ACCOUNTING SYSTEM IN BUSINESS
Accounting is the process of recording financial transactions pertaining to a business.
Types of Accounting Systems
- Book keeping: This refers to the systematical gathering of financial information.
- Financial Accounting: It is prepared for company owners, lenders, financial analyst etc.
- Managerial Accounting: This is a customized financial information, to manage it includes pricing, competition, marginality and budgeting.
- Tax accounting: It determines the amount of taxes that the company has to pay.
Importance of Accounting
1) It helps a business owner to provide financial and management record.
2) It helps users of financial information to make informed decision that will benefit/impact the Business.
3) It helps Business owners to know and understand what is happening in the business.
Book keeping is the foundation of accounting, where it starts. This is where all daily transactions that occurs in the business are recorded. The first step in business accounting is recording business transaction.
Book keeping starts with a transaction, followed by source documents, record books and then financial statement.
- Transactions: These are economic activities that occurs daily in a business, examples are sales, purchase, receipt and payment.
- Source Documents: These are original documents containing the record of a transaction entered in an accounting system. Source documents includes
- Documents from expenses such as
- Incoming invoice from suppliers and vendors.
- Incoming receipt from suppliers and vendors.
- Payment vouchers, that is, reasons for payment.
- Bank Record.
- Merchant services statement and correspondents.
Examples of records books includes
- The cash sale book.
- Cash purchase book.
- Cash Book summary.
- Sales ledger: This is a record of a company’s sale, showing the amount paid and owned by customers.
- Purchase Ledger: A list of all the purchase invoices it’s ever received from its suppliers, and when they were paid.
- petty cash book
* Petty cash: This refers to the money used to run day-to- day expenses of the business.
The four S(s) of Records Keeping
- System: Set a system in place and ensure that you stick to it.
- Separate: Separate your professional and personal finance.
- Security: Make it a priority – let few people be involved in the financial system.
- Safe keeping: Safely store hard copy of your financial in fire proof bags.