General accounting
Management Information Systems and Accounting
Video
The purpose of the toy manufacturer example is to show that running a firm produces large quantities of information, which the management team must know and monitor in order to run the firm efficiently.
These pieces of information are organised into various Management Information Systems (MIS). "Management Information System" is the name given to an elaborate database designed to record a certain type of information and make it available through a convenient interface to the management. They are concerned with:
- Monitoring the amount of money at our disposal (present, future)
- General accounting
- Productivity measurements
- Managing the workforce
- The production workforce
- The sales team
- The administrative staff
- Managing the clients (present clients, new clients, prospects, choosing prospects, organising the sales team work)
- Managing the production tools (which machines work well, which require maintenance, which should be replaced, why)
- Managing the suppliers
- Managing the relationship with banks, with the authorities, etc.
- Keeping an eye on competition
The accounting system is only one of the various MIS which the management team must have at its disposal, and use to manage efficiently the firm.
The logbook which we filled with the description of the 18 steps, contains monetary information and non-monetary information.
Monetary information: The purchase of a van for 4000 € is a monetary piece of information. The sale to Carrefour of 2000 toys in exchange for an IOU is a monetary piece of information, even though no money was exchanged. Both belong to the accounting system.
And both are descriptions of transactions between the firm and the rest of the world. A transaction is an exchange of value between the firm and the rest of the world: value comes in, and value leaves the firm, and the two monetary measurements are equal.
transaction between the firm and the rest of the world
Non monetary information: The observation that we produce 20% wood waste is not a monetary piece of information. It belongs to another MIS. So does the measurement of the number of toys made per day, or the number of calls paid per day, or information about the work contracts with the employees.
The journal is the part of the logbook concerned with monetary information. It is the daily recording of the transactions between the firm and the rest of the world. By definition it belongs to the accounting system. It is its basis.
Accounting is a set of techniques to record, organise and present in a useful manner monetary information about the activity of the firm. This information, properly organised, and properly presented in a synthetic way, is very useful to managers. (All the relevant information is already contained in the journal, but it is not displayed in a synthetic, useful form.)