Cost Accounting Information System

Cost Accounting Information System (CAIS) is an accounting information system which determines the costs of products manufactured or services provided and record these costs in the accounting records. It is the key to management’s assessment of the company’s efforts to achieve profit. Since it is so important, the CAIS must be carefully designed and properly maintained.

Functions of Cost Accounting Information System (CAIS)

Generally the purposes or functions of cost accounting information system fall into four categories. These include providing information for:

  1. External financial statements,
  2. Planning and controlling activities or processes,
  3. Short term strategic decisions and
  4. Long term strategic decisions.

These four functions relate to different audiences, emphasize different types of information, require different reporting intervals and involve different types of decisions.

Cost Accounting Information System (CAIS) Technology

  • Input: The input devices commonly associated with CAIS include: standard personal computers or workstations running applications; scanning devices for standardized data entry; electronic communication devices for electronic data interchange (EDI) and e-commerce. In addition, many financial systems come “Web-enabled” to allow devices to connect to the World Wide Web.
  • Process: Basic processing is achieved through computer systems ranging from individual personal computers to large-scale enterprise servers. However, conceptually, the underlying processing model is still the “double-entry” accounting system initially introduced in the fifteenth century.
  • Output: Output devices used include computer displays, impact and non-impact printers, and electronic communication devices for EDI and e-commerce. The output content may encompass almost any type of financial reports from budgets and tax reports to multinational financial statements.

Development of Cost Accounting Information System 

The development of a Cost Accounting Information System includes five basic phases: planning, analysis, design, implementation, and support. The time period associated with each of these phases can be as short as a few weeks or as long as several years.

  1. Planning—project management objectives and techniques: The first phase of systems development is the planning of the project. This entails determination of the scope and objectives of the project, the definition of project responsibilities, control requirements, project phases, project budgets, and project deliverables.
  2. Analysis: The analysis phase is used to both determine and document the cost accounting and business processes used by the organization. Such processes are redesigned to take advantage of best practices or of the operating characteristics of modern system solutions.
  3. Design: The design phase takes the conceptual results of the analysis phase and develops detailed, specific designs that can be implemented in subsequent phases. It involves the detailed design of all inputs, processing, storage, and outputs of the proposed accounting system. Inputs may be defined using screen layout tools and application generators. Processing can be shown through the use of flowcharts or business process maps that define the system logic, operations, and work flow. Logical data storage designs are identified by modeling the relationships among the organization’s resources, events, and agents through diagrams. Also, entity relationship diagram (ERD) modeling is used to document large-scale database relationships. Output designs are documented through the use of a variety of reporting tools such as report writers, data extraction tools, query tools, and on-line analytical processing tools. In addition, all aspects of the design phase can be performed with software tool sets provided by specific software manufacturers.
  4. Implementation: The implementation phase consists of two primary parts: construction and delivery. Construction includes the selection of hardware, software and vendors for the implementation; building and testing the network communication systems; building and testing the databases; writing and testing the new program modifications; and installing and testing the total system from a technical standpoint. Delivery is the process of conducting final system and user acceptance testing; preparing the conversion plan; installing the production database; training the users; and converting all operations to the new system.
  5. Support: The support phase has two objectives. The first is to update and maintain the CAIS. This includes fixing problems and updating the system for business and environmental changes. For example, changes in generally accepted accounting principles (GAAP) or tax laws might necessitate changes to conversion or reference tables used for financial reporting. The second objective of support is to continue development by continuously improving the business through adjustments to the CAIS caused by business and environmental changes. These changes might result in future problems, new opportunities, or management or governmental directives requiring additional system modifications.

About Abey Francis

Abey Francis is the founder of MBAKnol - A Blog about Management Theories and Practices - and he's always happy to share his passion for innovative management practices. You can found him on Google+ and Facebook. If you’d like to reach him, send him an email to: [email protected]
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