WHAT IS INFORMATION?

Information is stimuli that has meaning in some context for its receiver. When information is
entered into and stored in a computer, it is generally referred to as data. After processing
(such as formatting and printing), output data can again be perceived as information. When
information is packaged or used for understanding or doing something, it is known
as knowledge.

WHAT IS INFORMATION SYSTEM?

Information system, an integrated set of components for collecting, storing, and processing
data and for providing information, knowledge, and digital products. Business firms and
other organizations rely on information systems to carry out and manage their operations,
interact with their customers and suppliers, and compete in the marketplace. Information
systems are used to run inter-organizational supply chains and electronic markets. For
instance, corporations use information systems to process financial accounts, to manage
their human resources, and to reach their potential customers with online promotions.

Many major companies are built entirely around information systems. These include eBay, a
largely auction marketplace; Amazon, an expanding electronic mall and provider of cloud
computing services; Alibaba, a business-to-business e-marketplace; and Google, a search
engine company that derives most of its revenue from keyword advertising on Internet
searches. Governments deploy information systems to provide services cost-effectively to
citizens. Digital goodssuch as electronic books, video products, and softwareand online
services, such as gaming and social networking, are delivered with information systems.
Individuals rely on information systems, generally Internet-based, for conducting much of
their personal lives: for socializing, study, shopping, banking, and entertainment.

As information systems enabled more diverse human activities, they exerted a profound
influence over society. These systems quickened the pace of daily activities, enabled
people to develop and maintain new and often more-rewarding relationships, affected the
structure and mix of organizations, changed the type of products bought, and influenced the
nature of work. Information and knowledge became vital economic resources. Yet, along
with new opportunities, the dependence on information systems brought new threats.
Intensive industry innovation and academic research continually develop new opportunities
while aiming to contain the threats.

WHAT IS ACCOUNTING INFORMATION SYSTEM?

Accounting Information Systems (AIS) refer to the Whole range of records and special
accounting procedures use by the business in achieving the objectives of financial
accounting the preparation and communication of financial reports. It is a device or an
organization of planned procedures designed to transform economic information and other
data into meaningful financial reports.

AIS combines traditional accounting practices, resources (documents, people, and

equipment), accounting designs, accounting processes, and policies to monitor the proper
implementation of the accounting system.
 The system does not only include the source documents, books of accounts, and
accounting reports, but also the manpower needed and the well-device procedures to keep
the records in reasonable detail, to reflect the transactions accurately and fairly, and to
dispose the assets. The system should ensure that relevant and representational faithful
information are reported in the financial statements.

TYPES OF INFORMATION SYSTEM

USERS OF ACCOUNTING INFORMATION

Accounting can be said to be a process that collects, collate, record, analyse, interpret and
communicate financial information to end users in the form/ format that they will understand.
Accountancy is the only language that businesses all over the world understand. And for
you to be a better business person, you have to know how to speak, write, read, and
understand this language of business. There are many people that rely on accounting as a
profession to provide them with much needed information to make an informed economic
decision.

The accounting process provides financial data for a broad range of individuals whose
objectives in studying the data vary widely. Three primary users of accounting information
were previously identified, Internal users, External users, and Government/ IRS. Each
group uses accounting information differently, and requires the information to be presented
differently.
Internal Users Accounting supplies managers and owners with significant financial data
that is useful for decision making. This type of accounting in generally referred to as
managerial accounting. desk with calculator

Some of the ways internal users employ accounting information include the following:
Assessing how management has discharged its responsibility for protecting and managing
the companys resources
Shaping decisions about when to borrow or invest company resources
Shaping decisions about expansion or downsizing

External Users Typically called financial accounting, the record of a business financial
history for use by external entities is used for many purposes. The external users of
accounting information fall into six groups; each has different interests in the company and
wants answers to unique questions. The groups and some of their possible questions are:

Owners and prospective owners. Has the company earned satisfactory income on its total
investment? Should an investment be made in this company? Should the present
investment be increased, decreased, or retained at the same level? Can the company
install costly pollution control equipment and still be profitable?

Creditors and lenders. Should a loan be granted to the company? Will the company be able
to pay its debts as they become dueHand Putting Deposit Into Piggy Bank

Employees and their unions. Does the company have the ability to pay increased wages? Is
the company financially able to provide long-term employment for its workforce?
Suppliers/ Creditors: Suppliers and creditors of a company need information
concerning the financial position of a company. They need to be convinced that the
company is liquid enough to meet with her obligations upon maturity.

Customers. Does the company offer useful products at fair prices? Will the company survive
long enough to honor its product warranties?

Governmental units. Is the company, such as a local public utility, charging a fair rate for its
services?

General public. Is the company providing useful products and gainful employment for
citizens without causing serious environmental problems. The general publics will some
time need information about the finance of a company in order to protect their interest.

Some of the ways external users employ accounting information include the following:
Stockholders have the right to know how a company is managing its investments
Federal and State Governments require tax returns and other documents often prepared by
accountants
Banks or lending institutions may use accounting information to guide decisions such as
whether to lend or how much to lend a business
Investors will also use accounting information to guide investment decisions

General-purpose financial statements provide much of the information needed by external

users of financial accounting. These financial statements are formal reports providing
information on a companys financial position, cash inflows and outflows, and the results of
operations. Many companies publish these statements in annual reports, also known as a
10-K or a 10-Q (quarterly report). The annual report contains the independent auditors
opinion as to the fairness of the financial statements, as well as information about the
companys activities, products, and plans. Typically, the best place to find these reports for
a public company can be on their website under the Investor relations section. Financial
statements used by external entities are prepared using generally accepted accounting
principles, or GAAP. We will discuss the language of GAAP further in later sections.

