A proper accounting system helps business owners learn, understand, and properly record their business transactions. Times without number, business owners complain of too many things including customers debts, thefts by employees, understating available stock, connivance of employees with customers to defraud business and excessive levies by government, which leaves them with no profit. All of these are preventable with proper accounting systems.
Different Forms of Accounting Systems
1. Paper Recording System
This is a system of accounting that involves keeping the records of business transactions using different note books such as cash, debtors, creditors, assets books and general ledger. These books are prepared by an accountant who ensures that the accounting system is in line with the business. This means that the books of a fashion enterprise will be different from that of an agri-business. The limitation of the paper recording system is that it consumes time, especially when you have large volume of transactions.
2. Offline Recording System
An offline recording system entails using an accounting software downloaded on your laptop or desktop. This is free but you can only access your accounting records only when you’re with the laptop/desktop on which it’s downloaded. Some of the accounting software are Accounteer, Manager, Sage, QuickBooks, Zoho Books etc. Also, offline recording system can be done using Microsoft Excel Spreadsheet. The limitation of offline recording system is that you can only access your records on the gadget (s) you downloaded the software.
3. Online Recording System
This is the best recording system. Once it is installed, you can access your accounting records anywhere as long as you have an internet connection. However, it is not free. You can opt for the monthly or yearly subscription fee. It also comes with unlimited storage space. Perhaps you don’t know what software to use, Accounteer is a leading Nigerian accounting software that is easy to use and affordable.
Importance of Accounting Systems
In the business world, every entrepreneur regardless of the nature of their business should have some knowledge of an accounting systems. Below are their importance:
1. Proof of Receipts and Payments
Proper accounting system helps business owners know when a debt is due for collection or payment. This forces owners not to rely on their memory alone. That means they only pay or collect what is due, no more or less.
2. Financial Position
Most times, business owners believe they’re doing well in business because of sales or cash at hand. But, the financial position of every business is determined over a period of time, after all expenses have been deducted and profit calculated. Accounting systems handle these processes seamlessly, thereby reflecting the financial position of a business at a glance.
3. The Ease of Filing Taxes
Proper accounting systems will help you collect Value Added Tax (VAT) from your customers and pay your Company Income Tax without stress as at when due.
4. Access to Finances
With a proper accounting system, you communicate the state of your business confidently to stakeholders, employees and potential investors because the information can be verified. This opens up the window for grants, loans and investors.
5. A Means to Control Business
You cannot be in control of your business if you don’t know what is happening. Understanding your numbers is being in control of your business. With bad accounting systems or none, a company is flying blind. The New York Times rates poor accounting as the 4th reason, out of ten, why small businesses fail.
Other key points to note:
- According to Federal Inland Revenue Service (FIRS), failure to keep proper records and accounts, is an offence punishable under the law.
- Anybody can learn proper accounting system, regardless of educational background.
- In general, it is written; “be diligent to know the condition of your flocks…” This is not a piece of advice but an instruction. Proper accounting system is a “must learn” because your flock is your business.
Finally, modern society would be helpless and achieve less without proper accounting systems. No business can survive for a long time without them. Just knowing where your business stands financially is of great importance.