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Accounting Information System






Accounting information systems collect and process transaction data and communicate the financial information to interested parties. There are many types of systems and they vary widely. A number of factors shape these systems such as the type of business, the size of the business, the volume of data, the type of data management needs, and other factors.

DEFINITION:The collection, storage and processing of financial and accounting data that is used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting statistical reports can be used internally by management or externally by other interested parties including investors, creditors and tax authorities.


Internal Parties


External Parties

The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies. The AIS also interacts with internal parties such as employees and management.

The interaction is typically two way, in that the AIS sends information to and receives information from these parties.


Communication skills are very important. If you cant communicate information effectively, then the information never gets out there: Its lost.
Effective communication is important in business dealing with employees and outsiders, such as vendors and clients. Because accounting is an intrinsic part of any business, good communication skills are vital in this area. Important financial tasks such as budget preparation and reporting, bill paying, payroll and recording income need to be presented properly to management and others to be useful and meaningful.

Modern businesses need to generate and communicate information for two pur-poses:
Satisfying the needs of those external to the business, for example, shareholders, both actual and potential; And for internal!, managerial purposes.

The most important use of accounting data is to communicate meaningful information, allowing management to make good decisions. To be effective, accounting information must make sense and be understood; or else, it is just a list of numbers with no real significance.

Another important user of accounting information is the investor, who wants to know how a business is doing financially. Usually this type of information is communicated through standard reports, such as balance sheets and income statements, compiled using generally accepted accounting principles.

Accounting information needs to be communicated properly to government entities in the case of taxes. For example, Texas requires sales and use tax on certain items and accounting information must be presented a certain way to be significant.

Banks may want to be appraised of financial situation of businesses, making communication of accounting matters a priority in many firms. In case of bank loans, there may be periodic reports using accounting information. Banks are usually interested in cash flows statement.

The best way to communicate any accounting information is to do it in writing and in a report format with line descriptions on the left side of the pages, columns headed by a date or description, and a report title. Accounting reports are for a specific period or date. Make sure that any necessary schedules or backup documentation is available in case of questions. To proper communicate accounting information, reports should be organized with the most summarized version on top and others following it at the bottom. Be sure all reports are stapled with no pages flying around.

Data Communications

System Components

There are five basic components in any data communication network (whether it is the Internet, a LAN, a WAN, or a VAN):
1 The sending device 2 The communications interface device 3 The communications channel 4 The receiving device 5 Communication software

The following are components of the data communications model:

Interface devices Communications software Communications channel

Interface Devices:An interface device (IDF) is a hardware component or system of components that allows a human being to interact with a computer, a telephone system, or other electronic information system. There are six basic communication interface devices that are used in most networks: 1 Network interface cards 2 Modems 3 Remote access devices 4 Hubs 5 Switches 6 Routers

Communications Software:Communication software is an application or program designed to pass information from one system to another. Such software provides remote access to systems and transmits files in a multitude of formats between computers. Communications software manages the flow of data across a network. It performs the following functions: Access control Network management Data and file transmission Error detection and control Data security

Communications Channels:A medium through which a message is transmitted to its intended audience, such as print media or broadcast (electronic) media. A communications channel is the medium that connects the sender and the receiver. Standard telephone lines Coaxial cables Fiber optics

Microwave systems Communications satellites Cellular radios and telephones

The Chart of Accounts (COA) is the backbone of the financial system. It provides the organizing framework for both financial and management reporting within the financial system. The COA structure is a string of informational fields that identifies, segregates, and categorizes transactional and budget data.

DEFINITION:An identifier and a heading explaining text title and coded by account type. In computerized accounting systems with computable quantity accounting, the accounts can have a quantity measure definition.

IMPORTANCE OF (COA) FOR MANAGEMENT REPORTING AND ANALYSIS:There are two main reasons why the chart of accounts may help or hinder your management/operational reporting: The chart of accounts determines how much transactional detail is available for

analysis. For example, If all your telecommunication costs are lumped into one account when invoices are processed, you wont be able to single out cell phone costs as a distinct item to be monitored or analyzed. The For example, If your accounts are set up without a divisional structure you obviously wont be able to analyses results by division. chart of accounts also determines how you can slice your business for analysis.

Purpose of Chart of Accounts:The General Ledger is used to record and store each individual account and their transactions. The Chart of Accounts is the basis of any accounting system. The purpose of the Chart of Accounts is to classify each financial transaction and record it with reference to appropriate business dimension enabling the users to select or extract the financial data through account inquiry screens or reports. Finally enabling reporting on (or enquire about) the sum total of financial transactions at various levels on the chart.

Your Chart of Accounts includes five types of accounts:

1. Asset accounts: Represent the different types of economic resources owned or controlled by business, common examples of Asset accounts are cash, cash in bank, building, inventory, prepaid rent, goodwill, accounts receivable. 2. Liability accounts: Represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest. 3. Equity accounts: Represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations. 4. Revenue accounts or income: Represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income. 5. Expense accounts: Represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.
You will categorize the transaction into one of these types of accounts. By categorizing all transactions this way, you are able to easily create balance sheets, income statements, and other important financial. statements for your business

SAMPLE OF SMALL BUSINESS CHART OF ACCOUNT:In this sample all accounts are written with account number and account title: SHORT CHART OF ACCOUNTS:

How Are They Organized?

