AMERICAN INTERNATIONAL UNIVERSITY BAANGLADESH(AIUB) The impact of accounting information systems (AIS) on performance measures.

Bangladesh SMEs

ACCOUNTING INFORMATION SYSTEMS SECTION-A DATE-30-11-2013

SUBMITTED BYNAME SAHA,ARUP KUMAR HOSSAIN IMRAN ID 10-16471-2 10-17188-2

SUBMITTED TOMD. JOYNAL ABEDIN DEPARTMENT OF FINANCE AMERICAN INTERNATINAL UNIVERSITY -BANGLADESH

Table of Contents LITERATURE REVIEW PAGE 3-6 INTRODUCTION OBJECTIVE OF THE STUDY METHODOLOGY OF THE STUDY IMPORTANCE OF AIS AIS SUBSYSTEM REVENUE SUBSYSTEM EXPENDITURE SUBSYSTEM HUMAN RESOURCE AND PAYROLL SUBSYSTEM PRODUCTION CYCLE FINANCING CYCLE ANALYZING AND FINDINGS SUGGESTION & CONCLUSION 6-7 8 9 9-11 12-14 14-17 18-20 21-22 22-24 25-26 26-27 27-28

REFERENCES

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LITERATURE REVIEW
This research report are made for measuring the relationship between the use of the accounting information systems(AIS) by the small and medium sized enterprises(SMEs) in Bangladesh. This study carried out among small and medium sized firms to ascertain the extent to which development and implementation of accounting information systems. This study shows how AIS will implement to improve in outcome indicators and productivity. This research builds the relationship between the application and use of AIS and performance and productivity indicators in SMEs in Bangladesh. Small and medium sized enterprises (SMEs)1 are playing increasingly important role as engines of economic growth in many countries including ours. SMEs provide low cost employment opportunities and render flexibility to the economy. Many of the SMEs are engaged in export activities suggesting that they are internationally competitive. Considering the importance of SME sector in the economy of Bangladesh and understanding the constraints under which such enterprises operate, it is evident that policies to support the development and growth of SMEs are necessary. In the policy strategies, smooth and sustainable development of SMEs all over the country will be considered as one of the vehicles for poverty alleviation, and generation of more employment. An attempt has been made in this paper to identify major financing constraints faced by SMEs in Bangladesh and suggest some policy measures to overcome those Constraints.

. Small and Medium Enterprises Development in Bangladesh: Problems and Prospects, author-A.K.M. Helal uz Zaman* Md. Jahirul Islam**sources ASA University Review, Vol. 5 No. 1, JanuaryJune, 2011 3|Page

Most of respondent firms2 (87%) reported that they had used computers for more than 5 years, while the remaining firms (13%) had only used computers for 5 years or less. This is an interesting finding as it suggests that respondent firms had considerable experience with computers. Furthermore, respondent firms reported that the software applications used the most were accounting (95%), word processing (82%), email (69%), spreadsheet (66%), and Internet (60%). The most popular AIS applications adopted by respondent firms were general ledger (91%), accounts receivable (93%), accounts payable (93%), payroll (78%), billing (74%), inventory (70%), order entry (62%), and purchasing (60%). Overall, respondent firms primarily used administrative and transactional-based applications. The adoption of analytical-based applications such as budgeting, production planning, modelling, and project management is still minimal. The findings are consistent with the results reported by Lefebvre and Lefebvre (1988), Raymond (1992), Bridge and Peel (1999), Foong (1999), Timtime et al. (2003), Breen et al. (2004), and Ismail and King (2007). These studies reported that SMEs used computers mainly for administrative and operational tasks rather than for strategic planning. Among these 232 firms, 94% percent of respondent firms reported that they employed accounting staff, while only 25% of firms employed IT staff. These results suggest that the respondent firms viewed record-keeping as important to their firm. The less complicated AIS, which require little technical support, often adopted by SMEs might explain the low engagement of IT personnel. The results indicate that most respondent firms sought support from multiple external experts for their AIS implementation. The

This survey result take from the FACTORS INFLUENCING AIS EFFECTIVENESS AMONG MANUFACTURING SMES: EVIDENCE FROM MALAYSIA author- Noor Azizi Ismail College of Business Universiti Utara Malaysia

