An accounting system is a process whereby a specific output is produced by a given input. In an information accounting system, data is processed to provide information. Data is a collection of unprocessed facts, while information is data or facts that have been processed into a meaningful form.
In the normal course of events, a business undertaking will enter into a large variety of transactions. The details of a particular transaction are referred to as transaction data. The term transaction data therefore refers to the facts that completely describe a specific transaction.
The aim of an accounting system is to record the transaction data and then to process this data to provide information that is ultimately collected in the financial and management reports of the enterprise. There are two stages in the development of an accounting system, namely systems analysis and system design.
A good accounting system must comply with at least the following fundamental requirements. The system must provide decision makers with timely and accurate information relevant to the responsibilities and requirements; the internal control measures must be adequate to ensure the protection of assets and the provision of reliable information and the system must be sufficiently flexible to accommodate changes in the volume of activities and in the operating procedures without requiring drastic modifications.
A thorough knowledge of the activities of the undertaking and its information and control requirements is an essential prerequisite for the development of an effective accounting system that meets the necessary criteria. The procedure of surveying the undertaking’s activities and information and control requirements is known as system analysis.
In the system’s design process the system is designed to comply with the specifications determined by systems analysis. Initial transactions are recorded in source documents and the in journals and finally they are classified and stored in ledger accounts. The processed information is extracted from the ledger accounts for drawing up the financial reports. The design of any accounting system within this framework comprises of, planning the procedures according to which the system will function, the design of the source documents, journals, ledger accounts and final reports and finally the design of the necessary internal control measures.
From a management information point of view it is important that the information needs of a user are determined and that the accounting report meets these needs. Rapid development in the field of computer accounting has led to the effectiveness of the accounting process, enabling more usable, more accurate and more timely output of accounting data. Efficiency increases as the value of the system increases in relation to the cost thereof. Computerised systems have made the accountants job in designing the accounting process that much easier than the manual systems of days gone by.