Introduction

• An Accounting Information System (AIS) is a system that collects,

records, stores, and processes data to produce information for
decision makers.
• It can: Use advanced technology; or be a simple paper-and-pencil
system; or, be something in between, technology is simply a tool to
create, maintain, or improve a system.
• Is a subsystem of management information system(MIS)
• Collects and processes transaction data
• Communicates financial information to decision makers
• Includes each of the steps in the accounting cycle
Computerized Manual

Large business organizations use this Generally used in small organizations

Work is done with the help of software Works are done manually

Chances of mistakes are low Chances of making mistakes are high

Functions of an AIS
• The functions of an AIS are:
1) Collect and store data about events, resources, and agents.
2) Transform that data into information that management can use to
make decisions about events, resources, and agents.
3) Provide adequate controls to ensure that the entity’s resources
(including data)are available when needed, Accurate and reliable
 • An Accounting Information System (AIS) consists of:
1. People
2. Procedures
3. Data
4. Software
5. Information technology
 • The data processing cycle consist of four steps1)
1. Data input
2. Data storage
3. Data processing/manipulation
4. Information output
• The information an AIS provides falls into two main categories:
i. Financial Statements
ii. Managerial Reports
Subsystems in the AIS
Subsystems in the AIS cont’d
1. The expenditure cycle: involves activities of buying and paying for
goods or services used by the organization.
2. The production cycle: involves activities converting raw materials
and labor into finished goods.
3. The human resources/payroll cycle: involves activities of hiring
and paying employees.
4. The revenue cycle: involves activities of selling goods or services
and collecting payment for those sales.
5. The financing cycle: involves activities of obtaining necessary
funds to run the organization, repay creditors, and distribute
profits to investors.
• The study of accounting information systems analyzes how events
affecting an organization are recorded, summarized, and reported.
• These events are recorded using that organization’s system of
human and computer resources, summarized using accounting
methods and objectives, and reported as information to interested
persons both within and outside of the organization
 • Accounting information systems exist in many forms of
organizations, whether proprietorships, partnerships, corporations,
nonprofit foundations, or households.
• While the complexity of each accounting information system
differs, each is similar in three important ways:
i. Each contains a similar structure (of human and computer
resources)
ii. similar processes (the use of accounting methods) and
iii. similar purposes (to provide information).
Accounting Methods and Objectives
• All accounting information systems record, process, and report
events using accounting methods to achieve accounting objectives.
• These objectives determine the system’s scope, which in turn
determines the nature of the events and the method of accounting.
• However, all systems record events in money and use the same
conceptual accounting process.
The Accounting Process
• The accounting process begins when an economic event is recognized
by an accounting information system, which records the economic
event as an accounting transaction.
• The accounting cycle is the holistic process of recording and processing
all financial transactions of a company, from when the transaction
occurs, to its representation on the financial statements, to closing the
accounts.
• This module illustrates how the system’s human and computer
components process a transaction.
• For financial accounting information systems, the activities that
process a transaction constitute the accounting cycle.
• Conceptually, the accounting cycle consists of the following six steps:
Steps in the Accounting cycle
Analyze and measure transactions
• Obviously in this phase, your business collects their transactions
for analysis, measurement, and recording.
• As a general rule of thumb, a business should minimally record:
i. All cash sales.
ii. All purchases (no matter how small).
iii. Anything that's measurable, relevant, or reliable.
• All events:
• External transactions: are between the entity and its environment,
such as exchanges with another company or a change in the cost of
goods your business purchases.
• Internal transactions: are exchanges that occur within the
organization.
•
• In short, a company records as many transactions as possible that
affect its financial position.
Journalize.
• The first step in the accounting cycle, journalizing is recording the
transaction.
• Someone analyzes the event, determines the accounts it affects,
identifies whether each account is debited or credited, and enters
the transaction chronologically in a journal processing.
• Common special journals include the cash receipts journal, the
cash disbursements journal, the payroll journal, and the sales
journal.
• Each organization has a chart of accounts, which is a list of all
account titles maintained in the accounting system.
• In journalizing an event, the accountant must choose accounts
from this list.
• An analyst establishes this list at the time the accounting
information systems are created.
Journalize cont’d
• A journal chronologically lists transactions and other events in
terms of debits and credits to accounts. Each journal entry
consists of four parts:
• 1. The accounts and amounts to be debited.
2. The accounts and amounts to be credited.
3. The date of the transaction.
4. A transaction explanation.
 Post.
• In posting, an accounting information system transfers journal
entries to ledgers.
• This is the act of transferring information from the journal to
the ledger. Posting is needed in order to have a complete record of all
accounting transactions in the general ledger, which is used to create
a company's financial statements.
• A ledger is a summary, by account, of all transactions affecting that
account.
• Thus, after posting, transactions are recorded by account rather than
in chronological sequence.
• This step makes it possible to summarize the effects of all the events
affecting the organization.
• Most organizations also use subsidiary ledgers, which contain
detailed information explaining the general ledger’s control account
total.
• Common subsidiary ledgers include the accounts payable subsidiary
ledger, the property ledger, among others.
Prepare an unadjusted trial balance
• This is step three in the accounting cycle.
• During an accounting period, accounting information systems journalize
and post a large number of transactions.
• A trial balance is a list of all the balances in the nominal ledger accounts.
• It serves as a check to ensure that for every transaction, a debit recorded
in one ledger account has been matched with a credit in another.
• If the double entry has been carried out, the total of the debit balances
should always equal the total of the credit balances.
• The unadjusted trial balance is a list of the accounts and their balances at
a given time, before any adjusting entries are made to create financial
statements. The accounts are listed in the order which they appear in the
ledger, with debit balances listed in the left column and credit balances in
the right column. The totals of these two columns must match.
• Furthermore, a trial balance forms the basis for the preparation of the
main financial statements, the balance sheet and the profit and loss
account.
Prepare Adjusting Entries.
• The fourth step in the accounting cycle is the preparation of
adjusting entries.
• Sometimes accountants make these journal entries at the end of a
reporting period to match the expenses of the period with the
revenues generated by them.
• Other adjusting entries correct previous errors in journalizing
transactions.
• An accountant or bookkeeper prepares adjusting entries, records
them in the journal, and posts them to the ledger.
• These alter the account balances shown in the trial balance.
Prepare an adjusted trial balance
• After journalizing and posting all adjusting entries, many businesses
prepare another trial balance from their ledger and accounts.
• This is called the adjusted trial balance. It shows the balance of all
accounts, including those adjusted, at the end of the accounting
period.
• Therefore, the end result of this adjusted trial balance
demonstrates the effects of all financial events that occurred during
that particular reporting period.
 Prepare financial statements
• Financial statements can be prepared directly from the adjusted
trial balance.
• A financial statement is an organization's financial results,
condition, and cash flow.
Prepare closing entries
• In the closing phase, temporary balances are reduced to zero
in order to prepare the accounts for the next period's
transactions.
• This process empties the entity's temporary accounts and
deposits anything remaining into a permanent account.
Benefits of AIS
• Businesses use accounting information systems to make their
accounting activities easier, quicker, and more accurate
• Allows to save time for employees and avoid mistakes
• Implementation of such system requires investment and time to be
spent on the implementation, however future benefits are much
higher than the expenses incurred.
• Helps the company forecast sales, profits and loss
• Make it easier to compile financial data for use in taxes, payroll and
other bookkeeping requirements