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majority of respondent firms (81%) reported that they sought advice from vendors, consultants (60%), accounting firms (47%), and also government agencies (29%). This survey results show us that AIS effectiveness is very important in SMEs organization. It will increase your performance and productivity in your organization. Another literature review was conducted for this research. That research was about impact of AIS of planning, controlling and decision making in Jodhpur hotels3.THAT research find the following results that- The Jodhpur hotels facing difficulties that are related to the application of accounting information system. where Cadres that implement the methods of accounting information system are not qualified, Costs of the application of accounting information system are relatively high, Senior management is not convinced by the methods of accounting information system, Software required by the application of accounting information system is not available, there is no competition that urges the application of accounting information system, and the information system is not developed enough to the optimal application of accounting information system . So I think that The Jodhpur hotels management should depend on accounting information systems in planning for sales & cash collections in revenue cycle and purchasing & cash distributions for expenditure cycle. The Jodhpur hotels management should use accounting information systems in control information to get more relevant, cost effectiveness, accuracy, timeliness and clarity, hotels management should depend on accounting information systems to make financing decisions.

The Impact of Accounting Information System in Planning, Controlling and Decision-

Making Processes in Jodhpur Hotels Author- Dr. Omar A.A. Jawabreh Tourism and Hotels Sciences Department, Al Balqa Applied University, Jordan, Aqaba E-mail: www.ojawabreh2000@yahoo.com Ali Mahmoud Abdallah Alrabei Research scholar, Dept of Accounting, J.N.V.U E-mail: alialrabei@yahoo.com
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So with regard to analyzing the impact of AIS on performance measures in Bangladesh, AIS are a tool which integrated into the field of information and technology systems(IT), to help in the management and control of topics related to firms economic and financial area. But the stunning advance in technology has opened up the possibility of generating and using accounting information from a strategic perspective. Since this is important for all firms, it is more important even for medium-sized and small ones which need this information to deal with a higher degree of uncertainty in the competitive mark

INTRODUCTION
Small and Medium Enterprises (SME) occupy a leading position in any economy of world. SME activities cover all areas of business including manufacturing, mining, wholesaling, retailing, service oriented company etc. This sector is an integral part of an economy and considered as an active engine of economic growth. Small and medium enterprises, including the tiny and micro enterprises comprise virtually all (about 99.85%) of all business enterprises outside agriculture in Bangladesh (Rahman, 2009). Small and Medium Enterprises play an important role in economy through generation of employment, contributing to the growth of GDP, embarking on innovation and stimulating other economic activities. SMEs including micro enterprises account for some 81.2%, while only 0.15% of all business enterprises employ a full 18.8% of the employment of all business enterprises outside agriculture (Rahman, 2009).

The definition of Small and Medium Enterprise (SME) is not fixed rather it varies countries to countries. According the Ministry of Industry, in case of manufacturing, an enterprise would be treated as small if, in todays market prices, the replacement cost of plant, machinery, structures, and other parts/components, fixtures, support utility, and
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associated technical services (such as turn-key consultancy), i.e. Tk. 50,000 to 1.5 crore An enterprise would be treated as medium if, in todays market prices, the replacement cost of plant, machinery, building, structures, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), i.e. Tk 1.5 crore to Tk20 crore, In both cases, land and building is exclude. In case non-manufacturing, this definition is slightly different. According to Ministry of Industry, Bangladesh, An enterprise would be treated as small if the fixed capital is Tk. 50,000 to Tk.50, 00000 (0.05 million to Tk. 5million and / or workforce not more than 25. An enterprise would be treated as medium if the fixed capital is Tk.50, 00000 to Tk. 10, 00, 00000 (5 million to Tk. 100 million and / or workforce not more than 50. In cases, land and building is excluded.

Accounting Information Systems (AIS) are a tool which, when incorporated into the field of Information and Technology systems (IT), were designed to help in the management and control of topics related to firms economic-financial area. But the stunning advance in technology has opened up the possibility of generating and using accounting information from a strategic viewpoint. Since this is important for all firms, it is more important even for medium-sized and small ones which need this information to deal with a higher degree of uncertainty in the competitive market (El Louadi, 1998).

AIS are also important for certain decision and management control in the organization. This research report is all about the impact of AIS on performance measures based on the Bangladesh SMEs .that means how AIS help the small and medium sized enterprise to improve its performance, productivity and management prowess. This world is now depending on the technology. You have to know how to use this things.AIS is such software where the organization high performance standards are determined. This research report tries to show how to use AIS into the SMEs in Bangladesh.
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Objectives of the study

This research study focuses on the current scenario of SMEs and its performances and the impact of accounting information system into its performance measures in Bangladesh. The specific objectives of the study are following-

I) II) III)

Examine the role of SMEs in the economy of Bangladesh; Analyze the current status of SMEs in Bangladesh; Acknowledge the extent of applying accounting Information systems in small and medium sized enterprises (SMEs) into Bangladesh.

