Accounting information systems are the oldest and most widely used information s

Question

Accounting information systems are the oldest and most widely used information systems in business. Computer-based accounting systems record and report the flow of funds through an organization and produce important financial statements. Write an essay to explain in some details the role of the accounting information system in achieving organizational objectives. In your essay discuss three of the most common accounting systems such as order processing, inventory control, accounts receivable, account payable, payroll, etc. Support your answers with relevant examples.(1000 words) Accounting information systems are the oldest and most widely used information systems in business. Computer-based accounting systems record and report the flow of funds through an organization and produce important financial statements. Write an essay to explain in some details the role of the accounting information system in achieving organizational objectives. In your essay discuss three of the most common accounting systems such as order processing, inventory control, accounts receivable, account payable, payroll, etc. Support your answers with relevant examples.(1000 words) Accounting information systems are the oldest and most widely used information systems in business. Computer-based accounting systems record and report the flow of funds through an organization and produce important financial statements. Write an essay to explain in some details the role of the accounting information system in achieving organizational objectives. In your essay discuss three of the most common accounting systems such as order processing, inventory control, accounts receivable, account payable, payroll, etc. Support your answers with relevant examples.(1000 words)

Explanation / Answer

Answer:

Accounting information systems are most necessary information systems for any kind of business. The information has two forms:

To record means an entity has to record each and every transaction on accounting level. Even a single penny spend has to be recorded.

To report means, to prepare summarized sheets in terms of Balance sheet and P&L.

The major reason behind recording all accounting transactions is, any entity has to report about the business and pay the tax amount in which the company falls. Another important reason for reporting is, the stakeholders should be knowing about Entity’s whereabouts in business, whether it is making profit, or making any losses or how to improve the profit etc.

Recording of transaction takes care of Sales Order processing, Purchase order processing, Invoice/bill processing, Inventory movement, Payroll etc.

Reporting of data represents Accounts payable, accounts receivable reports, preparing balance sheet, preparing P&L etc.

We have many computer processing oriented software to record and report accounting transactions like SAP, Oracle, Tally etc. These are one of the most powerful tools for accounting information processing. Majority of data capturing and reporting is similar in these tools, however they differ in their way of operations.

Let us go ahead with how these software programs help business in recording and reporting all business processes. Business process mainly have below mentioned stages.

Purchase order à Receive material à Payment to vendor à Material processing (manufacturing) à Sales order à Delivery à Receive payment

Purchase order:

Purchase order is an order given to vendor for purchase of specific raw material or semi-finished material, which can be used to produce Finished goods. The software helps business to record this data with below mentioned facility:

So, software provides a base using which the purchase order can be created within few clicks. You just have to select vendor, select type of material, enter expected date of delivery, payment to be done and save it. The order is ready to be sent to vendor.

Receive Material:

Receiving material is a part of Inventory management. While vendor sends the material, we check the material. If the material is as per our requirement, then we receive the material and put it in our inventory store physically. In software, the material entry is received using posting a document in general ledger account of inventory. Once done, this stock of material displays everyone to use for production. Any person can ask store manager to issue the material. When a material is issued for usage, again accounting entry is generated to show that the material amount has been reduced. So, any person can keep track of inventory just by seeing its account balance.

Payment to Vendor:

Once we have received the material, we need to pay the vendor. The payment to vendor is a part of accounts payables. Vendor sends us the invoice, mentioning our purchase order number, material and amount. When we receive the invoice, we can save this invoice in system just with few clicks. Once saved, the general ledger of vendor account will show Credit amount equivalent to invoice amount. Which means, the vendor is yet to be paid. The payment is show due by the system when the payment term shows that the payment date has come. So, based on payment term, the payment date is being decided. Once we have bank details of vendor and saved it in vendor data, we can directly pay the vendor based on the preference of payment method. It can be cheque, wire transfer, payment advice etc. Once vendor is paid from our bank, the general ledger of our bank account will show credit amount equal to the amount debited in general ledger of vendor. So, vendor account is being set off and it completes our liability of payment.

Material processing (manufacturing):

Manufacturing is a process of creating the finished goods. System helps us to define the parameters required for manufacturing a particular material by storing all processes of production. It also shows the recipe and quantity required for manufacturing. By using this detail, the manufacturing is being done. Once a product is manufactured, it is taken to warehouse to stoke it. And again the general ledger account of stoke is being updated in the system. It will keep track of total finished goods produced.

Sales order:

Sales order is an order received from Customer. To process sales order in system, we can store details:

Using these details, we can create sales order in few clicks, which then directly transferred to stores person if he has the quantity expected in sales order. If the quantity is available, the delivery department is notified. If not, then required material is manufactured and then taken into store.

Delivery & Billing:

Once delivery department receives notification from store, it picks the material and prepares delivery document using system. It shows the material to be delivered, its quantity, weight, type of transport (by rail, road, air), expected delivery date etc. By storing these details in system, anyone can track the material from anywhere and share the details with necessary stockholders. Once material is delivered, we send billing document to customer and general ledger account of customer is being debited. It will show that we have to receive payment from customer.

Receive Payment:

Once material is delivered, we receive payment from customer. It is the part of Accounts receivables. Using bank details of customer, our bank notifies us that they have received vendor from XYZ customer. Once information received, we will update customer general ledger account in software and it will get credited by same amount as billing document.

Thus, for each and every stage of business, computer system provides us comfort and ease of access of information in accounting. That is the reason why these systems have become an integral part of business.

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