The system of collecting and processing data, and disseminating information to interested parties is known as the Accounting Information System. A system is a collection of various parts that work together to achieve a specific goal.
An Accounting Information System may vary from one business to another. The transactions and events of a financial character serve as the input for the accounting system. These transactions are then processed and converted into outputs such as the Profit & Loss Account, Balance Sheet, and other financial reports. These outputs are communicated to users for their informed judgment and decisions.
The effectiveness of an accounting information system depends on the following factors:
- Nature of the business
- Transactions in which the entity is engaged
- Size of the firm
- The volume of the data
- International demands of the users
