February 27, 2021

SB-Accounting

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Meaning and types Data Sources in an Accounting Information System

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In this article, the focus is on data sources. Already, we know that data trigger accounting information system processes. An examination of these sources will help you understand where data emanates to an organisation.

Definition of Data Sources

It is the financial and non financial data that enters into an entity’s accounting information system from internal and external sources.

It can also be defined as qualitative and quantitative data that arises from transactions within the entity or through external sources.

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Key Explanations

Arises from transactions. Data sources arises from one or more transactions. Transactions are economic exchanges between two or more parties. These exchanges are as a result of engaging staff and customers, management and government agencies, and so on.

Transactions occur when there is a sale of goods by an employee to a customer. This may also be triggered to comply with regulations from government agencies (example, tax authority). It may also pop up within the firm. For example payment of salary.

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Financial data. These are numeric data. It can also be called quantitative data. And deals with numbers and figures. In every company transaction that affects an organisation AIS, there are financial or monetary details attached to it. When goods are sold a price, usually in figure, is tagged on it. So it is, when employees are compensated.

Non-financial data. Nonnumeric details that make up a transaction. A simple sentence is a qualitative source of data. The name of customer, age and location forms part of it. For staff, as simple as the staff name, where he or she lives, age and so on can form the nonfinancial data source.

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Types of Data Sources

There are two types: Internal and external sources.

Internal Sources: These are financial transactions that occur within an organisation. The information is triggered by the action of management. It occurs mostly at the end of every month. Examples are:

  • Depreciation deductions,
  • Making provisions or impairments on financial assets such as account receivables,
  • Payment of compensation to staff, such as salaries and bonuses.
  • Granting loans to staff
  • Payment of dividends to shareholders, among others.
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External sources: The primary data sources are external. That is, the data are from outside the organisation. Examples of these are:

  • Sales of goods or services
  • Purchases of goods
  • Loans from banks
  • Tax liabilities paid to tax administration
  • Purchase or lease of property, plants and machinery, among others.

Importance of data sources

External source of data serves as source documents for transaction processing. It is from source documents such as receipt and invoices that transaction can be processed in an entity.

It aids the preparation and presentation of financial reports. After transactions are processed, reports are prepared and presented to necessary users. Such reports includes: management reports and financial statements.

It can be used for decision making. Data collected from the available sources are used for decision making. Normally the data are processed and the outputs are summarised and analyzed by the responsible employee. Then, the summarized information is given to management to make necessary decisions.

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It aids audit trails. Audit trails can be done in two ways. From the financial statement down to the source documents. And from source documents up to financial statements. Data sources are majorly provided as source documents, therefore it helps the auditor to carry out effective audit.

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Conclusion

To wrap it up, data sources are transactions from internal and external sources. These data are qualitative and quantitative. Example of the internal source is depreciation and that of external is sales of goods and services. In addition, the primary source for data is that of external sources.

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