you are being asked to prepare a 3-5 page document describing an accounting syst

Question

you are being asked to prepare a 3-5 page document describing an accounting system that is appropriate for a specific type of organization (a sector such as banking, hotel, retail, advertising, restaurant, manufacturing, etc.). The information in your paper will be based on research you conduct by reading text books, papers and websites and talking with a person that uses such a system in your chosen sector. You should primarily discuss the features needed for the sector chosen. But, you should also discuss any other important issues that you find while conducting your research.

Note1: I have chosen the manufacturing sector to research and discuss.

Note2: The accounting systems paper can take one of two approaches. For whichever industry you chose either find a software accounting system or examine how a company in the industry does their accounting.Basically you should discuss all of the functions that the accounting supports (for instance hotel would include reservations, room rent, room service, additional fees-laundry service etc, room charges from lounge and restaurant, wages, cleaning schedule for rooms etc). It should also be able to prepare reports (specify which reports).

Generally it is easier to find a software for the industry you've chosen because you can easily see all of the functions it performs. However you need to be careful about similarity since the report goes through TurnItIn.

Explanation / Answer

Accounting system is aimed at collection and storage of financial data for the purpose of processing and analysing with a view to achieve operational efficiency in the business being carried on.Different software packages give different advantages over the other.Companies choose the package according to the nature of the business,and the transactions and its volume.

Manufacturing companies create or produce products . Different manuafacturing companies have different processes involved and hence have different accounting system-requirements.

There are raw material purchases, labour and other manufacturing overhead expenses to convert them into the end-product. Operating expenses like office salaries, rent ,insurance,etc. need to be collected to know the cost of goods manufactured .

Cost of goods sold is arrived at after adding expenses on sales promotion like advertising.sales staff salaries and the like. Ending inventory needs to be valued at the cost of goods manufactured ,and carried to the next year as opening inventory.

Difference between sales revenue and cost of goods sold is the gross profit and net profit is arrived at , by further deducting the operating expenses ,from the gross profit .Net income after at tax at the appropriate rate is the income for the owners.

In general manufacturing companies experience almost all the above mentioned items of income/expenses - in their unique way- hence require unique accounting system to suit their requirements.

First ,is the costing method employed-

Job order costing where all costs are collected job-wise

Process costing where costs are collected processes-wise- ie. department-wise -that is running the production line.

Variable costing - costs vary with units produced

Absorption costing- where products are valued at full costs- variable & fixed

Activity based costing- where costs are absorbed by different activities involved in the manufacture.

The accounting system employed depends on the method of costing the company chooses to adopt.

Secondly, all financial transactions are recorded like-

Items of expenses/revenues - purchases,sales. interest payments. rent, insurance, electricity,etc.

Items of assets and liabilities including inventory and allowances or provisions

Cash and bank balance

These informations collected not only for tax , but also to analyse and improve the operational efficiency of the business- by establishing budgets for the future- reviewing performance- comparing & analysing variances and redefining the budget to reflect reality. On the way, bottle-necks to the business are identified and costs are cut down to the optimal level.

Thus the establishment of an accounting system for a manufacturing-sector company- has to keep in view -the specific requirements of the processes involved - to generate a meaningful information on analysis.

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