The information is them stored in the companys

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transactions based on the information in a source document (invoice). The information is them stored in the company’s accounts until needed. Finally the cycle ends with reporting the information on one of the company’s financial statement (balance sheet). The basic accounting model provides a frame work for accounting system and is the basis for recording transaction. This model for corporation, called the residual equity theory modes, is usually expressed in an equation (Bazley, Nikola: Jones 1995, pp66). Assets = Liabilities + Shareholders equity The way in which management is given the information for the use conducting the affairs of the business and in reporting to owners, creditors and other interested parties is called the accounting system. In general sense, an accounting system includes the entire network of communications used by a business organization to provide needed information (Fees Warren, 1998: P 225). An accounting information is a commodity unless the benefits expected to be received from a commodity exceed its cost, the commodity will not sought after. The company initially incurs the cost of providing. Financial information and then passes the costs on to consumers (external users). These cost include the cost of colleting, processing, auditing and communicating the information. These cost Transactions Invoice $100 Inventory 100 A/P Inv 100 A/P 100 Balance sheet Current asset Inventory - $100 Current Liability A/P $100 13
include those associated with losing completive advantage by disclosing the information. The benefits are enjoyed by a diverse group of investor and creditors, by customers (because, they assured asteddy supply of goods and services) and by the preparer 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 major considerations in developing an accounting system is cost effectiveness, for instance, although the reports produced by an accounting system are a valuable end product of the system. The value of the reports produced should be at least equal to the cost of producing them. No matter how detailed or informational a report may be, it should not be produced if it costs more than the benefits received by those who use it. (Fees Warren. P. 225) In practices, transitions and selected other events are not recorded originally in the ledger because a transaction affects two or more accounts, each of which is on a different page in the leader. To over come this deficiency and to have a complete record of each transaction or other events in one place. A journal (the book of original entry) should be employed. The simplest journal form is a chronological listing of transaction and other events expressed in terms of debit and credits to particular account. This is called a general journal. The organization may also use special journal in addition to general journal if it is necessary.

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