Accounting Information System - Essay Example

Running Head: Accounting Information System Accounting Information System [Name of the Student] [Name of the institution] [Name of the Professor] [Course] Accounting Information System Unlike a personal computer system, an information system (IS) seldom comes in a box with just a page of set up instructions (Parsons and Oja, 2004). However, even if the information systems are relatively new, rapid advancements in technology sees to it that new types of systems are designed in ever changing ways (Bawaneh, 2011). Most ISs are carefully designed, created and customized so that they meet the need of specific businesses, firms, organizations or corporations. These systems could be expensive and failures translate into high costs. Nevertheless, the continues development of information technology and related infrastructure has resulted in companies using computers in their daily business transactions, and even accounting work is now computerized. Accounting information systems (AISs) are now the norm among oil businesses. Accounting systems have become integral into making energy function more efficiently, minimize wastes, and improve profitability. Before, AIS used to merely focus on the “recording, summarizing and validating of data about business financial transactions” (Salehi, Vahab and Abdolkarim, 2010). Today, these functions have been built upon so that modern AISs encompass functions such as data structure, transaction processing “modeling, computer fraud and security as well as system development methodologies” in an oil company (Salehi, et al., 186). This paper will use the British Petroleum as an example to illustrate accounting information systems, with special attention to the flow of point-of-sales cash register systems into financial data. British Petroleum British Petroleum has more branches worldwide and is largest Oil Company in the world. The company needs to receive really time purchases and sales information from there outlets for continues production of their products and services (Turban, et al 2011). The company also communicates with various employees in different parts using information technology. In Qatar the company has decentralized its operations with small integration center, where it does all its configurations of systems are installed. Each outlet had a data center that is housed in head office servers. IT staff working on each outlet for maintenance and troubleshooting. He reports directly to the outlet management but have a dotted line to BP`s office. Each outlet has acquired acquiring some of the newest system management tools that have high server capacity utilization. They are expending R&D efforts around tools such as logical partitioning in the Wintel space. By partitioning a server logically by memory, processor, and disk, VMWare facilitated much fuller use of servers by opening the possibility of running multiple applications in parallel on a single server, thus enabling consolidation of servers. They are also pushing to better understand their Wintel space to see if performance could be enhanced by adding more Web servers in strategic locations. It pulled the system and performance log data from the Wintel environment to look at what CPC utilization and aggregate format would be like under different simulated traffic loads and configurations. They used it to aggregate information across a group of servers all serving the same application. Meanwhile, managers at all the stores may input information is entered into spreadsheet which can produce report that are shared and printable for decision making. British Petroleum’s IS may be used also for other functions apart from sales, ranging from Internet access to inventory and ordering decision support. The British Petroleum IS shows that different systems may co-exist in a single organization. Some of these systems may stand on their own, while majority are interconnected (Satzinger, Jackson, Burd and Richard, 2011). Information Systems IT and IS system is a methodical way of “collecting, entering and processing data and storing, managing, controlling and reporting information so that an organization can achieve its objectives and goals” (Salehi 2010). This system has the following components: 1. Inputs: this is garbage in that will determine the kind of information that will be processed for decision making. This is initial Data that needs to be processed and if not transformed by the IT system it will have no meaning to the originations as a whole. 2. Outputs: this is the final information that is realized by the IT system after processing. It is a product of transformed data and it as a meaning to decision makers. It may consist reports like payroll, budgets, financial report, among others. 3. Data Storage: this is the safe custody of information in a medium that is readable, retrievable, adjustable and resaving by the IT system. Data storage can be internally or externally. Internally involves saving in system memory while externally involves saving in flash disks. 4. Processors: this is the system that transforms data into information that can be relied for decision making. Without a processor the system cannot perform it is functions. 5. Procedures and instructions: these are the software which contains procedures that will enable performance of functions by the system. 6. Users: these are the people who interact with the system as well as use the information that is generated by the system. 