LEARNING WITH CAMME....

Knowing accounting equation is very essential especially if we are in the early process of establishing a new company.
Accounting equation is the way to express the relationship between resources supplied by the owner and the resources in the business.

Business transactions can be classified into five categories that are assets, owner's equity, liabilities, revenues, and expenses. All those categories also known as the elements of financial statements. Assets, liabilities and owner's equity are recorded in BALANCE SHEETS whereas revenues and expenses are recorded in INCOME STATEMENTS.

FINANCIAL STATEMENTS


Definition

Financial statement is a written report which quantitatively describes the financial health of a company. This includes an income statement and a balance sheet, and often also includes a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis. They are used for both internal and external purposes.

Why important?

• Financial statements describe the organization’s financial health and performance in a condensed and highly informative format.

• They give an overall view of the entire organization

• Managers use it to plan ahead and set goals for upcoming periods. When they use the financial statements that were published, the management can compare them with their internally used financial statements.

• Managers can also use their own and other enterprises’ financial statements for comparison with macro economical data and forecasts, as well as to the market and industry in which they operate in.

Types of Financial Statements

1) Balance sheets -Balance sheets provide the observant with a clear picture of the financial condition of the company as a whole. It lists in detail the tangible and the intangible goods that the company owns or owes. These good can be broken further down into three main categories; the assets, the liabilities and the shareholder’s equity.

a) Assets include anything that the company actually owns and has disposal over. Examples of the assets of a company are its cash, lands, buildings, and real estates, equipment, machinery, furniture, patents and trademarks, and money owed by certain individuals or/and other businesses to the particular company. Assets that are owed to the company are referred to as accounts-, or notes receivables.

• Current Assets include anything that company can quickly monetise. Such current assets include cash, government securities, marketable securities, accounts receivable, notes receivable (other than from officers or employees), inventories, prepaid expenses, and any other item that could be converted into cash within one year in the normal course of business.

• Fixed Assets are long-term investments of the company, such as land, plant, equipment, machinery, leasehold improvements, furniture, fixtures, and any other items with an expected useful business life usually measured in a number of years or decades (as opposed to assets that wear out or are used up in less than one year. Fixed assets are usually accounted as expensed upon their purchase. They are normally not for resale and are recorded in the Balance Sheet at their net cost less (less is accounting term for minus) accumulated depreciation.

• Other Assets include any intangible assets, such as patents, copyrights, other intellectual property, royalties, exclusive contracts, and notes receivable from officers and employees.

b) Liabilities - Liabilities are money or goods acquired from individuals, and/or other corporate entities. Some examples of liabilities would be loans, sale of property, or services to the company on credit. Creditors (those that loan to the company) do not receive ownership in the business, only a (usually written) promise that their loans will be paid back according to the term agreed upon.

• Current Liabilities are accounts-, and notes-, taxes payable to financial institutions, accrued expenses (eg.: wages, salaries), current payment (due within one year) of long-term debts, and other obligations to creditors due within one year.

• Long-Term Liabilities are mortgages, intermediate and long-term loans, equipment loans, and other payment obligation due to a creditor of the company. Long-term liabilities are due to be paid in more than one year.

c) Shareholder’s equity (or net worth, or capital) The shareholder’s equity is money or other forms of assets invested into the business by the owner, or owners, to acquire assets and to start the business. Any net profits that are not paid out in form of dividends to the owner, or owners, are also added to the shareholder’s equity. Losses during the operation of the business are subtracted from the shareholder’s equity.

2) Cash flow statements - These statements show how money is predicted to move around (hence the phrase cash flow) at a given period of time. It is useful for planning future expenses. It shows whether or not there will be enough money to carry out the planned activities and whether or not the cash coming in are enough to cover the expenses. The cash flow statement is useful in the determination of the company’s liquidity in a given period of time.


3) Income statements - Income statements measure the company’s sales and expenses over a specific period of time. They are prepared each month and fiscal year end. Income statements show the results of operating during those accounting periods. They are also prepared using the Generally Accepted Accounting Principles (GAAP) and contain specific revenue and expense categories regardless of the nature of the company.

