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WOLKITE UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF MANAGEMENT GROUP

ASSIGMENT ON FUNDAMENTAL OF ACCOUNTING ONE (I) TITTLE: - ACCOUNTING SYSTEM SECTION A
GROUP MEMBER NAMEID NUMBER 1.Yosef Mechal........................................................127/13 2.Esrael
Tena...........................................................045/13 3.Aron
Gezahegn......................................................017/13 4.Yeabsra
Mechal....................................................118/13 5.Dagmawit
Tefera...................................................029/13 6.Firehiwot
ashenafi...................................................050/13 7.Biruk
Talegeta ......................................................027/13 Submitted to Mr: - Submitted date18/06/2015 E.C

Table of Contents 1, Accounting Systems.............................................................................................1 1.1,

Manual and computerized accounting systems and Enterprise Resource
Planning....................................................................................................................1 1.1.1, Definition of
Manual Accounting.................................................................1 1.1.2, Definition of Computerized
Accounting......................................................2 1.1.3, Definition of enterprise resource planning
(ERP)........................................4 1.2, Subsidiary ledgers and controlling
accounts..................................................4 1.3.1Types of special
journals..............................................................................6 1.3.1, Sales
journals.............................................................................................7 1.3.2, Cash receipts
journal.................................................................................7 1.3.3, Purchases
journal.......................................................................................7 1.3.4, Cash payments
journal...............................................................................7
REFERENCE...........................................................................................................8
1 |P a g e1, Accounting Systems An accounting system is the system used to manage the income,
expenses, and other financial activities of a business. An accounting system allows a business to keep
track of all types of financial transactions, including purchases (expenses), sales (invoices and income),
liabilities (funding, accounts payable), etc. and is capable of generating comprehensive statistical reports
that provide management or interested parties with a clear set of data to aid in the decision-making
process. Today, the system used by a company is generally automated and computer-based, using
specialized software and/or cloud-based services. However, historically, accounting systems were a
complex series of manual calculations and balances. What an accounting system manages Expenses: The
amount of cash that flows out of the company in exchange for goods or services from another person or
company are the expenses. In older accounting software or with a manual system such as Excel, it is
necessary to manually enter, balance, and categories each expense. An automatic accounting system
allows quick entry, categorization and automatic balance of expenses. Invoices: Creating a professional
looking invoice is an important part of developing a positive brand image and building confidence with
customers. Today, some accounting systems such as Debi Toor allow for instant invoice creation with
the ability to customize and automatically keep track of paid invoices and income. 1.1, Manual and
computerized accounting systems and Enterprise Resource Planning 1.1.1, Definition of Manual
Accounting Manual Accounting, as the name signifies, is the paper-based accounting system, in which
journal and ledger registers, vouchers, account books are used to store, classify and analyze financial

2 |P a g etransactions of an organization. It is often used by small businessmen, such as sole proprietors,

shopkeepers, etc. to maintain the record of the business transactions, due to lower cost. One of the
advantages of the manual accounting system is its easy accessibility. It is also characterized by
confidentiality, which makes the sensitive information hacking free. Nevertheless, manual accounts can
only be prepared correctly if the accountant possesses good knowledge of bookkeeping and accounting.
Moreover, human error, such as incorrect recording of the transaction, the omission of the transaction,
figure transposition and so forth, is likely to occur while the preparation of manual accounts which
cannot be ignored. 1.1.2, Definition of Computerized Accounting Computerized Accounting can be
described as the accounting system that uses the computer system and pre-packaged, customized or
tailored accounting software, to keep a record of financial transactions and generate financial
statements, for analysis. Computerized Accounting system relies on the concept of a database. The
accounting database is systematically maintained, with active interface wherein accounting application
programs and reporting system are used. The two primary essentials are: • Accounting framework: The
framework comprises of principles and grouping structure for maintaining records. • Operating
procedure: There is a proper procedure for operating the system so as to store and process the data. •
Further, it requires front-end interface, back-end database, database processing and reporting system to
store data in a database-oriented application. The merits of computerized accounting rely on its speed,
accuracy, reliability, legibility, up-to-date information and reports etc.

3 |P a g eKey Differences Between Manual and Computerized Accounting The difference between
manual and computerized accounting is explained below in points: 1.Manual Accountingrefers to the
accounting method in which physical registers for journal and ledger, vouchers and account books are
used to keep a record of the financial transactions. On the other hand,computerized accountingimplies
the method of accounting, which uses an accounting software or package, to record the monetary
transactions, which happen to an organization. 2.In manual accounting, recording of the transaction can
be done through the book of original entry, i.e. journal day book. Conversely, incomputerized
accounting,the transactions are recorded in the form of data, in the customised database. 3.In manual
accounting, all the calculations, i.e. addition, subtraction, etc. with respect to the transactions are
performed manually. In contrast, incomputerized accounting,there is no need to perform calculations,
as the calculations are performed by the computer automatically. 4.In manual accounting,a person
remains involved all the time, with the accounts, to enter and update transactions, which is tedious and
time-consuming too. As against, in computerized accounting,once the transaction is entered, it is
automatically updated in all the accounts to which it relates and thus, the process is comparatively
faster. 5.In manual accounting method,if there occurs an error while entering and posting the
transaction in the books of accounts, then adjustment entries can be passed, for getting accurate
results. Moreover, adjustment entries are also made to comply with the matching principle, i.e. the
expenses of the accounting period should match the respective revenues. On the other hand,
incomputerized accounting,to comply with the matching principles journal and vouchers are prepared,
but adjustments entries are not passed for rectification of error unless the error is an error of principle.
6.One of the merits ofcomputerized accountingwhich manual accounting lacks is that in manual
accounting there is no way to back up all the entries and financial statements, but in computerized
accounting,the accounting records can be saved and backed up.

