1. Question: What are Accounting Information Systems and what are the different types?
Answer:
Accounting information systems collect and process transaction data and communicates the
financial information to interested parties. There are many types of systems and they vary
widely. A number of factors shape these systems such as the type of business, the size of the
business, the volume of data, the type of data management needs, and other factors.
Most businesses, except for the smallest, use computerized systems,also called electronic data
processing or EDP systems. These systems handle every step in the accounting process from
recording the financial transaction to preparing the financial statements. Businesses are
constantly improving their systems technology in order to remain competitive and to stay in
compliance with the Sarbanes-Oxley Act of 2002. Even the smallest businesses use systems like
Quickbooks.
Accounting Information Systems, Business Transactions, and Business Processes
In order to understand how these systems work, you have to understand the accounting terms
"business transactions" and "business processes" and how they come together to generate
financial reports. With regard to accounting information systems, business transactions can be
divided into four types of business processes:
Revenue and return processes, systems, and controls
The business transactions that fall under these business processes are large volumes of daily
sales, returns, and cash inflow transactions.
Expenditure and return processes, systems, and controls
The business transactions that fall under these business processes are large volumes of
expenditure, returns, and cash outflow transactions. Payroll and fixed asset purchase transaction
are also in this category.
Replacement of Legacy Systems
At some point as your business grows, you may want to completely replace your legacy system.
In the long run, the cost will be lower with fewer bugs.
Every business must have a way to keep track of its financial transactions. In other words, it
must have some sort of accounting information system. You may start out with a simple system
and it can grow as your business grows.
Conversion processes, systems, and controls
The business transaction under this category are raw materials and work-in-progress transactions.

2. Administrative processes, systems, and controls
The business transactions that are administrative are investments, borrowing, and capital
transactions.
All of these business transactions result in T-accounts set up in the General Ledger processes,
systems, and controls. From the general ledger, both internal and external financial statements
are developed. Internal financial reports might be an aging schedule for accounts receivable or a
sales inventory status report. External financial reports would be the income statement, balance
sheet, and statement of cash flows.
Types of Accounting Information Systems
There are three types or categories of accounting information systems. What a business firm uses
depends on the type of business, the size of the business, the needs of the business, and the
sophistication of the business:
Manual systems
Manual accounting information systems are used mostly by very small businesses and homebased businesses. If a system is entirely manual, it would require the following: source
documents, general ledger, general journal, and special journals or subsidiary journals you might
need.
Legacy systems
Legacy systems are often in existing business firms and were used before information
technology got as sophisticated as it is today. Even though legacy systems may appear to be oldfashioned, they have some definite advantages to the firm. They contain valuable historical data
about the firm. The firm personnel tend to know how to use the system and understand it. A
legacy system has usually been customized to the specific needs of an individual firm. You won't
find this kind of customization in generic accounting software packages.
Unfortunately, legacy system also have significant disadvantages. Often, they have no
documentation. It is usually hard to find replacement parts because hardware and software may
become obsolete. Even the computer language that legacy systems use is usually an older
language. Most legacy systems have been built from scratch.