Accounting Information System (AIS)

- a computer-based system that collects, stores and processes financial

data for internal users.
- it helps track accounting activities and provides reports for investors,
creditors and tax authorities
- a secure system with protective measures to prevent unauthorized
access, viruses and hacking attempts
- its benefits include interfacing and internal controls

Importance of AIS in Accounting Cycle:

- it plays a key role in recording transactions accurately
- managing financial data systematically Manual Accounting
-ensuring compliance with tax and legal regulationws - A paper-based system using journals, ledgers, and registers.
- generating reports for financial analysis and decision making - Used by small businesses due to lower costs.

* Information stored in AIS varies by industry and business size  Advantages:

- Easy accessibility.
Key Data Stored in AIS: - Ensures data confidentiality (not exposed to hacking).
- revenue and expenses - Sales, purchases, operating costs
- customer information - Transactions, outstanding balances  Disadvantages:
- employee information -Payroll, tax deductions, benefits - Prone to human errors (wrong entries, omissions,
- tax data - VAT, income tax, sales tax, regulatory compliance miscalculations).
- other financial records - Trial balances, ledgers, bank statements - Time-consuming and labor-intensive.

Specific Data Elements in AIS: Computerized Accounting

1. Sales Orders & Analysis Reports – track revenue and customer activity - Uses computers and accounting software to record financial data.
2. Purchase Requisitions & Invoices – monitor expenses and payables - Based on a database system for systematic storage and reporting.
- Requires front-end interface, database processing, and reporting tools.
3. Check Registers – record cash payments and bank transactions
- Key Components:
4. Inventory Records – stock levels, movement, and valuation
5. Payroll Data – employee salaries, tax withholdings, deductions  Accounting Framework – Defines principles & classification
6. Ledger & Trial Balance – summarizes all financial transactions structure.
7. Financial Statements – balance sheet, income statement, cash flow
 Operating Procedure – Standard processes for data entry &

Database Structure of AIS: analysis.

- AIS requires a database to store financial information
Advantages of Computerized Accounting
- uses query languages
1. Speed & Efficiency – Processes data much faster than manual
-retrieve and manipulation accounting data
accounting.
- create relationships between tables
2. Accuracy – Reduces human errors in calculations.
- generate reports for analysis and compliance
3. Reliability – Data is stored securely in a structured format.
Functionality of AIS: 4. Legibility – No handwriting issues; records are clear and professional.
1. Data Input Fields – Allows entering new financial transactions.
5. Up-to-Date Reports – Generates financial reports instantly.
2. Editing & Updating – Users can modify existing records.
6. Backup & Security – Data can be backed up and protected from loss.
3. Data Retrieval – Generates reports and financial statements.
4. Integration with Other Systems – Works with ERP, banking, payroll Roles of AIS in the Value Chain
software. 1. Integrates Information Systems – Connects departments for seamless
management.
Security Measures in AIS: 2. Supports Decision-Making – Generates reports and evaluates data for
AIS is a highly secured platform with:
strategic planning.
1. Access Controls – Only authorized users can modify data.
3. Ensures Data Security & Control – Protects company information from
2. Data Encryption – Protects sensitive financial information.
unauthorized access.
3. Firewalls & Antivirus Protection – Prevents hacking and cyber threats. 4. Optimizes Business Processes – Enhances efficiency and reduces
4. Audit Trails – Logs user activities to detect fraud or errors operational costs.
5. Backup & Recovery – Ensures data safety in case of system failure
AIS in Supply Chain Management (SCM)
Reports & Outputs Generated by AIS: - Manages raw materials & suppliers for smooth production.
1. Accounts Receivable Aging Reports – Tracks overdue customer - Schedules human resources to optimize workforce allocation.
payments. - Reduces inventory costs through data-driven procurement.
2. Depreciation Schedules (Lapsing Schedule) – Calculates the reduction in
AIS in Customer Relationship Management (CRM)
asset value over time. - Identifies customer needs & preferences using data analysis.
3. Trial Balances & Financial Statements – Summarizes the company’s - Improves customer interactions with personalized services.
financial position. - Enhances customer retention & satisfaction through better engagement.
4. Taxation Reports – Helps with tax calculations and regulatory filings.
5. Inventory Reports – Monitors stock levels and valuation. AIS in Enterprise Resource Planning (ERP)
- Integrates HR, finance, and operations for better resource management.
6. Customer Lists & Vendor Records – Organizes client and supplier data.
- Ensures smooth business workflow across different functions.
- Reduces redundancy & enhances data accuracy.
AIS does not store non-financial documents such as:
- Memos & Internal Correspondence – Not related to bookkeeping.
- Presentations & Meeting Notes – Business discussions are not recorded BUSINESS SYSTEM
in AIS. - a set of processes, people, and technology that work together to
- Non-Financial Reports – Only financial data is maintained in AIS. achieve business goals.

