Question

Respond to the following in a minimum of 175 words:

• A component of an accounting system is one part that helps the entire system accumulate financial data, translate the data into worthwhile information, and then communicate the information to the necessary users.
• Briefly explain the five main components of an accounting system.

Answer 1

The main five components of accounting system are documents, inputs, input processor, storage and output which are required at different levels of management for record keeping and decision making.

Documents are the first step of record keeping to save the basic information and serves as a instrument of proof for the happening of transaction and for audit purposes. It includes vouching of transactions, recording in journal books and other subsidiary books, generations of invoices. These are all recorded in choronological order.

Inputs is entry of data in to the system of organisation for their long term storage and reference. This input is made using various devices as bar code scanners, keyboards etc.

Input processor is the step of processing recorded data to draw meaningful information out of it. It includes posting of transactions into ledger and putting them into records and cash flow statements, cost sheets etc.,for making decisions related to cost cutting, generation of cash, further investments and disinvestment to be made.

Storage involves the keeping of record for long term for further reference. It is done in physical forms such as books and files and in digital format in disks and drives. It is used to analyse the long term performance of business and for taxation purposes.

Output is analysed data and information drawn from accounts for the use of all the stakeholders of business. Such information is provided by the organisation in the form of printed reports or digital releases on their websites for public access.