IV) V)

Review the situation regarding their IT experience in SMEs; Determined the major financing constraints to SMEs development in Bangladesh.

VI)

Put forward some specific recommendations for future growth of SMEs in Bangladesh.

VII)

Identify the impact of accounting information Systems to improve the performance of SMEs.

VIII) To find there is relationship between Accounting Information System and Decision Making control into organization. IX) Make recommendations and suggestions to help in improving the performance of SMEs and identify the problems behind it with strengthening the role of accounting information systems.

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Methodology of the Study

The focus of this study is on AIS effectiveness in SMEs. We further restricted the study Context to manufacturing firms because the manufacturing sector can provide a range of levels of AIS superiority.

Data Collection
The study is mainly based on secondary data. Data have been collected from different published materials like the journal publications of SMEs current situation in Bangladesh, importance of AIS into SMEs, Ministry of Finance, several website and relevant writings of some scholars. The collected data have been processed manually and paper in the present form has been prepared in order to make the study more informative, analytical and useful for the users. Graphic representations are made in MS Word and MS Excel.

Data Analysis
In this research, the Statistical graph was used for data entry as well as for examining the data later. Data collection was the initial step, which aimed to convert raw data into a more structured format that is more appropriate for analysis. Tasks in this stage included data editing, data coding and data entry.

Importance of accounting information system in organization

A big advantage of computer-based accounting information systems is that they automate and streamline reporting. If I will open a manufacturing based company which will produce the mango juice, so how can AIS help with my organization by providing the importance of accounting information system. An accounting information system (AIS) is a system that first collects and stores data and then processes it into information used by investors, creditors, and managers. An accounting information system provides accurate and timely financial information for
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internal management purposes which is beneficial for both investor and users in the organization. An Accounting Information Systems are composed of 6 main components:

1. Software: application that processes the data. 2. Internal controls and security measures: what is implemented to safeguard the data?. 3. Data: data that is related to the organization and its business processes. 4. People: users who operate on the systems. 5. Information technology infrastructure: the actual physical devices and systems that allows the AIS to operate and perform its functions. 6. Procedures and instructions: processes involved in collecting, managing and storing the data. When AIS is implemented, an organization sometimes makes the mistake of not considering each of these six components and treating them equally in the implementation process.

Advantages of Accounting Information System (AIS) in my company

1. A big advantage of accounting information system is that they automate the reporting of my company. Reporting is an important tool for any companies when the executives want to see accurate summarized timely information which is used for financial reporting.

2. The accounting information system retrieves data from the centralized database, processes and transforms it and generates a summary of that data as information that
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can now be easily used and analyzed by business analysts, supervisors or other decision makers.

3. No need to make differently financial and cost profits, it will generate automatically.

4. The probability of error is less because recording takes place in one set of accounts.

5. No confusion arises from different types of order generated like customer order, sales order etc.

6. Information generated on an integrated system is quicker, thus helping my organization management in decision making. 7. Improving the flow of work in every department of my organization often gets boosted by the implementation of an accounting information system. 8. depending upon the software, the AIS system require information for different parts of the process are manually input into the system. This often determines the flow of work of other departments in related processing financial data. It is very important for organization fast track of work.

Many organizations don't spend the amount of time and money on the analysis, design, documentation, and training, and move into software selection and implementation. It is a proven fact that if a detailed requirements analysis is performed with proper time being spent on the analysis, that the implementation and ongoing support will be minimal. An organization that skips the steps necessary to ensure that the system meets the needs of the organization are often left with low profits, frustrated end users, costly support and information that is not correct.
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AIS subsystems
There are five types of subsystem I can use into accounting information systems already decided that I will produce a mango juice company, so it is a manufacturing based company so AIS subsystem will be divided into five categories: The revenue cycle The expenditure cycle The human resources and payroll cycle The production cycle The financing cycle

These subsystems are uses in my organization and it is intenerated with each other. That means you cant ignore any of them. All the items are interrelated.

The revenue cycle

The revenue cycle is the set of activities in a business which brings about the exchange of goods or services with customers for cash. That means I will supply the finished goods to customer and they provide me the revenue. There are some functional departments involved in revenue cycle activities and its need to trace the flow of revenue transactions through the organization.

