The Role & Importance of an Accounting Information System

An effective accounting information system processes large amounts of data and provides effective reporting to management and other users. Nowadays, most of the accounting systems are computerized, but traditional accounting principles and methodology still applies.

1.     Support

o    A primary function of an accounting information system is to support management in decision making, providing a centralized place where financial data reside. An accounting system provides financial information on expenses and revenues, who owns what and what bills need to be paid along with information on inventory and tax matters. If a system is used properly, it can speed up lots of processes and decisions.

Objectivity

o    An accounting information system is objective with numbers speaking for themselves. For example, if an expense is over budget, then it is over budget; it is there in black and white. Accounting systems don't allow for emotions and can be seen as unbiased information sources. Decisions can be made based on real data, not gut feelings. For example, a sales person may talk about all the virtues of the latest marketing campaign, but if sales reports show low numbers, his talk may be just talk and nothing else.

Speed

o    To be effective, an accounting system needs to operate at a fast speed. For instance, bills need to be paid promptly and management needs information fast. In order to work at top speed, an accounting system must be set up properly, including using default values in a computerized program. Training is imperative for people to use the system correctly, making use of all its functionality and improving speed and productivity.

Financial Reporting

o    An important benefit of an accounting system is to give management and interested parties financial reports, such as an income statement or aging of receivables, helping management do a better job. For example, if a manager reads a financial report showing that his postage expenses will be over budget soon, he can take proactive measures to decrease that expense. Other reports are sales reports, usually important to marketing to evaluate a new campaign. Easy reporting is of key importance to management.

Considerations

o    Errors do happen in accounting systems. For example, digits can be reversed or an invoice can be entered twice. So, controls must be in place to minimize pesky mistakes, such as reconciliations and reports. Another control to detect errors is to have management review accounting reports and to ask questions about unusual items.