Accounting System


Accounting is the systematic recording, measurement, and communication of financial transaction information. Accounting also entails summarizing, evaluating, and reporting these transactions to regulators, oversight authorities, and tax collecting authorities. For a long time, an organization cannot recall all of its transactions.

As a result, keeping a written record becomes required. Accounting developed as a result of all of the day-to-day company transactions.

Accounting is one of the most important aspects of practically every company. It might be handled by a bookkeeper or accountant in a small business or by big financial departments with hundreds of staff in bigger corporations. The reports supplied by various accounting streams are quite useful in assisting management in making well-informed company choices. Entrepreneurs must frequently learn and perform several business activities while starting a firm. Accounting is a crucial business function to have when beginning a small firm. Accounting and bookkeeping may not seem as critical to a startup as, say, recruiting a technical cofounder or determining your capital runway. But it doesn't negate the fact that it's essential to your company's survival. While it's easy to get caught up in the glamorous chore of building your website or picking the right business name, you won't be able to endure without a good knowledge of statistics.

Importance of Accounting

Too frequently, entrepreneurs fail to incorporate an accounting process into their operations until earnings begin to dwindle or cash begins to disappear. Establishing an accounting structure for your startup is important to its long-term success.

An accounting system helps your company to know where it stands and how it is performing financially at a glance. You can identify where you're spending money and make adjustments if you have an accounting system in place.

Accounting is also significant since it helps your company to plan for the future by allowing them to look forward and comprehend their past activity and present position. They can track income and spending patterns and make changes based on previous results. They are adaptable and can pivot to future success.

Accounting software:

1: Assists in the evaluation of corporate performance:
As previously said, accounting records serve as a statement of financial condition, reflecting the results of activities. It also allows for variance analysis by comparing prior period accounting data with current period accounting data as well as planned figures.

2. Aids in the management and monitoring of cash flow: An enterprise's working capital and cash requirements may be properly taken into account using an accounting system.

3. Assists businesses in complying with the law:
Appropriate company accounting guarantees the timely recording of tax and duty liabilities that must be submitted within the specified timeframe. This covers things like trade taxes, payroll taxes, and income taxes, among other things. Liabilities that are paid on time help businesses stay in compliance with the law.

4. Assists in the preparation of a budget and future forecasts: Accounting data aids in the preparation of a budget and future forecasts for an organization. Business trends are forecasted using historical data from the accounting system.

5. Assists with the filing of financial statements with regulators, stock exchanges, and tax
Businesses must file financial statements with the Registrar/ Stock Exchange. Exchanges (if any are listed), and so forth. Financial statements and other financial information are necessary for both indirect and direct tax filing.

6. Management Information: The accounting system generates a variety of qualitative and quantitative customizable reports that are needed in day-to-day corporate operations.

Key Aspects of Accounting

An organization's accounts are designed to illustrate its financial situation, allow for performance assessment, and aid in the assessment and analysis of many elements such as profitability, liquidity, solvency, and growth, among others. They also make it easier to compare two times or organizations and to make good selections. None of these activities, however, may be utilized if accounting data does not accurately reflect the organization's current situation and performance.

To guarantee that this does not happen, there are five crucial areas to pay attention to.

1. Reliability:
Accounting data that isn't correct isn't very useful. If there are major errors, they are unhelpful and may encourage users to create wrong judgments or make bad judgments. As a result, every effort should be taken to eliminate the possibility of inaccuracy.

Here are a few easy methods to accomplish it:-

a. Implementing effective cross-checking procedures:
The likelihood of mistakes, omissions, or duplications in accounting transactions recording is high, especially if the procedure requires more human labour. Having said that, computer programs and software can occasionally fail. As a result, there should be a mechanism for at least once cross-checking each transaction.

b. Interim audit provision: At the very least, an external or internal auditor should check the recorded transactions regularly, if not daily.

c. Accounting department employees' knowledge: It's critical to ensure that accounting department employees have the necessary credentials, expertise, and work experience to do the tasks they've been given.

d. Task and responsibility allocation:- Responsibilities and tasks should be assigned to executives based on their competencies and areas of expertise.- Roles and responsibilities should be clearly and properly defined for each executive so that nothing is overlooked and duplication and wasteful activities are avoided.

