The Definition of Accounting Information System
Establishing the appropriate controls to
Accounting is a system to record the financial
events of the organization in order to report these
financial activities to stakeholders. According to ASOBAT
and GAAP, accounting system should provide
information to assist management in planning and
decision making (Wu, 1995). Therefore, accounting is as
an information system which has two domains; external
financial reporting and management reporting. The
former is based on the accepted accounting principles
and the latter is based on management preferences
(Arab MazarYazdi, 2003).
Information systems process data but
sometimes it is thought that what is happening in
information systems of organizations include simply raw
data processing of financial and non-financial events of
the organization. But the fact is that managers in
different levels involved with a variety of issues which
has different degree of complexity in solving the
problems. Also, the type of system that can help to solve
this variety is positioned ina range of retrospective
conventional database systems to prospective intelligent
systems (Arab MazarYazdi, 2003).
Therefore, AIS changes the economic and
financial activities to the form which is worthwhile for
users (people who need information about economic
activities for their decision making). Also, in another AIS
definition, it is stated that AIS is an organized
components which accumulate, classify, process,
analysis financial information and provide these
information for internal and external stakeholders for
making decisions (Moscove, 1997).
Responsibilities of Accounting Information
System An accounting information system is composed
of people, practices and information technologies and in
general it can be said that AIS has the following three
main responsibilities:
1. Receiving and keeping data about the
activities and transactions, so that the organization is
able to assess what happened.
2. Converting data into information that is useful
for decision making and helps management for planning,
implementation and monitoring of activities.
3.
preserve the assets of the organization as well as
organizations’ financial data. These controls ensure that
data are available when they are needed and they are
correct and also reliable.
Also, a properly designed AIS improves the
effectiveness and efficiency of activities through the
following ways
: 1. Improving the quality and reducing the cost
of production or services; For example, AIS can be used
to control machinery in such a way that as soon as the
operation was out of the range of acceptable quality, the
operator will be noticed.
2. Improving efficiency; AIS can help to improve
the efficiency of operations through providing more
timely information. For example, just in time (JIT)
approach requires ongoing, accurate and new
information about
the inventory of raw materials and their
whereabouts. 3. Improving decision making: AIS can
improve the decision making by appropriately providing
accurate information for the personnel.
4. Sharing of knowledge: a properly designed AIS
could lead to knowledge sharing. With knowledge
sharing, the operations are improved and a competitive
advantage is created. For example, an audit firm will be
able to transfer the experiences to the employees
working in different departments by developing and
using a network or system (Romney, 2000).
AIS has three major Subsystems: (TPS, GL/FRS, MRS)
1. TRANSACTION PROCESSING SYSTEM (TPS)
Transaction processing systems are used to record day
to day business transactions of the organization. They
are used by users at the operational management level.
The main objective of a transaction processing system is
to answer routine questions such as;
How printers were sold today?
How much inventory do we have at hand?
What is the outstanding due for John Doe?
By recording the day to day business transactions, TPS
system provides answers to the above questions in a
timely manner.
The decisions made by operational managers are
routine and highly structured.
The information produced from the transaction
processing system is very detailed.
For example, banks that give out loans require
that the company that a person works for should have a
memorandum of understanding (MoU) with the bank. If
a person whose employer has a MoU with the bank
applies for a loan, all that the operational staff has to do
is verify the submitted documents. If they meet the
requirements, then the loan application documents are
processed. If they do not meet the requirements, then
the client is advised to see tactical management staff to
see the possibility of signing a MoU.
It has 3 major subsystem:
1. Expenditure Cycle - which consists of activities
that involve the buying and paying for goods and
services used by the organization.
2. Revenue Cycle- which includes sales of goods or
services or receiving the cash.
3. Conversion Cycle- which includes activities
which convert raw materials and labors to the
finished products.
Examples of transaction processing systems
Point of Sale Systems – records daily sales
Payroll systems – processing employees salary, loans
management, etc.
Stock Control systems – keeping track of inventory
levels
Airline booking systems – flights booking management
ATM-Automated Teller Machine
2. GENERAL LEDGER / FINANCIAL REPORTING
SYSTEM
The general ledger / financial reporting system
(GP/FRS) includes the processes in place to update
general ledger accounts and prepare reports that
summarize results of the organization’s activities.
• One of the primary functions of (GP/FRS)is to
collect and organize data from TPS which are:
– Each of the accounting cycle
subsystems, which provide summary
entries related to the routine activities in
those cycles.
– The treasurer, who provides entries with
respect to non-routine activities such as
transactions with creditors and
investors.
– The budget department, which provides
budget numbers.
– The controller, who provides adjusting
entries.
The general ledger is often called the accounting ledger
because it contains a listing of all general accounts in
the accounting system’s chart of accounts. Here are the
main types of general ledger accounts:
- Asset Accounts (Cash, Accounts Receivable,
Fixed Assets)
- Liability Accounts (Accounts Payable, Bonds
Payable, Long-Term Debt)
- Stockholders’ Equity Accounts (Common Stock,
Retained Earnings)
- Revenue Accounts (Sales, Fees)
- Expense Accounts (Wages Expense, Utilities
Expense, Depreciation Expense)
- Other Gain and Loss Accounts (Interest
Expense, Investment Income, Gain/Loss on
Disposal of Asset)
3. MANAGEMENT REPORTING SYSTEM(MRS)
Information from TPS and Ledger is summarize to
create reports for internal users
As the phrase suggests, management reporting systems
capture the sorts of data needed by a company's
managers to run the business. The sorts of financial
data that are presented in annual reports typically are
at their core.
However, robust management reporting systems will
house data at much more detailed levels than is
presented to the investing public. For
example, a financial services firm’s overall financial
results might be recast into profit and loss statements
arrayed by:
 Organization (such as division, business unit or
department)
 Geographic region
 Product
 Client segment
 Specific clients (both retail and institutional)
 Financial advisor
Designers and Users of These Systems
Controllers and chief financial officers (CFOs) tend to
dedicate a significant amount of their time to designing,
implementing, maintaining, and adjusting management
reporting systems, as well as to monitoring and
analyzing their output, and recommending courses of
action to management based on such analysis.
2 - The computer as a tool for information
processing.
3 - Software for understanding data under different
commands (Rngryz, 2009) But the intersection of these
definitions is that all the definitions consider MIS as an
information systemwhich provides information for
decision making.

