The 5 basic components of an accounting system are:
1. Source documents:
These are the original records of transactions, such as invoices, receipts, and bills, that provide the basis for accounting entries.
2. Journals:
These are records of transactions sorted by date and type, such as sales, purchases, or cash receipts. They provide a chronological record of transactions before they are posted to the general ledger.
3. General ledger:
This is the main accounting record that contains all accounts used in the financial statements, such as assets, liabilities, equity, revenue, and expenses. Each account has a balance, which reflects its status at a particular point in time.
4. Financial statements:
These are reports that summarize the financial activities of a business over a period of time. It includes the income statement, balance sheet, and cash flow statement.
5. Management reports:
These are reports that provide information to managers and decision-makers within the organization, such as budget reports, cost reports, and variance analysis. They help in monitoring performance, identifying areas for improvement, and making strategic decisions.
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