School of Information Systems

Why are databases important for accounting information systems?

16 Aug 2023

An Accounting Information System is the collection, storage, and processing of financial and accounting data used by internal users to report to external users, such as investors, creditors, etc. An Accounting Information System is generally a computer-based method that is used for tracking accounting activity in conjunction with Information Technology resources. Accounting information systems have three basic functions such as efficiently and effectively collecting and storing data about an organization’s financial activities, supplying useful information for strategic planning and decision-making, and accurately recording and processing data. A well-designed accounting information system allows businesses to run smoothly, allowing different departments within the company to work together and protect the company’s sensitive data.  

What is a Database? 

A database is an organized collection of structured information, or data, typically used to store information on people, places, or things in a computer system. It’s not just a collection of files, but it also organizes them within the context of some applications which require persistent storage and online access. For example, if you create an email service, you need to enable it to store emails permanently and allow users to retrieve them. You also need to be able to search and sort the emails. Data stored in databases is usually used to make informed business decisions. For example, to improve business processes, keep track of customers, secure personal health information, store personal data, and so on. It also comprised the same five basic components, such as hardware, software, data, data access language, and procedures. Databases require some operating and maintaining challenges, such as data security, data integrity, database performance, and data integration. 

Database for Accounting Information Systems 

An Accounting Information System must have a database structure to store information. An example of that is SQL, or Structured Query Language, which is a commonly used computer language in database systems. SQL allows the data stored within the Accounting Information System to be manipulated and retrieved.  

The data contained within an Accounting Information Systems is every financial information that is relevant to the company’s business practices. This means that the data that impacts the finances of the company should be included and stored inside the database of the Accounting Information System. The stored data can then be used to create accounting statements and financial reports. Keeping all the data in one place, which is inside the Accounting Information System, helps the company be more efficient in record-keeping, reporting, analysis, auditing, and decision-making.  

The data stored within an Accounting Information System may consist of: 

  • Sales orders 
  • Customer billing statements 
  • Sales analysis reports 
  • Purchase requisitions 
  • Vendor invoices 
  • Check registers. 
  • General ledger 
  • Inventory data 
  • Payroll information 
  • Timekeeping 
  • Tax information 

Why are databases important for accounting information systems? 

We know that databases store essential data, which is valuable information for a company and helps in the decision-making process. Databases help accounting information systems manipulate and analyze large amounts of historical data, which helps businesses uncover valuable insights within their financials, identify process improvements that can increase efficiency, and better manage risk. Databases can hold a million historical records of customers, which is important for businesses. The structure is typically programmed with query language, which allows users to manipulate the table and data. In addition, the accounting information that is stored in databases is often highly secured platforms with preventative measures against viruses, hackers, and other external sources. This is why data security is important, as more and more companies store their data electronically.  

Data Security 

An Accounting Information System must also set up appropriate security measures to protect the sensitive data inside the database system. The security measures can come in varied forms, such as with passwords and passcodes or with biometric identification, which requires fingerprints or the usage of voice recognition. 

Examples of sensitive data stored inside the database of an Accounting Information System are: 

  • Salary and personnel information 
  • Credit card numbers 
  • Customer information 
  • Company financial data 
  • Financial information of suppliers and vendors 

The security measures of an Accounting Information System must be able to prevent unauthorized computer and file access and limit the number of authorized users for extra security. It must also be able to protect the data from external threats, such as computer viruses, hackers, etc. Data loss protection from natural disasters and power surges must also be considered by the company. 

Conclusion 

The database system is a core component of an Accounting Information System. The database system allows the Accounting Information System to store and manipulate data. It also makes it more convenient for the company to monitor and report their business’s financial activities as all the important financial data are all tracked and stored within the database of the Accounting Information System. A company must also set up data security measures for its Accounting Information System to prevent data theft from unauthorized users and hackers and also to prevent data loss from natural disasters, power outages, and other similar events. 

Source:

Yuka Maheswara, Ricky Oesmandy, Areta Vania Azalia