Can’t make sense of your numbers? You’re not alone. Many founders and finance leaders find their accounting system confusing—until they break it down into simple repeatable steps. This guide turns the accounting system process into a practical playbook you can use this week. It helps you read your business like a dashboard: what you own, what you owe, what you earned.
The Basics of an Accounting System
What is An Accounting System?
An accounting system is the organized way your business uses to record, sort, quantify, and communicate financial activity—from money coming in to money going out—so stakeholders can make choices based on facts, not guesses.
Purpose of an Accounting System
A well-managed system helps you:
- Keep an eye on cash flow (money coming in vs going out, timing runway).
- Create financial reports (P&L, Balance Sheet, Cash Flow).
- Fulfill legal and tax requirements (precise records, audit trail).
- Guide decision-making (pricing, hiring, CAPEX budgets).
- Spot mistakes and fraud (separation of duties approvals).
- Count inventory and COGS (what’s in stock, its cost, and how it affects profit).
An accounting system changes everyday transactions into financial reports ready for decision-making through a controlled, step-by-step process.
Key Components of Accounting Systems
Every accounting system has a few essential building blocks. Understanding these will help you appreciate how your financial data flows from daily transactions into reports you can use.
- Chart of Accounts (CoA): The main list of categories (e.g., Sales, Rent, Bank AR).
- Journals & Ledgers: Journals record entries by date; ledgers group them by account.
- Subsidiary Ledgers: Specifics for AR AP inventory fixed assets.
- Controls & Policies: Cutoff rules, approvals, reconciliations, documentation.
- Financial Statements & Reports: P&L, Balance Sheet, Cash Flow, AR aging, AP aging.
To learn more about tools, Read more about the differences between manual accounting and cloud accounting.
Types of Accounting Systems
| Type | Best For | Pros | Cons |
| Manual (Single-Entry) | Tiny companies | Cheap easy to use | Makes mistakes, lacks checks, doesn’t grow well |
| Manual (Double-Entry) | Small firms with basic checks | Even records, paper trail | Takes a lot of time, risky with spreadsheets |
| Computerised (Desktop) | Small to medium businesses in one place | Quicker work good reports | Needs setup on each computer, updates, and saves on site |
| Cloud / ERP | Growth-stage & multi-site | Real-time access, system connections automatic updates, teamwork | Monthly fee, needs internet, must control who gets in |
A lot of businesses that are growing choose cloud accounting systems to get better accuracy, see things in real time, and have controls that are ready for audits.
The Step-By-Step Accounting Process (The Accounting Cycle)
Here’s the main 8-step accounting system process. You can use it as a checklist to close your books each month.
Step 1 — Spot & Break Down Transactions
Record every money-related event and keep the paperwork:
- Sales invoices, receipts, bank statements
- Supplier bills & purchase orders
- Payroll journals, expense claims
- Contracts, credit notes, deposit slips
Tip: Put all your documents in one place (email-to-inbox + OCR). This helps you organize everything and makes audits faster.
Refer More: Simplifying Accounting With Effective Bookkeeping Practices In Hong Kong
Step 2 — Write Transactions in the Journal
Make journal entries for each event:
- Transaction date
- Accounts that change
- Debits = Credits (double-entry)
- Brief explanation (reason for the entry)
Example: record a sale (Debit AR, Credit Revenue); record a payment (Debit Expense/Asset, Credit Cash/Bank).
Step 3 — Put Entries in the General Ledger
Move journals to the General Ledger (GL) and related subsidiary ledgers (AR/AP). Track ongoing balances for:
- Cash & Bank
- Accounts Receivable/Payable
- Inventory & Fixed Assets
- Revenue & Cost of Goods Sold
- Operating Expenses
Step 4 — Create an Unadjusted Trial Balance
Compile a list of all GL balances (both debit and credit). This early check helps to spot clear posting mistakes before making adjustments.
Step 5 — Create Adjusting Entries
At the end of the period, bring your books in line with the actual financial situation:
- Accruals/Prepayments: utilities, insurance, payroll cutoffs
- Deferrals: money received in advance recognizing revenue
- Inventory & COGS: counts, loss due to theft or damage, method to cost items
- Depreciation/Amortisation: tangible and intangible assets
- Provisions: uncollectible debts guarantees (as per company policy)
Note: Use checklists. Link adjustments to schedules (list of fixed assets, prepayment tracking, breakdown of accounts receivable by age).