Conclusion

Financial statements are useful, because they show the financial condition of a company at a given period. There are many types of financial statements uses and purposes, measuring different financial aspects of the company. They can be used for both internal, and external uses.

Accounting information should be readily understandable and decision usefulness ( the ability to be useful in decision making) to the intended users of the information.  

1. Predictive value
2. Feedback value                                                                                                                     (Generally, useful information will possess both qualities. For example, if net income and its components confirm investor expectations about future cash-generating ability, then net income has feedback value for investors. This confirmation can also be useful in predicting future cash-generating ability as expectations are revised.)
3. Timeliness also is an important component of relevance. Information is timely when it is available to users early enough to allow its use in the decision process. The need for timely information requires that companies provide information to external users on a periodic basis. Information is timely if it is available to users before a decision is made.

1. Verifiability implies a consensus among different measurers. For example, the historical cost of a piece of land to be reported in the balance sheet of a company is usually highly verifiable. The cost can be traced to an exchange transaction, the purchase of the land. However, the market value of that land is much more difficult to verify. Appraisers could differ in their assessment of market value. The term objectivity often is linked to verifiability. The historical cost of the land is objective but the land’s market value is subjective, influenced by the measurer’s past experience and prejudices. A measurement that is subjective is difficult to verify, which makes it more difficult for users to rely on.
2. Representational faithfulness means when there is agreement between a measure or description and the real-world phenomenon that the measure is supposed to represent. For example, assume that the term inventory in a balance sheet of a retail company is understood by external users to represent items that are intended for sale in the ordinary course of business. If inventory includes, say, machines used to produce inventory, then it lacks representational faithfulness.
3. Reliability assumes the information being relied on is neutral with respect to parties potentially affected. In that regard, neutrality is highly related to the establishment of accounting standards. Changes in accounting standards can lead to adverse economic consequences to certain companies, their investors and creditors, and other interest groups. Accounting standards should be established with overall societal goals and specific objectives in mind and should try not to favor particular groups or companies.

1. Comparability is the ability to help users see similarities and differences between events and conditions. It is important to the investors and creditors to compare information across companies to make their resource allocation decisions.
2. Closely related to comparability is the notion that consistency of accounting practices over time permits valid comparisons between different periods. The predictive and feedback value of information is enhanced if users can compare the performance of a company over time.

WHAT IS ACCOUNTING?


Accounting is the process of identifying, classifying, measuring, recording and communicating economic information and business events in monetary term to permit informed judgements and decisions by users of the information.

Bookkeeping – it is a part of the field of accounting, refers to the mechanical aspects of accounting, such as recording, classifying and summarizing transaction.


What accountants do?

1. Accountants CLASSIFY, SUMMARIZE, INTERPRET facts , TRANSLATE into useful information, and REPORT DATA to managers.

2. They suggest strategies for improving the financial condition of the company.

3. Accountants help entities be successful, ethical, responsible participants in society.

4. Accountant design and maintain accounting system.

5. Accountants also responsible for preparing several types of documents (e.g. employees’ salary and wage records)


What bookkeepers do?

1. The first task of bookkeepers is to DIVIDE ALL THE PAPERWORK INTO MEANINGFUL CATEGORIES.

2. Then they RECORD THE DATA from the original transaction documents (sales slips, etc.) into record books called JOURNALS.

3. A JOURNAL is the FIRST PLACE transactions are recorded.


PURPOSES OF ACCOUNTING

1. To help managers evaluate the financial condition and the operating performance of the firm so they may make better decisions.

2. To report financial information to people outside the firm such as owners, suppliers, and the government.


TYPES OF ACCOUNTING

1) Financial Accounting

- Financial accounting provides information to decision makers who are not involved in the day-to-day operations of an organization. The information is distributed primarily through general purpose financial statements. The focus of financial accounting is reporting on historical information. The information is reported periodically. It is often broken down into monthly, quarterly, and annual reporting periods. At a minimum, financial accounting information must be reported annually.
2) Management Accounting

- Involves providing information to an organization’s managers. Management accounting reports often include much of the same information used in financial accounting. However, management accounting reports also include a great deal of information that is not reported outside the company.

