ACCOUNTING INFORMATION

SYSTEM

Submitted by: Imran Azad

Roll no: AD514942
Submitted to: Mr Sohail
Book: Financial Accounting
Code: 5533
Course: MBA
Submitted on: October 20, 2009
 Acknowledgement

I would like to say thank you my AllAH who is most merciful and
forgiving who always help me at every stage of my life and give me enough
for which I am not able for.

I want to say thank you to my teacher who give us lots of confidence

to prepare this report. Especially to management of SNL financial who
helped me a lot in preparing this report?
 CONTENTS

• Introduction to AIS
• Types of Accounting Information
 Financial Accounting
 Management Accounting
 Tax Accounting
• Accounting System
• Determining Information Need
• Cost of producing Accounting Information
• Function of Accounting System
• Accounting System Design
 Cost Benefit Principle
 Control Principle
 Compatibility Principle
 Flexibility Principle
• Introduction of Organization
• Data collection Method
• Accounting Information system of Organization
• Accounting Software & Software
• Flow of Accounting Information
• User of AIS
• Function of AIS
• SWOT Analysis
• Recommendations
• Conclusion
• Reference
 INTRODUCTION
Accounting information system is vital to all organizations
and perhaps, every organizations either profit or non profit-
oriented need to maintain the AIS. To better understand the term
“Accounting Information System” the three words constitute AIS
would be elaborate separately. Firstly accounting could be
identified into three components, namely “information system”,
“language of business” and “source of financial information”.
Secondly, information is a valuable data processing that
provides a basis for making decisions, taking action and fulfilling
legal obligation. Finally, system is an integrated entity where the
framework is focused on a set of objectives.

Accounting Information System indicates an integrated

framework within an entity that employs physical resources to
transform economic data into financial information. It is
necessary to conducting the firm’s operations and activities, and
providing information concerning the entity to a variety of
interested users. The main purpose of Accounting is to provide
the information to its user and others who are interested into the
business enterprises for example the invertors are interested in
the return they will get

TYPES OF ACCOUNTING INFORMATION

There are three main types of accounting information.

 FINANCIAL ACCOUNTING
It refers to information describing the financial
resources, obligations, and activities of an economic entity
(either an organization or an individual). It provide the
financial position of a business to describes the financial
resources and obligations at a point in time and the term
results of operations to describe its financial activities
during the year. Financial accounting system is designed to
assist investor in taking decision whether to invest in
particular organization or not and also used in tax return. In
fact financial accounting information is used for so many
different purposes that it often is called “general purpose”
accounting information.
  MANAGEMENT ACCOUNTING
It involves the development and interpretation of
accounting information intends specifically to assist
management in operating the business. It is also known as
managerial accounting. The main objective of management
accounting is to assist management to evaluate the
performance of individual as well as departments and
through management accounting managers set their
organizations overall goals. It is the way to decide whether
to introduce a new line of products.

 TAX ACCOUNTING
Financial accounting is used to file tax return however,
the information often is adjusted or recognized to conform
to income tax reporting requirements. The most challenging
aspect of tax accounting is not the preparation of an income
tax return but tax planning. It means to estimate how the
financial transactions affect the tax liability of a company
and how to reduce the tax burden.

ACCOUNTING SYSTEMS
An accounting system consists of personnel, procedures,
technology and records used by an organization for developing of
accounting information and to communicate this information to
the decision makers.
The design and capabilities of the accounting systems vary
form organization to organization. In small businesses,
accounting systems may consist of depositor’s record and bank
statement or just up to the income tax. And there accounting
system may be finished on the manual systems.
Where as in case of large organization they need
computers, highly trained personnel, and accounting reports that
affect the daily operations of every department. Basic purpose of
the accounting information system remains the same that is to
meet the organization’s needs for information as efficiently as
possible.
 There are many factors that affect the structure of the
accounting system within a particular organization among the
most important are

1. The company’s need for accounting information.

2. The resources available for operation of the system.

DETERMINING INFORMATION NEEDS

Development of accounting information system depends
upon the size and nature of business, whether it is publicly
owned, and the information needs of the management. The law
may prescribe some type of accounting information need. For
example, for income tax regulations it is required every business
to have an accounting system that can measure the company’s
taxable income and explain the nature and source of every item
in the company’s income tax return. Organizations who are doing
business want to know that how much they have owed from its
creditors and how much they have given to their customers. It
necessary to follow generally accepted accounting principles for
financial reporting which is requirement of federal securities law.

COST OF PRODUCING ACCOUNTING

INFORMATION:
Accounting information should be cost-effective that is the
value of the information produced should exceed the cost of
producing it. Management has no choice but to produce the types
of accounting reports required by law. In other cases, however,
management may use cost effectiveness as the criterion for
deciding whether or not to produce the information.

