Republic of the Philippines

CONCEPCION HOLY CROSS COLLEGE

Minane, Concepcion, Tarlac

THE HISTORICAL TIMELINE OF ACCOUNTING INFORMATION SYSTEM

Bagsic, Camille R.
Caisip, Elijah Q.
Dizon, Ropalito P.
Gutierrez, Jenna G.

January 2024
ABSTRACT
 TABLE OF CONTENT

1. Background of the Study

1.1 Introduction

1.2 Purpose of the Study

1.3 Significance of the Study

1.4 Scope and Delimitation

2. Review of Related Literature and Studies

2.1 Brief History of Accounting

2.2 How AIS works

2.3 Development of AIS

2.4 Strength and Weaknesses

2.5 Management and AIS

2.6 Impact of Technology in the Evolution of AIS

 Evolution of Computer-Based System

 Evolution of AIS Model

3. Conclusion

4. Definition of Terms

5. References
 Chapter 1

BACKGROUND OF THE STUDY

2.1 Introduction

An accounting information system (AIS) is a computer-based method that

gathers, preserves, and handles financial and accounting data. This system is

designed to assist decision makers by providing them with the necessary

information. It combines accounting practices with technology resources to

effectively monitor accounting activities and generate valuable financial

information. AIS typically involves the use of computer software and databases to

record and store financial data such as sales, purchases, expenses, assets, and

liabilities. It encompasses various components and processes, including data

input, data processing, data storage, data output and data analysis.

In the present day, dramatic and dynamic changes have taken place in the

field of information technology (IT) and these advancements have substantially

pervasive to the extent that they have generated changing trends in various

areas. The fast-paced change in information technology, the extensiveness of

user-friendly systems together with the massive inclination of organizations to

obtain and implement informed and current computerized systems and software

have resulted in computers being substantially simpler in being used. As a result,

this has made it possible for accounting tasks to be achieved significantly faster

and more precisely as compared to before. Some of the most significant features
include exceedingly high precision, accessibility to information with high speed,

processing data at a high speed, cost-effectiveness, and high-quality levels.

Taking these factors into consideration, it is perceptible that there is no need at

all for the justification of the utilization of IT in the present setting (Salehi, 2011).

Accounting information systems play a vital role in organizations of all

sizes and industries. They facilitate the recording, processing, and reporting of

financial transactions, support decision-making processes, ensure compliance

with accounting standards and regulations, and provide valuable insights into an

organization's financial health. As technology continues to advance, the field of

accounting information systems will undoubtedly continue to evolve, addressing

new challenges and opportunities in the digital age.

2.2 Purpose of the Study

This research aims to gain an in depth understanding about the history

and evolution of the Accounting Information System.

 To obtain a comprehensive understanding of the development, challenges

and opportunities related to AIS.

 To provide insights that can inform the management of AIS in organizations,

helping them make informed decisions and adapt to changing business

environments.

 To highlight key milestone and technological advancements that have

shaped the field.

2.3 Significance of the Study

The findings of this study will be useful to both students seeking a

comprehensive understanding of AIS and business managers aiming to optimize

the use of AIS within their organizations. This study is crucial as it will offer

valuable insights into various strategies and approaches that can be employed to

address these challenges. By doing so, managers and organizations will be able

to successfully adopt and implement accounting information systems in their

respective organizations.

2.4 Scope and Delimitation

This study covers the history of Accounting Information System and how it

evolves through the years focusing on helping accounting students to have

extensive knowledge that will equip them during their studies and prepares them

for the challenges they may face in their professional careers. Succintly, the

prospective readers of this study are the accounting students, professors,

business owners and managers.

 Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter presents some reviewed literature and studies that are

relevant to the study.

2.1 Brief History of Accounting

Accounting has been in existence for thousands of years and can be

traced back “over 7,000 years ago among the ruins of Ancient Mesopotamia. At

the time, people relied on accounting to keep a record of crop and herd growth”

(“History of Accounting”, n.d., para. 2). Since then, accounting has developed

immensely and has played an integral role in keeping businesses organized.

Accountants have many different responsibilities and expectations in business,

including financial data management, analysis and advice, financial report

preparation, regulatory and reporting compliance and external business

affiliations (Davis, 2019). In order for them to accomplished those responsibilities

they used different techniques on how to collect and manage accounting data,

presently known as Accounting Information System.

