Question

Briefly explain each of the following:

• an accounting system
• a bank reconciliation
• accrual accounting
• cash accounting

250–300 words

Answer 1

Ans - An accounting system - An accounting system is a system used by business entities to record and manage various financial and business activities like income, expenses, invoices, funding, etc. An accounting system can be considered as a language of business where the business entities record all its financial transactions. The transactions which are recorded by the business entities are used to make a comprehensive statistical report by business analysts which are used by the managers to analyze the company's financial health and helps which helps them in decision making. Accounting helps the business entities to keep tracking their business activities which helps them in monthly and yearly reporting. There are various systems of sophisticated accounting software used by business managers.

1 Single-entry system.

2 Double-entry system

2 Manual accounting system

3 Computerized accounting system.

There are two primary methods to record accounting transactions

1 Cash Basis Accounting - It is a type of accounting system in which expenses are recorded during the period when they are paid and payments are recorded in the period when they are received. In other words in cash accounting, the income and expenses of the business are recorded when they are being paid and received. cash basis accounting does not work good for larger companies or the companies having very large inventory because it will not clearly show the actual financial position of the company. cash basis accounting is very simple and straight and it is an inexpensive method to use and implement. This accounting system does not record or recognizes transactions on the basis of promise or expectation to pay or receive money.

2 Accrual Basis accounting- In the accrual basis of accounting revenue is recorded before the money has come and expenses are recorded when it has incurred. In other words, the income and expenses are recorded when they occur regardless of whether the income or expenses is being paid or received. Example of accrual accounting will be a sale on credit, interest on loans, tax incurred, etc. This is the most suitable and appropriate method for big companies to record transactions and is used by most business entities. This is expensive than cash basis accounting method.

Bank reconciliation - A bank reconciliation is a process of matching the accounting records of cash account with the bank statements. The main aim to know the difference between the two. As cash is vulnerable to theft, therefore the business maintains the bank reconciliation account to safeguard against those vulnerabilities. Bank reconciliation plays an important role. Therefore it is wise to complete all the bank reconciliation at regular interval for all the bank's accounts to make sure that the company's cash transaction records are correct.