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Accounting Information System
Management of accounting research can largely be examined through the use of Accounting Information System in relation to various decision-making strategies from top managers. According to Tuquib (2012) Accounting can be describe as a function that provides quantitative information that is primarily financial in nature and it about economic entities and this is intended to be useful in taking the economic decisions.
Above mentioned can be considered as few of the definitions that explains the importance of accounting in the different fields but accounting as its own basis and there are certain characteristics of accounting that broadens the horizon of this field.
Norton and Porter (2012) describes different characteristics of account and states that Economic events in broader terms are defined as some activity taking place in the business entity which is resulted by other activity. The activity can be external and internal in nature where external events transfer of value in the form of financial or non financial item between two or more entities defined as transactions. The examples of such transfer in business are:
- Sales of dresses by a fashion designer house to a customers
- Salary payment to the employees by the company
- Rent payment to the builder
- Payment to the supplier for the raw material and receiving payment for delivery of the same raw material to the buyer.
- Movie ticket purchase through online banking
Droms (1990) explains that any financial or non financial transaction that takes place within an organization, company, shop or bank is known as internal event for example, supply of the raw material from the store to the builder, or transfer of stock of shoes from company’s one shop in one city to another shop in another city.
Selection of events is the second step in the process where it involves observing and selecting those activities which are proof of economic activity and only those are selected which are related to business organization. For example, change in the policies, rules or regulation or change in employees’ management is a very important and crucial element in any company but can’t be recorded in the accounting books.
Measurement of business transactions in financial terms by using monetary unitshence if any event is not quantifiable, it will not be recorded for example, appointment of new manager, signing off of contract are not recorded in accounting books.
Once an economic is identified and measured in monetary terms, they are then recorded in sequential order and in a proper systematic manner. These economic events are documented in words as well as number and are included in the total of accounting books.
Collier (2003) explains that once the said events are identified, measured and recorded in such a manner that important information is generated and communicated to management and other stakeholders including internal and external users. This communication is distributed in the form of accounting reports most common of which is balance sheet and profit and loss or income statement.
Depending on business performing entity which can be for a profit or not-for-profit based, the events are identified depending on the nature of the business. The business can be sole proprietorship, partnership or company or corporate society and hence the events are selected accordingly.
WHY ACCOUNTING INFORMATION IS PRODUCED:
Parikh (2009) explains that primary concern of the accounting is to collect, analyze and communicate any financial data but the existence of account data is for particular reasons and purpose and it is there to provide end users with better information to make their decision making process easier. This financial information of the company also provides a better picture of the business entity. Different investors including the managers and the shareholders along with external users who have decision in hand that whether they should:
- Provide Credit facility to the company
- To have a contractual relation for purchasing
- Invest in the business for ownership purpose
- Lend money for the business
Savitz (2012) states that there are several rules and regulation for financial information and the way the manager should record and display the information for the end users. Hence in order to produce and present services to the end users, financial institution should comply by the rules put forward in the companies act and should possess certain quality including reliability, comparability and clear understanding hence the information should be free of any significant error and help the user to make decisions easily.
EXTERNAL AND INTERNAL USERS OF INFORMATION:
Dilipchandra (2005) provides a list of internal and external users who use information to take certain decisions.
Internal Users use this information in the form of management accounts, forecasted accounts, budget and annual and semiannual financial statement. Internal users include management, employees and owners of the company. The financial performance of the company is very important for internal users to evaluate personal as well as company future.
The external users of this information include creditors, lenders such as banks, investors, tax authorities and regulatory authorities. Evaluation of the financial health of the venture and credit worthiness of the business as well as the owners is most important factor.
Darrough, M. (1993) explains that tax authorities use Accounting Information System to check if the tax returns filled by the company are correct. Last but most important are the regulatory authorities. As discussed, all the companies small, medium or big have to abide by the rules and regulations set by Companies Act and hence regulatory authorizes are interested to know if the business is complying by the law set for such companies.
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