What is an accounting system?
Accounting system is the way of keeping business records. Here business records mean income, expenses, and other financial records.
An accounting system allows a business to keep track of all types of financial transactions, including purchases (expenses), sales (invoices and income), liabilities (funding, accounts payable), etc. The accounting system will then take these transactions and use them to build reports, such as your profit and loss report and balance reports, which help you make decisions about your business.
Today accounting system is generally automated and computer based, using specialized software and/or cloud based services. In the past accounting systems were a complex series of manual calculations and balances.
History of Accounting system
According to the site https://debitoor.com/dictionary/accounting-system accounting system was first evolved in Middle East around 7,000 years ago. At that time rulers,businessmen, individuals use accounting system to keep track records of income and expenditure. tax citizens, impose custom fees.
In the late 1400s the Italian friar Luca Pacioli described double entry book keeping system. Then he earned ” The father of accounting” accreditation.
Double-entry bookkeeping system was used by Venetian merchants during the Italian Renaissance, which has served as the direct predecessor of modern accounting practices. He is perhaps best known for stating the Golden Rule of Accounting:
‘Do not go to bed before the debits equal the credits’.
Modern Accounting System:
In 1880 the first accounting machine was invented by Herman Hollerith. This machine was known as tabulating machine. It was used punch cards to add numbers to a card that could then use to determine the total. Hollerith also founded a company that later merged to become a component of IBM.
In the 20th century revolution in the computer technology particularly introduction of personal computer or PC enables ordinary people to gain access to a definite system. That is: an accounting system that does it all. From the first DOS-based accounting systems such as PcPlus to today’s Internet-based accounting systems that uses SaaS (or cloud computing), all serve as models for the distribution of accounting systems.
What an accounting system manages
Basically an accounting system manages three essential and integral function of business. These are:
- Expenses
- Invoices
- Funding.
Here i describe how accounting system manages three functions of business.
- Expenses: Expenses are the amount of money that flows out of the company to another company or person in exchange of goods or services. In older accounting software or with a manual system such as Excel, it is necessary to manually enter, balance, and categorise each expense. An automatic accounting system allows quick entry, categorisation and automatic balance of expenses.
- Invoices: In order to develop a positive brand image and building confidence with customers creating a professional looking invoices is necessary. Today, some accounting systems such as one developed by unlocklive http://www.unlocklive.com/ allow for instant invoice creation with the ability to customise and automatically keep track of paid invoices and income.
- Funding: An accounting system keeps track of all of the business liabilities as payable values and automatically updates the balances as soon as a payment is made and accounts are settled. These business liabilities are accounts payable, bank loans taken to support the business, or mortgages, etc.