In recent years, the development and installation of

computer-based accounting systems have increased greatly the
types and amount of accounting information that can be
produced in a cost effective manner.

BASIC FUNCTIONS OF AN ACCOUTNING

SYSTEM:
The main function of accounting information is to assign
quantitative value of the past, present and future economics
events or activities. But every accounting information system
performs the following functions.
i. Interpret and record the effects of business transactions.
 ii. Classify the effects of similar transactions in a manner that
permits determination of the various totals and subtotals
useful to management and used in accounting reports.

iii. Summarize and communicate the information contained in

the system to decision makers.

ACCOUTNING SYSTEM DESIGN:

Accounting systems summarize financial data about a
business and organize it in useful forms. Most businesses use
computerized accounting systems to provide timely and useful
information to decision makers. There are four main principles of
designing Accounting system.

• Cost Benefit Principle

• Control Principle
• Compatibility Principle
• Flexibility Principle

• COST BENEFIT PRINCIPLE:

The cost-benefit principle holds that the benefits
derived from an accounting system and the information it
generates must be equal to or greater than the system’s
cost. Costs may either be tangible or intangible. Tangible
costs include personnel, forms, and equipment. Intangible
costs include the costs of wrong decisions.

• CONTROL PRINCIPLE:
The control principle requires that a system provide
internal control features in order to protect a firm’s assets
and assure its data are reliable.

• COMPATIBILITY PRINCIPLE:
The compatibility principle states that the design of an
accounting system must be in harmony with the
organizational and human factors of the business.
 • FLEXIBILITY PRINCIPLE
The flexibility principle holds that an accounting
system must be flexible enough to allow the volume of
transactions to grow and organizational changes to be
made.

The wide varieties of people that involve in the company’s

operation get the benefits from the implementation of accounting
information system. We can say that it is a source of providing
information to the users, management, consultant, evaluators
and provider of accounting and tax services. It depends upon the
company’s need which kind of accounting information system
adopted for information purpose. It can be manual or computer
software oriented. Examples of software there are many software
available in market like Peachtree, Quick book etc.
Case Study of “AIS
in a
Selected
organization”

Organization visited
 Hattar Textile
Mills

INTRODUCTION TO ORGANIZATION:

Hattar Textile Mills (PVT) Ltd. has been serving the textile
industry since 1994. Unit started operating in 1994 with 14,400
spindles, with further expansions; presently it is running with a
total capacity of 30,000 spindles. Today Hattar Textile Miles has
evolved into leading manufacturers of yarn. We are one of the
oldest and leading polyester and viscose yarn manufacturers in
Pakistan. With our extensive experience in manufacturing yarn,
we have been able to progress and achieve our increased targets
every year. Customer’s satisfaction in our top priority. Through
many years of experience in production and trade, we have
maintained long term relationships with our clients. Today Hattar
Textile mills is vertically integrated; we have complete facilities to
produce the best possible products of your requirements.

DATA COLLECTION:
To collect data I have personally visited the organization
and with the permission of their Technical Director I have granted
a permission to visit Accounts and IT Departments and they have
given me opportunity to interview different employees of these
departments so that I will understand about my topic in a
practical way all of the data I am going to present is given to me
by Head of Accounts Department of Hattar Textile Mill. And
information I am going to present in my report is based on
question and answer replies by employees as well as head of
department.

ACCOUNTING SYSTEM ADOPTED BY THE

ORGANIZATION:
Hattar textile mills record accounting information taking
base accrual base accounting system. As mostly there purchase
transaction are on credit and sale transaction are on cash bases.
So thy have to adopt accrual base accounting system. It makes
them able to maintain their actual position in an appropriate way.
They also are using some manual books and sheets to check the
accuracy of the financial transactions posted by the lower staff
and for satisfaction and authentication of their accounting
procedures.

ACCOUNTING SOFTWARE & SYSTEM:

Hattar textile mill has there on IT setup. They have
customized and develop there own software according to there
need and requirements. This accounting software is design on
Visual Fox Pro. They also are using some manual books and
sheets to check the accuracy of the financial transactions posted
by the lower staff. They use different manual books and mostly
data is updated in software only evidence is saved for future
purpose. This software contains different modules which give
them different kinds of reports. These modules are as:

 Cash Book
 Journal
 Ledger
 Stock register
 Cash bank vouchers
 Journal Vouchers
 Purchase day book
 Sales invoices
 Sales day book
 Material ledger
FLOW OF ACCOUNTING INFORMATION:
Hattar textile industry is involved in polyester and viscose
yarn manufacturing and mostly all the information is recorded
from the sale and purchase of material. And also different kind of
expenses. Flow of accounting data or information in this
organization is quite simple first the physical evidence is being
generated with the supported documents and then they will be
transferred to the accounts department for further processing
here I would like to explain it by giving the example of the
purchase and sale.

