An accounting information system is a method of maintaining financial records. The accounting cycle includes identifying transactions, creating journal entries, preparing financial statements, and generating a final trial balance. Accounting software packages have modules for different accounting processes, and computerized systems improve accuracy and timeliness. Hybrid systems allow for manual review and internal controls.
An accounting information system is the system of methods and processes that companies use to maintain information related to commercial or financial transactions. Historically, this system involved ledgers, journals, and other financial reports. Business owners and accountants were responsible for actively using these ledgers and journals to maintain accurate financial records while running their business operations. The advancement of information technology has allowed companies to transform this accounting information system into an automated process using computers, servers, and accounting software.
The accounting cycle is a driving force in most company accounting information systems. This cycle includes identifying and analyzing transactions, creating and recording journal entries in the general ledger, preparing a trial balance, creating adjusting entries, preparing an adjusted trial balance, creating financial statements, finalizing accounts with closing entries, and generating a Final trial balance and financial statements for the accounting period. These basic steps help companies develop their accounting information system, whether manual or computerized.
Accounting software packages generally consist of several different modules based on the traditional manual accounting process. Modules include General Ledger, Fixed Assets, Accounts Payable, Accounts Receivable, Payroll, and other specialty modules. Each individual module creates a system where companies can move information through the steps of the accounting cycle. The ability to transfer this information electronically can improve the company’s accuracy and timeliness in reporting financial information.
Computerized accounting systems often require company employees to focus more on reviewing information collected from various business departments rather than entering business data. This system allows individual accountants to process more information in less time than traditional paper ledgers. Accounting software may also have automatic internal safeguards that verify the accuracy and validity of financial information through an internal review process. This process often limits the amount of basic data entry errors and other nonsensical information entering the accounting information system.
Companies may choose to use a hybrid accounting information system that involves manual and computerized accounting processes. An accountant may need to review certain types of business or financial information, such as vendor invoices, payroll time sheets, and contractual agreements. Using a hybrid system can provide a better review process as accounting clerks can challenge financial information and seek feedback before entering information into the accounting system. The manual review process may also be required by the company’s internal controls. These internal controls ensure that information is not entered into a company’s accounting software that is inaccurate or represents higher financial obligations than previously anticipated.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
