Understanding the Role of Accounting As an Information System

The Role of Accounting in Information Systems – One of the main functions of accounting is to present periodic reports to management, owners and parties outside the company. The main financial statements produced by accounting are the balance sheet and income statement. Although the form of this second report may vary from one company to another, the main objective remains the same.

The balance sheet is prepared with the aim of describing the financial position of an organization at a certain time, while the income statement is prepared with the intention of describing the business results achieved in a certain period.

Understanding the Role of Accounting as an Information System

The meaning of accounting as an information system is as a process of identifying, measuring, and reporting economic information, which raises the possibility of clear and firm assessments and decision-making by users of the financial information.

To understand more clearly about accounting you can read here. From the brief explanation of accounting above, there are three things that we can conclude about accounting, these three things are as follows: Input, from an economic information from transaction activities that occur in a company.

The information input is then managed through various processes starting from identification, measurement and reporting to produce what is known as output, which is financial report information. This financial report information output then becomes a reference for company leaders to make decisions.

This is why accounting is also called the language of business, because with accounting we obtain information about the state of a company that we can assess the level of success of the company in running its business. On the other hand, company leaders need accounting reports from their companies in order to make business decisions based on accounting information.

With the development of information technology and the increase in Internet users, various companies have emerged that organize Trading Through Electronic Systems which make data and information processing activities increasingly important and you can learn about all of that in the Accounting Information Systems book.

The following is the role of accounting in information systems:

  • Provide financial reports . Financial reports contain information on company assets, capital, liabilities/debt and information on company profits/losses.
  • Basic decision making . Accounting information provides data on a company’s financial position. Management can manage the business by looking at data on receivables that must be collected, debts that must be paid and other things to maximize profits.
  • Additional business capital . Business entities need capital to run their business. Capital can be obtained from creditors. Creditors need accounting information to see company performance.
  • Audits and taxes. Every year companies are required to submit financial statements to the government, for tax purposes.

You can also find various complete accounting information system concepts accompanied by examples in Krismiaji’s book entitled Accounting Information Systems which can help you to better understand this topic.

 

Accounting Principles

In order to be useful for users, accounting information must be prepared and reported objectively. Therefore financial accounting must be based on certain standards or guidelines that have been tested and generally accepted. These standards are known as generally accepted accounting principles.

Given that accounting is more of an art than a science (science), these principles are not absolute laws as found in the exact sciences. Accounting principles are more of a guide to action and can change from time to time.

Accounting principles must be formulated by a competent body. In Indonesia these principles are established by the Indonesian Association of Accountants (IAI) which is the only body authorized to make regulations in the field of accounting.

 

1. Economic entity or Economic Entity

This principle states that the accounting for entities (companies) must be separate from the accounting for the owners of these entities. With this assumption, the economic resources and obligations presented in the statement of financial position, the economic resources and liabilities of users can be distinguished from those of the company.

2. Going Concern or Continuity

This principle states that a business or company will operate for life, as long as there is no strong evidence that the company will experience bankruptcy or bankruptcy. This principle impacts other accounting procedures, such as depreciation, revenue recognition and asset valuation based on future cash flows.

3. Historical cost or historical cost

This principle is the basis for valuing assets and liabilities, where assets and liabilities must be recorded for the first time and reported at the cost or original value of the asset or liability (historical cost).

4. Monetary units or Monetary Units

This principle states that accounting only records business transactions that can be expressed in monetary units or money. The accounting concepts or principles contained in the Profit/Loss Statement are as follows:

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5. Periodicity or Period of Time

This principle states that financial reports which are a measure of company activity are prepared based on a certain period of time, usually within a month. This is because accounting users need periodic financial reports to find out how the company is run.

. Accrual Accounting or Accrual Accounting

This principle states that the economic impact of transactions should be recorded when they occur, not when cash is received. The accrual accounting principle is the most fundamental accounting concept which does not only apply to financial reports but to generally accepted accounting principles. The accrual accounting principle is often referred to as Accounting Principle I.

7. Revenue recognition or Revenue Recognition

This principle states that income or income from selling goods or services should be recorded if the amount and time can be clearly determined and when the income was received.

8. Matching or Pairing

This principle states that expenses or costs incurred or incurred in the process of sending, producing and delivering goods or services are recorded in the same period as the revenue associated with these costs.

9. Conservatism or Conservative

This principle states that financial reports must be able to assume that the value recorded in the financial statements is the result of conservative calculations so as not to be overstated (more than the true value) and misleading.

10. Full Disclosure or Full Disclosure

This principle states that financial reports and notes related to financial statements must include any information that is significant enough for the decision making of users of financial statements. In other words, this principle states that all relevant information is disclosed and nothing is hidden.

Accounting Information Users

Accounting has a role as part of being the language of economic communication for both individuals and an institution. In the accounting cycle will produce a report that will present basic information to the users. In practice, parties who use or need accounting information are divided into two, namely internal parties and external parties.

You can also find various examples of concepts and applications of accounting information systems in a company in the book Accounting Information Systems: Concepts & Applications.

The following is an explanation and examples from internal and external parties of users of accounting information. In general, there are two groups that use accounting information, and the following are the two groups, complete with explanations:

1. Internal Users

To determine whether or not a company is able to repay debts in a timely manner to creditors (bankers, suppliers), they need accounting information about the amount of cash available at the company when the loan or debt is due.