2.2 How AIS works

According to Wilkinson et al (2000), accounting information systems are

structures that are integrated into an entity, which use physical resources and

other components, to convert financial transaction/accounting data into

accounting information with the aim of meeting the needs of information from
users. Bodnar and Hopwood accounting information systems are collections of

resources, such as humans and equipment, which are arranged to convert data

into accounting information. Niswonger et al (2000) accounting system is a

means for company management to obtain information that will be used to

manage the company and to prepare financial statements for owners, creditors

and other interested parties. The functions of accounting information systems in

organizations include: collecting and storing data about activities and

transactions. Processing data into information that can be used in the decision

making process.

2.3 Development of AIS

Accounting Information Systems (AIS) have a rich history that dates back

several decades.

 Mesopotamian and Egyptian Accounting Practices

The origins of accounting can be traced back to ancient civilizations such

as Mesopotamia, Egypt, and ancient Greece. These early systems relied on

manual methods of recording financial transactions, primarily using clay tablets,

papyrus scrolls, and other forms of primitive documentation.

3000 BCE: Ancient Sumerians develop the first known form of writing, which

includes records of financial transactions.

 Double Entry Bookkeeping

In the late 15th century, Italian mathematician Luca Pacioli introduced the

concept of double-entry bookkeeping in his book "Summa de Arithmetica,

Geometria, Proportioni et Proportionalita." This system revolutionized accounting

by emphasizing the recording of both debit and credit entries for each

transaction, providing a more accurate and systematic method of bookkeeping.

 Emergence of Computers

In the 19th century, advancements in technology led to the development

of mechanical calculating machines, such as the adding machine patented by

William Seward Burroughs in 1888. These machines facilitated faster and more

accurate calculations, reducing the reliance on manual computation.

Mainframe computers started becoming available in the 1950s and were

initially used for scientific and military purposes.

Batch Processing: Accounting departments began using mainframe computers

for batch processing, where transactions were collected and processed in

batches overnight or during off-peak hours.

General Ledger Systems: Early mainframe accounting systems were designed

to handle general ledger functions, such as ledger maintenance, posting, and

reporting.

With the introduction of minicomputers in the 1970s, smaller

organizations gained access to computing power.

Integrated Accounting Systems: Integrated accounting systems emerged,

combining various accounting functions such as general ledger, accounts

payable, and accounts receivable into a single system.

Spreadsheet Software: The introduction of spreadsheet software, such as

VisiCalc and Lotus 1-2-3, allowed accountants to perform calculations and data

analysis more efficiently.

The 1990s marked the emergence and widespread adoption of the

personal computer

PC-Based Accounting Software: With the widespread adoption of personal

computers, accounting software packages like QuickBooks and Peachtree (now

Sage) became popular among small and medium-sized businesses.

Relational Databases: Relational database management systems (RDBMS)

provided a more structured and efficient way to store and retrieve accounting

data.

Client-Server Architecture: Accounting systems migrated to client-server

architecture, enabling multiple users to access and interact with the system

simultaneously.

The advent of the internet and cloud computing in the late 20th century

and early 21st century further transformed accounting systems. Cloud-based

accounting software allowed businesses to access their financial data from

anywhere, collaborate in real-time, and eliminate the need for local server

infrastructure. This shift also enhanced data security and provided scalability for

growing organizations.
Web-Based Accounting Systems: Web-based accounting systems, such as

Xero and QuickBooks Online, emerged, allowing users to access their

accounting data from any device with an internet connection.

Cloud Computing: The rise of cloud computing further revolutionized

accounting information systems by offering scalable storage, enhanced

collaboration, and real-time data synchronization.

Automation and Artificial Intelligence: Advances in automation and artificial

intelligence technologies have led to the development of intelligent accounting

systems that can automate routine tasks, perform data analysis, and provide

predictive insights.

2.4 Strength and Weaknesses

 Strengths of Accounting Information System

Accounting information systems is designing a data processing system

using software. It can also be done manually. The computerized systems make

accounting job easier by the use of software which can compile financial, tax and

payroll data. It can perform other bookkeeping functions. The system collects and

processes transaction data. Then it disseminates financial information which

management and company stakeholders use to make decisions.