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The expenditure cycle

This cycle performs Deals with transactions involved in purchasing goods and services, its also manages charges of goods and materials purchased. This cycle provides all Cash and credit payments needed in the organization. There are some main functions of expenditure cycle, these Ares requests for purchases ordering goods to be purchased receiving delivery of goods purchased storekeeping dealing with goods to be returned payment of purchased goods and services

The human resources and payroll cycle

The human resources management (HRM)/payroll cycle is recurring set of business activities and related data processing operations associated with effectively managing the employee work force. Some of the more important activities include the following tasks:

Recruitment and hiring Training Assignment of job responsibilities Compensating for services provided Evaluation of employee performance Discharge

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The production cycle

The production cycle is a recurring set of business activities and related data processing operations associated with the manufacture of products. There are some works that production cycle performs Produce product decision Pricing decision Resource allocation Manage cost and performance evaluation

The four basic activities in the production cycle are: Product design Planning and scheduling Production operations Cost accounting

The financing cycle

The financing life cycle involves activities of obtaining necessary funds to run the organization, repay creditors, and distribute profits to investors. It is one of the most important parts of AIS subsystems. It is connected with other parts of the systems.

Revenue cycle
As I am planning to establish manufacturing based company which will be produce mango juice in Bangladesh. So we need the revenue to operate the company. How can we operate the revenue cycle in my organization thats what I am showingTwo subsystems perform the processing steps within the revenue cycle:

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 The Sales Processing System The Cash Receipts Processing System

DFD of Sales Order Processing System in my organization

Sales order processing system starts with when customer give their order in my company. After receiving the order I have to check customer previous records. If the customer is creditworthy then I will approve the sales order, if not reject the sales order. Then I have to entry the customer order file and pick the customer demanded goods. If there is shortened for quantity then back the order to the customer for the inconvenience. After recording the stock of product and quantity with shipped date and

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back order status, ship the goods to the customers. After shipping the order sends the bill to the customer with previous due (if any).then updates the account receivable record, sales journal, update inventory record with general journal general ledger records.

Highlights of revenue cycle

Source document Sales order Delivery order Remittance advice Deposit slip Credit memo function Take customer order Deliver order Receive cash Deposit cash receipts Adjust customer accounts

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DFD of Cash Receipts Procedure in my organization

The cash receipts process starts with remittance advice from the customers. The prepare remittance advice, check and remittance list and analyzing records and deposit checks to the bank. Banks return the deposit slip into the company cash accounts. If there is not available fund then bank cancel the checks and send it to the customer. The update the AR records with several entry into the systems with the cash receipts journal.

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Expenditure cycle
How I will spend expense for my company for purchasing raw material, employee salary, transportation and other cost.

Categories of activities in the expenditure cycle: 1. Requesting purchases 2. Placing orders with suppliers 3. Receiving goods 4. Storekeeping 5. Processing supplier invoices 6. Cash disbursements

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Flowchart for purchasing function

The process starts with purchasing function with material requisition. What material needed for my productions am producing here mango juice for my company, so the raw material will be super purified water UV (Ultra Violet), Natural Mango Pulm, Citric Acid, Refined Sugar etc. after identifying material requisition I need to enquiry for vendors who will supply the raw materials, have to decide supplier based on the long term benefits with the vendors for future benefits and discounts. Then I have to send the purchase order to my vendors. After receiving the materials I will match with my purchase order. If everything is alright then I have to journal for this purchase in my

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systems. Lastly along with all supporting documents I have to give payment to the vendors. If there is previous balance then it would be added or subtract.

Flowchart for purchase returns function

The highlights of expenditure cycle are as followsSource document Purchase requisition Purchase order Receiving report check function Request items Order items Receive items Pay for the items

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The human resources and payroll cycle

Human resource department is responsible for hiring personnel employees, in the selection process, Facilitates location of people, also involved in personnel development and performance and Employee discipline and terminations.

HRM activities includes

Determine rates of pay Maintain employee details Determine employee authorized deductions Develop and enforce appropriate human resource policies Provide advice and information on HR issues

Payroll cycle business activities

Gathering time and attendance data Calculation of gross amount of wages payable Tax computation Preparation of payroll records Disbursement of payroll Disbursement of PAYG, superannuation and deductions Issue payment summaries and pay advice

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Payroll processing flow chart in organization

Production cycle
There are four basic activities in production cycle. These are Product design Planning and scheduling Production operations Cost accounting

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Product design
The first step in the production cycle is product design. The objective of this activity is to design a product that meets customer requirements for quality, durability, and functionality while simultaneously minimizing production costs. Accountant involve in product design by showing how various design trade-offs affect production costs and thereby profitability, by ensuring that the AIS is designed to collect and provide information about the machine setup and materials handling costs associated with alternative product designs, by providing data about repair and warranty costs associated with existing products

