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Components of Accounting Information System

Accounting information system (AIS) is the structure that is used by the business for collecting managing, storing, reporting or retrieving the financial data, so that it can be utilised by the business analysts, consultants, accountants, auditors, chief financial officers, tax agencies, regulatory authorities. Various components of accounting information system are procedure and instructions, people, data, information technology infrastructure, internal controls and software (Belfo and Trigo 2013). People in the AIS are generally the users of the system. The professionals who are required to use the AIS are the consultants, accountants, business analysts, managers, auditors and chief financial officers. Instruction and procedures includes the methods that are used for storing, collecting, processing and retrieving the data. These methods can be automated as well as manual and the data come from both external as well as internal sources. Various data that are included in AIS is the financial information regarding the business. For instance, the billing statements of the customers, sales order, general ledger, vendor invoice and inventory data. Software of the AIS is the programs of computer that is used to retrieving, analysing, processing and storing the financial data of the company. Information technology infrastructure is the hardware used for operating AIS. This hardware includes surge protectors, storage media, routers, back-up for power supply, computers, printers and servers.

The internal controls with regard to AIS are the security strategies that it contains for protecting the sensitive data. These securities can be complex as the biometric identification or password protected. The AIS shall have control for protecting against the unauthorised access to computers and limiting the access to the unauthorised users and the users who are allowed to access a limited part only. Further, the AIS include confidential information that includes not only the information of the company but also the information of the customers and employees. The data further includes the salary information, numbers of credit cards and social security numbers. All the data under AIS shall be encrypted and access to system shall be logged in such way that the activities shall be traceable.

Baker – a baker is a person whose job is making cakes or bread for selling propose or who sells cakes and bread. On the other hand bakery is the place where floor based products is baked in the oven and the products include the pastries, cakes, pies and bread (Galliers and Leidner 2014).

The organization’s business procedures

People in AIS

From the given case study, it is found that B. Bakery performs various activities under their business. The activities are as follows –

  • Distribution of products – B. Baker carries out distribution procedures for various products of their bakery. It is further recognised that the company uses various distribution channel for selling their products.
  • Production of the bakery related products – B. Baker trades in various products lke baking of the bread and other related products. The USP (unique selling proposition) of the products of the company is that they are concerned about the health issues and take the required factors in consideration while producing their products (Grabski, Leech and Schmidt 2012).
  • Less efficient in considering the human resource management factors – it is recognized from the case study that 70 employees are engaged in the company. As the manual systems are used by the company for processing the monthly salaries, there exists a risk that the accounting department is not so efficient in managing the accounting transactions related to the salaries.
  • Conducting the business manually – the most crucial issue related to the business is that it conducts most of the activities manually rather than conducting it through computer system. Carrying out the activities through manually exposes the company to the risk of fraud, error and misstatement.

It is identified from the case study that the company is making high profit from its sells. However, as the company is following the manual system for its accounting transactions, there is a high chance that the company will have to face the consequences of fraud, error or misstatement owing to manual accounting system. Therefore, the company is recommended to follow the following business procedures for carrying out the business more transparently and as per the conceptual framework –

  • Various outflow and inflow activities for proper evaluation of costs – as the bakery industry is growing rapidly, to perform in better way the company must segregate its various costs into different heads and allocate the costs into proper heads. Through the manual system is is not possible and therefore, the company shall adopt the automated software for accounting (Hopwood, Leiner and Young 2012).
  • Preparing the pay-roll slips with the help of automated accounting software – as the pay-roll structure are prepared by the company through manual system, there exists a chance of misstatement, fraud or error. Therefore, to minimize the error the company shall install the automated software for accounting
  • Annual reports and financial statements – publishing the annual reports and the financial statements are the indispensable part of the business process as it assists the users like shareholders, creditors, investors and potential investors to evaluate the performance of the company over the years and compare it with the competitor of the company (Hall 2012). Further, the annual report is used by the potential investors to evaluate whether the company is profitable to invest their hard earned money or not. Therefore, B. Baker shall start publishing their annual reports and financial statement for the users to sustain in the competitive market.
  • Determination of cost of manufacture – with manual processing system the company will not be able to identify and allocating its cost of the manufacturing under proper head, which in turn will have an impact on the determination of profit. Therefore, the company shall adopt a proper system for cost. Further, it will determine the cost of finished goods starting from the input of material.
  • Outcomes required for achieving business objectives

If the above mentioned strategies are successfully adopted by B. Baker under their business processes, they will be able to achieve the following positive outcomes –

