The Basic Functions of an Accounting Information System

An accounting information system takes all the data and figures from an organization's financial records and arranges them into an orderly structure. The accounting information system serves three basic functions: to collect and process data, to provide information to decision-makers within the organization and to see that accounting personnel records information accurately and protects the data.

In the collection phase of an accounting information system, accountants or bookkeepers gather and record data from cash sales, receivables, cash purchases, payables and payroll, among other transactions. In computerized systems, the software program processes all the debits and credits into a complete information management database.

Accounting personnel distribute reports to decision-makers within the organization, such as sales and marketing managers, production managers, financial managers and all department heads. Management uses the information generated from the accounting information system to analyze the organization's current operations and financial condition and make plans and set goals for the future. For example, a balance sheet created from the system can show management, owners, creditors and investors where the organization stands financially at a particular point in time.

Limiting the number of people who have access to the system best accomplishes the third function of an accounting information system -- to ensure that the business maintains correct data securely. The leaders of the organization must decide who that will be. For example, trained clerks, bookkeepers or accountants require access to verify and enter data into the system and generate reports. Other associates of the organization, both internal and external, generally have no need to manipulate the data.

Businesses typically computerize an accounting information system in all but the smallest organizations. Computer users enter data into software programs that complete the calculations and classify and file the entries into the proper categories. The system can then generate various types of reports, depending on the user's request. The information system includes all steps in the accounting cycle, and hard-copy paperwork that proves the transactions, such as work orders, invoices and financial statements becomes part of the system. In smaller businesses, such as a mom-and-pop operation where few transactions occur, the business may maintain the accounting information system manually. Again, the bookkeeper uses the entire accounting cycle and constructs manual reports from the results.