Accounting system refers to a specific type of program software which processes and records accounting transactions in multiple functional modules like accounts payable, Accounts receivable, general ledger, account management, bank reconciliation, and internal/external financial reporting. It acts as an accounting tool. The accounting system should be designed such that data can be processed accurately and the information obtained from it can be used for various decision making purposes by various users. There are many different types of accounting systems available for users. All these types have a common aim and that is to process accounting data in a way so that information is made available for decision making purposes.
There are two categories of accounting systems that are the virtual and the physical. The virtual accounting systems are Internet-based and do not require the user to execute any transaction. All transactions are done by use of a terminal or a web browser. Physical accounting systems are usually on a local computer system and requires the execution of a command line program to process the data. These commands are usually executed on a specified schedule by the administrator. Based on the nature of the financial transactions, virtual accounting systems may be divided into two basic categories: desktop and Web based.
Desktop accounting system provides a graphical user interface for data input. It includes features like accounts receivable and accounts payable. General ledger provides detailed statement of general financial matters. Budget and financial statements display current assets and liabilities, and overall financial situation. Accounts receivable and accounts payable represent the sales and purchases of customers by the merchant. Accounts which are not receivable or payable represent the accounts which are due.
Online accounting system is a system in which user enters financial information using the Internet. Users can either enter the information manually or can use some tools to automatically enter the required information. This system eliminates or greatly reduces the time needed to keep track of business transactions. Online accounting system can be accessed from any location, anytime and from anywhere.
Web based accounting system consists of a physical computer system, server and user interface that operate on a browser. The system maintains financial records using text files and databases. Users can view each file and print out reports for analysis purpose. Data can be transferred between computers or from a file to a computer. Back office service providers usually maintain master data tree, work stations, printing equipment and other associated items needed for accounting. This is a cost effective method to increase productivity and efficiency of employees.
Bookkeeping is an integral part of accounting systems. It involves recording the sales as well as debit transactions made by the customers. The debits occur when customer pays through cash or checks and the credits occur when the customer receives credit. The accounting process includes calculation of debits and credits and integration of payments with sales, purchases and inventory.