Question

Define an accounting system and identify an effective accounting system’s main function.

Answer 1

Definition of Accounting system:

Accounting sysytem is the system used to manage and control the income , expense and other financial activities such as assets and liabilities of a business.

An accounting system consists of following series of operations:

1. Recording

2. Classifying

3. Summarizing

4. Analysing

5. Interpretation

6. Communication

Main function of effective accounting sysytem:

An effective accounting sysytem is capable of generating statistical reports that provide a clear set of information relating to business to the top level management and also the interested third parties which helps in their prudent decision making.

Each function plays its own role in an accounting system but the functions of analysing and communication are considered to be essential and important functions of effective accounting system. This is because the analysing function identifies the relevant financial data required for coomunicating to the top level management or interested third parties or to the general public.

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