An accounting information system contains the processes that a company uses to report accurate and valid financial information. Business owners and managers need information to make business decisions to improve operations and profitability. External business stakeholders use financial information to assess the company’s financial health and determine if the company will offer a decent financial return on investments. Creating an accounting information system typically follows a few basic steps, regardless of the company’s operations.
Outline where source documents come from. Source documents include vendor invoices, utility bills and payroll, among other items. Owners and managers must outline these items so they can determine how to best process them in the company’s accounting or finance department.
Implement individual accounting functions. Accounting functions can include accounts payable, accounts receivable, general accounting and other functions. Each function must be able to receive information in a timely manner and enter it into the company’s accounting ledger.
Create outputs such as financial statements or reports. The purpose of an accounting information system is to turn financial transactions into usable information. A compilation of transactions reported in a statement or report allows owners and managers to quickly review their company’s financial performance.
Determine the final recipient for accounting information. Internal accounting reports do not usually need to follow national accounting standards, which allow this information to be less formal. Accountants may spend less time preparing this information. Formal reports for outside stakeholders will require formal reports that must follow specific guidelines.
Using a computerized accounting software application can help eliminate detailed steps in setting up an accounting information system. Transferring information electronically also decreases the time spent gathering information and increases time analyzing and making decisions.
Creating an extremely detailed accounting information system can slow down the company’s reporting processes. This delays essential information needed for making decisions in a timely manner.