Question and Answer: Accounting Systems

Q: What are the various type of accounting systems that businesses do employ?

A: Accounting is a system of classifying, recording and reporting on the financial transactions of an enterprise that assists stakeholders to make informed decisions about their engagement activity with the enterprise.

Various accounting systems are available for companies and individuals alike. When choosing an accounting system, the decision should take into account the price of the accounting system, the extent the system will be used, and the capacity of the user to learn to operate the system. Such as:

Single Entry System:

A single entry system records each accounting transaction with a single entry to the accounting records, rather than the vastly more widespread double entry system. The single entry system is centred on the results of a business that are reported in the income statement. The core information tracked in a single entry system is cash disbursements and cash receipts. Asset and liability records are usually not tracked in a single entry system; these items must be tracked separately.

It is also defined as incomplete Double Entry System. All transactions are not recorded on double entry basis. In some transactions, both aspects of transactions are recorded and in others, either one aspect is recorded or not recorded at all. Instead of maintaining all accounts, only Personal A/C and Cash Book are maintained.  The accounts maintained under this system are incomplete and unsystematic so are not reliable.

Even though Single Entry system helps in completing the Recording of Accounting transaction in much less time as compared to Double Entry system, it is Not advisable to keep books of accounts in single entry system (as they Are also called as Incomplete Records).

Double Entry System: A double entry system records each accounting transaction with a double entry to the accounting records this is based on the basic accounting equation of Assets=Liabilities + Owners’ Equity.  In this system, every transaction is entered twice in the account books first, to record a change in the assets’ side (called a ‘debit’) and, second, to mirror that change in the equities’ side (called a ‘credit’). If all entries are recorded accurately, the account books will ‘balance’ because the total of debit entries will equal the total of credit entries.

The double-entry bookkeeping system provided an optimal environment for our accounting system to ensure checks and balances were placed to prevent errors.

Many businesses prefer to use the double-entry bookkeeping method to record their financial transactions so that changes to assets, liabilities and owner’s equity are easily identified.

 

Manual System:  

A manual accounting system is a way of keeping business financial records with a written ledger of transactions.  This system employs the use of written pen by hand and paper and ledger books to record financial transactions. Manual accounting system is mostly used by small businesses and start-ups.

Manual accounting System has the advantages of ease of application to any business, easier to set up, Can be more flexible than a computerized accounting system, more secured, does not need electricity or batteries and cheaper in terms of set up and maintenance.

However, it has the disadvantages of being prone to human error, takes longer to generate reports, more suited to smaller businesses, records susceptible to perils such as fire and water, disaster recovery plans harder to implement, can take longer to process information and not particularly suited to environments where there are a large volume of transactions

Computerized System:  

This is the use of computer system to keep records and process financial transactions of a business. This is done through the use of appropriate software. These days, there are online, off the shelf (desktop) and customized computerized accounting system.

Computerized accounting system requires accounting framework and operating procedures.

It has the advantages of better quality work, lower operating cost, improved efficiency, facilitates better control, greater accuracy, relieve monotony, facilitates standardisation and minimized mathematical errors.

The disadvantages are reduction of manpower, high cost and requires special skills, however, there are some other problems that associated with computerized system and they are high cost of user training, system dependency, hardware requirements, system failure, back up and prints, voucher management and security.