An accounting system collects, classifies, and reports a business's financial information. It undergoes a three-step design process: analyzing needs, designing the system, and implementing it. The system uses internal controls to protect assets and ensure accuracy, and processing methods to record transactions. Computerized systems simplify record keeping, increase accuracy, and provide timely information, while manual systems record transactions in journals and ledgers. Subsidiary ledgers and controlling accounts track categories like receivables and payables in more detail. Special journals also record common transactions like sales and purchases.
An accounting system collects, classifies, and reports a business's financial information. It undergoes a three-step design process: analyzing needs, designing the system, and implementing it. The system uses internal controls to protect assets and ensure accuracy, and processing methods to record transactions. Computerized systems simplify record keeping, increase accuracy, and provide timely information, while manual systems record transactions in journals and ledgers. Subsidiary ledgers and controlling accounts track categories like receivables and payables in more detail. Special journals also record common transactions like sales and purchases.
An accounting system collects, classifies, and reports a business's financial information. It undergoes a three-step design process: analyzing needs, designing the system, and implementing it. The system uses internal controls to protect assets and ensure accuracy, and processing methods to record transactions. Computerized systems simplify record keeping, increase accuracy, and provide timely information, while manual systems record transactions in journals and ledgers. Subsidiary ledgers and controlling accounts track categories like receivables and payables in more detail. Special journals also record common transactions like sales and purchases.
An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information. As a business grows and changes, its accounting system also changes in a three-step process. This three-step process is as follows: Step 1: Analyze user information needs. Step 2: Design the system to meet the user needs. Step 3: Implement the system. Internal controls and information processing methods Internal controls and information processing methods are essential in an accounting system. a) Internal controls are the policies and procedures that protect assets from misuse, ensure that business information is accurate, and ensure that laws and regulations are being followed. b) Processing methods are the means by which the system collects, summarizes, and reports accounting information. These methods may be either manual or computerized. Computerized and Manual Accounting System a) Computerized Accounting Systems Computerized accounting systems have the following three main advantages over manual systems: b) Computerized systems simplify the record-keeping process in that transactions are recorded in electronic forms and, at the same time, posted electronically to general and subsidiary ledger accounts. c) Computerized systems are generally more accurate than manual systems. d) Computerized systems provide management with current account balance information to support decision making, since account balances are posted as the transactions occur. b) Manual Accounting Systems Accounting systems are manual or computerized. Understanding a manual accounting system is useful in identifying relationships between accounting data and reports. Also, most computerized systems use principles from manual systems. Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. Subsidiary ledgers and controlling accounts An accounting system should be designed to provide information on the amounts due from various customers (accounts receivable) and amounts owed to various creditors (accounts payable). A separate account for each customer and creditor could be added to the ledger. A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger. The primary ledger, which contains all of the balance sheet and income statement accounts, is then called the general ledger. Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account. The sum of the balances of the accounts in a subsidiary ledger must equal the balance of the related controlling account. Thus, a subsidiary ledger is a secondary ledger that supports a controlling account in the general ledger. Two of the most common subsidiary ledgers are as follows:
i. Accounts receivable subsidiary ledger or
customer - it is lists the individual customer accounts in alphabetical order. The controlling account in the general ledger that summarizes the debits and credits to the individual customer accounts is Accounts Receivable. ii. Accounts payable subsidiary ledger or creditors ledger - it is lists individual creditor accounts in alphabetical order. The related controlling account in the general ledger is Accounts Payable. Special journals and vouchers Special Journals (also known as subsidiary journals) are chronological records of frequently occurring transactions such as sales, purchases and cash receipts/payments. A general journal is an all-purpose journal where we can record any transaction. However, as the transactions of a company increase, it is better to use special journals along with the general journal to record transactions of similar type in one, such as sales on account or cash payments. Special journals record transactions of a similar nature. Repetitive transactions such as sales and purchases are recorded in special journals and the totals of these journals are transferred to general ledger on a regular basis such as daily, weekly or monthly as if a single transaction has occurred in this interval. Con’t…
The number and format of special journals used by a
company depends on the nature and size of the company’s business transactions. The following are some of the typical examples of special journals used by most merchandising businesses. 1) Revenue Journals - For recording credit sales 2) Cash Receipt journal - For recording cash receipts 3) Purchase journal - For recording credit purchases 4) Cash payment journal - For recording cash payments 5) General journal - For transactions not recorded in any of the special journal