Chapter 3 Principles And Process Of Bookkeeping PDF

Tab 1 Chapter 3 PRINCIPLES AND PROCESS OF BOOKKEEPING This chapter explains the fundamental principles and process of basic bookkeeping. As part of this, the use of computerised accounting systems, including external servers, to store and process data is explained. The chapter concludes with a...

Tab 1 Chapter 3 PRINCIPLES AND PROCESS OF BOOKKEEPING This chapter explains the fundamental principles and process of basic bookkeeping. As part of this, the use of computerised accounting systems, including external servers, to store and process data is explained. The chapter concludes with a review of how financial data is coded as a basis for recording and processing in an accounting system. This chapter covers syllabus area A3. CONTENTS 1. The process to record transactions in the accounting system 2. Computerised accounting 3. Coding of transactions 4. Processing transactions LEARNING OUTCOMES At the end of this chapter, you should be able to explain the process to record transactions in the accounting system show an understanding of how financial data may be used to meet the needs of the business and also external users of financial information  explain the key features, advantages and disadvantages of computerised accounting explain the key features of using external servers to store data explain the principles of coding transactions as a basis for recording transactions in a computerised accounting system explain the difference between batch processing and real-time processing of accounting transactions 1. THE PROCESS TO RECORD TRANSACTIONS IN THE ACCOUNTING SYSTEM 1.1 INTRODUCTION The following diagram summarises the process to prepare the annual financial statements, from entering into transactions and recording those transactions in the accounting system and then progressing to preparation of the annual financial statements. The recording of transactions is performed using the principles of double-entry bookkeeping. ➔ Transactions Effects ➔ Ledger occur recorded in accounts ➔ ledger accounts balanced off ➔ Initial trial balance generated ➔ Year end adjustments made and ledger accounts closed off ➔ Annual financial statements produced end generated statements adjustments produced made and generated ledger accounts closed off The remaining part of this chapter will focus upon accounting systems and processes and, in subsequent chapters, progress to recording transactions and the preparation of the trial balance and the correction of errors. Note that the ACCA FA1 syllabus and exam includes year-end adjustments such as the correction of errors in the trial balance. The ACCA FA1 syllabus and exam does not include preparation of the annual financial statements. When an accounting transaction has occurred, it must be recorded in the accounting system using double-entry bookkeeping principles. This requires a source document that provides evidence or information about the transaction to be recorded. Source documents will be referenced with account names or codes, along with monetary amounts, to enable transactions to be recorded appropriately in the accounting system. Depending upon the nature of the transaction, data recorded is likely to include the following: transaction date nature of the transaction e.g. purchase on credit or cash sale service provided or product quantity plus description or code monetary value, including any sales tax element if applicable any trade or early settlement discount applicable, and the due date of payment or credit terms Note that not all business documentation referred to in chapter 2 is a source document for recording transactions in the accounting system and this is considered in the following section. We can now move on to explain the process to record those transactions in the accounting system as a basis for preparing useful accounting information and the trial balance. In most businesses, classification and recording of each transaction is allocated to specific ledger accounts. For example, there will be a separate ledger account for each source of income (such as sales and interest received) and each type of expense (such as purchases, rent, wages and insurance). There will also be asset accounts (for items such as property, plant and equipment and amounts due from credit customers) along with liability accounts (such as amounts outstanding to suppliers, bank loans and sales tax due). There is no rule or limit as to how many general ledger accounts a business should have but the system should enable effective and efficient accounting and control. Before we look in detail at how transactions are recorded and processed in the accounting system some terminology should be explained. The term ‘general ledger’ refers to the complete set of ledger accounts used by a business in which transactions are recorded. It may also be referred to as a ‘nominal ledger’ or ‘chart of accounts’. It forms the basis of financial accounting information used to produce a trial balance and, subsequently, the annual financial statements. A ledger account contains a record of transactions assigned to a specific asset, liability, source of income or expense, along with a capital account for a sole proprietor. It will identify increases and decreases in that item during an accounting period. Collectively, the ledger accounts contain the record of accounting entries relating to all transactions and events during an accounting period. They are the principal books or files for recording, summarising and totalling monetary transactions by account item or type. The trial balance and annual financial statements of a business are generated from summary totals in the ledger accounts contained in the general ledger. 