  • Director of Operations and Marketing Manager : To determine the effectiveness or not of a product distribution channel or marketing activities that have been carried out by the company, they need accounting information regarding sales levels (sales trends).
  • Production Managers and Supervisors : They need cost accounting information to determine the cost of production which in turn is also used as the basis for setting the selling price of products per unit.
  • Owner or Owner : A company owner will always want to know whether his business is going well or not. The owner needs to know the company’s financial position, see the investment and compare the number of accounts with the previous period and how the prospects for the company will be in the future as well as the presentation of the results to be achieved by the company.
  • Employee : An employee needs financial information from the company as a material for consideration regarding the work contract that will be carried out, such as applying for welfare and other employee interests. If it is known that the financial position of a company is good, it will relieve employees in carrying out their work.

2. External Users

External parties are parties who have an interest in the company. However, it does not have direct involvement in decision making or making company operational decisions and policies. Meanwhile, those included in the category of external users include:

  • Creditors :Such as suppliers and bankers, use debtor accounting information to evaluate the risk level of extending credit or borrowing money. In this case, creditors can minimize risk by finding out how much the level of bona fide and liquidity of the debtor is through the financial statements of the debtor concerned. Creditors or creditors are parties who can provide assistance in the form of goods on credit or loans in the form of funds to the company. A creditor needs financial information from a company because they want to know the financial position and financial health of the company that receives the loan from them. From the results of the company’s accounting reports, the creditor can find out whether the company will be able to return the loan it has received or not. On the other hand,
  • Investors (investors) : Investors are a group of people who invest in the company. They need information on the company’s financial statements to measure the company’s ability to obtain profitability or the company’s sustainability prospects in the future. The accounting reports from the company allow investors to add or stop investing in the company, as well as to find out the level of security in investing or investing in the company.
  • Government : Interested in the company’s financial statements (taxpayers) in terms of calculating and determining the amount of income tax that must be paid to the state treasury.
  • Capital market supervisory agency : Requires public corporations (issuers) to attach financial reports regularly to BAPEPAM. In this case, BAPEPAM has an interest in the issuer’s financial performance with the aim of protecting investors.
  • Economists, practitioners, and analysts : Using accounting information to predict the economic situation, determine inflation rates, national income growth, and so on.
  • Consumers or Customers – This company’s business partners (consumers) use accounting information to evaluate future trade or business relationships. Society The use of a company’s accounting information for the community is to find out how much the company contributes and plays a role in the national economy, the latest trends and developments in the welfare of the company and its series of activities.
  • Research Fellowship : Accounting information is a reflection of the performance of a company or business entity. Academics need detailed company accounting information relating to assets, liabilities, sales, expenses or costs as well as shareholder data contained in the company’s accounting records.
  • Financial Institutions : For financial institutions, information on the accounting reports of a company is used in order to provide credit or loans as well as to assess the feasibility and analyze the financial position of the company.
  • Tax Authorities : To determine a tax credibility a company must include its financial information. This aims to see the financial track record that can be seen in the financial statements of the company concerned .
  • Regulatory Agent : In addition, accounting information is also needed by government agencies such as the Department of Justice, Registrars, and others to ensure that all activities of the company comply with applicable laws and regulations.
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Information Quality Specifications in Accounting

Accounting is an art of recording, classifying, summarizing, and expressed in units of currency. In general, accounting can be interpreted as an information system that measures business activities, processes data into reports, communicates results to decision makers, and provides reports to users of accounting information or to parties who have an interest (stakeholders) in the results of performance and company financial condition.

Accounting is also often considered a business language because with accounting most of the business information is communicated, where business information is communicated to stakeholders through accounting reports. The better you master the language of business, the better you will manage the company.

Initially a business transaction will be identified (analyzed), recorded, and then reported through accounting reports which are accounting information communication media. Business transactions here can be interpreted as an event or economic events that affect changes in the company’s financial position. There are at least 9 conditions that must be owned by accounting information that is considered qualified by users of accounting information. And here are the 9 conditions complete with explanations:

  • Comparison between benefits and costs, the purpose of the comparison between benefits and costs is that the accounting information received must not be greater than the cost of making the accounting report. Or it could be said that the costs of making the accounting reports are not greater than the benefits that will be received by the users of the information.
  • Understandable, information received by the user can be easily understood by the user of the information, which is adjusted to the limits of understanding or knowledge of the user.
  • Relevant, what is meant by relevant is the use of financial accounting measurement and reporting methods that will assist information users in making decisions that require the use of accounting data.
  • Reliable, tested, neutral, presents the information it should.
  • Predictive value, information about current or past financial conditions has predictive value, which means it can be the basis for predicting the company’s sustainability in the future.
  • Feedback or feedback, feedback here is intended as a prediction to justify or reject plans that have been made before.
  • On time, information must be delivered as soon as possible to become material for decision making by the users of the information.
  • Comparable or consistent, the purpose of being comparable here is that financial reports can easily find out the similarities and differences between the companies concerned.
  • Materiality or quite mean.

In the development of the Accounting Information System which is carried out manually, it is automated using a set of computer systems to speed up the process, increase the accuracy and increase the number of transactions processed in a shorter time which is discussed in the Accounting Information Systems book.

 

Book Recommendations

1. Introduction to Accounting Second Edition

2. Introduction to Accounting 1: The Accounting Cycle Approach

3. Financial Accounting

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Source: from various sources