3) Cost Accounting

- To plan and control operations, managers need information about the nature of cost incurred. Cost accounting is a process of accumulating the information managers need about operating costs. It helps managers identify measure and control these costs. Cost accounting may involve accounting for the costs of products, services or specific activities. Cost accounting information is also useful for evaluating each manger’s performance.

4) Tax Accounting

- Many taxes raised by federal, state and city governments are based on the income earned by taxpayers. These taxpayers include both individuals and corporate businesses. The amount of taxes is based on what the laws define to be income. Tax accountants help taxpayers comply with these laws by preparing their tax returns. Another tax accounting activity involves planning future transactions to minimize the amount of tax to be paid.

5) Auditing

- Just as independent auditing adds credibility to financial statements, internal auditing adds credibility to report produced and used within an organization. Internal auditors not only examine record-keeping processes but also assess whether managers are following established operating procedures.

THE FUNCTION OF ACCOUNTING

Accounting is very important for the purpose of decision making. It tells where, when, how and why money has been spent. It is helpful in the evaluation of performance and indicates the financing implications of choosing one plan/ investment or project versus another. Some form or other of accounting is needed to ensure the smooth-running of all organizations. It helped users by enable assessment of amount, timing and uncertainty of prospective net cash flow to the operating enterprise.

THE JOB OF ACCOUNTANTS


• Accountants help entities be successful, ethical, responsible participants in society.

• Accountants identify, analyze, record and accumulate facts, estimates. Forecasts and other about the unit’s activities, then translate into useful information.

• Accountant design and maintain accounting system.

• Accountants also responsible for preparing several types of documents (e.g. employees’ salary and wage records)


The job of accountants nowadays not restricted to the process of collecting, recording and summarizing the accounting data. There are various employment opportunities for a person who studied in the accounting field and the job is slightly differing from one another. The four broad areas are:
a) Public Accounting – Public accountants are those who are offer their professional services to the general public for a fee. Such services include auditing, tax services, accounting services and management consultancy. Public accounting services are offered only by those who have a license to practice.

b) Private Accounting – Private accountants are those individuals who are employed by organizations in various positions such as financial accountants, management accountants, cost accountants and internal auditors.

c) Governmental Accounting – Accountants who are working in government usually are employed by a federal agency, a state agency or a local authority.

d) Educations – Some accountants become educators that they teach accounting and related courses. Some of them also engage in research and publications as well as consultancy.

USERS OF THE ACCOUNTING INFORMATION


(a) Lenders. Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due.

(b) Suppliers and other trade creditors. Suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Trade creditors are likely to be interested in an enterprise over a shorter period than lenders unless they are dependent upon the continuation of the enterprise as a major customer.

(c) Customers. Customers have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on, the enterprise.

(d) Potential investors. They need the information in order to make a decision whether want to invest or not. Normally, the potential investors or shareholders will contribute their capital in a company that show impressive record in financial position.

(e) Governments and their agencies. Governments and their agencies are interested in the allocation of resources and, therefore, the activities of enterprises. They also require information in order to regulate the activities of enterprises, determine taxation policies and as the basis for national income and similar statistics.

(f) Public. Enterprises affect members of the public in a variety of ways. For example, enterprises may make a substantial contribution to the local economy in many ways including the number of people they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the enterprise and the range of its activities.

(g) Investors. The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments. They need information to help them determine whether they should buy, hold or sell. Shareholders are also interested in information which enables them to assess the ability of the enterprise to pay dividends.

(h) Managers. Managers need to make day-to-day decision making. They need to know how well things are progressing financially and about the current status of the business.

(i) Employees. Employees and their representative groups are interested in information about the stability and profitability of their employers. They are also interested in information which enables them to assess the ability of theenterprise to provide remuneration, retirement benefits and employment opportunities.