Step 6 — Get the Adjusted Trial Balance Ready
Run the TB again after adjustments. Debits and credits should match. This becomes your go-to for reporting.
Step 7 — Build Financial Statements
Using the adjusted TB:
- Income Statement (P&L): revenue COGS gross margin, OPEX, EBITDA net profit
- Balance Sheet: assets, liabilities, equity (liquidity, leverage)
- Cash Flow Statement: cash movements in operating, investing, financing
- Statement of Changes in Equity (when needed)
- Management review pack: add KPIs (gross margin, CAC payback, DSO/DPO, inventory turns) and budget vs actuals.
Step 8 — Closing Entries & Post-Closing Trial Balance
Transfer temporary accounts (revenue/expense) to retained earnings. Run a post-closing TB to verify only balance-sheet accounts move forward. Advance into the next period.
Automate The Books, Accelerate Your Business With Effective Accounting Software.
Implementation Checklist: Steps to Set Up (or Repair) Your Accounting System
- Create a Chart of Accounts that fits your business model (sales channels, cost centers, locations).
- Write down policies (how you recognize revenue when to cut off expenses, thresholds for capitalization).
- Outline workflows & approvals (who makes purchase orders, who okays payments).
- Pick software (cloud-based accounting + payroll + inventory if you need it).
- Move opening balances and bring in vendors, customers, items.
- Connect bank feeds, payment gateways e-invoicing, and payroll.
- Make close checklists (weekly cash outlook monthly bank checks quarterly review of fixed assets).
- Get the team ready and give out jobs (preparer, reviewer approver).
- Test one close cycle, fix problems then launch.
- Keep an eye on things & make them better—add dashboards, set up recurring journals to run on their own, tighten controls.
Snapshot summary: A solid accounting setup = a well-defined CoA written rules connected software strict month-end lists, and careful checks.
Quick Guide: Common Bookkeeping Entries
| Event | Debit | Credit |
| Client bill | Accounts Receivable | Revenue |
| Client pays | Bank | Accounts Receivable |
| Vendor invoice | Expense/Inventory | Accounts Payable |
| Vendor gets paid | Accounts Payable | Bank |
| Pay employees | Payroll Expense | Cash/Accrued Payroll |
| Asset wear & tear | Depreciation Expense | Accumulated Depreciation |
When to Move from Manual to Cloud
Make the switch when you see:
- Spreadsheets everywhere and confusion about which version to use
- Slow month-end closes (over 10 days) or mistakes that keep happening
- No up-to-date view of cash; surprises with money owed or bills to pay
- Auditors’ requests are a headache to handle
- Teams working from different departments need to overview and approve things together
Conversion Layer: How Info-Tech Lends a Hand
Whether you’re setting up your first Chart of Accounts or tightening up a close that involves multiple companies, Info-Tech’s cloud accounting & payroll helps you to run a clean, by-the-book process:
- Bank feeds & auto-reconciliation have an impact on decreasing manual work
- Recurring journals & rules help to avoid mistake-prone entries
- Integrated payroll records MPF/CPF and wages (and on schedule)
- Approval workflows & audit trails boost controls
- Dashboards & close checklists ensure leadership stays updated
Want a guided setup? Book a free demo to watch how we set up your chart of accounts, create your checklists, and streamline your month-end.
Frequently Asked Questions:
What is the difference between bookkeeping and accounting?
Bookkeeping tracks transactions; accounting turns them into statements, insights, and decisions.
Do I need double-entry if I’m small?
Yes—double-entry makes sure your books are correct and creates statements ready for audits even for small companies.
How long should I keep accounting records?
Hold on to your original documents and books for at least 7 years (or what your local laws say).
How fast should month-end close be?
Top-performing small and medium businesses finish in 5–7 workdays; using software often brings this down to less than five.
When should I switch to cloud accounting?
It’s time to change if you have trouble matching up accounts, remote collaboration, or slow reporting.