2. Punctuality:

Accounting work must be completed on time. The use of accounting statements and information will be hampered by tendencies to keep records for longer than is appropriate. Furthermore, because most of it is dependent on accounting, it can have major consequences such as delays in statutory compliance.

The following are some of the indicators of timeliness: a. Time is taken to close the previous month's accounting:-

Due to several intrinsic restrictions, such as the lack of all papers and information, it is typically not feasible to complete the accounting for the month by the end of that month. They should not, however, be left pending past the 5th day of the next month, unless there are special circumstances.

a: Timely reconciliations: An accountant must reconcile various balances with statements or records accessible or collected internally from various parties. Bank and loan reconciliations, receivables and payables, stock, and payroll are some of the most prevalent forms of reconciliations.

b: Time it takes for input documents to reach the Accounting Department: The Accounting Department relies on input documents from other departments. Complete and timely accounting is impossible if other departments fail to send key papers to the accounts department or fail to produce them on time.

3. Documentation:
For objectives such as verification or confirmation, it is sometimes necessary to refer to records from past times. Without supporting and sufficient papers, the validity of a recorded transaction cannot be confirmed. Moreover, many regulations require the preservation of supporting material for financial statements for specific periods. Systematic filing method, correct and secure preservation of all documents, suitable attachments with vouchers, invoices, and invoices, signatures of management and third parties, when necessary, are some of the procedures to ensure comprehensive and appropriate documentation.

Furthermore, electronic data should be backed up regularly to ensure safe and secure storage while also reducing the risk of data loss in the case of a computer breakdown. Files and folders should also be kept in sealed, fire-resistant cabinets.

4. Steps to take:
Every section of the company requires well-defined, documented, and proper processes. There is no exception in the accounting department. It's also necessary to keep an eye on these processes to make sure they're being followed. When creating procedures, the notion of dual responsibility should be considered.

5. Reporting:
Accounting information cannot help users make decisions or be of any value unless it is arranged and presented in a way that makes it helpful. As a result, it is critical to generate such reports from accounting data. The frequency, topic, and forms of reporting should be determined according to management's demands. Reports should be written in such a way that they allow for comparison, emphasize critical points, and show the need for remedial action. It is recommended that you use a budgeting strategy and track your performance properly.

Crucial Areas of Accounting


Accounts receivable is a claim for payment held by a company against its customers or clients for goods supplied and/or services rendered in fulfillment of the customer's/order, client's or for some unresolved transactions or other monetary obligations owed to the company by its customers or clients.

Being aware of the importance of accounts receivable and making collections a top focus is a solid strategy to increase cash flow. As a result, keeping track of receivables is critical, and receivables can only be monitored successfully when accounting methods are suitable and structured to be thorough and precise. Organizations engage in a variety of activities and deal with a variety of clientele. Needless to say, their approaches to recognizing revenue, documenting receivables, and tracking them differ significantly. Every entity must create processes that are appropriate for it. While many business process cycles are finished in a very short length of time for many businesses, it is common practice for project durations to be extended for significantly longer periods of time for others.


• Keeping track of received Purchase Orders from clients.
• Billing/invoicing: Because time gaps may negatively affect cash flow, this is a vital phase in the revenue recognition and receivable management process.
• Invoice Recording: After the invoice has been issued, the following step is to enter it into the accounting system.
• Invoice tracking and analysis: The likelihood of collecting overdue debts decreases as they become older. This is why an organization should keep track of its bills and conduct an ageing study. Accounting software can generate an ageing schedule automatically.
• Collections Follow-up: Delays in the release of payments by clients can hurt cash flow, requiring the business to dip into its cash reserves or raise the amount of external funding required to support operations. As a result, it is critical to make every effort to reduce the collecting duration by ensuring proper follow-up.
• Writing off Bad Debts: An organization may not be able to recover all of its outstanding receivables amounts. Accounts receivable that are no longer collectable and so worthless are referred to as "bad debts." The Finance Department is in charge of reviewing receivables regularly and determining their collectability.
• Confirmation and Reconciliation of Balances: To guarantee that the quantities reported in their books of accounts and those in the client's books of accounts match, they use confirmation and reconciliation of balances practices.


