- Explain the nature of accounting system.
- 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.
- Differentiate the account from T-account.
- Account is the basic summary device of accounting. A separate account is maintained for each element that appears in the balance sheet and in the income statement. Thus, an account maybe defines as a detailed record of the increases, decreases and balance of each element that appears in the entity’s financial statements. The simplest from of account is known as the T-ACCOUNT because of its similarity to the letter “T”. T-account has three parts, the account title, debit side and the credit side.
- State the basic rules of debit and credit.
- The rule of debit and credit for income and expense accounts are based on the relationship of those accounts to owner’s equity. Income increases owner’s equity while expense decreases owner’s equity. Hence, increases in income are recorded as credits and decreases as debits. Increases in expenses are recorded as debits and decreases as credits.
- What is the importance of double entity accounting?
- The double entity provides a formal system of classification and recording business transactions. It recognizes the two fold effects of a transaction; the value received and the value parted with. This justified the equality of credit and debit amount. A debit side entry must have a corresponding credit side entry. Each transaction affects at least two accounts. The total debits for a transaction must always equal the total credits.
- Discuss the role of accounting records.
- Accounting records refers to all of the documents and books involved in the preparation of financial statement, records relevant to audit and financial reviews. This accounting records include records of assets and liabilities, monetary transactions, ledgers, journals and any supporting documents such as checks and invoices that are used by accountants in pursuing the primary objective of accounting which is communication through the financial statement.
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