Accounting system definition

What is an Accounting System?

An accounting system is a set of accounting processes with integrated procedures and controls. The intent of an accounting system is to record business transactions, summarize those transactions into an aggregated form, and create reports that can be used by decision makers to monitor, analyze, and improve operations.

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 on off-the-shelf accounting software, supplemented by any procedures needed to input information into the software.

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Contents of an Accounting System

An accounting system typically includes coverage of the major functional areas of an organization, including the purchase of goods and services, sales of goods of services, payments to employees for wages earned, and financing activities, such as obtaining debt, selling shares, and paying interest to lenders. The specific components of an accounting system include accounts payable, billings and accounts receivable, fixed assets, inventory, and payroll.

Organization of an Accounting System

Depending on the volume of transactions being processed, there may be specialized accounting staff assigned to each of the preceding modules. For example, there may be a payables clerk who is responsible for the payables module, a billings clerk who is responsible for the billings module, and a cost accountant who deals with the inventory module. Thus, the organizational structure of the accounting department is based in part on the structure of its accounting system.