In this article, we will learn in-depth about why accounting is called an information system, and much more.
Accounting is Called an Information System
The accounting information system gathers and manages transaction data, and provides decision-makers with financial information. It includes every phase of the accounting cycle.
It also contains the documents that include evidence of the transactions, and the corresponding records, trial balances, worksheets, and financial statements.
Why is accounting called an information system? Today’s short article will help you understand why we call accounting an information system.
Once a company begins its business operations, it includes several parties. For example, owners, investors, employees, debtors, creditors, lenders, banks, governments, etc.
Everybody wants to know about the organization’s financial situation so they can make decisions on matters of interest. And they make their decision after obtaining the necessary information about the organization.
For example, before investing in an organization, an investor makes his investment decision by considering the profit or loss of the organization and the amount of profit on the investment.
Before granting a loan, a lender decides to give a loan after considering the financial condition of the organization, such as assets and liabilities, profit-loss, etc.
Employees of the organization make decisions about issues that concern their interests, considering how the organization is doing and how it will do in the future.
The creditors always want to ensure that the recipients are in a financial state to repay the due amount before allowing credit sales.
While running the organization, the management authority has to make countless decisions on various issues. Examples include product pricing, cost control, new investment, borrowing, etc. And it takes a lot of information to make all those decisions.
The government of a country relies on the financial information of an organization to collect the amount of revenue from the organization.
Necessary information is needed to support every decision. For example, what is the profit or loss of the organization? What is the amount of property and liability?
Accounting provides all the information about how the organization is going, how it will do in the future, etc. This is because accounting accurately records the financial transactions of an organization in a book of accounts and provides the necessary information to the parties concerned by analyzing the necessary judgments.
And based on this information, different people and organizations make their necessary decisions.
Accounting provides all of the organization’s information by preparing financial statements for the users concerned according to their needs. That is why accounting is called the information system.
You may also read:
- What is accounting? Process, objective, and origin of accounting.
- Why accounting is called the language of business?
- What is accounting information? Users of accounting information.
