An accounting system is a set of accounting processes with integrated procedures and controls. The intent of an accounting system is to engage in the following activities:
- Record business transactions
- Summarize the transactions into an aggregated form
- Create reports that can be used by decision makers to monitor, analyze, and improve operations
An accounting system typically includes coverage of the following functional areas of an organization:
- Purchases of goods and services
- Sales of goods and services
- Payments to employees for wages earned
- Financing activities, such as obtaining debt, selling shares, and paying interest to lenders
The specific components of an accounting system include the following modules:
- Accounts payable
- Billings and accounts receivable
- Fixed assets
Depending on the volume of transactions being processed, there may be specialized accounting staff assigned to each of the preceding modules.
Though an accounting system can be entirely paper-based, this situation is usually only found in quite small businesses. In most cases, accounting systems are largely based upon off-the-shelf accounting software, supplemented by any procedures needed to input information into the software.