Another definition of Accounting as an Information system in the American Institute of Certified Public Accountants (AICPA) is: Interpret the result. “
Accounting includes recording, classifying, and summarizing business transactions. This is the process of identifying, measuring, and communicating economic information, including four interrelated phases. They are outlined here:
First, the first phase is to record economic events or transactions called journals-recording them in chronological books in chronological order as they occur. This process is known as journaling.
Next is the ledger posting phase. This is the process by which all transactions are synthesize for each account and the cumulative balance for each of those accounts can be determined.
The ledger posting process is very important because it helps you see the net effect of various transactions over a particular time period.
The next step is to prepare a trial balance that includes aggregating all ledger accounts into debit and credit balances. This activity allows you to see if the total debit is equal to the total credit.
Finally, there is the stage of preparing financial statements. This phase aims to close the account by measuring the profit and loss account at the end of the accounting period and creating a balance sheet.
The internal or primary users of accounting information are:
Management-It is very useful for managing planning, management, and decision-making processes. In addition, management needs accounting information to assess an organization’s performance and status and can take the necessary steps to improve performance. What’s more, accounting information helps managers make their jobs better.
Employees-Employees use accounting information to study the financial position, sales, and profitability of their business to determine employment stability, future compensation potential, severance pay, and employment opportunities.
Owner – The owner uses accounting information to analyze the feasibility and profitability of an investment. Accounting information allows owners to assess the ability of a business organization to pay dividends. It also guides you in deciding on a future course of action.
The external or secondary users are:
Creditors – Creditors focused more on accounting information because they can decide the creditworthiness of their business. Credit terms and standards are set based on the financial position of the business. Creditors include financial suppliers and lenders such as banks.
Investor – We need information because we are interested in the risks and returns inherent in our investment. It is important to assess the feasibility of investing in a company and should be analyze before funding the company.
Customers – Customers interest in accounting information to assess the financial position of their business. This is because you can maintain a stable business source, especially if you are involving in the long term.
Regulators – Accounting information is need to ensure that it complies with rules and regulations and protects the interests of stakeholders.