  • Enhancing the sales volume – when the company will be able to measure the cost of sales, cost of production properly, it will be able to project its sales properly which in turn will assist them to find out the loopholes and increase the level of sales. Further, the appropriate pricing strategy, the entity will be able to enhance the sales level that will have positive impact on the profitability of the company.
  • Control on various operating costs – through implementation of appropriate automated accounting system procedure the company will be able to identify various costs related to operation of the business and various overhead costs. Further, the company will be able to identify the most profitable and loss making units and decisions can be taken accordingly regarding which unit is to be eliminated. This will enable the company to minimize the overhead cost and other operating cost (Soudani 2012).
  • Forecasting of demand – if the automated system is implemented, the company will be able to assess the supply and demand with proper forecasting of the demand, the wastage of extra production can be eliminated.

Therefore, through implementation of automated business process, the B. Bakery can achieve the above mentioned positive outcomes.

Possible features of software that can be considered by the company for achieving IT investment

Efficient software system is required to perform various financial tasks of the business. Further the system shall be efficient enough to analyse the performance of the company and proper documentation of various accounting data like invoice to the debtors, receipts from creditors and various other data related to the vendor. It must able to perform the following tasks –

  • Flexible and automated financial process – the modern system of general ledger is more than just standard accounting chart. It enables the accountant to analyze, present and manage the financial data in the way he wants without making it complex or without using the tools related to external reporting (Weygandt, Kimmel and Kieso 2015). The new IT system shall be able to adapt the existing workflows and business structure of the company instead of limiting the flexibility of business.
  • Business insight – the new IT system shall be able to provide real time and in-depth insight to the business and shall allow the management to capitalize on the new opportunities of business and identifying the requirement of correct action plan (Pecchiar 2012). The management shall be provided with clear picture of the financial performance from the underlying transactions to high-level summaries.
  • Cloud architecture – the modern system of accounting is based on cloud system that helps in minimising the technology related risks, reducing the IT related costs and enhancing the productivity. It also assists in offering flexibility for selecting the best class solutions. Further, it assists in selecting the appropriate software that will meet the requirement of the business (Taipaleenmäki and Ikäheimo 2013).
  • Analysis of financial statement – various software related to the accounting tasks shall be implemented by the company for recording their financial transactions clearly and transparently. As B. Baker does not have any proper software and record are maintained on manual system, the software must assist them in maintaining the records properly. It is suggested that the company can use the software like ERP, DacEasy and MYOB (Li and Bai 2014). However, selecting the appropriate software as per the requirement of the business has great impact on the business.  
  • Easy online accounting – in today’s competitive world, most of the organizations opt for the online accounting transaction to keep them updated and make their financial information available to the users. Further, the data shall be accumulated at one place for easy access and decision making. Further, the inventory system and associated activities shall be under proper control to protect it from unauthorised access, error or misstatement. Implementation of software must have the positive impact on the growth and performance of the company. Further, the software shall be able to improve the organization’s internal control system.
  • Evaluation of different costs – as B. Baker carry on its activities manually they are required to install software that will assist them to segregate the cost of manufacturing the finished products into different heads and prepare the cost-sheet accordingly. Once, the company is able to analyse its cost it will be find out which product is profitable and which is not. Therefore, they can increase or decrease the production of the products accordingly.
  • Maintaining and documenting various data and compare – any small scale or large scale firm to evaluate their performance, it must be compared with the relevant competitor in the same industry. Further, unless the company maintains all the records it will not be able to compare the performance with the competitor. As B. Baker maintains all the records manually, it requires the software that will be able to measure and compare the financial performance of the company with previous years as well with the competitor. Moreover, the company must maintain the records related to the debtors, vendors, creditors and distributors. Therefore, they must install the automated accounting software to maintain all the required documents as per requirements.

Therefore, it is recognized that B. Baker needs the software for various purposes. The firm shall take into consideration all the required facts while implementing the software.

Determination of appropriate software 

Various software are available that can be used for performing the accounts related task. B. Bakery can install any of them taking into consideration its business process and requirement. Various software that can be used by the company are –

  • DacEasy (Sage DacEasy US 2016).
  • SAP
  • MYOB

The above mentioned software offer to perform various activities related to accounts. Before implementing any of them, they must consider their requirements and the business approaches.

