An accounting Information System (AIS) is a system that identifies, collects, processes summarises, generates, and presents information about a business organization to a wide variety of users. It provides relevant information by processing voluminous accounting data, which is beyond human capabilities.
It provides a glimpse of various organizational activities and maintains a detailed financial record. It acts as a common pool of information from which different departments such as, Production Department, Sales and Marketing Department, HR Department, etc. can fetch useful and relevant information.
The information thus provided, helps the users to make their decisions rationally and accordingly formulate their plans and policies. Thus, it can be said that an efficient AIS enhances the effectiveness and efficiency of an organization as a whole.
Characteristics of Accounting Information System (AIS)
The below-mentioned points highlight the important characteristics of AIS:
- It helps in handling a huge volume of accounting and financial transactions of an organization.
- It helps in drafting future plans and accordingly setting the future objectives.
- It acts as a common pool for providing information to different departments besides the Accounts and Finance Department.
- It helps in maintaining the accounting information as per the guidelines laid down by the Law.
- It helps in meeting the informational needs by generating reports for both external accounting users (investors, creditors, etc.) as well as for the internal accounting users (management, shareholders, etc.).
Role of Accounting Information System (AIS) as a data interface
AIS provides all the useful information to other functional MIS like regarding budget allocated for hiring new employees to HR, etc. It thus serves as an important data point for all other functional departments.
Interest on Capital
Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.
Interest on Drawings
Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.
What is Operating Profit?
Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.
The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period
Profit and Loss Account
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
What are Adjusting Entries?
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.