The administration and processing of money owing by the firm to its suppliers or lenders is the responsibility of payables management. Trade payables, costs payables, and payables for the purchase of products other than the items exchanged are all examples of payables. This area's duties will entail properly documenting all payables or borrowings, managing bills, and verifying and reconciling balances with supplier partners, among other things. The accounts payable process necessitates a thorough examination of a great deal of information to verify that only genuine and accurate amounts are recorded into the accounting system. The cash situation, credit rating, and relationships with suppliers will all be affected by the efficiency and efficacy of the accounts payable process.


Invoice Verification: Invoices must be validated against purchase orders, receiving reports, related agreements or contracts, and so on.
2. • Account Payables Data Entry: Before a vendor's invoice is put into the accounting system and scheduled for payment, it must represent the correct unit costs, computations, totals, terms, and so on.
3. Payment Distribution on Time: A record of payments that are due should be preserved, and their disbursement should be scheduled properly. To have excellent relationships with vendors, timely payments are required.
4. Advance payment follow-up: The Finance Department is responsible for keeping track of advance payments and coordinating with the Procurement Department on follow-up with suppliers for the provision of products or services.
5. Balance Confirmations and Reconciliations Practices of balance confirmation and creditor reconciliation are followed to guarantee that accounts reflect proper balances and avoid future problems.
6. Accounts Payable Analysis: This includes ageing analysis, payment ratios, and typical payment periods, among other things.
7. Derecognition/Writing Off of Payables: In the event of a liability cancellation, payables must be wiped off.


Treasury management is the process of managing a company's liquid assets. Treasury management's main job is to keep track of and set limits on cash and cash equivalents, as well as working capital borrowings, so that a company can meet its financial commitments on time. When a company has enough capital to fund its business plans and weather economic downturns, it can comfortably concentrate on its core operations.


1. Payment Distribution: An essential role of the Finance Department is the timely disbursement of payments to parties/stakeholders such as suppliers, service providers, and workers. This might include things like writing checks, calling electronic transfers, and so on.
2. Cash Withdrawals and Deposits: Cash must be taken from bank accounts on a daily basis in order to meet the business's demands. Bank accounts can be used to deposit excess or idle cash.
3. Issuance of Payment/Remittance Advice: When a payment is made, a Payment/Remittance Advice is delivered to the Vendor along with the appropriate cheque/demand draft. The goal is to notify the vendor that their invoice has been paid.
4. Cheque Book Register Upkeep: A cheque book register can be kept manually or electronically.
5. Payments and Receipts Data Entry: Cash receipts and payments not only show cash inflows and outflows, but they also fuel the accounting system.
6. Bank Reconciliation: Bank reconciliation is a procedure that explains the discrepancy between the bank balance reported on an organization's bank statement, as supplied by the bank, and the equivalent amount recorded in the organization's accounting records at a given moment.
7. Petty Cash Handling and Reconciliation: Petty cash is a small amount of discretionary money in the form of cash that is used for expenses when it is not practical to make a check payout.
8. Maintaining Bank Relations and Compliances: It is also the Finance Department's responsibility to provide all documentation and maintain compliance with all rules as requested by the organization's bankers.
9. Cash tracking and analysis: The daily cash situation, which includes working capital borrowings, cash flow projections and actuals, among other things, must be examined.


Instead of services performed by employees, payroll encompasses anything or everything that belongs to them in a company. It also refers to the total of an employee's salary records, including earnings, bonuses, and deductions.


