What Factors Would You Consider in the Design of an Accounting System?
Many professionals think of a successful system implementation in terms of technological factors. However, the qualitative aspects of a business are often what cause accounting systems to succeed or fail. When designing an accounting system, think about any special reports that the company may need. Many financial reports are automatically programmed into accounting software, but some businesses benefit from custom reports.
Budget is often the first consideration in accounting system design and selection. Companies can purchase lightweight, transaction processing systems for only a few hundred dollars. These programs can be used to capture basic accounting information through journal entries. On the other hand, complex enterprise resource planning, or ERP, software integrates all company operations into the same accounting system. These ERP systems can cost millions of dollars, not including extra consulting expense to personalize the system. Such systems may not be feasible for small businesses with tight budgets.
An accounting system needs appropriate controls to minimize mistakes and fraudulent activities. System access controls dictate which users have access to what information. Access controls should be personalized based on the number of employees in the accounting department and their roles. For example, a new accounts receivable clerk may only have access to post to a subsidiary ledger. On the other hand, the accounting manager may have the access to review the clerk's entries and post them to the general ledger.
Virtually every company will have assets, liabilities and stockholder's equity. However, the specific accounts and subaccounts depend on the business industry and size of the company. For example, most accounting systems will have a payables subaccount for salaries and wages payable. However, a company that employs sales representatives may also use a commissions payable subaccount. An overly complex chart of accounts can be inefficient for daily use. At the same time the accounts must be specific enough to be useful for financial analysis.
The design of the accounting system changes depending on what basis of accounting is used. In the U.S., small businesses may have the choice to use a cash or accrual basis for accounting. The accrual method is slightly more complex and time consuming for the accountant. But many small businesses choose to use an accrual basis to make their financial statements comparable with larger companies. The accrual method requires the accountant to make more adjusting journal entries every month. A company using cash basis won't be making as many, if any, adjusting journal entries.