7. Control Measures: So that ISs produce accurate information, it is necessary that control measures must be undertaken so that the IS is controlled and protected at the same time. A company in the energy industry may adopt different types of IS, such as the case of British Petroleum. Many companies in this industry hire the services of IT experts to set up customized accounting systems that fit their structure and their goals. One way of classifying ISs is according to the department that uses it. Although there are firms that have re-engineered themselves to cross-functional teams, a number of them have adapted conventional hierarchal structure. When attempting to building the capabilities to sense and respond quickly and effectively, executives like those at the consumer products firm discussed above are finding that it is important to recognize that organizational control is determined by two tightly integrated sets of processes. Operating processes are series of activities that define how a firm designs, produces, distributes, markets, sells, and supports its products and services. Management processes are activities that define strategic direction, and coordinate and control operations. As executives attempt to respond to a much faster business cycle, both operating and management processes must be not only streamlined but also integrated and synchronized. The ability to design a firm that is innovative and responsive, while also “in control” also requires a fundamental redesign in management processes. A traditional hierarchy focuses on standardization of jobs and direct supervision a “compliance” model of control. The emerging organizational model for a fast-cycled, more complex global network economy requires a “ learning” model of control that preserves flexibility and fosters commitment. Systems thinking the ability to see a situation or problem in its totality is at the heart of learning. It demands an understanding of the causal relationship between individual component of a system and the whole; this understanding of causal relationships must then be linked to the performance of the system in accomplishing goals A learning model of control is founded on a deep understanding of core operating processes. the most efficient means of turning out a product of product of 100 percent consistency, it begins with streamlining and synchronizing operating processes. But there the similarity ends. Rather than segregate and structure those processes, executives seek to integrate and continuously improve them. To do that, detailed and timely information is essential information to coordinate the flow of activities and to provide decision makers with a thorough understanding of process dynamics and the relationship to results. Streamlined, synchronized processes must be managed by teams that include membership that reflects the activities involved in the end-to-end process. For example, if the streamlined process involves the hand-off of new products to the team involved in supply chain, manufacturing, logistics, sales, and order fulfillment. The team responsible for the end-to-end process must include members of each function. Further, these management teams must be close to the action and must have access to relevant, timely information. The teams must have an opportunity to meet together to debate the meaning of the information and to adjust tactical strategies and actions based on a timely review of business performance. Finally, they must be able to relate local business outcomes to the decisions and actions that they have taken and to enterprise wide priorities and performance. This learning model of control aligns management process to the faster-cycled, streamlined, and integrated operating process, and both operating and management processes are aligned to the inherent cycle time in the business environment. Accounting Information Systems Accounting information system provides processed information for decision making within a short period after an input. . Accuracy in accounting is very important because a single mistake could mean repeating computations of an entire set of data – a process that could be very tedious without the aid of computing devices. “AIS process data and transactions to provide users with the information that they need to plan, control and operate their business” (Salehi 2010). AIS is “designed to collect, enter, process, store and report data and information” (Salehi 2010). In today’s modern times and AIS plays a significant role in the process of managing a company’s activity. Over the past decade, there has been an increase in AIS implementations across the world. These systems are currently being used in both large and small trade enterprises, such as oil companies. In manual AIS, processing of data could be slow and subject to error, especially when the amount of information to be processed is very large and the deadline given for completing the processing is short. However, rapid advancements in technology that have resulted in the AIS have ensured that data may be collected, processed and retrieved in an accurate and timely manner. In oil company such as British Petroleum , Figure 1 shows the flow of sales: Figure 1: Flow of sales in a company (Hall, 2010). Figure 2 depicts the sales order flowchart (Hall, 2010): The flow of data from point-of-sales cash systems to financial data occurs in real time (Hall, 2010). This means that the system is updated every after transaction is completed rather than at the end of the day, which was the case when using manual accounting processes. In really time sales people carry out sales function and input data into the system which are processed immediately and received by various decision makers. When the sales transaction is in cash, the clerk simply inputs the bar code of the item purchased, and the inventory system automatically updates to reflect the transaction and deduct the unit from the available inventory. What makes these processes possible is the underlying function of the AIS, which includes data input function, data processing and finally, information output. The exact design of these aspects could vary depending on the specifications of each business. 