January 29, 2022

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Meaning of Database System in an Accounting Information System

Meaning of Database System in an Accounting Information System
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A database system is a core part of every business. Failing to keep records of day-to-day business activities can be a stepping stone to business failure. Therefore, managing business data is paramount if the entity wants to know more about its sales, marketing, customers, finance. This is why in this article, I will examine database system meaning along with key explanations.

Definition — What is Database System

A database system is a place or system where an entity stores its daily business data, including the retriever and modification of such data. According to one source, it is an organization’s physical repository of financial and nonfinancial data.

Read: Definition of information and key take away

Key Explanations

A place or system. A place such as the file cabinet in an office can be used to store data within an organization. It can also be a computer. Using database management system (DBMS) applications can be a way of storing, retrieving and modifying transactions in a firm. A simple Microsoft Excel or a more complex SQL software can be used to perform these functions.

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Store up data. Through a DBMS, an organization can store its daily transactions. Transactions about sales, new customers, purchase of materials, operating expenses among others are stored in the system. Irregular data like employment of new staff, emergency repairs of property, plants and equipment can as well be stored separately in a database.

Retrieving data. Periodically or on a want-to-know basis, information might be retrieved from the system. This might include end of day sales and cash and bank balances. It can also be monthly sales reports, budget forecast or account receivable reports. Also, profit or loss statements, cash flow statements and balance sheets can be retrieved from an AIS database system. Aside these, data can be retrieved in order to make corrections.

Modifying data. Data, in a DBMS or an AIS can be modified to suit the format management wants. It can also be analysed further to bring out the sweet spices in them. For example, sales data can be placed in a chart to show daily or monthly trends. This can help the entity to know days of the weeks and months in a year, sales are likely to skyrocketed. This will help management make appropriate plans for such periods.

Read: Five (5) Key Types of Data Processing

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Financial and non financial data. Financial or quantitative data are records that have numeric value. Non financial data are the ones without numeric value. A DBMS incorporates both data into it. Generally, a record may include both numeric and qualitative attributes.

Why Should Entities have a database system?

In a previous post, I explained why business owners must keep regular accounting records. This is not different from a database system for an accounting information system. In order to rephrase it, I will quickly state a few reasons why it is important for entities to do so. It can help track debtors, sales figures, active customers, customers complaints, staff turnover, profits for the period, business market share among others.

Conclusion

To summarize, a database system or DBMS is a system an entity used to store, retrieve and modify it’s financial and non financial data. Such a system can be a software or a file cabinet within the entity. Day-to-day business activities are stored in it. While on a periodic or random basis, information is retrieved or modified for management use.

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