The Definition of Management Information System MIS subsystems Similar to other systems, MIS is
also consists of subsystems. Perhaps the most important
Different authors do not agree on the definition of set of subsystems in every corporation is a functional
management information systems. Also, different information system. These are called the functional
names has been suggested for this kind of information information systems because they support the
system (IS) such as information processing system, organization’s key functions. While there are different
information and decision making system, organization types of functional information systems, but four
information system, computer data processing system,
developed systems in a manufacturing com
management reporting system and resources of
information (Sagheb, 2001). In one definition, MIS
describes as a consolidated reporting system which is
designed specifically to assist managers in planning,
implementing and controlling the activities of
organization (Dugan, 2009).

In another definition, Davis (2010) is described MIS as

an integrated system consisting of human and machine
which is prepare in organization to produce valuable
information for supporting operations, management
and decision making in an organization. This system is a
combination of computer software and hardware,
databases and manual methods and models for
analyzing, planning, controlling and also decision MIS vs AIS
making (Judge Zadeh, 2008).
MIS and AIS are computer based information systems.
According to Peter keen (2006), MIS is designing,
Any organization requires a lot of information to keep
performing efficiently. All this information, coming
presenting and effective using of information systems in
from various sources about different aspects of the
organization. In the above definition, the word
business is collected and analyzed through computers
organization is used and the word management has not
and produce a detailed report that becomes an effective
considered. Therefore, the MIS topic is considered more
tool for managers to organize, evaluate and efficiently
general than the information system. It means,
run their departments. This computer based
although this topic is related to the managers, but also
information system is known as Management
involves all other members of the organization and the
Information System (MIS), today forms the backbone
structure and design of the organization. The term
for any organization to function smoothly. MIS has
organizational information systems may be more
invaluable information that can be used effectively to
appropriate, but the term management information evaluate past decisions and to plan accordingly to
system is more used and accepted (Kroenke, 1992). predict future operational success.
Management information system is a set of data which
is designed with minimal costs to provide timely and
accurate information and consists of the following Accounting Information System, or AIS, on the other
major sections: hand is a subset of MIS and pertains to a system of
keeping a record of accounting books and financial
statements along with sales and purchase records and
1 - Information flow model which extends from the
other financial transactions. This system is extremely
origins to certain specified purposes.
crucial in maintaining the account system of any Summary
organization.
• MIS stands for Management
While AIS is no doubt very helpful to the management Information System while AIS stands for
in assessing past performances and to come up with Accounting Information System.
decisions for future projects, it is not just financial
information that can makeup for all that is required to • AIS pertain to finances while MIS is a
run any organization successfully. Management much broader concept.
requires information that goes far beyond the capability
and scope of AIS. With the size and functions of any
• AIS is regarded as a subset of MIS.
organization growing and becoming complex,
additional information is required for many reasons
such as production planning, sales forecasting, • The information obtained through AIS
warehouse planning, market research etc. All this is critical for MIS.
information comes through MIS as this sort of
information is not normally processed by traditional
AIS.

It is clear that AIS is a system collects and stores data

and then with the help of computers produces results
that are used by managers that include investors,
creditors and internal management of the organization.
Though AIS as a system can be performed using a
paper and a pencil, in modern context it refers to a very
complex computer based system that combines the
traditional methods of accounting with the latest
information technology to come up with all the
financial information that is needed by management to
take financial decisions.