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Definition of Accounting

It is called the language of work, and accounting is also known as financial reporting, and it is a process of measuring and processing financial and non-financial information in different companies and institutions, as it works to measure the results of economic activities that are practiced in the institution and transfer the information that results from this process to a group of users, such as: Investors, creditors and management, accounting is divided into many areas of financial and management accounting, tax accounting, cost accounting and external auditing. From preparing financial statements for external users, measuring and reporting for internal users, and providing summaries of these statements by financial reports.
accounting information
accounting information

Accounting principles

Accounting is based on many general rules that are known as accounting principles that include basic accounting guidelines, which are used as a basis by the Financial Accounting Standards Board to include accounting rules and standards in a detailed and comprehensive manner. The term generally accepted accounting principles includes three important rules, the first of which They are: basic accounting principles and guidelines, and the second rule is the detailed standards and rules issued by the Financial Accounting Standards Board, and the third rule is generally accepted industry practices, where the benefit of generally accepted accounting principles appears from their ability to organize and standardize all definitions, assumptions, and accounting methods, and with the increasing complexity of Financial transactions, accounting principles have become more complex, and the following are generally accepted accounting principles:
  • The principle of economic entity: It is based on maintaining unique ownership records so that they are separate from the personal transactions of the business owner even if the owner is one of them.
  • The monetary unit principle: The measurement of economic activities depends on the US dollar as well as the recording of transactions, since the purchasing power of the dollar changes slightly.
  • Time period principle: This principle depends on the time period in which complex and ongoing activities of the company can be reported, and these periods are short and distinct, such as: the five months ending on May 31, 2018 or the five weeks ending on May 1, 2018.
  • Cost principle: This principle is based on the amount spent when purchasing an asset, so that the amount of the asset is not adjusted upward to avoid inflation and reverse any kind of increase in value.
  • The principle of full disclosure: This principle depends on the disclosure of financial information in the event that investors or lenders can benefit from it.
  • The principle of continuity: This principle assumes that the company will do all of its work necessary to achieve its goals, which allows it to work to postpone some of the expenses paid in advance.
  • Matching principle: It depends on the method of its work on the accrual basis, where the expenses must be identical to the revenues.
  • Revenue recognition principle: Revenue is recognized while the product is sold or the service is provided, regardless of when the money is actually received.
  • Guideline: It is the principle that allows to bypass other accounting principles if the amount is small.
  • Conservation principle: It is based on predicting losses or reporting them, as it is used if there are two alternatives to an element, which will guide the accountant towards choosing the alternative that will produce a small net income or a small amount of assets.

Accounting history

The history of accounting goes back thousands of years and many ancient civilizations until it was developed in the history of ancient Mesopotamia, where it was linked to developments in writing, counting and sorting, such as: bookkeeping in ancient Iran, and the presence of many evidence of early scrutiny in the history of the ancient Egyptians And the Babylonians, until detailed financial information was presented in the era of Roman civilization, where the bookkeeping process was popular in the Middle East in the Middle Ages until it was improved in Europe, and then accounting was divided into financial accounting and management accounting with the development of joint-stock companies. The first use of bookkeeping was published in Italy, until accounting officially began as a regulated profession in the 19th century with the formation of the Institute of Chartered Accountants in England and Wales in 1880.

accounting trends

With the emergence of technological developments that contributed to the automation of many functions, accounting is not without this development, as there are many digital tools that can be used in accounting operations, but without replacing the role of human factors in them, but this technology will provide many techniques that It will reduce the manual data entry process and improve the speed, accuracy and quality of data, such as: the cloud and artificial intelligence, so that accountants have many roles as consultants and analysts, as cloud accounting applications allow improving the quality characteristics of accounting information and increasing its ability to access financial data from any device that has the Internet from during virtualization.

While artificial intelligence will contribute to improving the quality characteristics of accounting information in accelerating its access in real time through several sources, it will also increase the collection of large data, in order to access better data, while the role of accountants will come by taking advantage of this data and transforming it into information In order to work on increasing the quality characteristics of accounting information, the blockchain feature also allows access to several sources of information by several users at the same time, although these techniques are ways that contribute to facilitating manual transactions, but the decision-making and planning processes need experts.

accounting information system

It is a system that includes collecting and storing financial and accounting data in order to process and present it to internal users, and to report information on investors, creditors and taxes. Accounting information system between the use of traditional accounting through the use of generally accepted accounting principles with information technology resources, the accounting information system includes data related to revenue, expenditures, customer and employee information, and tax information, which must possess the characteristics of the required accounting information quality.

