Accounting system

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
  • Inventory
  • Payroll

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.