1. Data Input Function Using a computerized AIS, once the data is input and changed into a “Machine-readable form” so that they can be interpreted and the right feedback is given to the user (Dalci & Tanis 2002). 2. Data Processing The data has been input to computer is either processed or stored, depending on how the user has specified the command. When there is a need to create new customer records, the user can also create them by entering their information. The AIS is programmed to update the customer list. Meanwhile, data maintenance is the most commonly used data processing activity. When a sale has been made, an entry to IS system made to modified existing records, and the next user will get the updated version. Moreover, the computer automatically updates sales and accounts receivable files, which in turn will also affect other financial data related to them. 3. Information Output The last part of the process is generating financial reports that are used by external and internal users. For instance, external users could be creditors who need to check financial statements (Dalci and Tanis, 2002). In many transactions, these invoices are already sent via e-mails for faster processing and to lessen the need for papers. Computers may also be programmed so that such financial statements may be transmitted electronically. The same financial statements are of course, used by managers (internal users). There are times when periodic reports and documents may not be sufficient for the requirements of the users. A user will make into the computer in order to retrieve the information. As soon as it is accessed, the information is retrieved and the user analyzes it (Dalci and Tanis 2002). Conclusion Accounting is an integral business process necessary to keep track of all financial transactions, including the inflows and outflows of cash. This process should be accurate and timely to avoid business losses. Accounting errors can be rectified if they are found early on; but when the system is manual, detection of errors may take time and it might be too late to avoid losses when the error is detected. Advancements in technology have generated computerized AIS which make accounting information available in a timely and accurate manner. The Qatar oil industry has greatly benefitted from accounting information systems because these tools have eliminated the manual entries that are prone to errors. With data stored in a computer system, accounting personnel can readily access them at any time for reference purposes or for making important accounting decisions. Sales transactions can be readily reflected on the company’s financial system and the corresponding files updated. Invoices will be sent to customers while receivables are updated. When invoices are paid, the payments will also be readily reflected. Even decision-makers can benefit from using AIS because they would be able to retrieved relevant financial information before taking action. Company managers will know that the data they are looking at the moment are real-time and the accuracy could be one hundred percent. For oil companies such as British Petroleum, AIS enables the efficient and effective collection, entering, processing, storing and reporting data and information. This typically takes place from point-of-sales up to the generation of financial information. In order to achieve this, three functions are necessary, namely, data input function, data processing and finally, information output. References Bawaneh, S. S. (2011). "Information Technology, Accounting Information System and Their Effects on the Quality of Accounting University Education: An Empirical Research Applied on Jordanian Financial Institutions." Interdisciplinary Journal of Contemporary Research In Business 3.2: 1815-1840. Dalci, I. & Tanis, V. N. (2002). “Benefits of Computerized Accounting Information Systems on the JIT Production Systems.” Review of Social, Economic & Business Studies 2: 45-64. Web. 13 April 2014. Hall, J. (2010). Accounting Information Systems. New York: Cengage Learning. Parsons, J. & Oja, D. (2004). New Perspectives on Computer Concepts. Cambridge: Course Technology. Salehi, M., Vahab, R. & Abdolkarim, M. (2010). "Usefulness of Accounting Information System in Emerging Economy: Empirical Evidence of Iran." International Journal of Economics & Finance 2.2 (2010): 186-195. Satzinger, J. W., Jackson, R.B., Burd, S.D. & Richard, J. (2011). Systems Analysis and Design in a Changing World. Cambridge: Course Technology. Turban, E., Volonino, L., Sipiro, J.C. and Wood, G.R. (2011). Information Technology for Management: Improving Strategic and Operational Performance. New York: John Wiley & Sons. Read More