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What is Accounting Information System?

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An accounting information system is a system of collecting, storing and processing of data to make decisions for the business operations. The process of accounting information is processed through specialized software. A computer-based system tracks the accounting activities and records it in the database for future references. The database is generally used by internal management of the company to take various decisions regarding different operations and external parties having an interest in the business firm such as investors, shareholders, financial institutions, creditors and public evaluate accounts of the company to ensure high quality in functions performed and public check the usage of material and corporate social responsibility performed by the company. The purpose of an accounting information system is to support other accounting and management practices such as auditing, financial accounting, and reporting, managerial accounting and meet taxation requirements. A different analysis is done on the collected and processed data for further analysis.

Cost-benefit analysis is the systematic analysis of the company, its strengths, and weaknesses to determine the best option and alternative to undertaken by the company. Generally, the comparison is made between completed projects and their potential course of actions. The cost is compared against the value generated that is benefit earned from the project. The cost-benefit analysis is generally conducted on commercial transactions, business or policy formulation, and investments related to projects of the company. the process of cost-benefit analysis is as follows:

• Determine the goals of an organization.
• Find the alternative actions available.
• List the stakeholders of the company.
• Select the measurement units and elements of the cost of benefit of the activity undertaken.
• Apply the discount rate on cost and benefits derived.
• Calculate the Net present value of the project.
• Conduct sensitivity analysis.
• Adopt the best measure based on the analysis.

Net present value is the difference between the present value of cash inflows at the current period and the present value of cash flows to be generated in the future. This method is used in capital budgeting to determine the benefit of the investment to determine buying decision. The process of determining the net present value of the project is as follows:

• Determine the net present value of the initial investment, it will be based upon the number of periods involved and the discount rate.
• Determine the net present value of future cash flows to be generated by the company.
• Evaluate net present value that is the Net present value of initially invested cash from the net present value of expected future cash flows. On the basis of the net present value of the project, decisions will be taken. If NPV is positive, the buying decision will be taken, whereas if it is negative, the company will ignore the proposal or investment opportunity.

Sensitivity analysis is the study of the uncertainty of the output of the company with the change in one variable on the overall outputs of the company. the financial sensitivity analysis of the company is also called what-if analysis, what if the value of the independent variable will be changed. For example, if a financial analyst of the company wants to find out the effect of networking capital of a company on profit margin earned by it. to evaluate the impact, all the factors determining the profit margin will be evaluated such as the cost of goods sold, wages of workers and manager. The comparison will be made by categorizing fixed cost and variable cost. The best methods or practices to conduct sensitivity analysis are:

• Use of Layout in excel
• Direct vs. indirect methods used in the evaluation.
• Use of tables, charts, and graphs. Etc.

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