ACCOUNTING SYSTEM

An accounting system is a management information
system that is responsible for the collection and
processing of data useful to decision-makers in planning
and controlling the activities of a business organization.
The data processing cycle of an accounting
system encompasses the total structure of five activities
associated with tracking financial information:

collection or recording of data; classification of data;
processing (including calculating and summarizing)
of data; maintenance or storage of results; and reporting
of results. The primary—but not sole—means by
which these final results are disseminated to both internal
and external users (such as creditors and investors)
is the financial statement.
The elements of accounting are the building
blocks from which financial statements are constructed.
According to the Financial Accounting Standards
Board (FASB), the primary financial elements
that are directly related to measuring performance and
the financial position of a business enterprise are as
follows:
● Assets—probable future economic benefits
obtained or controlled by a particular entity
as a result of past transactions or events.
● Comprehensive Income—the change in equity
(net assets) of an entity during a given
period as a result of transactions and other
events and circumstances from nonowner
sources. Comprehensive income includes all
changes in equity during a period except
those resulting from investments by owners
and distributions to owners.
● Distributions to Owners—decreases in equity
(net assets) of a particular enterprise as
a result of transferring assets, rendering services,
or incurring liabilities to owners.
● Equity—the residual interest in the assets of
an entity that remain after deducting liabilities.
In a business entity, equity is the ownership
interest.
● Expenses—events that expend assets or incur
liabilities during a period from delivering
or providing goods or services and carrying
out other activities that constitute the
entity’s ongoing major or central operation.
● Gains—increases in equity (net assets) from
peripheral or incidental transactions. Gains
also come from other transactions, events,
and circumstances affecting the entity during
a period except those that result from
revenues or investments by owners. Investments
by owners are increases in net assets
resulting from transfers of valuables from
other entities to obtain or increase ownership
interests (or equity) in it.
● Liabilities—probable future sacrifices of
economic benefits arising from present obligations
to transfer assets or provide services
to other entities in the future as a result of
past transactions or events.
● Losses—decreases in equity (net assets)
from peripheral or incidental transactions of
an entity and from all other transactions,
events, and circumstances affecting the entity
during a period. Losses do not include
equity drops that result from expenses or
distributions to owners.
● Revenues—inflows or other enhancements
of assets, settlements of liabilities, or a combination
of both during a period from delivering
or producing goods, rendering services,
or conducting other activities that
constitute the entity’s ongoing major or central
operations.