Accounting systems are methods that accounting professionals can use to monitor and maintain the finances of a business. These systems track expenses and income, produce financial reports and monitor financial components. A system that suits a business’s needs will improve clients’ organization, productivity and financial health.
Let’s find out the different accounting systems along with their uses.
- Double-entry systems
A double-entry system uses credit and debits to balance all business accounts. When using this system to balance an account, both the debits and credits are equal. The double-entry system can track assets, revenue, expenses, and losses.
Advantages of the double-entry system:
– It reduces the risk of fraud
– Easy to determine profit gains and losses
– Easy to locate and fix errors
Disadvantages of the system:
– It’s time-consuming
– Incompatible with small businesses.
2. Single-entry systems
A single-entry system uses one entry in a ledger or record per transaction. This system often only tracks incoming and outgoing money. If financial professional uses this system, they typically record the date of a transaction, a description, and whether it’s an expense or income. A single-entry system can allow them to record taxable income, cash, and tax-deductible expenses. It’s also one of the most manageable systems since it typically records the information in a table with a single column for each item.
Some of the advantages include the following:
– It’s simple to use
– Doesn’t require any expensive software
While the disadvantages include the following:
– It doesn’t account for a wider variety of financial requirements
– It’s more challenging to spot errors or fraud
3. Computerized systems
A computerized system is one of the most common accounting systems. These systems help track and calculate almost every financial need of a company or client’s account, depending on which product the accountant chooses to work with. Computerized systems also help account managers looking to automate their financial management. These systems can also help the account handler learn more about accounting and can help them obtain a complete picture of the business or client’s financial health. These systems can also create financial records to help with gathering tax information.
The advantages of a computerized system include the following:
– It’s easy to use
– Very cost-effective
However, there’s something to consider when choosing a computerized system because it requires staff training.
4. Manual systems
Manual systems allow a financial professional or accountant to keep track of a business or client’s financial situation using physical cash books and ledgers rather than a computerized one. This system helps people who feel uncomfortable with computers or worry about cyber security. While this doesn’t affect whether they can use a single or double-entry system, it may impact the speed and accuracy of their work. While a manual accounting system helps ensure there are no unexpected problems, it can create a more significant margin for error.
Below are some of the positive aspects of this system.
– Limited technical issues
– Easy to use
– No chance for virus
Listed below are also some things to consider before choosing this system:
– A huge chance for errors
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