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Accounting Information System: Types, Uses & Examples

Instructor: Mark Koscinski

Mark has a doctorate from Drew University and teaches accounting classes. He is a writer, editor and has experience in public and private accounting.

In this lesson you will learn about the basic features of accounting information systems including journals and subsidiary ledgers. You will also learn about the more advanced ERP and CRM systems.

Definition

Your company is growing and you need to update your accounting information system. Previously the company was small enough to use an off-the-shelf application. Now, you realize you need a better information system to remain competitive. Accounting information systems collect and process information from transactions then organizes it into useful information for company management. As the business world becomes more complex, accounting information systems become more important. A company with a state-of-the-art information system often has a competitive advantage since it can react quickly to changes in the business landscape.

Basic Features

Even with technological advances, accounting information systems still provide two basic types of records: journals and subsidiary ledgers.

Journals

There are two types of journals, the general journal and special journals. All journal entries can be recorded in the general journal. The general journal requires each debit and credit be entered manually. Since this can quickly become a tedious process, special journals are used. A special journal is used to record similar types of transactions. An accounting information system usually has four special journals:

• Sales journal to record credit sales

• Cash receipts journal to record all transactions having a debit to cash

• Purchases journal to record all purchases made on credit (credit to accounts payable)

• Cash disbursements journal to record all transactions crediting cash

Subsidiary Ledgers

The second common feature of accounting information systems is the use of subsidiary ledgers. A subsidiary ledger is a listing of all the transactions that make up a general ledger account. Two of the most common subsidiary ledgers are:

• Accounts receivable ledger, where transactions with each individual customer are recorded

• Accounts payable ledger, where transactions with individual vendors are recorded

These journals and subsidiary ledgers are the building blocks for many useful reports. With some additional information captured elsewhere in the system vital information such as; customer and product profitability, accounts payable and accounts receivable aging and cash flow projections become much easier to produce. Accounting information can be sorted by various criteria, giving management vital insight into the operations of the business.

Advanced Information Systems

With the exponential growth in computer technology, accounting information systems have become increasingly sophisticated. Two additional information systems companies have found indispensable are enterprise resource planning software (ERP) and customer relationship management software (CRM)

ERP

ERP software manages the vital operations of your company. Extending through all aspects of the company, it could tell you when to order inventory, calculate the number of factory workers you need and record transactions into the general ledger. The ERP links all the company's operations and allows management to scrutinize the business in detail. For instance, an ERP system can identify where there is excess inventory, maximize plant production capacity and help analyze production variances. Material resource planning (MRP) software is the portion of the ERP system controlling inventories.

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