1.2 ACCOUNTING SYSTEMS Irrespective of the size and complexity of a business, an accounting system has three components as illustrated below: ➔ Inputs ( Source documents, Standing data ) ➔ Accounting system processes ( Calculations, Ledgers, Journal entries, Record keeping ) ➔ Outputs ( Trial balance, Reports, Financial statements ) Inputs Source documents include sales and purchase invoices, credit notes, payroll totals, petty cash summaries, summaries of bank receipts and payments and journals. Standing data is data used repeatedly to assist with the processing of recurring or regular transactions and will include data such as price lists, wage rates, sales tax rates, customer account details and supplier account details. Source documents must be referenced with the general ledger account codes to be updated as appropriate. A source document will normally require a minimum of two general ledger account codes. More than two general ledger codes may be required if, for example, sales tax needs to be accounted for, or a purchase invoice includes more than one item purchased. In a computerised system, source documents are also be referenced or coded to enable simultaneous update of memorandum only accounting information. Examples of memorandum only accounting information include inventory usage reports and payroll analyses. Consequently, this means that when 'memorandum only accounting information is recorded, it will match exactly the information recorded in the general ledger accounts. Although these records are updated simultaneously when the general ledger accounts are updated, it is important to remember that 'memorandum only information does not form part of the double-entry bookkeeping system. Memorandum only information is used to enable managers to monitor and control the business, for example, to ensure that credit customers pay the amount due within the agreed credit period. Not all of the business documents explained in chapter 2 are source documents used to update the accounting system. For example, a supplier statement provides a summary of transactions recorded by a supplier within the previous month and issued to a customer. It is not a source document used by either the supplier or the customer to update their respective accounting systems. Similarly, a remittance advice provides information relating to a payment made, although it is not the payment itself. As you progress through this chapter, examples of how documents are coded so that they can be recorded in the accounting system will be explained and illustrated. Processes The key process is to record transactions, which may be done in real-time so that updating takes place at the time the transaction takes place, or batch processing at appropriate intervals (e.g. daily, weekly, monthly). In addition, systems will perform tasks of calculating, classifying and summarising data, such as the monetary total of sales invoices issued during a specified period or providing an analysis of expenses incurred during a specified period. Finally, processing includes the updating general ledger accounts and the memorandum only accounting information to provide management information. Outputs The primary outputs of an accounting system are the trial balance and financial statements (or selected extracts as required). Reports, such as aged analysis of receivables' ledger accounts, payroll summaries and payslips, inventory usage summaries, analysis of expenses and exception reports can normally be obtained from most computerised accounting systems. This is useful financial information to help manage and control the activities and operations of the business. Historically, it would have been a manual process to record transactions in handwritten books or ledgers. Although the components of the system have not changed, as the size and complexity of businesses have increased and manual accounting systems have largely been replaced by computerised systems. The ACCA FA1 syllabus and exam assumes that computerised accounting systems and processes are used although knowledge of specific computer packages and programs is not required. 1.3 USEFUL FINANCIAL INFORMATION In addition to preparing the trial balance and annual financial statements, the accounting system is also used to monitor the effectiveness of the business and to help review and conclude relevant transactions. For this reason, additional data is recorded in the accounting system. The 'memorandum only' data is summarised and classified to provide information in a form useful for management decision-making and control of the business. Examples of such information include: individual ledger accounts to record transactions with each credit customer, often referred to as receivables' ledger accounts individual ledger accounts to record transactions with each individual credit supplier, often referred to as payables' ledger accounts inventory usage reports, and payroll analyses In the case of credit sales, credit controllers require information from the accounting system to identify which customers have not settled their debts and, for that reason, who should be contacted to remind them that payment is due. Equally, for suppliers who have granted a period of credit to the business, there is a need to review which account payables are due for payment, and how much that payment should be. Therefore, for goods purchased or sold on credit, individual customer or supplier accounts need to be set up within the accounting system, and each will have an individual supplier or customer account code. These accounts will be created using a standardised procedure and done under the supervision of a suitably responsible person such as a senior member of the accounting department. They will normally be subject to controls and checks to ensure that they are valid accounts. 