The chart of accounts is typically organized and listed in a special order. Balance Sheet Accounts are listed first followed by the Income Statement Accounts. Balance Sheet Accounts

Assets Liabilities Owner's (Stockholders') Equity

Normally, the order of the listing of the asset and liability accounts is based on liquidity. The most liquid accounts are listed first. Thus, when listing assets, cash is listed before accounts receivable which comes before inventory. Likewise for liabilities, accounts payable comes before notes payable because accounts payable are normally paid before notes payable.

Income Statement Accounts

Revenue and Expenses

o o

Operating Revenues Non-operating Revenues and Gains

o o o

Cost Of Sales Operating Expenses Non-operating Expenses and Losses

Revenue and expense accounts tend to follow the standard of first listing the items most closely or directly related to the operations of the business. The revenues (sales) resulting from normal operations are listed before revenue or income resulting from non-operating sources. Likewise, the operating costs and expenses that are most closely related to the operations of the business are listed before the non-operating expenses. Cost of Sales is listed first followed by operating expenses and then the non-operating expenses..


When we start any new company we have to maintain our chart of accounts because when we were setting up a new company on Peachtree we clicked on BUILD YOUR OWN COMPANY so just because of that we have to maintain our own charts of accounts otherwise we can use chart of accounts of any existing company.

To maintain chart of accounts following steps are required which are given bellow;

Step 1;
In first step you open Peachtree software and you have this window on your screen.

Step 2;
If you see on the top of this window you have seen a word MAINTAIN click on this MAINTAIN menu then you have this window on your screen which is below.

Step 3;
In the third step you have to choose the head named CHART OF ACCOUNTS written in the list of maintain menu. When you choose the head chart of accounts you have this window on your screen

Step 4;
After choosing head, Chart of accounts as you that you have the above window on your screen now maintaining chart of accounts start.

In this window you can see a CIRCLE. In this circle you can see that Account ID is written and after this a blank box is in this window it means that you have to write Account ID before this.

Step 5;
When you enter your account ID in that blank box then you move on to the next step which is Description. Which is about the account that what type of account it is whether it is cash, bills receivables, inventory or any other.

In the above window you can see another circle which is on description you have to write here description of account.

Step 6;
In the 6 step you have to tell about the account type that what of account is which we are maintain.

After entering account type press ALT S and your chart of account had saved. Repeat all this steps and maintain your all chart of accounts.

We can see our saved chart of accounts by clicking on this circled button.

For delete any existing chart of account you have to search that account first. Write account ID, description and account type then click on this DELETE button.

When you click on DELETE button the software wants confirmation from you to delete this account if you want to delete it click on YES and if you dont click on NO. If you want to change ID of any account you have to click on CHANGE ID write on the top of this software.

Just like the deletion process in this you again have to write account ID, description and account type and click on change ID.

This window appears on your screen enter current account ID and new account ID in the circled portion and then click on OK if you want to change the previous ACCOUNT ID.


Accounting software is, basically, application software, which records and processes accounting transactions occurring within functional modules like accounts payable, payroll, accounts receivable, and trial balance. The accounting software works as an accounting information system. This software can be developed in-house by the company or organization making its use. However, this software can also be purchased from a third party, or might also be a grouping of a third-party application software package along with local modifications. The accounting software differs greatly with regards to cost and complexity.


a) Core Modules b) Non-Core Modules

The Core Modules:

There are usually 8 core modules. These modules are called core modules because all top accounting software products offer them and these modules are used for an extensive range of businesses. The 8 core modules are:

1. Accounts Payable:
In this module the company makes the entry of the bills that it has to pay and the money that it owes.

2. Accounts Receivable:
In this module the company or the businesses enter the money that it receives.

3. Purchase order:
This modules deals with the orders that the company makes regarding the inventory.

4. Sales Order:
It deals with the customers orders that are supplied by the company.

5. General ledger:
This module forms the companys account books.

6. Billing:
This module is used to record the companys invoices of its clients or customers.

7. Cash Book:
This is used by the company to record its collection as well as payments.

8. Stock/Inventory:
This module is used by the company to have a control on its inventory.

The Non-Core Modules:

There are some other modules that form the Non-core modules of the business accounting software. The six non-core modules are:

1. Payroll:
In order to record the salary of the employees as well as its wages and other related taxes, the businesses use this module

2. Timesheet:
This module is used by the people like attorneys as well as the consultants of the company in order to record the information regarding the time spent on the work. It is then billed to the clients

3. Electronic payment processing:

This module is used by the company to record the electronic payments of the company

4. Debt collection:
The module is used to record the payments that are due from the clients.

5. Expense:
This module is used to record the business related expenses of the company

6. Purchase Requisition:
Here the requests for the purchase orders are made, approved and then tracked.