Accounting Paper

Running head: The Best Online Accounting System

 

 

 

The Best Online Accounting System

 

 

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Executive Summary

            The flexibility, efficiency and availability of various online accounting systems in relation to different organizations are discussed in this paper. In the current world where one cannot survive without being technologically savvy, organizations have tried their best to be at par with the rest of the world. Everything else including accounting is done on the internet in the modern world and market economy (Xu, 2003, p.1). This study focuses on how an organization can meet its objectives more effectively by applying the use of an online Accounting Information System. The paper will also discuss the important role that this system plays in improving the control and planning. By focusing on business professionals, the paper will look at the functions of the online accounting information system in these sphere and other global economies.

            The main worry for economies and most organizations are data and information. For effective management to be realized, accounting information has to develop (Xu, 2003, p.4). The major need to achieve quality in information is what led to the advent of the online Accounting Information Systems and the decline of other traditional methods that were used before.

 

 

 

 

 

 

 

 

 

Introduction:

            For better understanding, let us start with defining key terms. The key terms Include: a system, accounting system and the characteristics of an accounting system.

            What is a system? “…it is a collection of interdependent elements, which work in harmony in accomplishment of specific objectives. An organization, integration, central objectives, and interrelationships are the requirements of a system…” (Gelinas & Dull, 2007, p. 11).  What is information system? “The information system is the set of formal procedures by which data are collected, processed into information, and distributed to the users.” (Hall, 2010, p.7).  Accounting information subsystems determine how the processing of non-financial and financial transactions occurs.  This can affect how financial transaction processes will occur (Hall, 2010, p.7).

What is an accounting system? When businesspersons want to keep records of their financial transactions, they use this system. These transactions are mostly between themselves and their suppliers and customers (Rajasekaran, 2011, p.3).

What are the characteristics of an accounting system? They include: men and materials, input which includes money and process which involves the accounting process. The output is the communication of accounting information, feedback from the different users of the accounting information and control that is all about the mechanism of reviewing policies and decisions made after consideration of the feedback (Rajasekaran, 2011,p.3).

Quality information has become the most valuable resource in today’s economy. This is where the competition is now at and societies, economies and organizations are all working hard to acquire the same. This is what determines the success of an organization currently or otherwise. Unlike in the past years, competition is now not based on tangible products but on the quality information resource (Xu, 2003, p.1).

In this age of high quality technology, the need for acquiring quality information is very important. Many organizations are however far from attaining these standards especially because of the common data problems. Therefore, in practice, achieving quality information is not so easy. In order to get them a niche in their industry, every organization is working hard to have quality information advantage.

Analyzing, evaluating and planning of financial situations and other operations are very important procedures in any organization. This is why accounting has to be done in a way to produce quality data that will make these processes easy.  For decision-making, planning and evaluation in an organization, the Accounting Information Systems (AIS) is used to produce the relevant data as required (Xu, 2003, p. 2).

The quality of the data generated by the AIS determines whether classes of target errors will be present or otherwise. This system has reduced work and made it simpler for organizations. Human labor is only needed when using a set of commands to feed the data into the system. By not using a lot of human labor, the error rates are reduced because mostly people make errors (Gelinas & Dull, p.75).

Traditional methods of communication have not been phased out by the advent in technology. Actually, new technology has only upgraded the traditional methods so that they have become more effective. Many industries have embraced the use of electronic communication (Gelinas & Dull, p.75). The ability to produce accounting information has been propelled by the online AIS. The online AIS have also made the traditional accounting systems much better than before.

Like in the advent of any new technology, the development of advanced information technology has presented the industry with various new challenges. It is getting harder to determine the credibility of online information. Another challenge is the aspect of information overload where one is bombarded with too much information online some of which cannot be confirmed as factual or otherwise. The presence of low quality data will have serious economic implications (Xu, 2003, p. 2). Processing data is no longer a supporting operation but a major operation by its own right. The impact of AIS is therefore an important discussion area even as it gains operating efficiency that is expected to translate to effective decision-making in the management.

Accounting Information Systems

           

Accounting Information Systems (AIS): ‘…AIS is termed as an information system, whether manual or computerized, designed to facilitate the accomplishment of accounting function…’ (Xu, 2003, p.4).  The work of the AIS is to produce and maintain data to be used by a given organization for operations, planning, diagnosis, evaluation etc.