Government / IRS

Government agencies that track and use taxes are interested in the financial story of a
business. They want to know whether the business is paying taxes according to current tax
laws. The language in which tax-related financial statements are prepared is called IRC or
Internal Revenue Code. Tax preparation will be outside the scope of this course.
Government: It is the duty of government to protect lives and property and in so doing will
need information concerning every facet of her jurisdiction. Information from businesses in
the form of financial report will help government properly formulate her strategic plan.

Internal users are people within a business organization who use financial information.
Examples of internal users are owners, managers, and employees.

External users are people outside the business entity (organization) who use accounting
information. Examples of external users are suppliers, banks, customers, investors,
potential investors, and tax authorities.

The following are the users of accounting information system;

Shareholders of a company: Companys shareholders are the real owners of a business

and needs information from those that manage the business on their behalf.

Students: students need information about companys finance to take some decisions that
relates to courtesy visit and demand for bursary

Employees: Employees and lower cadre managers are only interested in a companys
financial statements because they want the safety of their daily bread. They may also want
increase in wages and salaries.

Management: Management in this context are the top level managers and they have similar
interest with ordinary managers. The only difference is that management also need this
information to make economic decision that concerns the running of the business.

Tax authority: They are only concerned about the returns that comes to them in the form of
tax revenue.
Trade union: Their concern is to seek a fair wage for their members. Knowing what a
company is making will give them an insight of what to agitate for as fair wage

Professional bodies: Professional bodies need accounting information as a tool that will be
used to educate her members.
Potential investors: For potential investors to be in a position to make investment decision
some analysis has to be made and this can only be made from accounting information.

PURPOSES OR FUNCTIONS OF AIS

The purpose / function of AIS is closely related to the purpose of accounting itself.
SP6011iCally; the purposes of AIS are as follows:

1. To gather data and make financial information available to decision makers (investors,
creditors, and managers).
2. To do accounting Work and help in the efficient delivery of accurate ' economic
information to financial users. .
3. To store not only financial data but also non-financial data in a single integrated
enterprise-Wide repository,
COVERAGE OF AIS

AIS cover all functions from basic accounting processing systems of business transactions
to sophisticated financial management planning and processing systems.

Specifically, AIS cover the following systems:

1, Financial Accounting Systems. These start at the operational levels of the organization,
where the transaction processing systems capture important business events such as
normal production, purchasing, and selling activities. These transactions /events are
classified and summarized for internal decision-making and for external financial reporting.

2, Cost Accounting Systems. These. are , used in manufacturing and service environments.
These allow organizations to track the costs associated with the production of goods and /
or performance of services. In addition, the AIS can provide advance analysis for improved
resource allocation and performance tracking. '

3. Management Accounting Systems. These allow organizational planning, monitoring, and

controlling for a variety of activities. These allow managerial-level employees to have
access to advance reporting and statistical analysis. The systems can be used to gather
information to develop various scenarios and to choose an optimal answer among
alternative scenarios.

4. Tax Accounting Systems. These facilitate. the preparation of tax returns and its
reconciliation, tax planning, and updates.

5. Not-for-profit Accounting Systems. These are used in the preparation of financial reports,
budgets, ' and maintaining financial records of government agencies, churches, charitable
institutions, non-government "organizations, schools, etc.

BASIC ELEMENTS OF AIS

The following are essential elements of the accounting information system:

1. Statement of accounting policies and standards - defines the goal and quality of
accounting information needed.
2. Methods and procedures - serve as guides in the conversion of data into intelligent
accounting information.
3 Bookkeeping system - provides uniformity in recording and computing transactions
4 Records and reports - store and serve as proofs that lend reliability to the financial
information.
5 Personnel - the brain and workforce that are directly involved in the accounting work.
6. Equipment and devices - expedite the work; provide controls to obtain outputs, and
prevent fraud and errors.

FEATURES OF AIS
An AIS, whether manual processing or computerized processing, should have the following
features to be considered effective:

1. Compatibility and Flexibility. The system must be adaptable and appropriate to the Firms
organizational structure and policies.

The system works smoothly with the operations, personnel, and organizational structure. It
must have the ability to accommodate changes in the organization with minimal cost and
delay.

2. Efficiency and Accuracy. The system should be able to provide specific, relevant, and
accurate accounting reports on time as needed by management and other interested
parties.

The reports should be free from error or material errors that would affect the judgment of the
decision-maker. Its accuracy can be verified through supporting documents.

The system must be manned by qualified and competent personnel. The system should
consider the capabilities as well as the limitations of the personnel who will be responsible
for its implementation.

The system should be simple yet workable, efficient, and sufficiently flexible to permit
changes and modification. It should also accomplish its objective at the least possible end.

3. Control. The system should provide adequate controls to ensure the reliability and
accuracy of financial data, to safeguard assets, and to minimize errors and fraud.

The costs of control should not exceed the value of its benefit to the organization.

The AIS must have an adequate provision of audit trail. The system should be designed to
facilitate the tracing of data processing steps from the financial statements and reports to
the source document and vice versa.