Computerized financial information systems are faster and more efficient

in processing data. The use of hardware such as scanners automatically

generates accounting information without much ado. The information is available

almost immediately. The cost of hardware such as computers is low and the
availability of cheaper and user-friendly accounting software makes accounting

information systems affordable. Computerized financial systems enable users to

access it promptly by the click of a mouse. Unlike manual, which by the way is

still very much in existence as some companies want to keep both electronic and

manual accounting information systems, the user does not have to go through a

pile of paper work in order to locate the information he needs.

Accounting information system makes the maintenance of a bloated

financial department irrelevant. The software does most of the work that would

otherwise require several employees. The accounting software can journal and

prepare documents such as the trial balance. Journals and ledgers are recorded

in the computer data bases. There is also software that can perform functions

such as billing budgeting and preparing payroll.

Accounting information systems help cuts the payroll for accounting staff

substantially. Another important responsibility of accountants is data protection.

In manual accounting, if the paper journal used to record the numbers is

damaged or lost, the accountant has to start all over again. The Houston

Chronicle also points out that losing sensitive information is a big problem as

confidentiality policies may be compromised. A computerized accounting

information system offers an advantage since the data is entered and saved in

the software. Furthermore, the data can be uploaded to the Internet where a

backup copy can be stored.

Data stored in AIS can be retrieved via information system connected with

internet anywhere and at any time. Where manually prepared books of accounts
cannot be carried easily, AIS data can be. With the involvement of AIS, the

reliability of data is increased. AIS follows a predefined set of instructions,

therefore chances of error-prone information are less and therefore AIS have an

added advantage of accurate data.

 Weaknesses of Accounting Information System

The biggest challenge or disadvantage of Accounting Information System

is its training. The accountants are not trained on this system in their academic

studies. Learning an accounting information system can often be difficult and

time-consuming. Individuals must be trained on a system, and this can cause a

disadvantage to companies in terms of time and manpower.

An accounting information system is made up of many different

components, and almost all systems are computerized. Because of their

complexity, some people may find them hard to use. It can take weeks or months

for a person to understand an accounting system, and usually the individual still

does not understand completely what the system is capable of. If the employee

quits working at the organization, it can take weeks or months, once again, to

train another employee. The academic should include IT and AIS in the

curriculum to meet and equip the accountants with the changes caused by AIS.

According to Elliot (2002), accounting is one of the important business

areas facing unprecedented challenges due to the rapid development of IT. Many

aspects of accounting practice have been changed fundamentally by advances in

IT, including financial reporting, managerial accounting, auditing and taxation.

 Accounting information systems are usually computerized. Because of

this, there is always a risk of losing information through power outages or system

crashes. When this happens, there is a chance that all the information in the

system could be lost. Companies take precautions for this problem by backing up

their files regularly and performing standard maintenance on all computer

systems. They also install anti-virus software as another precaution.Still, none of

these steps eliminates the potential problem that may occur. Accounting

information systems store a company’s financial information for years. If a

system crash occurs, it causes a major disadvantage to the company. All, or

some, information is lost, and there’s a chance it may never be recovered.

A disadvantage of accounting software is the cost involved. Beyond the

initial outlay to purchase the software there is the cost of maintenance,

customization, and training and computer hardware. While time savings may

justify the cost, for some businesses it may take years before an accounting

software investment pays for itself.

2.5 Management and the AIS

Accounting information system (AIS) plays the key role in management

decision making in today business word. The advancement in information

system modules all over the world has helped business firms exert resources in

this area to get power for compete favorably among their local and foreign

counterparts, more effectively. Today, most modern business organizations find

themselves in the atmosphere of global uncertainties, high competition levels

locally and internationally and unprecedented change in the economy. Hence, a

great demand is often placed on from the managers of these organizations to

make suitable and informed decisions (Copeland & Dascher, 1978).

According to Boocholdt (1999), AIS can be described as systems that

operate functions of data gathering, processing, categorizing and reporting

financial events with the objective of providing relevant information for the

purpose of score keeping, attention directing and decision-making. Therefore,

AIS may help managers understand their tasks more clearly and reduce

uncertainty before making their decisions (Choe, 1996). In addition, accounting

information system of any organization needs to be appropriately designed in

order to enable managers fully utilize materials at their disposal efficiently and

effectively. To conclude, it is important for adequate and timely accounting

information system to be put in place for business management. In designing an

Accounting information system, the practice and study of accounting is put

together with information system.