Benefits of Using an AIS Components of Business System Design

1. Accuracy & Efficiency – Automates calculations and minimizes errors. 1. People – Users, employees, customers
2. Time-Saving – Reduces manual record-keeping efforts. 2. Processes – Business operations, workflows
3. Data Security – Protects sensitive financial information. 3. Technology – Software, hardware, databases
4. Regulatory Compliance – Ensures adherence to tax laws and 4. Data – Information flow, storage, analysis
accounting standards.
Types of Business Systems
5. Better Financial Control – Provides real-time insights into business
finances. 1. Transaction Processing Systems (TPS)
– Handles day-to-day business transactions
2. Management Information Systems (MIS)
– Supports decision-making using reports and data (e.g., sales reports,
financial analysis)

3. Enterprise Resource Planning (ERP)

– Integrates all business functions

4. Decision Support Systems (DSS)

– Provides analytical tools for complex decision-making

Contribution of AIS in Value Chain

1. Inbound Logistics – Tracking of raw material costs, inventory levels, and
supplier performance to optimize procurement process.

2. Operations – Monitoring production costs. Labor efficiency, and

inventory management to improve operational effectiveness.

3. Outbound Logistics – Tracking shipping costs, delivery times, and

customer order fulfillment to optimize distribution channels.

4. Marketing and Sales – Providing data on sales trends, customers

demographics, and pricing strategies to support marketing campaigns and
sales forecasting.

5. Customer Service – Monitoring customer support costs and resolving

issues efficiently to enhance customer satisfaction

6. Firm Infrastructure – Facilitating financial reporting, budgeting, and

compliance with regulatory requirements to ensure overall financial stability

7. Human Resource Management – Tracking employee payroll, benefits,

and performance metrics to optimize workforce management.

System Development Life Cycle (SDLC)

- a structured step-by-step process for designing and developing business
systems.

Phases of SDLC:
1. Planning – Define objectives, feasibility analysis
2. Analysis – Gather requirements, study current system
3 . Design – Create system architecture & models
4 . Implementation – Develop and test the system
5 . Maintenance – Monitor, update, and fix issues

Challenges in Business System Design

- Integration problems – Systems must work together
- Security risks – Data breaches, cyber threats
- Scalability issues – Systems must grow with the business
- Cost overruns – Poor planning leads to increased expenses

Future Trends in Business System Design

1. Artificial Intelligence & Automation – AI-driven decision-making
2. Cloud Computing – Scalable, remote access to business systems
3. Blockchain – Secure, transparent financial transactions
4. Internet of Things (IoT) – Smart business operations
SYSTEM  External Financial Transactions
- a group of two or more interrelated components or subsystems that – most common source of data for most organizations
serve a common purpose - these are economic exchanges with other business entities
- when it is a focus of attention and individuals outside the firm

SUBSYSTEM  Internal Financial Transactions

- when it is viewed in relation to larger system of which it is a part - the exchange or movement of raw materials into work in
process, the application of labor and overhead to WIP, transfer
SYSTEM DECOMPOSITION
of WIP into finished goods inventory, and depreciation of plant
- the process of dividing the system into smaller subsystem parts
and equipment
SUBSYSTEM INTERDEPENDENCY
Transforming Data into Information
- distinct parts are not self-contained
- they are reliant upon functioning of other parts of system 1. Data Collection
- all distinct parts must be functioning or the system will fail - first operational stage in information system
- capturing transaction data
INFORMATION SYSTEM
- recording data onto forms
- set of formal procedures by which data are collected, processed into
- validating and editing data
information, and distributed to users
2. Data Processing
TRANSACTION
- classifying, transcribing, sorting, batching, merging, calculating,
- an event that affects or is of interest to organization and is processed
summarizing and comparing
by its information system as a unit of work
3. Database Management
 Financial Transactions – an economic event that affects assets
- storing, retrieving, deleting
and equities of the organization, is reflected in its accounts,
and is measured in monetary terms 4. Information Generation
- process of compiling, arranging, formatting, and presenting information to
 Nonfinancial Transactions – events that do not meet the narrow users
definition of financial transaction
Characteristics of Useful Information
Internal Information Flows 1. Relevance - contents of report or document must serve a purpose

1. Horizontal Flows of Information 2. Timeliness - age of information is critical factor in determining its
– used primarily at operations level to capture transaction and operations usefulness. Information must be no older than the time of action it
data supports
2. Vertical Flows of Information
- downward flows – instructions, quotas and budgets 3. Accuracy - information must be free from material errors

- upward flows – aggregated transaction and operations data 4. Completeness – no piece of information essential to decision or task
should be missing
3 Major Subsystems of AIS
5. Summarization – information should be aggregated in accordance with
1. Transaction Processing System (TPS)
- supports daily business operations with numerous reports, documents the user’s need
and messages for users throughout organization
6. Reliability -
- central to overall function of information system by converting economic
events into financial transactions, recording financial transactions in FEEDBACK
accounting records, and distributing essential financial information to - form of output that is sent back to the system as a source of data
operations personnel to support their daily operation
Information System Objectives:
2. General Ledger / Financial Reporting System 1. To support stewardship function of management
- produces the traditional financial statements - Stewardship – management’s responsibility to properly manage resources

