Changing Dynamics of Accounting
All of us gather information from many different sources and rely on it for a variety of reasons. Our sources of information may include newspapers, radio, television, the Internet, books, and magazines just to name a few. We use information that we gather for entertainment, education, and to make decisions. Businesses also collect, store, and manipulate information that they then rely on to make decisions. They use information to make decisions related to the planning, operation, and control of the business. Businesses design systems to facilitate collecting, storing, and reporting information. We can define a system as two or more interrelated components, functions, and/or processes interacting to achieve a goal. An information system is an organized means of collecting, entering, and processing data. Information systems store, manage, control, and report information to help organizations achieve goals and objectives. These systems assist businesses in planning, control, decision making, and problem solving.
Accounting Information Systems (AIS) are a specific type of information system. These systems are designed to collect and process transaction data and communicate financial information to interested parties. Accounting information systems can vary widely from business to business. The design of these systems is a function of many variables. The nature of the business, the types of transactions in which the firm engages, the size of the firm, the volume of data to be handled, and management's information requirements all impact the design of the accounting information system. An accounting information system can be as simple as a paper-and-pen-based manual system, a very complex system using the latest in computers and information technology, or somewhere in between.
The revolution in information technology has had a profound effect on the accounting profession. Over the next five weeks, this course will help you to build a solid understanding of information systems. During Week One, we will describe the types of information that flows through a business, what information must be collected and reported to the decision makers, the types of controls that an organization must have in place in order to protect the integrity and accuracy of this data, and how accounting information systems will be used to meet these needs.
The Business Cycles
When an organization implements an accounting information sysem, it is imperative that those involved in the process understand the flow of information through the business. Each business is required to gather and report the flow of the transactions that occur within their business to the information users. The information that is to be collect can be divided into cycles. The cycles that a business may have include: the revenue cycle, the expenditure cycle, the financing cycle, the fixed asset cycle, and finally the conversion cycle. With the exception of the conversion cycle, all businesses encounter in varying degrees the remaining cycles in the course of their operations.
The revenue cycle captures transactions including the sales orders received, accounts receivable, and the payment of cash. Think about your organization and what types of documents are involved in this process. If you sell a product, this can involve a customer’s order, a packing slip, a bill of lading, an invoice, customer statements, a receipt for the sale of goods or services, a deposit slip, and the list can go on. Think about what general ledger accounts are affected by the revenue cycle (e.g., sales, inventory, freight, cost of goods sold, accounts receivable, cash, and others depending on your particular business). All of this information must be included in the accounting information system. In addition to this “bookkeeping” information, the company may decide to track non-traditional information such as quality costs, on-time delivery, and