Accounting system components(335) .ps



Accounting system components

The basic component of an accounting system are the forms, records, procedures, and data processing methods employed to obtain the various report needed by the enterprise. Forms, such as sales invoices, vouchers, and bank checks, are the media initially used in recording transactions. Records include ledgers, journals, registers, and other media used for compilations of data. Various procedures, are designed to safeguard business assets and control expenditures. Data may be processed manually or by machines. Reports may characterized as the end product of the accounting system. Although primary attentions has thus far been directed toward the principal financial statements, many statements and analyses are based on accounting data.

Principles of accounting systems

Because of differences in nature of businesses, in volume of transactions to be processed, and uses made of accounting data, accounting systems will vary from business to business. However there are a number of broad principles discussed the paragraphs that follow that apply to all systems.

Cost-effectiveness balance

An accounting system must be tailored to meet the specific needs of each business. Since costs must be incurred in so doing, one of the major considerations in developing an accounting system is cost-effectiveness. For examples, although the reports produced by an accounting system are a valuable end product of the system, the value of the reports produced should be at least equal to the cost of producing them. No matter how elaborate or informational a report may be, it should not produced if its cost exceeds the benefits derived by those who use it

Flexibility to meet future needs

A characteristic of modern business environment is change. Each business must be adapt to constantly changing environment in which it operate. Whether the changes are the result of new government regulation, change in accounting principles, organizational changes necessary to meet practices of competing business, changes in data processing technology, or other factors, the accounting system must be sufficiently flexible to meet the changing demands made of it. For example, when the granting of credit to customers became a common practice, it was necessary for many businesses to maintain account receivable, account payable, and related statistical and other useful information. Regulatory agencies, such as the Securities and exchange commission, often require a continually changing variety of reports require changes in the accounting system.

Adequate internal controls

An accounting system must provide the information needed by management in reporting to owners, creditors, and other interested parties and conducting the affairs of business. In addition, the system should assist management in controlling operations. The detailed procedures adopted by management to control operations are collectively termed internal controls

Effective reporting

Users of the information provided by accounting system rely on various reports for relevant information presented in an understandable manner. When these reports are prepared, the requirements and knowledge of the user should be recognized. For example, management may need detailed reports for controlling operations on a weekly or even daily basis, and regulatory agencies often require standardized data and establish specific deadlines for the submissions of certain reports

Adaptation to organizational structure

Only by effectively utilizing and adapting to the human resources of a business can the accounting system meet information needs at the lowest cost. Since no two businesses are structured alike, the accounting system must be tailored to organizational structure of each business. The lines of authority and responsibility will effect the information requirements of each business. In addition, an effective system needs the approval and support of all levels of management.

Accounting system installation and revision

Before designing and installing an accounting system for an enterprise, the designer must have a thorough knowledge of the business' operations.

At the time that a business is organized, however, there are likely to be many undeterminable factors that will affect such as faces of the system as types and design of the form needed, the number and titles of the account required, and the exact procedures to be employed. It is also quite common for a firm to expand its already successful operations into new areas not originally contemplated, to increase its volume of transactions, to employ additional personal, and in other ways to "outgrow" its accounting system.

Many large business enterprises maintain an almost continuous review of their accounting system and may constantly be engaged in changing some portion of it. The task of revising an accounting system, either in its entirety or only in part, is composed of three phases: (1) analysis, (2) design, and (3) implementation.

Systems analysis

The objective of systems analysis is the determination of informational needs, the source of such information, and deficiencies in procedures and data processing methods currently employed. The analysis ordinarily beings with a review of organizational structure and job descriptions of personnel affected, followed by a study of forms, records, procedures, processing methods, and reports used by the enterprise. A detailed description of the system employed by enterprise, including specific instructions to personnel and minute details of procedures, is of considerable value to the systems analyst in the fact- finding review. Such a compilation is usually referred to as firm's systems manual.

In addition to assessing the shortcomings of the current system, the analyst should determine management's plans for changes in operations (volume, products, territories, etc.) in the foreseeable future.

Systems design

Accounting system are altered as result of the type of analysis described above. The design of new system may involve only minor changes from the existing system, such as revision of a particular form and related procedures and processing method, or may be a complete revision of the entire system. System designer must have a general knowledge of the merits of various types of data processing equipment, and the capacity to evaluate various alternatives. Although successful systems design depends to a large extent upon the creativity, imagination, and general capabilities of the designer, observance of the broad principles previously discussed is essential.

Systems implementation.

The final phase of creation or revision of an accounting systems is to carry out, or implement, the proposals. New or revised forms, records, procedures, and equipment must be installed, and any that are no longer applicable must be withdrawn. All personnel responsible for operating the system must be carefully trained and closely supervised until satisfactory efficiency is achieved.

For large organization, a major revision such as a change from manual processing to electronic processing is usually accomplished gradually over an extended period rather than all at once. With such as a procedure there are is less likelihood that the flow of reliable data will be seriously impeded during the critical phase of implementation. Weaknesses and conflicting or unnecessary elements in the design may also become apparent during the implementation phase. They are more easily detected and remedied when changes in a system are adopted gradually, and the chaos that might otherwise occur is thereby avoided.

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