Components of accounting information are the main elements playing a role in the formation of an accounting information system (AIS). Without these components, there’s no process of recording data to processing and reporting financial information smoothly and in detail.
Here are the components that ensure the accounting system runs efficiently and accurately.
Components of Accounting Information List
People are the main components in an accounting information system because they’re the ones developing and managing the system. This component is considered the most important because without human resources, the system will not run properly. The decision-making process to system supervision cannot be carried out without human resources.
In this case, human resources refer to people who operate, manage and use the accounting information system. The people referred to in this system usually include accountants and finance staff. However, system developers and internal auditors are also part of the human resources that make the system work well.
An accounting system also wouldn’t run smoothly without software as one of its components. This refers to computer programs that make the process and management of all data easier because it’s automated. Financial information with software becomes faster and more accurate because software reduces errors.
Accounting information system components include software in the form of applications that are used for recording and managing data.
QuickBooks, Xero and Freshbooks are the most common choices playing a role in presenting the accounting information needed by management. Meanwhile, hardware supports the implementation of a digital-based accounting system.
- Procedures and Instructions
The presence of hardware and software makes collecting and processing information faster with the human resources behind the management. After collection and processing, the information is then stored so that the company can analyze it. The data is then retrieved when needed for specific decision making or tax preparation.
In these procedures and instructions of accounting information, there are three steps which include data input, processing, and output.
a. Input
Input is the initial step in the form of collecting raw information to be entered into the accounting system. After entering the information required, the data can be processed immediately, such as sales transactions to purchases and salary payments. Input is needed as a basis for further data processing in the accounting system.
b. Process
Functions of accounting information system include processing data carried out after the information entered through the input steps. This step is to convert raw data into meaningful and relevant information so that it’s ready to use later. Recording in the journal, posting to the ledger, adjusting and classifying accounts and preparing financial statements are examples.
c. Output
There’s also output which is the final result of processing raw information into information that is ready to be used. When the output is available, internal and external parties may use it as a basis for making financial decisions. Profit and loss statements, balance sheet, cash flow statement, and notes to the financial statements are examples of output.
Another important component that must be present is data; all the information that goes into the information accounting system. This information usually comes in the form of sales reports, payroll information, tax documents, invoices, and more. This data is then input and processed to become output that is useful in every financial decision making.
- Data Storage and Internal Control
Components of accounting information system also include data storage such as accounting cloud systems, accounting databases, and transaction document archives. Data storage is a component to facilitate tracking and re-accessing information whenever needed. This component can be manual or digital depending on the preferences of the company or individual.
In addition, internal control is also a component that is needed as a data protector from hackers and viruses. Security features in the form of passwords or complex biometric verification methods ensure that data is protected from cybercriminals. The integrity of accounting data is also well maintained from various frauds and errors if there are control components.
Components of accounting information work together to improve operational efficiency with more transparent finances. Making every decision related to finance is also easier with processed data with the roles of these components. The existence of these components also helps companies and individuals to fulfill legal and tax obligations.