1: Records of Attendance: Payroll processing entails referencing employee attendance data and comparing them to the organization's leave policy. As a result, there must be openness and adequate record-keeping.
2. Payroll preparation includes calculating due fixed and variable pay, as well as determining the application of deductions and withholdings.
3. Salaries are to be disbursed to employees via appropriate modalities on predetermined dates.
4. Salary Slips Issuance of Salary Slips: A Salary Slip is a document that shows the employee's earnings, including basic pay, allowances, bonuses, and how much tax or insurance has been deducted, as well as how much tax or insurance has been deducted.
5. Payroll data entry entails entering payroll data into the accounting system.
6. Ensure that payroll tax returns are deposited and filed on time: The payroll management/accounting process includes ensuring compliance with payroll-related regulations and tax legislation.
7. Processing of Employee Concerns: Employees frequently have questions or complaints about payroll computations. They must be dealt with appropriately.


The entire number of items and/or materials in the stores at any particular moment is referred to as inventory.

To guarantee that replacement products are purchased quickly, inventory is accurately priced, and parts are accessible for sale or manufacturing when needed, inventory records must be accurate.


1:Inventory Integrated Accounting: The goal of data input is to keep a detailed record of all inventory transactions. It is recommended that the accounts be linked to the inventory via accounting software, with all stock movements being automatically documented in stock registers. The stock/inventory balance statistics are taken from the inventory records, and the Balance Sheet provides a drill down to the Stock registers.
2. Stock Register Maintenance: Stock records should also be kept elsewhere (other than the accounting software). This can be done by hand with registers or by computer with spreadsheets. This helps to reduce the chances of mistakes and omissions in records.
3. Stock Valuation: Different inventory valuation methods, such as F-I-F-O, L-l-F-O, Average Cost, and others, are used to compute the cost of goods sold and the cost of ending inventory.
4. Physical Verification: Physical inventory verification is an integral aspect of a company's internal asset controls. Its purpose is to ensure the correctness of inventory records and to assign the right carrying value to such assets so that they are appropriately represented in the Company's financial records.
5. Stock Reconciliation In circumstances where there are discrepancies between inventories recorded in books of accounts and amounts determined via physical verification, these balances must be reconciled.
6. Non-moving/slow-moving stock items should be reported: Non-moving stocks are things that have not been issued for consumption in a lengthy time, such as a year. Stocks that have moved slowly have moved a little but not a lot. These artefacts require special care since their value may have depreciated.


The physical, non-current assets that an organization uses in its business operations are known as fixed assets. Fixed assets include land, buildings, equipment, machinery, vehicles, leasehold improvements, and other similar goods that are not consumed or sold in the usual course of business.


1. Invoice Verification: Invoices mustbe validated against matching essential documentation, just as they must be for all purchases, and with greater care because capital expenditures are significantly more significant than normal purchases for businesses.
2. Fixed Asset Accounting: This entails entering the acquisition, depreciation, enhancements, and disposal of fixed assets into the accounting system.
3. Fixed Asset Register: In addition to the data provided into the accounting system, a separate register for Fixed Assets must be kept.
4. Physical Verification and Reconciliation: Physical verification of fixed assets entails physically counting and inspecting all fixed assets to verify real assets in hand and value, as well as ensuring the correctness of relevant financial records.

In the event of a discrepancy, reconciliation would be required.


"Of or relating to statutes," or what we often refer to as rules or regulations, is what statutory implies. The term "compliance" simply refers to following or adhering to a set of rules. As a result, statutory compliance refers to an organization's adherence to the law on a certain topic.

We are primarily concerned with tax management and financial audit-related tasks from the perspective of financial accounting.