4 |P a g e7.In manual accounting,the trial balance is prepared only when it is required, whereas, in
computerized accounting,instant trial balance is provided on a daily basis. 8.In a manual accounting
system,the financial statement is prepared at the end of the period, i.e. financial year. On the contrary,
the financial statement is provided at the click of a button, in the computerized accounting system.
1.1.3, Definition of enterprise resource planning (ERP) Enterprise resource planning (ERP) refers to a
type of software that organizations use to manage day-to-day business activities such as accounting,
procurement, project management, risk management and compliance, and supply chain operations. A
complete ERP suite also includes enterprise performance management, software that helps plan,
budget, predict, and report on an organization's financial results. ERP systems tie together a multitude
of business processes and enable the flow of data between them. By collecting an organization's shared
transactional data from multiple sources, ERP systems eliminate data duplication and provide data
integrity with a single source of truth. Today, ERP systems are critical for managing thousands of
businesses of all sizes and in all industries. To these companies, ERP is as indispensable as the electricity
that keeps the lights on. 1.2, Subsidiary ledgers and controlling accounts A subsidiary ledgeris a group of
similar accounts whose combined balances equal the balance in a specific general ledger account. The
general ledger account that summarizes a subsidiary ledger's account balances is called a control
account or master account. For example, an accounts receivable subsidiary ledger (customers'
subsidiary ledger) includes a separate account for each customer who makes credit purchases. The
combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in
the general ledger. Posting a debit or credit to a subsidiary ledger account and also to a general ledger
control account does not violate the rule that total debit and credit entries must balance because
subsidiary ledger accounts are not part of the general ledger; they are supplemental accounts that
provide the detail to support the balance in a control account.

5 |P a g eThe accounts receivable subsidiary ledger is essential to most businesses. Companies may have
hundreds or even thousands of customers who purchase items on credit, who make one or more
payments for those items, and who sometimes return items or purchase additional items before they
finish paying for prior purchases. Recording all credit purchases, returns, and subsequent payments in a
single account would make an individual customer's balance virtually impossible to calculate because
the customer's transactions would be interspersed among thousands of other transactions. But the
accounts receivable subsidiary ledger provides quick access to each customer's balance and account
activity. Companies create subsidiary ledgers whenever they need to monitor the individual components
of a controlling general ledger account. In addition to the accounts receivable subsidiary ledger,
companies often use an accounts payable subsidiary ledger (creditors' subsidiary ledger), which

6 |P a g ehas separate accounts for each creditor, an inventory subsidiary ledger, which has separate
accounts for each product, and a property, plant, and equipment subsidiary ledger, which has separate
accounts for each long‐lived asset. 1.3, Special journals and vouchers Special journals(in the field of
accounting) are specialized lists of financial transaction records which accountants call journal entries. In
contrast to a general journal, each special journal records transactions of a specific type, such as sales or
purchases. For example, when a company purchases merchandise from a vendor, and then in turn sells
the merchandise to a customer, the purchase is recorded in one journal and the sale is recorded in
another. 1.3.1Types of special journals The types of Special Journals that a business uses are determined
by the nature of the business. Special journals are designed as a simple way to record the most
frequently occurring transactions. There are four types of Special Journals that are frequently used by
merchandising businesses: Sales journals, Cash receipts journals, Purchases journals, and Cash payments
journals.

7 |P a g e1.3.1, Sales journals Sales journalsrecord transactions that involve sales purely on credit.Source
documents here would probably be invoices. Provides a chronological record of all credit sales made in
the life of a business. Credit sales are transactions where the goods are sold and payment is received at
a later date. The source documents for the Sales journal are copies of all invoices given to the debtors.
Double entry Accounting is achieved by: • Debit-debtors account with value of sales (increasing a
current asset) • Credit-sales account with total amount (increasing income) Choose credit sales journal if
this stock is then on-sold to customers who will pay later. The people/organizations here are known as
debtors. Collectively, all these accounts that are to be paid to us by our customers are known as assets.
1.3.2, Cash receipts journal A cash receipts journal(CRJ) records transactions that involve payments
received with cash. Source documents would probably be receipts and cheque butts. The CRJ records
the cash inflow of a business. Discount allowed is an expense as the discount allowed is the cost to the
seller of obtaining an inflow of cash from a debtor week earlier than would be the case 1.3.3, Purchases
journal Purchases Journalsrecord transactions that involve purchases purely on credit. Source
documents are invoices. For instance, the purchase of inventory on credit is recorded in the purchases
journal. 1.3.4, Cash payments journal Cash PaymentsJournals record transactions that involve
expenditures paid with cash and involves the cash Source documents are likely receipts and cheque
butts. The CPJ records the cash outflow of a business. If the owner of a business withdraws cash from
the business an entry is made in the CPJ. Discount received is the cash discount received by a purchaser,
it is an income item for the purchaser.

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