What is Accounting? 

Accounting the process of recording business-related financial transactions. The process of accounting involves summarizing and analyzing the transactions.  

The financial statements which are prepared in accounting contain a summary of the various transactions that took place within a certain accounting period. Book-keeping or accounting is one of the most important activities of any business. 

There are two types of accounting:

  • Managerial Accounting  
  • Cost Accounting 

Managerial accounting helps the management within the organization to take proper and effective business decisions while Cost accounting helps in determining the cost that a business needs to incur when producing a particular product.  

The basic accounting transactions that take the place are generally taken care of by a person employed as a "bookkeeper" while the advanced accounting transactions are recorded by professionals such as Chartered Accountants, Certified Management Accountants (CMA), or the Certified Public Accountants (CPA).  

In the United States, the Accounting Standard that is followed is based on double-entry accounting wherein a single accounting transaction is recorded as both debits as well as credit in two separate ledger accounts. 

What is Information System? 

An information system can be described as an integrated set of components that are used for collecting and storing information and sensitive data of the organization.  

In today's time, most of the businesses around rely on these information systems for interacting with their customers and suppliers and to compete in the market.  The information system is used to manage human resources within the organization and to carry on online promotion techniques.  The information systems are also put to use by government undertakings to provide cost-effective services, promoting digital goods such as e-books, software and rendering online services such as social networking and gaming. 

Components of Information Systems

The major components of an Information System are,

I. Computer Hardware: The term "hardware" includes the physical equipment which comprises machinery. In this technologically advanced world, we have computers, smartphones, tablets, and other electronic gadgets which come under the ambit of hardware devices.  

In recent times the cost of hardware has seen a rapid decline while there has been an increase in the processing speed and storage capacity of the devices.  

The use of electric power to operate hardware devices and its environmental impact, however, has been a major cause of concern for the engineers around and this has been dealt with utmost priority. 

ii.  Computer software: The computer software can broadly be classified into system and application software. The operating system is the most used system software which helps in managing the data and program files more efficiently.  

The application software on the other hand enables the user to handle specific tasks. Multinational companies generally make use of licensed application software to meet their day-to-day specific needs. 

iii. Telecommunications: It is generally used to transmit financial data and information and connections are established by the management using a wired or wireless medium. The wireless medium makes use of microwaves and radio waves to transmit data and other information. 

 There are various types of computer networks that are available depending on the needs of the organization such as Local Area Network (LAN) which connects two computers within a particular site such as an office building.  

The Wide Area Network (WAN) covers a wider area thereby establishing a network amongst two more different organizations. The Virtual Private Network (VPN) on the other hand helps in connecting two or more business partners over the internet in a private and secured manner by encrypting their shared data. 

iv. Databases and Data Warehouses: The accounting systems generally act as a medium for delivering the data that are stored in the database. The large enterprises' operations and management are taken care of by the databases.  

On the other hand, data warehouses act as a storehouse of data that has been collected by the management over a period which can now be put to use for developing and marketing new products and reaching out to potential customers. 

What is Accounting Information System?

An accounting Information System (AIS) is a structural system that an enterprise uses for collecting, storing, reporting, retrieving, and processing financial data.  The accounting information system is generally used by business analysts, auditors, accountants, and consultants for the accurate and efficient functioning of the organization as far as access to financial data is concerned. 

An Accounting Information System (AIS) helps in smoothening the coordination between different departments of the company and achieving the highest level of accuracy with regards to the storage of financial data.  The Accounting Information System (AIS) also enables the easy availability of financial data to concerned persons while maintaining the absolute security of the company's sensitive data. 

What are the Components of an Accounting Information System (AIS)? 

The accounting system generally consists of six major components which can be detailed as below,

I. AIS People: The Accounting Information System controls the management of the different departments within a company and maintains smoother coordination between the people working within it. The people that make use of the AIS include accountants, consultants, analysts, managers, etc.  

The Accounting Information System (AIS) helps in improving the accounting standards of the organization and also helps in simplifying how the information is reported to the people outside of the organization. 

ii. Procedures and Instructions: The Accounting Information System (AIS) uses both manual and automated methods to collect, store process, and retrieve data that can be gathered both from the internal as well as external sources of the management.  

The procedures and instructions are usually coded in the Accounting Information System (AIS) software and these are required to be consistently for gaining proper and efficient control over the organization's activities. 

iii. AIS data: The Accounting Information System is required to have a proper database structure for storing the required information. The data which is stored in the AIS is retrieved for reporting purposes by the accountants with the help of a computer language known as "Structured Query Language (SQL) ".  

The type of data that is stored in the Accounting Information System (AIS) contains accounting information related to business practices which include sales orders, inventory data, vendor invoices, etc. 

iv. AIS software: The accounting software is used by accountants to store, analyze and process a company's financial data. The quantity, reliability, and security are the key components that form the basis of the software used by the Accounting Information System (AIS). They are generally customized to meet the different requirements of the businesses and in the case where the existing software is unable to meet the requirements, it can also be developed in-house with required inputs from the end-users. 

v. IT infrastructure: The IT infrastructure is generally the hardware used by the Accounting Information System and includes computers, mobile devices, servers, printers, etc. The factors which are generally considered while choosing hardware for the Accounting Information System (AIS) are speed, storage capacity, and upgradability. 

vi. Internal Controls: It is generally the security measure that is undertaken to protect the sensitive data of the organization. This can include a password or a biometric identification as the Accounting Information System (AIS) not only contains confidential information about just the company, but also its customers and employees.  

It is a mandate that all the data stored in the AIS should be end-to-end encrypted. 

Context and Applications 

This topic is significant in the professional exams especially for: 

  • MBA 
  • BBA 
  • B. Com 
  • B. Com (Hons) 

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