2. COMPUTERISED ACCOUNTING Although some businesses still use manual accounting records and processes, a significant number have now adopted computerised systems. A fully computerised system will operate using the same principles as a manual system, except that all the records will be stored in one place (i.e., the hard disk of the computer, or on cloud servers). This does not necessarily mean that all accounting personnel have access to all accounting records. The system will be broken down into sections in very much the same way as the manual system, with the use of passwords controlled by controls such as individual login credentials and the use of passwords. For example, payroll data should be accessible only to employees with payroll-related responsibilities, rather than being accessible to all employees. Another difference in a computerized system is that when the data is reviewed on screen or printed the format of that information may appear different from a manual system particularly with regard to general ledger accounts. Whereas in a manual system the general ledger is a collection of T-accounts, the general ledger in a computerized system will probably appear as an arithmetic listing of debits and credits. This does not mean, however, that the system is not performing double-entry bookkeeping Computerized accounting systems make it easier to extract information and reports for accounting staff and managers to assist with management and control of business activities. Examples of reports that many accounting systems normally produce include the following: a summary of amounts due from customers, normally broken down by how long amounts have been outstanding from individual customers a register of items of property, plant and equipment owned by the business a listing of purchase invoices received from suppliers a summary of amounts due for payment, so that payments can be prepared and processed employee wages and salary payslips, along with a summary of the total of gross pay, deductions and net pay for the workforce as a whole, or by department an inventory usage report which summarizes receipts and issues into and from inventory during a period of time e.g. each week or month 2.1 ADVANTAGES OF COMPUTERIZED ACCOUNTING (a) Speed. Computer processing is very fast-much faster than a clerk or any other type of office machine. This speed can be of value to the business in two ways: (i) high volumes of work can be handled by a computer (ii) rapid turnaround and response times can be achieved For example, one business may value a computerized system primarily for its ability to cope with a large volume of orders, whilst another may be more interested in the speed of processing orders. (b) Stored programs. Once the programs have been written and tested (or standard programs purchased), a computer can perform significant amounts of work with the minimum of labour costs. Only small teams of operators are needed for the most powerful and efficient machines. This is possible because a computer runs under the control of its stored programs, and operator activity is limited to loading and unloading peripherals and indicating what work or processing is to be done. (c) Decision-making. The computer can be programmed to undertake complicated decision-making processes. It can handle work to a much higher degree of complexity than other office machines and often more than a manager. (d) File storage and processing. Large files of data can be stored on digital or magnetic media, which require very little space. More importantly, stored files can be reviewed and updated at speed, and information can be retrieved from them very quickly. (e) Accuracy and reliability. Computers are very accurate (provided always that its programs are free from faults) and reliable processors of data. 2.2 DISADVANTAGES OF COMPUTERISED ACCOUNTING (a) Inability to detect human errors. The computer is a machine. It cannot recognise human errors made in its programs or notice that data is incomplete or incorrect. It may, however, ensure that an equal value of debits and credits are posted when recording a transaction, but not that the account numbers selected by the accounts clerk are the correct codes. It could be programmed to incorporate conditional requirements relating to which account codes may or may not be used to prevent some posting errors. Errors that may be detected by clerks in a manual system may go unnoticed in a computer-based system. It is therefore necessary to devote the utmost care to the development of computer-based systems in order to foresee every contingency and to test every instruction. Thus, system development may be both prolonged and costly. (b) Quantifiable decisions. The program can only take decisions that can be quantified, for example, that can be expressed as two numbers or amounts that can be compared with each other. It cannot make value judgements such as selecting personnel or deciding whether to take legal action if debts are overdue. The solution indicated by the program may have to be modified because of intangible factors known to the manager but incapable of being quantified or expressed in the program. (c) Initial costs. Historically, costs of hardware, software, site preparation, training and so on were high, particularly for customised systems for complex entities. However, the cost of standard, user-friendly hardware and software packages has fallen over time and are now affordable for most small entities. (d) Inflexibility. Owing to the care and attention to detail needed in systems along with program development and maintenance, computer systems tend to be inflexible. They take longer and cost more to alter than manual systems. (e) Vulnerability. Computerised systems do have vulnerabilities, such as the risk of hacking or unintentional loss or corruption of data. However, there are protocols and procedures that can be put in place, such as the use of firewalls and software to detect malware, along with data back-up procedures or the use of cloud accounting, that can be used to mitigate those risks. 