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There are five basic phases involved in the development of AIS including: implementation, planning, analysis, support and design (Questia, 2011, para 12). The first stage of developing the AIS is planning. This is where the objectives and the scope are determined. The subsequent phases of the program are decided and the responsibilities of the project are well defined. The control requirements, project deliverables and budgets are also looked into (Questia, 2011, para 13).

The second stage of AIS development is analysis. This stage is sub-divided further into four phases. The analysis entails documentation and determining of accounting. Data analysis becomes most crucial when the processing systems of the transactions are changed. When the definition support is decision support is the objective the decision analysis is conducted. Process analysis is done to meet the objective of reengineering or automation (Questia, 2011, para 19).

The design is the third phase. It entails coming up with specific and detailed designs intended for use in the other phases. This is achieved by using the conceptual results from the analysis phase. The implementation phase simply involves constructing and then delivering the results (Questia, 2011, para20).

The last stage is the support phase. The objective of the final stage includes maintaining and updating the AIS and continuous business development by adjusting with reference to business and environmental changes (Questia, 2011, para 22).

Functions of an Accounting information System

The core purpose of an accounting system is to produce the financial information for a business. Apart from sharing this information with creditors, shareholders and the government agencies, the organization uses this valuable resource to control and plan their operations. The other component s of AIS includes financial reporting, cost accounting, management accounting and enterprise resource planning (ERP). When well developed, the system will effectively help the management of an organization to translate their financial information. The system has three key functions including provision of controls, storage and collection of data and provision of information (Hall, 2010 p.22).

Provision of information is all about getting accurate data that will help the organization in making important decisions. Financial statements and managerial reports are what are generated to meet this need (Hall, 2010, p. 22).

Collection and storage of data: it is essential to collect efficiently and keep safely the data about the transactions the organization was involved in. the data is gotten from source documents then put in journals and posted to storage ledger where sorting and finally storage takes place (Gelinas & Dull, 2011, p.274).

Provision of controls:  the controls have to be highly accurate in the processing and recording of data. ASI is expected to give reliable and accurate information (Hall, 2010, p.22).

Online Accounting Information Systems

            These computerized information systems are created to enhance the accounting function. Online accounting information systems are used to collect and store data, produce quality information and controls (Xu, 2003, p.4). In order to understand the definition more clearly, here are a few examples of online accounting systems:

           

Integrated Financial Management Information Systems (IFMIS): IFMIS is online accounting systems that do automation and computerization in important aspects of the execution of a budget. Government institutions also use it to meet their accounts operations needs (USAID, 2008, p.1).  It is known for effecting transparency, strengthening financial control, accountability, improved service delivery, and operations’ expedition.

 

 

            (Source: USAID: Integrated Financial Management Information Systems, 2008, p. 5)

            The figure shows the crucial components of IFMIS. It normally has three modules, which use the same information to do different functions. The general ledger is the most important module and it contains the central records of IFMIS. Different functionalities of a government are brought together by IFMIS. All the transactions realized are posted here (USAID, 2008, p.5).

            The IFMIS when functioning very well provides useful information for the budget formulation, proper administering of projects and activities, and managing resources. This system is not void of limitations. Some of the challenges that arise include the management not making decisions, weak human resource, and opposition from bureaucracy, political instability, and corruption and fraud (USAID, 2008, p.11).

            Computerized Just-In-Time (JIT) production system: this system is used by organizations to ensure timely goods delivery and minimal inventory levels (Dalci & Tanis, p.1). Purchasing things online and the creation of the paperless generation are some of the results of the advent of modern technology. New technology has indeed changed the normal functioning of business enterprises. Companies that have embraced the new technological world use the JIT.

Tools like the electronic data interchange and the electronic funds transfer (EFTs) have helped many organizations to save more efficiently (Dalci & Tanis, p. 63).  This system has brought about effective connection between the customers and suppliers. Such businesses have their success pegged to their ability to supply and purchase. A good mutual relationship between the company and the supplier has to be in existence for JIT to be effective (Dalci & Tanis p. 56).

            Current Importance to the accounting information systems in Japan

            In comparison to other systems, AIS is perceived to be able to provide the most affordable governance information. If AIS does not give the required governance information, the inadequacies are settled by sourced the other mechanisms.

            In early 2007, Japan faced the financial crisis that started from the US and affected the rest of the world. Being an industrialization giant, the country has very many organizations that require accounting services. In order to survive the harsh economic times and regain financial stability, they need to acquire effective accounting information (Rajasekaran, 2011,  p.199).