Planning and scheduling

The second step in the production cycle is planning and scheduling. The objective of this step is a production plan efficient enough to meet existing orders and anticipate short-term demand without creating excess finished goods inventories. There are two common methods of production planning. Manufacturing resource planning (MRP-II) Just-in-time (JIT) manufacturing systems accountants be involved in planning and scheduling by ensuring that the AIS collects and reports costs in a manner consistent with the production planning techniques used by the company, by helping to choose whether MRP-II or JIT is more appropriate

Production operations
The third step in the production cycle is the actual manufacture of products. The manner in which this activity is accomplished varies greatly across companies. Every firm needs to collect data about the following four facets of its production operations: Raw materials used
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 Labor-hours expended Machine operations performed Other manufacturing overhead costs incurred

Cost accounting
The final step in the production cycle is cost accounting. There are two types of cost accounting systems. Job-order costing- Job-order costing assigns costs to specific production batches or to individual jobs. Process costing- Process costing assigns costs to each process, and then calculates the average cost for all units produced.

The production cycle in organization

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The financing cycle

The functions of the financial cycle are grouped into three broad categories: Raising capital Acquiring and maintaining assets Financial reporting

Financial cycle in my organization

Raising capital-money can be come from

Shares Debentures Retained earnings Long-term loans loans from banking or other financing institutions trade creditors factoring of debtors
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 bank loans

Acquiring and maintaining assets

Capital raised is invested in fixed assets Fixed assets are used to expand business operations or replace expended assets Maintenance of fixed assets is recognized as a cost of business operations

Financial reporting
Used to make accounting entries and period-end adjustments, and produce financial reports or statements. Trial balance is the first step taken when preparing financial statements. Statement of financial performance Statement of financial position Statement of cash flows

Analyzing & findings

The accounting information systems help organization to develop its performance. accounting information system (AIS) helps my business uses to collect, store, manage, process, retrieve and report its financial data with both order placement and order received from the vendors and customer so that it can be used by accountants, managers, and regulatory and tax agencies. In particular, specially trained accountants work with AIS to ensure the highest level of accuracy in a company's financial transactions and recordkeeping and to make financial data easily available to those who legitimately need access to it, all while keeping data intact and secure. That means its
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effectively increase the level of performance both financially and technologically. The AIS subsystems help the organization by its periodically process step wisely to implement its activities.

Suggestion & conclusion

The changes that occurred in business environment have led to an increasing number of information to be processed, generated and delivered. Thus, the critical part is the quality of information produced by the business itself which will be used in making business decisions (Mukherji, 2002). Accounting systems provide a source of information to owners and managers of SMEs operating in any industry For use in the measurement of financial performance. In any sense, profit can Be viewed as the life-blood of a business and hence the accounting bases, Concepts and principles adopted ought to capture and report all the relevant accounting information to ensure reliability in its measurement. Reported profits reflect changes in wealth of owners and this can explain why major economic decisions in Businesses are centered on financial performance as measured by profitability (Maseko&Manyani, 2011). This study found that the level of awareness on the importance of AIS in small and medium firms. I will suggest that Most of the managers do not aware the importance of keeping a good accounting records and about the information systems, so they need to develop it and realize its importance This record must be in an orderly manner and complete with all the important data regarding their business transactions. Armed with complete data, the managers will produce a good quality and reliable financial records that will assist and equip them with accurate accounting information. Thus, this will guide them to make a quick and Precise decision.
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We've already determined how well-designed AIS allow a business to run smoothly on a day-to-day basis or hamper its operation if the system is poorly designed. The components of an AIS all work together to help key employees collect, store, manage, process, retrieve, and report their financial data. Having a well-developed and maintained accounting information system that is efficient and accurate is an indispensable component of a successful business.

References

1. Factors Affect the Success of SME in Bangladesh: Evidence from Khulna City Md Reaz Uddin & Tarun Kanti Bose; Business Administration Discipline, Khulna University, Bangladesh 2. Small and Medium Enterprises Development in Bangladesh: Problems and Prospects; author-A.K.M. Helal uz Zaman*Md. Jahirul Islam**ASA University Review, Vol. 5 No. 1, JanuaryJune, 2011 3. The Impact of Accounting Information System in Planning, Controlling and Decision-Making Processes in Jodhpur Hotels; Author-Dr. Omar A.A. Jawabreh Tourism and Hotels Sciences Department, Al Balqa Applied University, Jordan, Aqaba 4. Accounting information & reporting systems by aseervatham and anandarajah. 5. http://www.investopedia.com/articles/professionaleducation/11/accountinginformation-systems.asp

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