  1. Selection of adequate software related to accounting
  • Accounting software with high end features – the accounting software with high end features is suitable where the accounting process of the company is wide and complex. High end software is in-build with various advanced technology to perform and record the complex transactions (Iskandar 2015). Various big entities and multinational companies install these types of software to maintain various records. However, higher amount of cot is involved for installing this type of software and further, the maintenance also involved high amount of cost as compared to medium and small level of software. Further, it requires high level of expertise for implementation and maintenance.
  • Accounting software with medium end features – this type of software is used by the entities whose main objective is to just meet their basic requirements for maintaining their accounting records. The basic requirement can be fulfilled by the medium end featured accounting software. This software is mainly used by the profit-earning organizations for preparing the financial statements and maintaining the financial records of the company. Therefore, most of the small scale and medium scale organizations use the medium end featured software.
  • Accounting software with low end features – this type of software is useful for the business with less number of transactions and the start-up businesses. This software generally used by various professionals like doctors, lawyers or sole traders. As this type of software cannot handle the complex type of transactions and are not properly structured, this software is not widely used (MYOB Accounting System 2016).

Therefore, as per the business requirement B. Bakery can install the accounting software with medium end features to satisfy their business requirements.

B Bakery, as a commercial enterprise, can avail different types of accounting packages, which can be Xero, MYOB, DacEasy and others. As e result, it is of immense implication for the enterprise to choose an appropriate software package according to its requirements (Smith 2017). To compare between these software packages, several factors can be considered which are namely, the ability of the software to record big number of documents, expenses of operation, sustainability, risk, time scheduling, structures related to the payment of the employees, complexities, sundry debtors and creditors and others (Jadhav and Sonar 2009). The comparison among different types of the accounting software can be shown as follows:

Instructions and Procedures

 

(Figure 1: Comparing factors between types of the accounting software packages)

Ability to record big numbers of documentation:

The software package MYOB can record big numbers of data in the system. The software can generate output in a quick manner when the user puts in input command. The software can do this due to the presence of the button on every page, when the input is raised after being put by the user. The other software, DacEasy, takes use of an index in order to look for the relevant information displayed on the screen. However, the process being different, both of these software packages are able to record information in adequate numbers.

The software, Xero, MYOB and that of DacEasy differ in terms of their structures related to the payments of the employees. When it is about automatic reconciliation of the banks, the software Xero (All Features | Xero 2016) seems more useful. DacEasy is efficient in terms of salary depositions of the employees of the enterprise directly and it can also classify the tax liability amount that has to be paid. On the other hand, the other software package, MYOB seems to be highly useful when it comes to creation of the different alternatives in order to manage the tax as well as the salary status of the employees of the concerned enterprise.

The implementation cost and the operating cost of the different software packages can be categorized under high or medium costs. The software have single as well as multiple versions, with the former being obviously cheaper than that of the latter one. The decision of the enterprise, regarding the choice of the software package, therefore, depends on the cost structures of these packages too.

Time scheduling and complexities:

The DacEasy software package, though being quite simple in terms of operations, thereby being easy for the users, suffers a major limitation regarding its toolbar presentations. The software produces time-based reports when it comes to the billing procedures. On the other hand, the software XERO can successfully provide easy accounting transactions, online,, though the software may appear to be complex to some extent initially. The operating framework of the software MYOB, however, is quite simple and those who have a little knowledge about book keeping and accounting easily understand it. The software can be used for the purpose of billing on terms of credit. The firms, dealing with that of the transactions of credit terms can hav advantage in using this software package.

Data in AIS

Depending on the user and his or her understanding of the software, these software are free of any kind of errors and can prove to be sustainable too. However, the concerned commercial organization, B Bakery in this case, should themselves be specialized and trained to use these software before starting to use them on daily basis (Merrett 2015).

When it comes to advanced and third part type of payrolls, the software XERO can be taken into account. The software, along with this, has the provision of free trial and training for the enterprises, especially the small commercial ones. DacEasy, on the other hand, can generate fifty reports and it is not that flexible as the others. MYOB, on the other hand, is extremely flexible software and it is capable to generate more than 175 number of reports, which are in general, relevant to track the data of different customers, suppliers and that of the vendors and also the transactions of the other parties (Mas et al 2014).

When it comes to the billing of the suppliers as well as the creditors, the software MYOB can facilitate e-receipts and also e-payments for the enterprise. The DacEasy, on the other hand, deals with cheque printing and can calculate the quotes related to purchase order. Xero, on the other hand, can also do the same thing along with the claims of the expenses in terms of the creditors (Mageto 2017).

