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Basic Features of Accounting System

Generally Accepted Accounting Principles (GAAP) provide the standards for an accounting system to record financial transactions. An accounting system uses accrual accounting, records prepayments as assets, and follows double-entry bookkeeping. It maintains books of original entry (like journals) and final entry (ledgers) to document all transactions. It also implements systems for petty cash, payroll, budgets, and automation to facilitate processing and financial reporting. Strong internal controls like segregation of duties are vital to ensure accuracy and prevent errors and fraud.

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37 views

Basic Features of Accounting System

Generally Accepted Accounting Principles (GAAP) provide the standards for an accounting system to record financial transactions. An accounting system uses accrual accounting, records prepayments as assets, and follows double-entry bookkeeping. It maintains books of original entry (like journals) and final entry (ledgers) to document all transactions. It also implements systems for petty cash, payroll, budgets, and automation to facilitate processing and financial reporting. Strong internal controls like segregation of duties are vital to ensure accuracy and prevent errors and fraud.

Uploaded by

Christian Aribas
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Basic Features of Accounting System

Generally Accepted Accounting Principle (GAAP)

Generally Accepted Accounting principle refers to the common set of accounting


standards, procedure and principles that are followed to create and obtain financial
statements. The Accounting System of Lopez Farmer’s District Hospital, Incorporated
is applied within the GAAP framework as governing rules and a combination of
authoritative standards as set by policy boards, and simply the commonly ways of
recording and reporting accounting information.

Accrual Accounting

1. A method that measures the performance and position of a company recognizing


economic events regardless of when cash earned.

2. Economic events are recognize by matching revenues to expenses when incurred


rather than payment was made.

3. Allows current cash inflows and cash outflows to be combined with future
expected cash inflows or outflows to give a more accurate picture of current
financial position.

Prepayments

1. Prepayments are recorded under Asset Method.

2. Asset accounts are debited for payments in advance.

3. Year-end adjustment to asset balance accounts.

Double-Entry Bookkeeping

1. Involves the use of debit and credit accounts to record transactions as they occur,
but moves beyond cash-only transactions.
2. Financial transaction has equal and opposite effects in at least two different
accounts.

3. Satisfies the equation Assets= Liabilities+Equity

4. Transactions are recorded in terms of debit and credit.

5. Debit in one account will be an offset by a credit account, vice versa.

6. The sum of all debits must equal the sum of all credits

7. Makes it easier to prepare financial statements directly from the books of accounts.

8. Easy to detect errors.

Book of Accounts

1. Journal- book of original entry. Financial transactions are recorded in order of date.

a. Holds account information that is needed to prepare financial statements.

b. Includes contra-account for assets, liabilities, equity, revenues and expenses.

c. General Ledgers- shows highly summarized accounts.

d. Subsidiary Ledgers- contain the details of the individual accounts that


constitute a particular account.

2. Ledger- book of final entry. Complete record of financial transaction over the life
of the entity.

a. General Journal- nonrecurring, infrequent and dissimilar transactions are


recorded.

b. Special Journal- specific classes of recurring transaction that occur in high


volume.

Petty Cash System

1. A small fund of cash kept on hand for purchases or reimbursements.

2. Require strict documentation of any use of petty cash to prevent theft.


3. Petty cash fund are periodically audited to ensure that the balance of the fund is
correct.

4. Uses Imprest Fund System for fixed amount reserved.

5. Replenishment is through check disbursement process.

Revolving Fund

1. Similar to Petty Cash however maximum amounts are larger than the Petty Cash.

2. Cash kept for immediate purchases of recurring inventories which would be


delayed if formal procedures be followed.

3. Requires strict documentation to prevent theft.

4. Revolving Fund are periodically audited.

5. Replenishment is through check disbursement process.

Voucher System

1. Document used in recording a liability to be paid in future date.

2. Will be held by the Payee.

3. Used as evidence that a transaction has taken place and there is a liability by one of
the parties to the transactions.

Payroll System

1. Involves payment of employees’ salaries and wages and the filing of employment
taxes.

2. Payroll system is automated and contains the names, employee ID numbers,


authorized deductions, rate of pay and other significant information.

3. Master File is updated regularly for additional employees, termination and updates
in employee’s information.
Budget System

1. Quantitative expression of a company’s plan for a defined period of time.

2. Comprehensive financial plan that assist managerial function for an efficient and
effective control of financial operational functions.

3. Contains Budgeted revenue volumes, resources, cost, assets, liabilities and cash
flows as standard for actual operation.

4. Actual amounts will be compared to budgeted amounts. Variance should be


reported.

5. Operating budget is made periodically by every division with consolidation with


the master budget by the Budget Department.

Automated Accounting Information System

1. Uses multiple computers which consist of small processing units that are
distributed to different end user.

2. Other restricted information processing units are placed under the control of
authorized personnel.

3. This will improved availability, increased user satisfaction, cost saving and cost
control responsibility.

4. Transactions are processed at the moment economic transaction occur.

5. Reduced use of physical documents and lesser paper work.


General Controls

These are controls activities, policies and procedure established by the accounting
system in response of risks and to ensure that appropriate and measured actions are
taken in dealing with the company’s identified risk.

This will ensure confidentiality, integrity, merit and availability of automation,


the programs installed and hardware devices. General Controls pertain to entity-wide
concerns since it attempts to gain overall response. These are controls that relates to
specific automated applications and individual transactions. It also provide insights to
risk and control concerns.

Segregation of Duties

1. A concept of having more than one person required to complete a task/

2. Separation of duties by sharing of more than one individual in one single


task is an internal control intended to prevent fraud and error.

 The authorization of the transaction is prepare from the processing


of the transaction.

 Responsibility for the custody of assets is separate from the


responsibility of keeping the records.

 Organizational structure should be created in a way that it is more


complicated to continue such irregularities because a higher degree
of collusion is required.

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