2.3 DEVELOPMENTS IN ACCOUNTING SYSTEMS The initial introduction of computerised systems provided little more than the facility to have faster and more reliable summarisation and totalling of monetary values but with limited analysis of the data input. Now, there is an extensive range of off-the-shelf and relatively inexpensive accounting software packages available. One benefit of these packages is that they are developed by experienced people and therefore regarded as reliable and robust. One potential downside is that any standard package may not meet the precise information needs and requirements of an individual business user. These packages are normally subject to regular software updates as the package is modified over time. Accounting software systems have developed to meet the needs of businesses, such as multi-site operations. More recent developments include the availability of integrated systems. These systems are able to handle, not only accounting data, but also other systems and processes relevant to other parts of the business that may include: inventory management, linked to purchasing and requisitions and also sales invoicing and despatch of finished goods human resource management, which may include allocation of employees to jobs or activities, request and approval of annual leave, training and development activities and appraisal records  payroll operations to ensure that employees are paid the correct amount on the due date and linked with human resource management to ensure that new starters and leavers are managed appropriately. Many larger businesses have customised systems with software tailored to meet their particular specifications. One benefit of this is that it should meet the precise information needs of the business. However, any customised or tailored system may be at increased risk of operational problems if not properly designed, tested, installed and operated. Many businesses with computerised systems utilise “record-to-report (R2R)” processes which involves collecting, processing, and presenting financial information in the form of documents that are used by management to perform analysis and review. The first part of the process is to record transactions and to perform analysis and review. For example, in sales, collated and presented in the form of management reports. For example, in sales, collated and presented in the form of management reports. This then leads on to the information collated and presented in the form of management reports. This then leads on to the information being input into the sales system. This is then linked to the inventory management system to confirm that goods are available or when they are expected to be available for despatch. Upon despatch to the customer and confirmation of delivery to the customer, the inventory system updates the sales system to raise the sale invoice. As the sale invoice is generated, the general ledger accounts for sales and memorandum information including the individual customer ledger account and the aged analysis of receivables are updated. In due course, there should be a receipt from the customer which will be used to update the detailed listing of bank receipts along with the bank and receivables general ledger accounts. The memorandum information including the individual customer ledger account and the detailed analysis of receivables is also updated at the same time. Many businesses use 'peer-to-peer' (P2P) networks which enable files to be accessed, shared or transferred between those authorised on the network. Each user requires a personal user account to access the network and to use and share files. It facilitates flexible and collaborative working arrangements between those on the network. In a computerised system, accounting information is more likely to be presented either in a columnar format, or perhaps by the use of +/- notation, rather than presented in the more traditional ledger or T-account format. The key point to remember is that the fundamental principles of double-entry bookkeeping are maintained and applied. The only difference is the format in which the information is presented. Some computerised accounting systems also include an integrated bank account. Note, however, that the bank account is assumed not to be integrated into the accounting system in the ACCA FA1 syllabus and exam. 2.4 CLOUD COMPUTING AND CLOUD ACCOUNTING One of the more recent developments in accounting software is that of cloud computing and cloud accounting. Cloud computing is access to software and data storage that is hosted on remote servers and is accessed via the internet. Cloud computing enables data and information stored to be accessed from any location at any time by multiple users if the user has an internet connection and can log in. Cloud accounting is the application of cloud computing to accounting systems and processes. Advantages of cloud accounting The business does not have to pay for, install, manage or protect software on individual machines. Capacity for the cloud to store more data and to share it more easily. This will also enable the business to easily scale up or scale down its cloud accounting capacity as circumstances change. It is accessed 'on demand where and when needed which aids flexibility of working practices, particularly for businesses with multiple locations and multiple employees requiring access to stored data and information. Easier sharing of data and information within a business, but also with external parties who may be granted access to part of the system e.g. for customers to place an order. The absence of a physical server will reduce maintenance costs and the risk of physical damage. Disaster recovery and data security is likely to be improved. For example, loss or damage to a laptop with commercially sensitive or confidential data stored on it is a significant business risk. Cloud accounting means that the data is stored on a remote server, so loss or damage to the laptop has a reduced business impact. Disadvantages of Cloud Accounting The business is reliant upon the financial stability of the cloud service provider to the extent that it will continue to operate and provide the services required. The business is reliant upon the cloud service provider not suffering a cyber-attack or that its servers goes down for any reason. In common with any other system, there is a risk of unauthhorised access by the server provider staff or, by those staff permitting access to unauthorised persons.  