ACCOUNTING INFORMATION SYSTEM

GAGE UNIVERSITY COLLEGE- ADDISU GEBEYA CAMPUS INS. TESFAHUN KEBEDE

CHAPTER ONE
1. ACCOUNTING INFORMATION SYSTEMS: AN OVER VIEW
Definition of accounting information system

Before explaining the definition of accounting information system, describing the key
terminologies that are elucidated in the definition with just a position makes easy to understand it
clearly.

1. A system is a set of two or more interrelated components that interact to achieve a goal.
 Goal conflict: - When a subsystem’s goals are inconsistent with the goals of another
subsystem or the system as a whole.
 Goal congruence: - When a subsystem achieves its goals while contributing to the
organization’s overall goal.
2. Data are facts that are collected, recorded, stored, and processed by an information system.

3. Information: is data that have been organized and processed to provide meaning and
improve the decision-making process.
 Users make better decisions as the quantity and quality of information increase.
 Information system designers use information technology (IT) to help decision
makers more effectively filter and condense information.
 Information Technology can effectively collect, store, analyze, and manage data to
provide useful information.

An accounting information system (AIS): is the process of collecting and storing the financial
and accounting data used by internal users to report information to investors, creditors, and tax
authorities.

A. An over view of AIS

The value of information is the benefit produced by the information minus the cost of
producing it..
The larger the organization and the more complicated the system, the more difficult it is to
achieve goal congruence.

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 ACCOUNTING INFORMATION SYSTEM
GAGE UNIVERSITY COLLEGE- ADDISU GEBEYA CAMPUS INS. TESFAHUN KEBEDE
Benefits of information include reduced uncertainty, improved decisions, and improved
ability to plan and schedule activities.
Information costs and benefits can be difficult to quantify, and it is difficult to determine
the value of information before it has been produced and utilize.
Generally, An Accounting information system is a computer-based method for tracking
accounting activity in conjunction with information technology resources. Even though, the
costs of producing the information do not exceed its benefits.
B. Business process, activities, decisions and information needs
 Business process, activities
Before defining the business process, let’s describe the term “process” first.

A process is a series of tasks that are completed in order to accomplish a goal. Processes are
something that businesses go through every day in order to accomplish their mission. The good
processes can make the business more effective.

A process is the actions happening while something is being done.

Example: Car driving processes
 Series of tasks completed to car driving processes are:-
1st – Checking of engine oil, water, and tire before igniting the car
2nd – Comfort sitting style and tie your belt.
3rd – Set the outside and inside mirror properly.
4th – Accelerate the car.

A business process is a set of related, coordinated, and structured activities and tasks that are
performed by a person, a computer, or a machine and that help accomplish a specific
organizational goal.

 Simply we can say that, a business process is a process that is focused on achieving a
goal for a business.

Activities completed in a business process may be depending on the type of the business.
Different types of business have different business processes.

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GAGE UNIVERSITY COLLEGE- ADDISU GEBEYA CAMPUS INS. TESFAHUN KEBEDE
 Activities that is commonly practiced in a business process may include:
 Selling goods to customers,
 Advertising and marketing
 Buying inventory from suppliers,
 Collect payments from customers,
 Hire and train employees,
 Pay taxes
 Paying to employees and vendors etc.

Example: Let’s see a transaction process in a business firm.

 The process that begins with capturing transaction data and ends with informational
output, such as the financial statements.
 Hence, an auditor needs a better understanding on the business process nature before
conducting an auditing process.
 Decisions and information needs

All organizations need information in order to make effective decisions. To make effective
decisions, organizations must decide

1. What decisions they need to make,

2. What information they need to make the decisions, and
3. How to gather and process the data needed to produce the information.
C. Scope of AIS

The five areas of consideration for the AIS program are:-

1. Hardware
2. Data
3. Human resources
4. Software
5. Communications

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GAGE UNIVERSITY COLLEGE- ADDISU GEBEYA CAMPUS INS. TESFAHUN KEBEDE

 There are six components of AIS:

1. The people who use the system

2. The procedures and instructions used to collect, process, and store data

3. The data about the organization and its business activities

4. The software used to process the data

5. The information technology infrastructure, including the computers, peripheral devices, and
network communications devices used in the AIS

6. The internal controls and security measures that safeguard AIS data.

D. Use of AIS and role of accounts in relation to AIS

AIS provide users with the information they need to perform their jobs.

 The three important business functions that enable the AIS successful are:-

A. Collect and store data about organizational activities, resources, and personnel.
B. Transform data into information so management can plan, execute, control, and
evaluate activities, resources, and personnel.
C. Provide adequate controls to safeguard the organization’s assets and data.
 The advantage of having AIS is that it streamlines and automates reporting, making
everything just a few clicks away when your company heads require financial reports from
your team.
The steps to successfully implement accounting information system:
1. Detailed Requirements Analysis.
2. System Design.
3. Documentation.
4. Testing
5. Training. 

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GAGE UNIVERSITY COLLEGE- ADDISU GEBEYA CAMPUS INS. TESFAHUN KEBEDE
6. Data Conversion.
7. Rolling Out the New System
8. Tools.
9. Support.

Since we are in a digital world, by having a computer-based accounting information system, it

gives you the efficiency that you need for your business.

 The five basic principles important to AIS reliability are:

1. Security – Access to the system and its data is controlled and limited only to those
authorized.
2. Confidentiality – The protection of sensitive information from unauthorized disclosure.
3. Privacy – The collection, use, and disclosure of personal information about customers is
done in an appropriate manner.
4. Processing integrity – The accurate, complete, and timely processing of data done with
proper authorization.
5. Availability – The system is available to meet operational and contractual obligation

The advantage of having AIS is

 to streamlines and automates reporting,

 to make everything just a few clicks away when your company heads require financial
reports from your team.

Generally, if you have a well developed and properly maintained accounting information system
that gives you efficient and accurate data, which is an important component of a successful
business.