Many factors affect the structure of the accounting system within a particular organization. Among the most importation are first the companyâs needs of accounting information and second the resources available for operation of the system.
Basic Function of an Accounting System:
In developing information about the financial position of a business and the results of its operations, every accounting system performs the following basic functions:
- Interpret and record the effects of business transactions.
- Classify the effects of similar transactions in a manner that permits determination of the various totals and subtotals useful to management and used in accounting reports.
- Summarize and communicate the information contained the system to decision makers.
The differences in accounting systems arise primarily in the manner and speed with which these functions are performed.
In our illustrations, we often assume the use of a simple manual accounting system.
Such a system is useful in illustrating basic accounting concepts, but it is too slow and cumbersome to meet the needs of most business organization. In a large business, transactions may occur at a rate of several hundred or several thousand per hour. To keep pace with such a rapid flow of accounting information, these companies must use accounting systems that are largely computer-based.
Many small business continue to use manual accounting systems, but they modify these systems to meet their needs as efficiently as possible.