The cloud service provider must comply with relevant regulations such as data protection law. The business will need to satisfy itself that the service provider has the necessary controls and procedures in place and can be relied upon to avoid any breach of relevant regulation. It is the responsibility of the cloud service provider to ensure that it complies with data protection regulation. confidential data (perhaps relating to employees) the entity suffer a loss of However, if there is a breach of that law, along with unauthorised disclosure of reputation, even though it was the responsibility of the service provider. Examples of how cloud accounting is used This relates particularly to allowing external parties access to part of the data and information. A payroll bureau may be granted limited access to data such as employees' working hours and pay rates, along with other information such as personal tax codes, to enable production of the payroll. The payroll bureau would not have access to other parts of the accounting system. An accountant may be granted access to information that enables the annual financial statements to be prepared and, perhaps, to the sales and business tax data to complete returns if they have responsibility to prepare those documents. Access to the system would be granted only to the extent it was required for the accountant to complete the work required. 3. CODING OF TRANSACTIONS PRINCIPLES OF CODING TRANSACTIONS How are transactions input into a computerised system?  Every account must be separately identifiable. One method of identification is to give each ledger account its own unique name or title. However, it is often quicker and more convenient to also give each ledger account its own unique code number. A code number is usually quicker to write than an account name, so using code numbers can save time. Using unique code numbers can reduce the risk of errors, where several different accounts have similar names so that there is a risk that a transaction is recorded in the wrong account. In computerised accounting, it is easier for a computer to process code numbers than account names. Account codes can be designed to have some significance. For example, a business may have account codes consisting of four digits. If so, it may allocate the code number 1000 to the owner's capital account, give all asset accounts a code beginning with the number 2, all liabilities a code beginning with a 3, all income accounts a code beginning with 4 and all expense accounts a code beginning with 5. In this way, it is possible to tell immediately from the code whether the account is a capital, asset, liability, income or expense account. It is usual to record the account codes on source documents before recording the transactions in the accounts. It is important to identify and apply the correct codes to avoid errors in the recording of transactions and financial information. CODING SYSTEMS Inputting transactions into the accounting system is normally organised using a system of codes. In most accounting systems all the general ledger accounts, suppliers, customers, inventory items and documents such as cheques and invoices are referenced using codes. This makes it easier to ensure that data input is allocated to the correct account and enables the business to conduct additional analysis of data in order to extract useful management information. Sequential codes In a sequential system, codes are allocated to items in strict numerical order. This means that there is no obvious connection between a code and what it represents. For instance in the following system you can have no idea what code 62 would represent. 63 Baked beans 64 Kitchen towels 65 Batteries Faceted codes A faceted code is one that is broken down into a number of facets or fields, each of which signifies a unit of information. For instance: The first digit: 1 Fresh foods 2 Frozen foods 3 Canned foods Etc… The second digit: 1 Meat 2 Pulses  3 Fruit etc... The third and fourth digits: Heinz Crosse & Blackwell Own brand etc… A can of Heinz baked beans would therefore have a code of 3201. Mnemonic codes and significant digit codes Mnemonic codes are usually in alphanumeric form and incorporate some descriptive element that makes it easy to identify the correct code. For example, a customer named 'Robertson' might have a code beginning ROB, e.g. ROB052 A similar concept can be used where items can be distinguished by some kind of measurement Significant digit codes incorporate digits that are part of the description of the item For example: 500000-Jeans 502828-Jeans-28" waist, 28" leg 503028-Jeans-30" waist, 28" leg Block codes and hierarchical codes Block/hierarchical codes commonly form the basis of general ledger coding systems, for instance: 0000 to 0999- Non-current assets  1000 to 1999- Current assets etc... The first 'block' is allocated to only non-current assets. This means that it is possible to have up to 1,000 different non-current asset ledger accounts. A hierarchical code structure is a type of faceted code whereby each digit represents a classification, and each digit further to the right represents a smaller subset than those to the left. This makes it even easier to find items in a list of codes because related accounts are grouped together. For instance within the 0000-0999 non-current assets block, the range 0300 to 0399 may be office furniture asset accounts and 0400 to 0499 may be motor car asset accounts. 