

QuickBooks Online allows tracking of income-expenses, generate invoices, regularise payments, import invoices, maximize tax deductions, run and export reports including profit/loss, expenses, balance sheets, easily track cash flows and avoid surprise transaction. Additionally, it allows dashboard customization, custom chart builder, track KPIs, track deductible miles, categorize business and personal trips, forecast cash flows, generate financial insights, run custom reports, match certified bookkeeper, and connect with the later as per convenience. QuickBooks reduces your stress by automating bills, recurrent payments, activate Auto Payroll, Tax penalty protection, manage inventory, calculate sales tax, track project profitability, and create groups accordingly. QuickBooks is one of the best accounting software for a small business which suffices all the financial requirement through its three different plans. Available for the free trial, QuickBooks also provides virtual support to its customers; help them choose the plans accordingly.