DATA
Definition of Data: Facts of information, especially used to find out things and make a decision.

INFORMATION
No attempt has been made to describe the nature of information that may come in many shape and forms.

MANAGEMENT INFORMATION SYSTEM (MIS)

Definition: Management Information System (MIS) is a planned system of collecting, processing, storing and disseminating data in the form of information needed to carry out the functions of management. MIS is a subset of the overall internal controls of a business covering the application of people, documents, technologies, and procedures by management accountants to solving business problems such as costing a product, service or a business-wide strategy. Management Information Systems are distinct from regular information systems in that they are used to analyze other information systems applied in operational activities in the organization. Academically, the term is commonly used to refer to the group of information management methods tied to the automation or support of human decision making.
On the other hand, MIS can be clarified as computer-based or manual system that transforms data into information useful in the support of decision making. . MIS can be classified as performing three functions:
(1) To generate reports-for example, financial statements, inventory status reports, or performance reports needed for routine or non-routine purposes.
(2) To answer what-if questions asked by management. For example, questions such as "What would happen to cash flow if the company changes its credit term for its customers?" can be answered by MIS. This type of MIS can be called Simulation.
(3) To support decision making. This type of MIS is appropriately called Decision Support System (DSS). DSS attempts to integrate the decision maker, the data base, and the quantitative models being used.

Information can be divided by two:
1. Formal Information
a) Formal information has rules and procedure, a hierarchy, routing system for data and information flow
b) It sets procedures for data and information processing
c) The data and information tend to be quantitative though this is changing as computer system become capable of greater storage
d) Tend to be fairly inflexible and slow to change

2. Informal Information
a) Operates without rules and procedures
b) Information gets passed through virtually accidentally (casual conversation)
c) Has no firm structure, hierarchy and does not undergo any uniform or routine transformation as it passes around the information system
d) Information can be both qualitative and quantitative.


FINANCIAL VS NON FINANCIAL INFORMATION

Financial Information

Financial information can be classified as information that could affect financial decisions.

Non Financial Information


QUALITATIVE VS QUANTITATIVE INFORMATION

Qualitative Information

Qualitative observations do not involve measurements and numbers. Example: ("My brother is shorter than my sister,") is a qualitative observation. Qualitative is based on observed opinion.
4 principal qualitative characteristic of useful accounting information are:
1. Understandability – easy to understand
2. Relevance – information must be relevant
3. Reliability – free from any of influences and bias
4. Comparability – can be compared between industry, current and previous

Others Characteristic of Qualitative Information

1. Timeliness – the delay in supplying the information might cause that particular information is no longer reliable.
2. Materiality – all items that are material will be reported. Materiality depends on the size of items and something that may influence the judgement of the users of the users of accounting information.
3. Verifiability – information is reliable if it can be verified by various means. Once verified the information will be more reliable.
4. Prudence – requires being more cautious in the exercising of judgement to ensure that income is not overstated and expense understated.
5. Completeness – Omission of information may render to users of committing false and misleading.
6. Neutrality – The information must be free from bias and should not govern by economic consequences of the reporting.

Quantitative Information

Quantitative observations that involve measurements and numbers ("My brother is 30cm shorter than my sister," is a quantitative observation.)
Quantitative is based on known quantities. It is capable in being expressed in numerical term and measured in money terms that can be quantified. This part of information system is called accounting information system. Accounting information system is the important element of organization in order to survive in condition of economic scarcity and competition.

Quantitative method in the information System

1. Modern management information system collects the entire data together (database).
2. Appropriate processing, provides the information which is important to each manager.
3. Some information originated in accounting information system.
4. System has become more sophisticated (largely as a result of the impact of widespread computerization).
5. The techniques of quantitative analysis (statistics) apply to all the data in this system, whether or not they are accounting data.


