Accounting Systems
An accounting system consists of the personnel, procedures, technology, and records Used by an organization.
(1) to develop accounting information
(2) to communicate this information to decision makers. The design and capabilities of these systems vary greatly from one organization t0 another. In small businesses, accounting systems may consist of little more thane cash register, a checkbook, and an annual trip to an income tax preparer. In large
businesses, accounting systems include computers, highly trained personnel, and accounting reports that affect the daily operations of every department. But in every case, the basic purpose of the accounting system remains the same: to meet the organizations. needs more information as efficiently as possible.
Many factors affect the structure of the accounting system within a particular organization.
Among the most important are
(1) the company's needs for accounting information and
(2) the resources available for operation of the system.
Describing accounting as an information system focuses attention on the information accounting provides, the users of the information, and the support for financial decisions that is provided by the information. These relationships are depicted in While some of the terms may not be familiar to you at this early point in your study of business and accounting, you will be introduced to them more completely as we proceed through this text-book and as you undertake other courses in business and accounting. Observe, however, that the information system produces the information presented in the middle of the diagram financial position, profitability. and cash flows. This information meets the needs of users of the information-investors, creditors, managers, and so on-and supports many kinds of financial decisions performance evaluation and resource allocation, among others, These relationships are consistent with what we have already learned-namely, that accounting information is intended to be useful for decision-making purposes.
DETERMINING INFORMATION NEEDS
The types of accounting information that a company develops vary with such factors as the
size of the organization, whether it is publicly owned, and the information needs of management. The need for some types of accounting information may be prescribed by law.
For example,
income tax regulations require every business to have an accounting system that can measure the company's taxable income and explain the nature and source of every item in the company's income tax return. Federal securities was require publicly owned companies to prepare financial statements in conformity with generally accepted accounting principles.
These statements must be filed with the Securities and Exchange Commission, distributed to stockholders, and made available to the public.
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