Which of the following best describes accounting as an information system?

Introduction / Context:
Accounting is often called the language of business because it communicates financial information to a wide range of users. Modern accounting is not only about recording numbers but about collecting, processing and reporting information that helps decision makers evaluate the performance and position of a business. This question asks you to choose the statement that best captures accounting as a complete information system, not just as a record keeping or tax compliance function.

Given Data / Assumptions:
- The subject is the general nature of accounting. - Options mention record keeping, reporting to stakeholders, tax use, lack of communication and limited internal use. - Stakeholders include owners, managers, creditors, regulators and others. - We assume a standard definition from introductory accounting courses.

Concept / Approach:
An information system has three main functions: identifying and measuring relevant data, processing and recording this data, and communicating the results to users in useful formats. Accounting performs all three functions. It identifies economic events, measures them in monetary terms, records them using accepted principles and then summarises the data in financial statements and other reports. These reports are used by both internal users, such as managers, and external users, such as investors and creditors. Although tax reporting is one important use, accounting is not limited to tax compliance. Nor is accounting just a raw data collection function without communication or rules.

Step-by-Step Solution:
Step 1: Look for the option that mentions both recording of economic data and communication of reports to stakeholders. Step 2: Option A states that accounting records economic data and provides reports regarding activities and financial condition, which matches the information system view. Step 3: Option B limits accounting to tax returns and government reporting, which is too narrow compared with the many other uses of accounting information. Step 4: Option C says accounting does not communicate data according to specific rules, which is incorrect because accounting follows established standards and frameworks. Step 5: Option D claims accounting is of no use to external users, which contradicts the role of financial statements in capital markets.

Verification / Alternative check:
If you review the objectives of financial accounting in textbooks, you will find references to providing information useful to investors, creditors and others in making decisions about providing resources to the entity. Managerial accounting objectives focus on internal decision making and control. In both cases, the information is prepared, structured and communicated through reports. This confirms that accounting is correctly described as an information system that both records and reports information, not just as a tax tool or a simple ledger system.

Why Other Options Are Wrong:
Tax returns only: Restricting accounting to tax filing ignores its vital role in planning, control, investment analysis and credit evaluation. Recording without communication: Without communication to users through statements and reports, the recorded data would have little value. Internal use only: External stakeholders such as shareholders, lenders and regulators rely heavily on accounting information, so it is clearly not for internal use alone.

Common Pitfalls:
Many beginners think accounting is mainly about compliance activities such as tax and audit. While these are important, focusing only on them can obscure the broader purpose of accounting as a decision support system. Another pitfall is underestimating the importance of generally accepted accounting principles and standards, which ensure that the information communicated is comparable and reliable. For examination purposes, always remember that accounting is defined as an information system that identifies, records and communicates the economic events of an organisation to interested users.

Final Answer:
The correct option is Accounting is an information system that records economic data and provides reports to stakeholders about business activities and financial condition., because this statement fully describes accounting as both a measurement and communication function rather than a narrow tax or internal tool.