It is of great importance for the concerned commercial enterprise, the B Bakery, to choose the most appropriate software accounting packages, which can facilitate the smooth running of their businesses. The enterprise, being an organization, which is family, owned, it is not beneficial or cost effective on their part, to implement and buy a software package which is immensely expensive. The package to be selected, should also be simple to use and implement and should run the documentation in a successful manner. The two software packages, XERO as well as MYOB can prove to be beneficial to serve the requirements of the concerned organization in this case. The package MYOB can prove to be effective for the organization for the capability of the software to generate reports on big numbers and in wide range, which will be useful for the organization for successful running of their operations. The software deals successfully with the credit transaction too (Red 2016). The enterprise, being involved in distribution activities as well, the software can be of huge use for the company. Other software like those of XERO or DacEasy do not have the above mentioned facilities. The software MYOB can calculate the cost of inventories by taking help of the FIFO and the LIFO methods. These functions, however, are not available with the software XERO. MYOB specializes in the payable accounts as well as the receivable transactions (Ma 2015).

Software of AIS

The software can also help the company, with its big data documentation capacity, to stay ahead of its competitors. The flexibility of the software can be beneficial for the users and the software also has provision for the printing facilities. Therefore, among all the software packages, MYOB seems to be the most efficient one for the enterprise, B Bakery.

Conclusion 

It is concluded from the above discussion that to sustain the business over long-run and maintain the business with all the documentation of records it must use appropriate software that will be able to manage the accounting records of the company as per requirement. It is recognized that the MYOB software is able to maintain the business record of B. Bakery efficiently. The software will enable the entity to use proper authorization for accounting records and preparing the data required for measuring the performance. Apart from this, it will also enable the company to grow their businesses successfully.

Reference  

All Features | Xero. 2016. Xero Accounting Software. Retrieved 15 September 2016, from https://www.xero.com/accounting-software/features/

Belfo, F., and Trigo, A. 2013. Accounting information systems: Tradition and future directions. Procedia Technology, 9, 536-546.

Galliers, R. D., and Leidner, D. E. 2014. Strategic information management: challenges and strategies in managing information systems. Routledge.

Grabski, S. V., Leech, S. A., and Schmidt, P. J. 2012. A review of ERP research: A future agenda for accounting information systems. Journal of information systems, 251, 37-78.

Hall, J. A. 2012. Accounting information systems. Cengage Learning.

Hopwood, W. S., Leiner, J. J., and Young, D. G. R. 2012. Forensic accounting and fraud examination. McGraw-Hill.

Iskandar, D. 2015. Analysis of factors affecting the success of the application of accounting information system. International Journal of scientific and Technology research, 42.

Jadhav, A.S. and Sonar, R.M., 2009. Evaluating and selecting software packages: A review. Information and software technology, 51(3), pp.555-563.

Li, Z. W., and Bai, D. 2014. Research on accounting decision support system based on data warehouse and data mining. In Advanced Materials ResearchVol. 989, pp. 4819-4822. Trans Tech Publications.

Ma, X., 2015. The adoption of cloud computing for small and medium accounting firms.

Mageto, J., 2017. Accounting Softwares in Australia. An Overview.

Mas, J.F., Kolb, M., Paegelow, M., Olmedo, M.T.C. and Houet, T., 2014. Inductive pattern-based land use/cover change models: A comparison of four software packages. Environmental Modelling & Software, 51, pp.94-111.

Merrett, R., 2015. At your service. CIO, (Autumn 2015), p.50.

MYOB Accounting System. 2016. MYOB Accounting System. Retrieved 15 September 2016, from https://www.myobaccountingsystem.com/

Pecchiar, G. 2012. Upgrade to WMS, keep QuickBooks and MYOB. MHD Supply Chain Solutions, 421, 24.

Red, L., 2016. FIXED FEE-REMOTE TRUST & OFFICE ACCOUNT BOOKKEEPING. Family Law, 9, p.16.

Sage DacEasy US. 2016. Sage.com. Retrieved 15 September 2016, from https://www.sage.com/us/sage-daceasy

Smith, H., 2017. Xero for dummies. John Wiley & Sons.

Soudani, S. N. 2012. The usefulness of an accounting information system for effective organizational performance. International Journal of Economics and Finance, 45, 136.

Taipaleenmäki, J., and Ikäheimo, S. 2013. On the convergence of management accounting and financial accounting–the role of information technology in accounting change. International Journal of Accounting Information Systems, 144, 321-348.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial and Managerial Accounting. John Wiley and Sons

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