The data includes sales orders, analysis reports, purchase requisitions, invoices, verification records, inventory, payroll, ledger, trial balance and financial statement information, which are stored on the database of the accounting information system, which has been pre-programmed in a way that processes this data to take advantage of it. This system also provides the ability to Protecting this information from viruses and hackers through cybersecurity that protects electronically stored data, while the outputs are in the form of reports that include accounts receivable, fixed asset depreciation tables and other information necessary for the preparation of financial reports, so it is necessary to ensure that the characteristics of the quality of accounting information are achieved, as The benefits of the accounting information system appear as follows:

Communication between departments

The accounting information system provides the ability to provide communication between the different departments, where the sales department works to provide a sales budget, to later use this information by the inventory management team in order to work on inventory counts and purchase materials, and after purchasing materials, the system informs The accounts department with the payable invoice, it is also possible to view any new customer requests and inform the Department of Manufacturing, Shipping and Customer Service in it, and this is one of the characteristics of the quality of accounting information.

internal controls

To ensure that the information of customers, sellers and businesses is preserved within companies, it is necessary to develop many policies and procedures that ensure the progress of work within the different systems, in order to achieve the characteristics of the quality of the required accounting information, as it can be used to obtain approvals for any physical access, as well as to provide licenses and distinguish between Duties required, and relevant information for each business function may be used.

Features of accounting information

The information that is used in accounting information systems must be characterized by a number of features in order to be included in the accounting department reports, to avoid any errors in the event that this information does not have the required characteristics or does not provide the desired benefit from it, and the following are the characteristics of the information Which must be included in the accounting information systems in order to ensure the achievement of the characteristics of the quality of accounting information:
  • It is objectively prepared, recorded and reported without any bias.
  • Recording of information and results must be consistent for all periods presented.
  • Providing information that can be used to create reports that display specific information.
  • Preparing reports according to the need of the reader.
  • Comprehensiveness of information, routine compilation and verification of correctness.

Components of an accounting information system

The accounting information system is a system that includes accounting and financial information and is based on storing and processing it, and creating reports that can be used in order to make decisions related to the management of the institution, and usually includes the use of electronic data processing equipment, which ensures the achievement of the characteristics of the quality of accounting information, it is an integrated system and consists of the following:

Users

They are the people who use the system, and may include professionals such as accountants, consultants, business analysts, managers, senior financial officials and auditors, where the accounting information system contributes to bringing these sections together in order to ensure the quality characteristics of accounting information, and this in turn allows authorized persons to access many information on The same system, and this information can also be communicated to people outside the organization, so the system must be easy to use and help improve performance and increase its efficiency.

Procedures and instructions

They are the methods that are used in order to work on collecting, storing, retrieval and processing data, and it may be either manual or automated or both, as the data comes from internal sources, such as: employees or from external sources, such as: customer orders via the Internet, where it is published Procedures and instructions either through accounting information systems programs, or through documenting and training employees on them, and they are constantly updated in order to be effective, and have the characteristics of the required accounting information quality.

data

Data is defined as the financial information related to business in the organization, and it is entered in order to benefit from it and convert it into information. Therefore, a database such as SQL must be available, which is the computer language that is usually used for databases that meet the needs of users of different types of information, Therefore, the characteristics of the quality of accounting information must be checked, as the type of data depends on the nature of the business, but it may be one of the following:
  • Sales requests. Customer billing data.
  • Sales analysis reports.
  • Purchase orders.
  • Seller invoices. Check records.
  • General ledger.
  • Inventory data.
  • Salary information.
  • set time.
  • Information about taxes.

accounting information systems software

It is computer programs that are used to store, retrieve, process and analyze financial data, as all these processes were applied on paper, but with the technological development, many programs appeared that serve accountants and facilitate their work, such as: Intuit's Quickbooks or Sage's Sage 50 Accounting In order to ensure the characteristics of the quality of accounting information, the components of the accounting information systems program must be characterized by quality, reliability and safety, as managers rely on existing information in order to make company decisions based on high-quality information.

IT Infrastructure

They are the devices that are used to operate the accounting information system, such as computers, portable devices, servers, printers and storage media, which must be characterized by speed and the ability to store in large areas, and these devices must be compatible with the system, and to achieve this compatibility companies work to buy Turnkey system which means that the business will have the perfect mix of hardware and software for the accounting information system, and it should include a plan for hardware maintenance, replacement, upgrading and disposal of faulty hardware.

internal controls

It means the security measures that must be included in the system in order to work to protect sensitive data, such as: the use of a password that can be easy or complex such as biometric identification, and this ensures that authorized persons have access to computers, who are often users of the same company, as well as It can include some data about employees and customers, such as: social security numbers, payroll information, and credit card numbers, so all data in it must be encrypted to ensure that all the quality characteristics of accounting information are met.