ORGANIZATIONAL OBJECTIVES

Definition of Objectives:
Objectives are specific statements describing what the organization is trying to achieve, usually with a one-year window. Objectives should be written at a low enough level that it is clear whether they have been achieved within the timeframe set. A well-worded objective will be Specific, Measurable, Attainable/Achievable, Realistic, and Timebound (SMART).

Specific. Effective objectives should be concrete, not “fluffy.” Setting an objective for the department to “improve quality” is not specific enough.

Measurable. Effective objectives should be measurable. Numerical goals are easiest to measure again. “Reduce absenteeism by 5% over the next 6 months in Dept. X” is a worthwhile, measurable goal.

Attainable. At the same time, objectives that are set “in the sky” will not be motivational to employees who will be quick to realize if they are not attainable.

Realistic. Taking into consideration everything else that is going on in the company, do the new objectives seem realistic? If there is a major economic downturn and your key product line is an expensive luxury item, is it realistic to set a goal to increase sales by 20 percent during the next quarter?

Timely. Objectives must have stated deadlines to be effective. The key to insuring their success, therefore, is to measure against the goals at the stated time.

Examples of Organizational Objectives

• To ensure the maximum profit are made.
• To obtain a minimum specific share of the market for its goods and services.
• To have the greatest share of the market for its good and services.
• To achieve the highest possible level of quality in the goods being manufactured or services offered.
• To ensure all customer are fully satisfied with our goods and services.
Major Categories of Organizational Objectives
Peter Drucker, famed management guru, found the following 8 categories of objectives common to most companies:
1. Market standing. While not every company can have the largest share of its market, the goal should always be to increase the share they have. (Okay, ideally, the goal is to be a monopoly and be the “sole source vendor” for your product that everyone wants! But that’s illegal in this country – ask Bill Gates – so we’ll have to settle for being number one in the category).
2. Innovation. We want our company to continuously improve. Make the product better, cut down production time, improve the shipping process. This isn’t an easy goal to measure sometimes, but it is vastly important in a dynamic marketplace.
3. Productivity. We have to set specific, measurable goals for how many products we will product in a given period of time within specific margins for error.
4. Physical and financial resources. Where will we get our operating capital? How will we use our profits?
5. Profitability. We must set specific goals for how much profit we expect to make on each product, unit, etc.
6. Managerial performance and development. Where will the next group of managers come from when the current group retires? How are we preparing the up-and-coming managers?
7. Worker performance and attitude. Again, these are not always easy to measure, but we must create specific goals for getting our employees to “be all they can be.”
8. Public responsibility. We must set goals that identify our plans for being a good corporate citizen within the communities we work in and in the world at large. This may involve issues from the environment to sponsoring a little league team.

USERS OF THE ACCOUNTING INFORMATION

(a) Investors. The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments. They need information to help them determine whether they should buy, hold or sell. Shareholders are also interested in information which enables them to assess the ability of the enterprise to pay dividends.
(b) Employees. Employees and their representative groups are interested in information about the stability and profitability of their employers. They are also interested in information which enables them to assess the ability of the
enterprise to provide remuneration, retirement benefits and employment opportunities.
(c) Lenders. Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due.
(d) Suppliers and other trade creditors. Suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Trade creditors are likely to be interested in an enterprise over a shorter period than lenders unless they are dependent upon the continuation of the enterprise as a major customer.
(e) Customers. Customers have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on, the enterprise.
(f) Governments and their agencies. Governments and their agencies are interested in the allocation of resources and, therefore, the activities of enterprises. They also require information in order to regulate the activities of enterprises,
determine taxation policies and as the basis for national income and similar statistics.
(g) Public. Enterprises affect members of the public in a variety of ways. For example, enterprises may make a substantial contribution to the local economy in many ways including the number of people they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the enterprise and the range of its activities.

The management of an enterprise has the primary responsibility for the preparation and presentation of the financial statements of the enterprise. Management is also interested in the information contained in the financial statements even though it has access to additional management and financial information that helps it carry out its planning, decision-making and control responsibilities. Management has the ability to determine the form and content of such additional information in order to meet its own needs.