1. Taking care of tax reporting and compliance.
2. Overseeing the timely preparation of proper tax filings to reduce an organization's tax responsibilities.
3. Gathering tax-related data and being familiar with all applicable federal, state, and municipal tax requirements.
4. Tax accounting management and reporting to upper management
5. Examining the general ledger and related financial records to ensure that proper tax accounting is carried out.
6. Coordinating, coordinating, and resolving any enquiries and audits by taxing authorities.
7. Maintain tax provision schedules by preparing and updating them.
8. Staying up to speed on new tax legislation and changes in tax rates.
9. Ensuring that mistakes that resulted in improper tax filings are corrected. Negotiating with tax officials on tax payment concerns is number ten.
11. Organizing the work of tax preparers who are outsourced
12. Liaison with tax authorities to settle any questions or concerns regarding upcoming tax returns.
13. Liaison with external experts to ensure that all tax filings appropriately represent all tax transactions.
14 Streamlining the process of conducting statutory and tax audits A preliminary need for guaranteeing statutory compliance is to identify all tax laws that relate to the firm.

ACCOUNTING FOR TAXES: Accounting should assist the correct discharge of statutory responsibilities, i.e., tax amounts payable should always be clearly and properly documented in the books of accounts. This is necessary to ensure that payments are made on schedule and accurately. Similarly, tax liabilities that are not immediately generated as a result of day-to-day operations and must be computed separately (such as income tax) should be accounted for in the books. Documentation is crucial in many areas, but the importance of adequate documentation cannot be overstated when it comes to regulatory compliance.


Book closure is defined as the completion of a sequence of closing operations to guarantee that all material transactions have been accounted for throughout the accounting period.


1. Complete Data Entry: This entails the complete recording of all invoices for the relevant financial year, the recording of incomes/expenses that have accrued but are not yet receivable/payable, the updating of accounts as needed, and the review and correction of any omissions or errors.
2. Suspense Account Clearance: A suspense account is a temporary account used to hold questionable revenues, expenditures, or inconsistencies pending analysis and final categorization. The last evaluation of the transactions outstanding in suspense accounts is required at book close. It is required that they be cleared before accounts may be closed.
3. Reconciliations: Annual closing balances, such as bank, loan, stock, payables and receivables, tax and tax credit balances, and so on, must be reconciled with related records.
4. Depreciation Accounting: Depreciation is the systematic distribution of the cost of a fixed asset over its useful life by transferring a portion of the asset's cost from the balance sheet to the income statement each year of the asset's life.
5. Provisions and Accruals: A review should be conducted to establish whether there is any additional future obligation that can be assessed and about which significant confidence exists. Accrued revenue, on the other hand, may need to be booked. Annual Closing will also include the following:
6. Making Annual Audits Easier: An audit is an impartial, independent examination of an organization's financial statements and related disclosures.
7. Annual Tax Returns and Financial Statements: Financial statements are deemed to have reached finality after being audited. The ultimate tax liability must be established, the tax must be paid (if any is due), and an income tax return must be submitted based on these data. Annual financial statements must also be filed with the appropriate corporate entity.
8. MIS Reporting: An MIS, or Management Information System, is a system utilized by businesses all over the world to translate data into actionable information for better decision-making. It aids management in making more informed decisions and carefully organizing corporate processes. The structure and content of the MIS Report must be determined by the management's needs.

Setting Up the Accounting

The idea is to build an accounting infrastructure that will support your company's finances and aid in the development of your financial plan as you expand.

1. Open a bank account for your business.
This is the most fundamental. A corporate banking account with an online component will assist you in eliminating needless manual operations and improving cash flow management. It should provide automatic client invoicing and assist you in avoiding cash shortages by bringing in receivables and deferring payables. It should also work in tandem with the accounting software you've chosen.
2. Accounting Software Selection
You can get away with a simple, low-cost accounting solution at this time. A simple version of Tally (India's most common accounting software), Busy, or Quickbooks would do. They are low-cost and simple to use. While high-end solutions are available and perform well, they are overkill in terms of effort and money at this time.
3. Establishing a Chart of Accounts
The basic truth is that whichever accounting system you employ, your chart of accounts (COA) will be the foundation. Your COA is a customized accounting system for your business. It should be in line with your financial plan and aid in the tracking and reporting of income and spending.
4. Defining Your Accounting and Finance Procedures
Accounting is more than merely keeping books or fulfilling a legal obligation. Effectively managing the accounts function necessitates well-defined procedures and adequate controls, and it is critical to the business's operation. You'll have to make a lot of judgments and establish policies to set up your F&A operation. This paper outlines all of the key aspects for each sub-function that demand your attention and consideration.
5. Outsourcing Is A Smart Choice
Another crucial point to remember is that setting up your accounting department is not a do-it-yourself activity. Entrepreneurs aren't certified public accountants (or at least most of them are not). Even if you wish to bring it in-house later after the procedures are optimized, outsourcing your accounting in the beginning by selecting the correct partner might be a good move. There are a lot of fantastic methods to save money while bootstrapping your firm, but saving expenses by sacrificing your finance and accounting is not one of them.

