Understand Accounting Information Systems

Accounting information systems are the most critical information systems in business. These system are based on double entry book keeping concept, responsibility accounting and activity based costing. Computer based accounting system records and processes transactions to generate meaningful information like balance sheet, profit and loss account and reference reports for monitoring.

Transaction processing systems include

Order processing systems

Captures and processes customer orders and produces data for inventory control and accounts receivable. Sales order processing is an important transaction processing system that by capturing and processing sales order data produces analysis reports. Further it also tracks the customer order, till delivered.

Inventory control systems

Processes data reflecting changes in inventory and provides shipping and reorder information. Following the order processing system, inventory control system updates the inventory and gives the information about the optimal inventory keeping. Economic order quantity (EOQ) is determined by it, and the order levels are defined to ensure the minimum investment in inventory. EOQ is the inventory level at which the holding costs and ordering costs related to inventory are equal so minimum.

Accounts receivable systems

Records amounts owed by customers and produces customer invoices, monthly customer statements and credit management reports. Receivable system produces aging report of the receivable which ensures timely follow-up of the collection resulting in minimal investment in working capital.

Accounts payable systems

Records purchases from and payments to suppliers and produces cash management reports. The system maintains the list of approved vendors and ensures that the purchases have been made from the approved list so minimizing the possibility of employee related frauds. It also generates payments according to the credit period granted by the supplier thus helps in managing working capital requirement of the company.

General ledger systems

The GL system consolidates data from other accounting systems and produces the periodic financial statements and reports of the business. It is the most critical accounting system whose performance depends on the effective controls over the other TPS systems.