FINANCIAL ACCOUNTING, MANAGEMENT ACCOUNTING AND COST ACCOUNTING

Financial accounting is the branch of accountancy concerned with the preparation of financial statements for external decision makers, such as stockholders, suppliers, banks and government agencies. Financial accounting provides information about profit, loss, cost, etc of the collective activities as a whole. This system does not fully analyse the losses due to idle time, idle plant capacity and inefficient labour.
The accounting equation (Assets = Liabilities + Owners' Equity) and financial statements are the main topics of financial accounting.

Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.
In contrast to financial accountancy information, management accounting information is:
• usually confidential and used by management, instead of publicly reported;
• forward-looking, instead of historical;
• pragmatically computed using extensive management information systems and internal controls, instead of complying with accounting standards.

This is because of the different emphasis: management accounting information is used within an organization, typically for decision-making.
According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non management groups such as shareholders, creditors, regulatory agencies and tax authorities" (CIMA Official Terminology)

The American Institute of Certified Public Accountants(AICPA) states that management accounting practice extends to the following three areas:
*Strategic Management—Advancing the role of the management accountant as a strategic partner in the organization.
*Performance Management—Developing the practice of business decision-making and managing the performance of the organization.
*Risk Management—Contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.

Cost accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization. In modern accounting, costs are measured in accordance with the Generally Accepted Accounting Principles (GAAP). GAAP reporting records historical events and assigns a monetary value to each event that has taken place. Costs are measured in units of currency by convention. Cost accounting could also be defined as a kind of management accounting that translates the Supply Chain (the series of events in the production process that, in concert, result in a product) into financial values. Managers use cost accounting to support decision making to reduce a company's costs and improve its profitability. Mean that, Cost accounting provides cost data for use in both management & financial accounting. This system determines the costs of products or service. It is concerned with the ascertainment of past, present and expected future cost of products manufactured or service applied.

DIFFERENCES BETWEEN FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

Users of Information Financial accounting primarily provides information for external users of accounting data, such as investors and creditors. Management accounting provides information for internal users of accounting data. Internal users include employees, managers, and executives of the company.

Types of information Financial accounting only reports information on financial transactions that have occurred in the past.
Management accounting concentrates on past and present information, as well as the forecasting of future financial transactions.

Regulatory Oversight In order to protect public interest, financial accounting is regulated by the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the Public Company Accounting Oversight Board (PCAOB). Management accounting is not regulated by any specific agencies. This is because the information provided by management accounting is intended for internal users only and is not available to the public. Therefore, since there is no public interest, there is no need to protect public interest regarding this information.

Frequency of Reporting The focus of financial accounting is reporting on historical information. The information is reported periodically. It is often broken down into monthly, quarterly, and annual reporting periods. At a minimum, financial accounting information must be reported annually.
Management accounting information is reported continually. Internal users need to evaluate past, present, and potential future information in order to make decisions. Therefore, these users continuously need information in order to make the appropriate decisions.


COST ACCOUNTING FUNCTION / ADVANTAGES OF COST ACCOUNTING

• It reveals profitable and unprofitable activities.
• It helps in controlling costs with special techniques like standard costing and budgetary control.
• It supplies suitable cost data and other related information for managerial decision making such as introduction of a new product, replacement of machinery with an automatic plant etc.
• It helps in deciding the selling prices, particularly during depression period when prices may have to be fixed below cost.
• It helps in inventory control.
• It helps in the introduction of a cost reduction program and finding out new and improved ways to reduce costs.
• Cost audit system which is a part of cost accountancy helps in preventing manipulation and frauds and thus reliable cost can be furnished to management.

Definition

Accounting Information system is a set of interrelated subsystems which collect, record and process data to information which is used to make quality decisions. The AIS has changed the way accountants perform their tasks and introduced efficiency and effectiveness in their various fields of study e.g Auditing, Management Consultants and others.

