What is an Accounting System?

Accounting systems are the main highway for successful business operations.  Just as Luca Pacioli discovered all those hundreds of years ago, an accounting system provides the thoroughfare along which all business transactions are accomplished.  In the basic definition of accounting, we discover that accounting is the information system that provides economic and financial information about the state of a business.  The accounting system provides business with a uniform way in which to utilize that information.

There are three key divisions within the accounting system, analysis, design, and implementation.  These areas are the elements that comprise the accounting system.  Let's take a closer look at each one, and what each area accomplishes for a business.

The analysis consists of an examination of the needs of the business or the individuals that comprise the business and then determining how to fulfill those needs.  Every business is somewhat unique, in that no two are ever operated the same, even if they exist within the same industry.  Each business has unique goals and objectives, and therefore, unique needs.  The analysis of a business, on an individual basis will often yield information needs that only exist within that particular business.  This is why analysis must take place on an individual basis, and why the accounting system for each business is so necessary. 

The next step in the process is to design a system that will fulfill the needs of the business and the individuals within the business.  Today, thanks to the advent and implementation of computer systems, very few businesses operate within the parameters of the manual system.  Since the use of computers is so widespread, many design options that were not in existence 5 years ago, are commonplace today.  Reporting, database storage, and data entry options have made many areas of information easily and quickly accessible that would have once taken weeks to compile.  This is a true benefit of the computer age, ease of access and immediate access.  The next phase involves actual use of the system design.

The implementation of the designed system for a business can occur very quickly, or sometimes over the course of several years.  The implementation process of the system may actually take several years if the business is a large corporation, simply because it must be checked and tested for accuracy as it relates to each department and area of operation.  The accounting system implemented in some large corporations touches every area of the business, from the purchasing to the shipping functions.  Therefore, every step in the implementation process must be tested for accuracy and its ability to provide the necessary information.

As you can see, this can be quite complicated, or quite simple; the size of the business, the business needs, and the amount of raw data that must be processed all play a part in determining the accounting system used and the method of implementation.  The really interesting part of the analysis, design and implementation of an accounting system, is that it never ends.  Just as you think you have it all figured out, the business needs change, and some aspect of the system must be re-evaluated and the process begun again.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.