Accounting

As: Subsystem System Information system

ACCOUNTING AS SUBSYSTEM

ACCOUNTING AS SUBSYSTEM

ACCOUNTING DEFINITION
Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.

ACCOUNTING SYSTEM
Organized set of manual and computerized accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data for management decisions.

Logical

Order& Hierarchy

Sub systems + Connectivity

Objective/ Purpose

Boundary

Control

SYSTEM
Filter
Environment

Feedback

Input

Output

Process

The sub systems and interconnectivity

Purpose/Objectives
Communication to users of financial information: Communicating financial information about a business entity to users. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information to employees, managers, owner-managers and auditors. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies.

Purpose/Objectives
Aids decision-making: To present accurate and timely financial data for management decisions i.e. provision of information used by management of a business entity for decision making, planning and performance evaluation The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users. Accountancy is a branch of mathematical science that is useful in discovering the causes of success and failure in business. Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit.

 Other objectives include

To ensure accountability To avert failures through control devices Produce general purpose financial statement Meeting the regulatory requirements

Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP

Simple Input Process and output model

Accounting : Elements and Output

General Model for Accounting Information System : Type I

General Model for Accounting Information System : Type II

Input Financial Transactions, Accounting principles, policies and procedures

A transaction as an event that affects or is of interest to the organization and is processed by its information system as a unit of work A financial transaction is an economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms sales of products to customers, purchases of inventory from vendors, and cash disbursements and receipts are examples of financial transactions. Every business organization is legally bound to correctly process these types of transactions Non financial transactions are events that do not meet the narrow definition of a financial transaction. For example adding a new supplier of raw materials to the list of valid suppliers is an event that may be processed by the enterprise's information system as a transaction.

Process Book Keeping, Accounting, Auditing

recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof. The person in charge of accounting is known as an accountant, and this individual is typically required to follow a set of rules and regulations, such as the Generally Accepted Accounting Principles.

Output
Journals, Ledgers, Trial Balance, Manufacturing account, Trading account, Profit and loss account, Balance sheet Compliance reports to Government like tax, auditing etc Customized reports to the users
In short, Financial Accounting is the process of summarizing financial data taken from an organization's accounting records and publishing in the form of annual (or more frequent) reports for the benefit of people outside the organization.

Environment
Micro environment with in the company other departments Macro environment outside the company institutions, suppliers, customers, subcontractors
Control and feedback: Financial accountancy is governed by both local and international accounting standards.

Filter
Only data relating to financial transactions relevant to the particular tasks Only financial information pertinent to the user and his needs (management and government controls the type and amount of information to be given)
The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable.

General sub systems of Accounting: Macro Level

Sub systems: enterprise Level

Accounting subsystems cash receipts/payments Inventory Accounts receivable/Sales Accounts payable/ purchases Fixed assets Payroll

 An accounting information system (AIS) is the system of records a business keeps to maintain its accounting system. This includes the purchase, sales, and other financial processes of the business. The purpose of an AIS is to accumulate data and provide decision makers (investors, creditors, and managers) with information.

Logical order and hierarchy

The Accounting Information system is composed of three major subsystems The transaction processing system which supports daily business operations with numerous reports, documents, and messages for users throughout the organization The general ledger/financial reporting system which produces the traditional financial statement of cash flows, tax returns and other reports required by law The Management reporting system which provides internal management with special purpose financial reports and information needed for decision making such as budgets, variance reports, and responsibility reports.

Sub systems: Accounting Information systems view

Accounting software is typically composed of various modules, different sections dealing with particular areas of accounting. Among the most common are: Core Modules * Accounts receivablewhere the company enters money received * Accounts payablewhere the company enters its bills and pays money it owes * General ledgerthe company's "books" * Billingwhere the company produces invoices to clients/customers * Stock/Inventorywhere the company keeps control of its inventory * Purchase Orderwhere the company orders inventory * Sales Orderwhere the company records customer orders for the supply of inventory * Cash Bookwhere the company records collection and payment

Non Core Modules * Debt Collectionwhere the company tracks attempts to collect overdue bills (sometimes part of accounts receivable) * Electronic payment processing * Expensewhere employee business-related expenses are entered * Inquirieswhere the company looks up information on screen without any edits or additions * Payrollwhere the company tracks salary, wages, and related taxes * Reportswhere the company prints out data * Timesheetwhere professionals (such as attorneys and consultants) record time worked so that it can be billed to clients * Purchase Requisitionwhere requests for purchase orders are made, approved and tracked
(Different vendors will use different names for these modules)