Basic concepts of AIS

The accounting information system (AIS) collects and processes transaction data and communicates financial information to decision makers.
Includes:
· All steps in the accounting cycle
· Documents that provide evidence of transactions
· Manual or computerised accounting system.

Purpose of AIS

• to accumulate data and provide decision makers (investors, creditors, and managers) with information to make decision
• Accounting Information Systems provide efficient delivery of information needed to perform necessary accounting work
• to assist in delivery of accurate and informative data to users, especially those who are not familiar with the accounting and financial reporting areas itself.
  

Principles of an efficient and effective AIS

• Cost effectiveness – benefits must overweigh the costs
• Flexibility – the system should be sufficiently flexible to meet the resulting changes in the demands made upon it.
• Manual Accounting System
  · perform each step in the accounting cycle by hand
  · satisfactory in a company with a low volume of transactions
  · must understand manual accounting systems to understand computerised system.
  

Development of AIS

AIS was previously a paper-based process. Nowadays, most modern businesses use accounting software such as UBS, MYOB etc. Information System personnel need knowledge of database management and programming language such as C, C++, JAVA and SQL as all software is basically built from platform or database.
In an Electronic Financial Accounting system, the steps in the accounting cycle are dependent upon the system itself, which in turn are developed by programmers. For example, some systems allow direct journal posting to the various ledgers and others do not.

What is accounting software?

Accounting software is application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. It functions as an accounting information system. It may be developed in-house by the company or organization using it, may be purchased from a third party, or may be a combination of a third-party application software package with local modifications. It varies greatly in its complexity and cost.
Accounting software is typically composed of various modules, different sections dealing with particular areas of accounting. Among the most common are:

Core Modules
Accounts receivable—where the company enters money received
Accounts payable—where the company enters its bills and pays money it owes
General ledger—the company's "books"
Billing—where the company produces invoices to clients/customers
Stock/Inventory—where the company keeps control of its inventory
Purchase Order—where the company orders inventory
Sales Order—where the company records customer orders for the supply of inventory

Non Core Modules
Debt Collection—where the company tracks attempts to collect overdue bills (sometimes part of accounts receivable)
Electronic payment processing
Expense—where employee business-related expenses are entered
Inquiries—where the company looks up information on screen without any edits or additions
Payroll—where the company tracks salary, wages, and related taxes
Reports—where the company prints out data
Timesheet—where professionals (such as attorneys and consultants) record time worked so that it can be billed to clients
Purchase Requisition—where requests for purchase orders are made, approved and tracked

Advantages of Computerized Accounting System

• Typically enter data only once
• Many human errors are eliminated
• More timely information
• Maintain all of your business transactions by type and category of receipt and expenditure
• Print and record professional looking invoices, checks, and other accounting documents simultaneously.
• Run reports to track outstanding customer balances, view transactions by type, and much, much more.
• Make your accountant much happier than using the "shoe box" method.
  

• Direct cost - the cost that is directly traceable and considered the responsibility of a particular department of department manager. Most direct costs will change parallelly with the sales revenue. For this reason, they are considered to be controllable by the department to which they are charged.
• Indirect cost - the cost that is not easily traceable and identified with a particular department or area and thus cannot be charged to ant specific department.
• Controllable cost - the cost that controllable by someone like manager or supervisor.
• Joint cost - a joint cost is one that is shared by, and thus the responsibility of, two or more departments or areas. For example in the case of waiter who serves foods and beverages in a restaurant. His labour is a joint cast and should be charged partly to food deparment and the remainder to the beverage department. The management will set up the sharing ratio or by some other appropriate method.
• Discretionary cost - the cost that may or may not be incurred at sole discretion of a particular person.
• Relevant cost - the cost that affects a decision.
• Sunk cost - the cost that already incurred about nothing can be done. It can affect any future decisions.
• Opportunity cost - the cost that we have to sacrifice after we taking another option. For example, if we have two dishes namely A and B to cook but unfortunately the time that we have only enough to cook one dish. If we choose to cook A , B will be our opportunity cost. If we choose to B, A will be our opportunity cost.