3. Management Reporting System (MRS) of firm

- provides internal management with special-purpose financial reports and 2. To support management decision making
information needed for decision making such as budgets, variance reports, 3. To support firm’s day to day operations
and responsibility reports
Basic Types of Commercial Software
- provides internal financial information needed to manage a business
1. Turnkey Systems
Management Information System (MIS)
- completely finished and tested systems that are ready for
- processes nonfinancial transactions that are not normally processed by
implementation
traditional AIS
2. Backbone Systems
End Users
- consist of basic system structure on which to build
 External Users – include creditors, stockholders, potential
3. Vendor-supported Systems
investors, regulatory agencies, tax authorities, suppliers and
- custom systems that client organizations purchase
customers
commercially rather than develop in-house
 Internal Users – include management at every level of
Organizational Structure
organization, as well as operations personnel - it helps to allocate responsibility, authority and accountability throughout
organization
DATA
- facts, which may or may not be processed and have no direct effect Business Segments
on user 1. Geographic Location
- unorganized and unrefined facts - organize management of firm around each geographic segment
- an individual unit that contains raw materials which do not carry any 2. Product Line
specific meaning - Product Segmentation allows organization to devote specialized
- it doesn’t depend on information management, labor and resources to segments separately

INFORMATION
3. Business Function
- comprises processed, organized data presented in meaningful context
- Functional Segmentation divides organization into areas of specialized
- group of data that collectively carries a logical meaning
responsibility based on tasks
- depends on data
 Material Management – to plan and control materials inventory
Data Sources
of company
- financial transactions that enter the information system from both
internal and external sources 1) Purchasing – responsible for ordering inventory from
vendors when inventory levels fall to their reorder events, and agents and relationship between them.
point
5. Enterprise Resource Planning (ERP)
2) Receiving – task of accepting inventory previously - information system model that enables organization to automate and
ordered by purchasing integrate its key business processes

3) Stores – takes physical custody of inventory received

and releases these resources into production process
TRANSACTION CYCLES
as needs
- exist in all types of business – profit & non-profit
 Production – activities occur in conversion cycle in which raw
1. Expenditure Cycles
materials, labor and plant assets are used to create finished
- business activities begin with acquisition of materials, property and labor
products
in exchange for cash
1) Production Planning – scheduling flow of materials,
2. Conversion Cycle
labor and machinery to efficiently meet production - composed of production system and cost accounting system
needs
 Production system – involves planning, scheduling, and control of
2) Quality Control – monitors manufacturing process at
physical product through manufacturing process
various points to ensure that finished products meet
firm’s quality standards  Cost accounting system – monitors flow of cost information
related to production
3) Maintenance – keeps firm’s machinery and other
manufacturing facilities in running order 3. Revenue Cycle
- firms sell their finished goods to customers through this cycle, which
 Marketing – deals with strategic problems of product promotion, involves processing cash sales, credit sales, and receipt of cash following
advertising and market research credit sale.

 Distribution – activity of getting product to customer after sale

 Personnel – to effectively manage competent and reliable Accounting Records

employees Manual Systems

1. Documents
 Finance – manages financial resources of firm
- provides evidence of economic event and may be used to initiate
transaction processing.
Roles of Accountant
Types of Documents:
1. Accountants as Users
a) Source Documents
2. Accountants as System Designers
- economic events result in some documents being created at
- accountants are domain experts and responsible for conceptual design
the beginning (the source) of transaction
of AIS
- used to capture and formalize transaction data that
- Conceptual system design involves specifying criteria for delinquent
transaction cycles needs for processing
customers and information that needs to be reported
b) Product Documents
3. Accountants as System Auditors
- result of transaction processing rather than the triggering
 External Audit – form of independent attestation performed by mechanism for the process

an expert who expresses an opinion about fairness of c) Turnaround Documents

company’s financial statements - product documents of one system that become source
documents for another system
 Internal Audit – an independent appraisal function established
within an organization to examine and evaluate its activities as 2. Journal
service to organization - record of chronological entry
- holds a complete record of transactions and thus provides a means for
 Fraud Audit – investigate anomalies and gather evidence of posting to accounts
fraud that may lead to criminal conviction
a) Special Journals
 Top Management – responsible for longer-term planning and - used to record specific classes of transactions that occur in
setting organizational objectives. high volume

 Fraud – a deception that is intentional and caused by an b) General Journal

employee or organization for personal gain - use to record nonrecurring, infrequent, and dissimilar
transactions

Evolution of Information System Models: 3. Ledgers

- book of accounts that reflects the financial effects of firm’s
1. Manual Process Model transactions after they are posted from various journals
- oldest and most traditional form of accounting systems - indicates increases, decreases and current balance of each account
- constitute physical events, resources and personnel that characterize
many business processes a) General Ledgers
- includes physical task of record keeping - summarizes the activity for each of organization’s accounts

2. Flat-file Model b) Subsidiary Ledgers

- aka legacy systems
- describes an environment in which individual data files are not related
to each other files

 Task-data dependency – user’s inability to obtain additional

information as his/her needs change

3. Database Model
- Database Management System (DBMS) – special software system that
is programmed to know which data elements each user is authorized to
access

4. REA Model
- accounting framework for modeling an organization’s critical resources,