Types of accounting information systems

Electronic data processing provides the ability to take advantage of the quality characteristics of accounting information and operate it in a more efficient way than traditional systems, such as: manual bookkeeping system, so computer-based systems are more useful because it is based on automating many accounting transactions and reducing the occurrence of errors in them, and depends Choosing the types of accounting information systems based on the nature of the work, its size, its needs and the development of the company. The types of accounting information systems are divided into the following:
  • Manual systems: Manual accounting information systems are mostly used by very small businesses and home businesses, and if the system is completely manual, it will require many source documents, general ledger, general journal, private journals or sub-journals.
  • Legacy Systems: Legacy systems are often found in current business companies and were used before information technology became as sophisticated as it is today, as they have some specific advantages to the company, they contain valuable historical data about the company.

Characteristics of the quality of accounting information

Financial accounting is based on the creation and collection of information useful to investors, creditors and decision makers, in order to use it in investment and credit decisions, as generally accepted accounting principles require that financial information be understandable to the people who will use it, so many characteristics have been developed that will ensure that the information arrives correctly For its users, the characteristics of the quality of accounting information are as follows:

convenience

The usefulness of financial information appears during the decision-making process, so this information must relate to the decisions of end users, as other information cannot be used, and it must be excluded from the financial statements unless it will affect the future decisions of investors or lenders, so This information must possess the characteristics of the quality of accounting information related to relevance, which must possess three main features, namely: predictive value, feedback and timing. These features are characterized by the following:
  • Predictive value: which enables the use of high-quality financial information to establish forecasts and forecasts. Previous financial records and financial data can be used to draw performance trends and make predictions about future performance and profitability.
  • Feedback: enables users to examine financial information and confirm or adjust their expectations made on past performance trends, and based on the feedback users can make future decisions.
  • Timing: One of the most important features in relevance is timing, as old information will not help investors or creditors in making current or future decisions, as any accounting information must be reported in a timely manner to achieve ensuring the quality characteristics of accounting information.

reliability

One of the characteristics of the quality of accounting information is the reliability of the financial statements, where the verification of financial information for investors and creditors must be consistent and return the same results, in order to be able to use it in decision-making, and for this financial information to be reliable, it must have many Features, including the following:
  • Verification: The benefit of verification is to reach the same result when using multiple means to measure and evaluate the company's financial statements, and the result must be the same in order to be used in decision-making.
  • Representative fidelity: It is the ability of the financial statements to reflect the reality of what actually happened during the financial year, and for these financial statements to be accurate to what actually happened.
  • Impartiality: To achieve the reliability feature, the financial statements must be impartial without being biased towards any party, because the goal of this data is to improve the company's level.

Comparison

It is used in order to compare the company’s performance from year to year as well as compare it with competitors, and therefore this financial information must be prepared in a similar way in order to allow the ability to compare, because with its difference it cannot be compared with other data, and the same applies to the currency, where it cannot be compared Financial statements presented in different currencies are at face value, but must be converted into the same currency in order to have a meaningful comparison.

consistency

One of the characteristics of the quality of accounting information is its consistency, which means the need to use the same accounting methods in recording similar transactions, that is, using accounting methods constantly and following the same accounting rules that are used in processing financial statements, and consistency applies to the quality characteristics of accounting information due to its ability to provide an understanding of data Financial statements as well as the ability to process them, and this in turn allows the possibility of comparing financial statements in different years, and work can be done to change the means of processing financial statements, but when they are acceptable and have clear justifications.

Accounting information schedules

To achieve the characteristics of the quality of accounting information and the ability to deliver it on time, it is necessary to have special timetables for this information, in order to work on providing accounting information to users quickly and at the right time so that they can benefit from it and take appropriate actions, as the importance of timetables appears. The characteristics of the quality of accounting information through the following:
  • Preparing the financial statements in a timely manner, as the time accuracy will be required in order to improve performance in a timely manner.
  • Variance analysis, by delivering financial reports in a timely manner, enables comparisons to be made and thus the required actions to be taken to correct the situation.
  • Reporting responsibility, as adherence to the schedule will work on the access of information on a daily basis to users, and thus the ability to distribute revenues, expenses, and the parties responsible for all the work of the organization.
  • Providing quarterly or annual supervisory reports, which help to show the variance in a timely manner.
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