Accounting Myths

Myth: Accounting is a math-based profession.
Reality: Yes, you utilize arithmetic, but you also have to utilize those figures to explain what they represent, how they may be used, and what to expect in the future to a business owner, shareholder, banker, or management. It's not algebra, but analytics.

Myth: Manual accounting is also acceptable.
Reality: You don't need to spend so much time and effort on something that can be done considerably more quickly and properly at a considerably lower cost these days (if you make an optimal choice).

Myth: The accounting department has little to do with real business.
Reality: Accounting systems are frequently required to give inputs, but just for basic business decisions. Furthermore, a firm cannot run at all without operations such as accounts receivable, accounts payable, payroll, and so on.

Myth: Accounting isn't necessary for small enterprises, or it can wait till it becomes too much for me to handle on my own.
Reality: Every company needs an accountant to keep an eye on them. Accounting errors or a lack of accounting can lead to a corporate disaster. Furthermore, appropriate accounting is required to properly record your income taxes, which is critical.

Myth: Accounting is going to cost me a lot of money.
Reality: You do not need to choose a high-end firm. You must locate the appropriate organization or individual for you, and many businesses will supply you with high-quality services at a fair cost. You might be able to discover one with the aid of references.

Myth: Accounting reports aren't necessary for me to understand how my firm is going.
Reality: The human brain isn't a data analytics program. Actual data is required to guarantee that your pricing is adequate, to detect big costs, including wasteful ones, to assist with time allocation, to show trouble regions, and so on.

Myth: Good accounting software ensures that everything is automated and that nothing goes wrong, regardless of who is in charge.
Reality: No matter what software you choose, you won't be able to substitute an in-depth grasp of accounting principles and controls with it. You should have a good understanding of how your company's finances function.

Myth: Taxes are simple for an accountant to handle.
Reality: Not all of the time. Quite often, no. Tax compliance would need an in-depth understanding of tax rules and acquaintance with the tax department's systems, which no bookkeeper can provide.

Do’s and Don’ts

1. You should have a basic grasp of bookkeeping, even if you employ a professional to do your books. You should be able to track your monthly revenue and spending at the very least to keep costs down.
2. Give internal controls and protections the attention they need.
3. Wherever feasible, establish review processes – one individual seldom gets everything right all of the time.
4. Even if it's a little firm, have clear and well-defined procedures.
5. Reconciliations should be done frequently; early notice of a discrepancy saves a lot of time and effort.
6. Create budgets and compare them to real facts to see where your money is going.
7. Wherever feasible, ask your software service provider about possible customizations to make the product more fit for your organization.
8. Use caution while picking the business or individual who will be in charge of the accounts.
9. Always strive to preserve "source materials" to back up what you've written in your books.

1. Undervalue accounting and bookkeeping by chewing out.
2. Merge personal and professional assets and costs.
3. Allow anybody to do anything they want with the accounts without oversight, or assign all or many tasks to a single individual.
4. Put too much emphasis on verbal communication and not enough on documentation.
5. Ignore professional counsel when it comes to crucial financial concerns.
6. Don't start working on your accounts until tax season.
7. Consider tax compliance to be discretionary or insignificant. Defer building a relationship with a lender until you require funding.