PURCHASE ORDER:
Following procedure is being granted to purchase a certain
material first of all purchase order is given to the purchase
department by the production department then purchase
department visit to market and collect different quotations for the
required material and provide to management and which ever is
best is selected to arrange required stock. After completing
documentation like Weight Slips (Gross weight both company and
party), Builty (Transport Company evidence), Calculation of
weights (Both net and gross weights), GRN (Goods Receiving
Notes) material is hand over to production department.

These all documents are transfer to the accounts

department for further processing here they get the bill of the
certain material from the vendor and then make a PVR (Purchase
Voucher) with all of these supporting documents and then posted
them in to the ledger of material as well as all other effects are
given in other heads like vendor freight is posted into its
expenses account and material purchase with its net quantity is
booked.

SALE ORDER:
Mostly purchased order for production is placed after
booking order from any vender willing to purchase material or
convince by sales to purchase. Mostly sales or made on cash or
on partial payments. All required information is submitted to
accounts e.g. sales order, cash or check payment against sale
and reaming balance. Then accounts department update
information against this information and generate client invoice in
case of debit balance.
FINANCIAL STATEMENTS:
All revenues and expenses are recorded to produce financial
reports which make management; clients, vendors and
government enable to take decision. Vendor is concerned with
sales and out flow of material produce and management is
concerned with profits and how to increase it and government is
concerned with tax.

Hattar Textile mills produce following statements for

internal and external use.

Trial Balance
Profit / Loss Statement
Balance Sheet
Cash Flow

USERS OF AIS:
As shown in Figure who is user of AIS such as the Financial
Accountants, Management Accountants and Finance Manager are
the internal users of the system. Also, the management team
that consists of Finance General Manager, Chief Operating Officer
and Managing Director are the internal users of the system. On
the other hand, the external users consist of government agency
(i.e. Inland Revenue), external auditors and creditors. Indeed,
wide variety of people within and outside the organization uses
accounting information for decision-making.

Information Flow of Hattar textile Mills

 HEAD OFFICE
Management Team

Inland
Revenue

HEAD OFFICE
External
Finance Bank
Department
Auditors

Sub-
Suppliers Sales Team Contractor
s

Client

FUNCTION OF AIS:
The main function of AIS is to assign quantitative value of
the past, present and future economics events. At Hattar Textile
Mills, AIS through its computerized accounting system produces
the financial statements namely income statements, balance
sheets and cash flow statement. The system will process the data
and transform them into accounting information during input,
processing and output stages that will be used by a wide variety
of users such as internal and external users. AIS perform several
key functions throughout these three stages such as data
collection, data maintenance, data Accounting Information
Systems (AIS) and Knowledge Management.

SWOT ANALYSIS

Strengths:

• Proper evidence.
• Free of cost software.
 • Flexibility of the accounting system uses by them.
• Accounting system is computerized and working is
easy.
• Management properly checks authentication.
• Secure software system.(User accounts with limited
permission)

Weaknesses:

• Time consuming, as Financial Statements are not auto

generated.
• Limited usages to staff.

Opportunities:
• As they have own IT department so they have
opportunity to create software according to their needs.
• Proper look after of the accounting system is possible.

Threats:
• Other companies of same field have more appropriate
software’s.
• Secrecy leakage.

RECOMMENDATIONS

Though they have computerized accounting software but

there are some drawbacks I have observed into that accounting
system and there are my recommendations for Quality Feeds so
that they can improve their accounting system.

 Edition and deletion power must be given to only one

employee.
 Use IT department and insert the Financial Statement
generation features into your accounting software.

CONCLUSTION:
The wide varieties of people that involve in the company’s
operation get the benefits from the implementation of AIS. The
system assists the operational managers to come out with
monthly reports for the top managerial level (i.e. tactical and
strategic) plan, control and decide resources allocation. In
addition, the paper showed that the AIS add value to information
processed within the company. AIS could speed up information
process and overcome traditional human weaknesses. As a result,
the system supports the resource management and help Hattar
textile Mills pursue its projection of continuing business profit.
The use of AIS indicates the growth of tacit and explicit
knowledge. Indeed, the successful implementation of an
accounting information system can be described as a series of
complex, interconnected activities necessitating participants to
have technical and managerial skills to sort out prospective
problems.

REFERENCE
I have consulted following references to prepare this
report.
a. Book by Williams, Haka, Bttner, Carcello

b. Get idea form class lecture

c. Instruction form teacher
d. www.wikipedia.com. (For any kind of information

and definition)
e. Group discussion
f. Personal visit to organization for data collection

and understanding their accounting system.