The 11 Accounting Functions in Organization Information System

August 3, 2024 Globalinfo247

Accounting consists of all the processes in designing and operating an efficient accounting information system that leads to the collection, recording, measuring, summarizing, analyzing and communicating of the results of financial transactions for a particular period to users of financial information to make informed decisions.

Accounting is a discipline that is involved with the recording, classification, and interpretation of financial information for both profit and not-for-profit organizations about the economic activities of the organization so that accurate decisions can be made based on the accounting information provided.

Accounting Functions in Organization Information System

The functions of accounting as it relates to the information system of an organization include:

1. Decision Making

Accounting is a veritable tool that provides relevant information for profit and not-for-profit organizations and other users of financial statements to make informed decisions.

2. Recording

Accounting deals with the preparation of all the subsidiary books of account namely sales day book or journal, purchases journal or day book, returns inwards day book or journal, returns outwards day book or journal, cash book, petty cash book, and journal proper.

Read Also: The Scope and Five (5) Natures of Accounting

The recording function of accounting includes the completion of the double entry principles in the ledgers and the onward transfer of the closing balances of the ledgers to extract a trial balance.

The accounting recording above helps to know the amount of cash and cheques received and paid so that the organization will know how much money it has at any particular time. It’s also to reveal the goods purchased and sold on credit and for cash. This enables the organization to know who owes it money, those to whom it owes money, and how much.

3. Measurement

Accounting is used to measure the financial performance of an organization to show the income, expenses, profit, assets, liabilities, and financial position at a given period.

4. Control

Accounting brings internal and external control process and management to organisation after identifying weaknesses in an operational system. With accounting, effective measures to rectify operational weaknesses in an organisation are implemented.

5. Forecasting

Accounting makes use of historic or past financial data in forecasting future performance and the financial position of different organisations.

6. Government Regulation

Accounting functions in a way that provides necessary information to the government and its agencies at local, state and federal levels for the government to be able to exercise control on the organisation which include the collection of both direct and indirect taxes and levies.

Read Also: The Five (5) Branches of Accounting

7. Classifying

Accounting is concerned with the proper and logical analysis of the recorded accounting information to accumulate financial transactions of a similar type in one account. The ledger is therefore used in accounting to record and accumulate accounting transactions of a similar type in an account.

8. Summarising

Accounting helps to summarise financial recordings into financial statements that can be relied upon by business organizations and other third parties. The summarising done in accounting leads to the preparation of a statement of profit or loss and other comprehensive income, a statement of financial position, a statement of changes equity, and a statement of cash flows.

9. Interpreting

In addition to summarising financial records, accounting is used in interpreting financial statements for different groups of users of the statement because not all users of financial statements have the required technical expertise to understand or decode the accounting language with which financial statements are prepared.

The contents of financial statements that are prepared by appropriate laws and regulations are further broken down in accounting into simple language and calculations to explain the statements to different users by the accountant.

This function enables non-accountants to understand what financial statements contain and their implications for business organizations.

Accounting is used in preparing some analyses such as returns on investment, cash ratio, liquidity ratio, leverage ratio, returns on capital employed, average stock, cost of capital, and return on equity from the financial statements.

This analysis will show the profitability of the business, whether the business will be able to pay its debts or not, the level of activity and productivity, and the effect of ltheorganization’sprofitability and financial stability.

10. Assets Safeguarding

The accounting function through the creation and use of assets registered while including the labeling of organization assets for proper identification help to safeguard the company’s assets. This is also useful for stock taking and management can rely on it for proper decisions in asset acquisition and disposal.

11. Tax Services

The information system requirement of an organization requires that a company knows how its obligation to the government in the collection of different taxes on behalf of the government and payment of same to it can be accomplished.

The accounting function in the determination of taxes such as pay-as-you-earn and value-added tax help the organization to comply with relevant tax regulations.

In summary, the relationship that exists between accounting functions and an organization’s information system helps in proper recording, planning, forecasting, and control such that management can comply with relevant government regulations and make useful decisions to safeguard the organization’s assets.