What Should Your Accounting System Contain?

An accounting system organizes the firm's financial activities and records the flow of financial information.

Your system should include:

· Source documents. The information flow begins with your original source documents: sales checks, credit slips, cash register tapes, petty cash vouchers, purchase orders, invoices sent, invoices received, checkbook stubs, copies of checks received, and deposit slips. These documents support the numbers in your accounting system. Generally, you must retain them for three years.

· Journals. Information from source documents is entered into a general journal under headings such as cash receipts, cash disbursements, credit purchases, and credit sales.

· General ledger. After all transactions for a given period have been entered into the appropriate journals, the information is transferred to a general ledger and each account is totaled.

· Financial statements. Financial statements, such as the profit and loss statement, are a record of past operations and a tool for future planning. They can be used to answer questions such as: What is the value of my firm? Is the firm making money? What are its sources of funds? How are revenues being used?