            Unlike the traditional accounting systems, AIS ensures that one gets information on time. The information is also of high quality having fewer errors in comparison to the traditional methods. Business activities can now also be streamlined since this system provides for online communication that facilitates prime solving of issues.

            Most businesspersons in Japan are known to use the Just-In-Time (JIT) production systems. The JIT philosophy has its foundation in the elimination of waste (Atrill and McLaney, 2002, p.242). Using the new IT in JIT has meant that people do not have to queue anymore since they can make orders and purchase things online. Japan businesses have really benefitted from this (Dalci & Tanis, p. 56).

            Comparison of the accounting systems in Japan and USA

            The accounting systems in Japan and America have various differences. By analyzing a study done on Japanese firms, we will be able to highlight these differences. The study was done to find out the reasons that made Japanese firms to be so competitive. The comparison was done against American firms. The variables used were:

            Cost accounting system variables: the American firms used less pricy manufacturing overhead resources in comparison to Japanese firms (Shields et al, 1991, p.62).

            Short-term decision-making: American firms did not use cost-volume-profit modeling while Japanese firms use the basic liners deterministic model. Both of them used cost-volume-profit (CVP) analysis. Japanese firms did not use the complicated non-linear or probabilistic models (Shields et al, 1991, p.63).

            Capital budgeting decisions: this was the most dominant differences between the two countries. The Japanese used pay back constraint while America used discounted cash flow models (Shields et al, 1991, p.63).

            Operational budgeting: the budget controllers in the two countries were very different. In Japan, this job was given to the budget director. In the US, the budget controller does the same job. Japanese firms review budgets in fixed intervals unlike the US who have diverse methods of doing the review. The US also do not revise their budgets as much (Shields et al, 1991, p.63).

            Operational control: American firms use standard costs for their budgets while the Japanese use actual costs. The US applies the standard cost mostly in inventory evaluation and not budgeting. The judgment of the managers is held in high regard in both countries and it is applied accordingly (Shields et al, 1991, p.66).

            Management control: here, evaluation of performance is very important. The US was found to focus on the returns and profits while the Japanese focused on the sales (Shields et al, 1991p.66).

Conclusion

            In sum, an accounting system is supposed to provide an organization with important information. This information is used by creditors, shareholders and government agencies as well as for control and planning purposes. AIS entail management accounting, financial reporting, enterprise resource planning (ERP) and cost accounting. An accounting system that is well created will give an efficient and reliable method of analyzing and viewing financial information for an organization. For a system to be effective, it must perform the three important functions of provision of controls, provision of information and data storage and collection (Hall, 2010 p.22).

 

References

Rajasekaran, V. (2011). Financial Accounting, Pearson Education India.

USAID, (2008). Integrated Financial Management Information Systems: A Practical Guide, retrieved on 27 April 2011 from http://pdf.usaid.gov/pdf_docs/PNADK595.pdf

Ulric, J., & Richard B. (2009). Accounting Information Systems, Cengage Learning.

Ulric, J. & Richard, B. (2007). Accounting Information Systems, Cengage Learning.

Hongjiang, (2003). Critical Success Factors for Accounting Information Systems Data Quality, retrieved on 27 April 2011 from http://www.computing.dcu.ie/research/dataquality/thesis/thesis/HJ%20Xu.disseratation.pdf

Ilhan, D., & Veyis, N. Benefits of Computerized Accounting Information Systems on the JIT Production System, retrieved on 27 April 2011 from http://fbe.emu.edu.tr/journal/doc/2/2Article02.pdf

Peter Atrill and E. J. McLaney, 2002, Financial Accounting For non-specialists

Michael D. Shields, Chee W. Chow, Yutaka Kato and Yu Nakagawa, 2001, Journal of International Financial Management and Accounting: Management Accounting Practices in the U.S. and Japan: Comparative Survey Findings and Research Implications, retrieved on 27 April 2011 from http://dspace.mit.edu/bitstream/handle/1721.1/1433/138a.pdf?sequence=2

 

 

 

Appendix

USAID (2008), Integrated Financial Management Information Systems: A Practical Guide, retrieved on 27 April 2011 from http://pdf.usaid.gov/pdf_docs/PNADK595.pdf

Ouestia, (2011), retrieved on 27 April 2011 from http://www.enotes.com/business-finance-encyclopedia/accounting-information-systems