Meaning of Accounting Information systems
Accounting information systems are structure designed for gathering, storing, managing, and processing financial data. This system helps businesses in retrieving useful information from data collected and presenting it in the form of reports to users like managers, business analysts, accountants, auditors, shareholders, investors, and tax authorities. It is a computer-based system that maintains a complete database of all financial records of business and helps in tracking all activities.
The accounting information system mainly serves the purpose of efficiently collecting each and every data related to the financial operations of the organization and supplying necessary information for proper decision making. It also implies various measures to monitor the accuracy of recording and processing of data. Accounting information system assists the organization to easily detect errors and frauds which leads to smooth functioning. There are mainly six components of this system: People, data, procedures, software, information system infrastructure, and internal controls.
Types of Accounting Information systems used in business
Manual accounting information system is one that works entirely on a manual basis rather than an automated computerized system. These systems are implied by small size business or home-based businesses. Here all processes of accounting are done manually using source documents, general journal, special journal, subsidiary journal, and general ledgers.
The manual accounting system consists of these (i.e. source documents, journals, and ledgers) manual records. All records are paper-based and employees must follow the proper established process for preparing and maintaining these records.
Legacy accounting system is one that is currently in operation within the business firms. These systems are customized for fulfilling the specific needs of the individual firms. Legacy system are based on old technology but even though they are favorable as they are well understood by working employees and don’t requires training. Companies invest large amount into these system to customize them as per their requirements.
Replacing them with newly advanced accounting packages is quite expensive and time-consuming process. In addition to that generic accounting software cannot be customized unlike these systems. However, legacy systems are not free from limitations such as costly, inability to support up-to-date documentation, requires older computer language and non-compatibility with new hardware.
Modern, integrated IT systems
These accounting systems are advanced software packages available in today’s time which integrates all processes within an organization. Such systems are more efficient and advanced then legacy systems as they uses latest technology in internet interfaces and data storage.
Modern IT systems are economical to install in comparison to legacy system as here cost is not borne by individual company only but is shared among several companies that purchases it from software developer. Another important advantage provided by these systems is that have relatively less bugs as they are properly tested and proved reliable before selling them in market.