 There are three basic objectives of an AIS, which are;

1. It helps an organization fulfill its statutory obligations of preparing and

publishing certain accounting statements and information.

2. It analyses financial data and provides reliable and accurate financial

information to the users of the AIS.

3. Protects a firms accounting data from breach or theft (which can be a

significant problem).
2.6 Impact of Technology on the Evolution of AIS

In the era of rapidly changing technology and adaptation of technological

advancements, significant changes are occurring in AIS. The latest changes

include cloud computing, cloud accounting, real-time accounting, or mobile

accounting.

This has made accounting much easier and more convenient than the old

ways of accounting. Advancement has reached a level that records, classifies,

analyses, and reports figures and predicts future trends, which may help to face

an actual situation with much preparedness.

 Evolution of Computer-Based Information System

Azhar Susantp Meryani developed the Evolution of Computer-Based

Information System. In the early 20th century computer usage was limited to

accounting applications and used the name Electronic Data Processing (EDP),

which was the most basic information system application in every company. now

we use the term accounting information system to replace electronic data

processing. New Focus on Information (Management Information System / SIM)

is the concept of using computers to support management information systems

and was introduced in 1964 by computer makers. The SIM concept realizes that

computer applications must be applied for the main purpose of producing

management information. Revision focus on decision support (Decision support

system / DSS) refers to management information systems that continue to evolve

in the face of their weaknesses, emerging approaches with the name Decision
support systems (DSS), which is a system of producing information aimed at a

particular problem that must be solved by the manager. Focus on communication

(office automation / OA) OA (office automation) implementation to facilitate

communication and increase productivity among managers and other office

workers through the use of electronic devices. Potential focus on consultation

(Artificial Intelligence / Al), the basic idea of Al is that computers can be

programmed to carry out the same logical part as humans. Managers make

decisions to solve problems by utilizing data and information. Information is

presented in oral and written form by an information processor. In the processing

with the computer consists of five fields, namely SIA, SIM, DSS, virtual offices

and knowledge-based systems. This is called a computer-based information

system (computer based information system).

 Evolution of Accounting Information System Model

In the article of Lusiana, S.E., M.Ak, the Evolution of the Accounting

Information System Model was mentioned, where five different approaches or

models have represented AIS. The first one manual process model is the oldest

and most traditional form of accounting systems. Manual systems constitute the

physical events, resources, and personnel that characterize many business

processes. This includes such tasks as order-taking, warehousing materials,

manufacturing goods for sale, shipping goods to customers, and placing orders

with vendors. Traditionally, this model also includes the physical task of record

keeping. Next is the flat-file approach, most often associated with so-called
legacy systems. These are large mainframe systems that were implemented in

the late 1960s through the 1980s. Organizations today still use these systems

extensively. Eventually, modern database management systems will replace

them, but in the meantime accountants must continue to deal with legacy system

technologies. The flat-file model describes an environment in which individual

data files are not related to other files. End users in this environment own their

data files rather than share them with other users. Thus, stand-alone applications

rather than integrated systems perform data processing.The third one is the data

base model which explains that an organization can overcome the problems

associated with flat files by implementing the database model to data

management. With the organization’s data in a central location, all users have

access to the data they need to achieve their respective objectives. Access to the

data resource is controlled by a database management system (DBMS). The

DBMS is a special software system that is programmed to know which data

elements each user is authorized to access. The REA Model follows, it refers

accounting framework for modeling an organization’s critical resources, events,

and agents (REA) and the relationships between them. Once specified, both

accounting and non-accounting data about these phenomena can be identified,

captured, and stored in a relational database. From this repository, user views

can be constructed that meet the needs of all users in the organization. The last

one is the Enterprise resource planning (ERP), an information system model that

enables an organization to automate and integrate its key business processes.

ERP breaks down traditional functional barriers by facilitating data sharing,

information flows, and the introduction of common business practices among all

organizational users. The implementation of an ERP system can be a massive

undertaking that can span several years. Because of the complexity and size of

ERPs, few organizations are willing or able to commit the necessary financial and

physical resources and incur the risk of developing an ERP system in-house.
CONCLUSION