What are the three components that form a computerized accounting system?

Answer 1

According to the American Accounting Association, accounting is the "process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information." There are five types of accounting systems -- cost, financial, national, tax and management accounting -- all with different accounting elements, objectives and functions. However, the three basic elements of all accounting systems establish a standardized framework as to the purpose for the information that is -- identified, measured (analyzed) and communicated.

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Identification, Analysis and Communication Metrics in Cost Accounting

The three basic elements of accounting assist management in identifying the most efficient use of capital resources, measuring the effects of the cost controls and communicating the information throughout the organization. For example, cost accounting focuses on the costs associated with products, services, departments and resources (raw material and labor). The accumulated economic date is gathered into usable data points and reports are drafted and communicated to management and external users for their decision making process. By identifying and measuring costs, management can reallocate capital in an effort to improve efficiencies and reduce costs.

Financial Accounting Analysis, Measurement and Communication

The measurement component in financial accounting is based on a standardized analysis of the historical financial performance of an organization. The relevant financial data is identified and analyzed before being communicated to decision makers using income, cash flow and profit and loss statements.The financial accounting system is designed to assess the financial health of the company for internal and the external decision makers, such as external auditors and investors. Identifying information under this system requires an understanding of Generally Accepted Accounting Principles (GAAP) as well as the different accounting requirements of each state and federal taxing authority.

Related Reading: What Are the Basic Accounting Theories?

Identifying Appropriate National Economic Measurments for Anaylsis

National accounting systems identify the economic conditions of a country and use measurements that conform to international standards, such as the Standard System of National Accounts (SNIRS), to communicate information that is readily comparable for analysis with historical data. Such measurements identify economic productivity via standard measures known as Gross Domestic Product (GDP) and Gross National Product (GNP). Through the three basic elements of all accounting systems, an accountant can identify information necessary to measure the health of a country to provide businesses and individuals the ability to make financial decisions.

Purpose of the Three Basic Accounting Elements

Essentially, the three basic elements of all accounting systems provide a standardized framework to identify financial and economic factors and trends, to provide an empirically based standard measurement, for communicating the financial health and taxation of businesses and economies. For instance, management accounting identifies a particular period in time to analyze against another similar period in time. By measuring the financial results of a particular period directly with a similar period, such as one month or one year, Accountants are able to provide an analysis of the financial health of the company based on relevant empirical data.