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transactions based on the information in a source document (invoice). Theinformation is them stored in the company’s accounts until needed. Finally thecycle ends with reporting the information on one of the company’s financialstatement (balance sheet).The basic accounting model provides a frame work for accounting system and isthe basis for recording transaction. This model for corporation, called the residualequity theory modes, is usually expressed in an equation (Bazley, Nikola: Jones1995, pp66). Assets = Liabilities + Shareholders equity The way in which management is given the information for the use conducting theaffairs of the business and in reporting to owners, creditors and other interestedparties is called the accounting system. In general sense, an accounting systemincludes the entire network of communications used by a business organization toprovide needed information (Fees Warren, 1998: P 225). An accounting information is a commodity unless the benefits expected to bereceived from a commodity exceed its cost, the commodity will not sought after.The company initially incurs the cost of providing. Financial information and thenpasses the costs on to consumers (external users). These cost include the cost ofcolleting, processing, auditing and communicating the information. These costTransactionsInvoice$100Inventory 100A/PInv100A/P100Balance sheet Current asset Inventory - $100Current Liability A/P $10013
include those associated with losing completive advantage by disclosing theinformation.The benefits are enjoyed by a diverse group of investor and creditors, bycustomers (because, they assured asteddy supply of goods and services) and by thepreparer itself (Bazley/Nikolai/ Jone, 1995, pp. 58). An accounting system must be tailored to meet the specific need of each business.Since cost must be incurred in meeting these needs, one of the majorconsiderations in developing an accounting system is cost effectiveness, forinstance, although the reports produced by an accounting system are a valuableend product of the system. The value of the reports produced should be at leastequal to the cost of producing them. No matter how detailed or informational areport may be, it should not be produced if it costs more than the benefits receivedby those who use it. (Fees Warren. P. 225) In practices, transitions and selected other events are not recorded originally in theledger because a transaction affects two or more accounts, each of which is on adifferent page in the leader. To over come this deficiency and to have a completerecord of each transaction or other events in one place. A journal (the book oforiginal entry) should be employed. The simplest journal form is a chronological listing of transaction and other eventsexpressed in terms of debit and credits to particular account. This is called ageneral journal. The organization may also use special journal in addition togeneral journal if it is necessary.