3.3 CHART OF ACCOUNTS When an accounting system is coded using the block/hierarchical method it is called a chart of accounts. An extract from the default chart of accounts in the widely-used Sage bookkeeping package is as follows: Category Sub category Code range Non current asset Property 0010 to 0019 Plant and Machinery 0020 to 0029 Office equipment 0030 to 0039 Furniture and Fixtures 0040 to 0049 Motor Vehicles 0050 to 0059 Current assets Inventory 1000 to 1099  Receivables 1100 to 1199 Bank Account 1200 to 1209 Deposits and Cash 1210 to 1239 Credit Card (payables) 1240 to 1249 Credit Card (receivables) 1250 to 1259 Within each of these sub-divisions there are a number of further default accounts. For instance the Professional Fees account codes range 7600 to 7699 has the following accounts already set up: 7600 Legal Fees 7601 Audit and Accountancy Fees 7602 Consultancy Fees 7603 Professional Fees 3.4 FEATURES OF A GOOD CODING SYSTEM An efficient and effective coding system, whether manual or computerised, should incorporate the following features: Each general ledger account item should have a unique code. The coding system should have scope for additions and expansion, Codes need to be long enough to allow for the suitable identification of all items, but it should also be as brief as possible to save typing time, processing time and storage space. Codes should be uniform: for instance if one customer code has three letters and three numbers then all other customer codes should be of the  same length and format. This helps to detect missing characters and makes analysis of data easier. The use of characters such as dots, dashes, colons is not recommended. A well designed system should avoid confusion between numbers and letters such as I and 1, O and 0, S and 5 and so on by only allowing letters or numbers in specific positions (e.g. characters 1 to 3 must be letters; characters 4 to 6 must be numbers). The coding system should be significant (in other words, the actual code should signify something about the item being coded). If the code consists of alphabetic characters, they could be derived from the item's description or name. Controls are needed over the creation and allocation of new account codes: for instance this may need to be authorised by the department manager. In a manual system, there should be an index or reference book of codes. Within a computerised system, this will maintained automatically. 4. PROCESSING TRANSACTIONS 4.1 INTRODUCTION Processing of transactions may be done either in batches or in real-time. 4.2 BATCH PROCESSING Batch processing of transactions (e.g. purchase invoices) may take place either at predetermined intervals such as daily or weekly or when a predetermined number of transactions are ready to be processed, for example 25 invoices. In such a system, there is clearly a delay between the point at which a transaction occurs and the point at which processing of the transaction takes place. This means that accounting information available may not be up-to-date or complete as transactions may have taken place but not processed. Batch processing of transactions is primarily associated with manual accounting systems and processes. 4.3 REAL-TIME PROCESSING Real-time processing of transactions relates to computerised systems whereby processing of transactions is immediate. As soon as a transaction has occurred, the accounting system is updated. Integrated computerised accounting systems will update all aspects of the accounting records and broader management information system as a transaction is processed. For example, as a sale to a credit customer has occurred, the accounting system is updated, and there will be simultaneous update of the individual customer account records. This has the advantage that users of the accounting system and the information it generates will have access to the most up-to-date information available. This helps to control and manage the business.) accounting staff and others employed in the business to make appropriate decisions  Note that the ACCA FA1 syllabus and exam assumes that businesses will be using an integrated computerised accounting system and no knowledge of any particular computerised accounting packages is assumed or required. The focus of the syllabus and exam is upon the processing of accounting transactions. CONCLUSION This chapter introduced and explained what an accounting system is, along with the key features, advantages and disadvantages of computerised systems. Recent developments in recording transactions in the accounting system. computerised accounting, including cloud accounting were also considered. The chapter concluded with a review of the principles of coding accounting transactions as a basis for recording transactions in the accounting system. You are now ready to progress on to developing your knowledge and understanding of recording broad range of transactions and events in the general ledger accounts. KEY TERMS Accounting system - the inputs, processes and outputs of a system to record, process and manage accounting data. Batch processing - the processing of transactions at either predetermined intervals or when a predetermined number of transactions are ready to be processed. Block codes - a coding system commonly used as the basis of general ledger coding systems which allocate a block of codes to particular account headings so that the coding system can be added to in a logical manner if required. Hierarchical codes - are a type of faceted code whereby each digit represents a classification, and each digit further to the right represents a smaller subset than those to theleft. Cloud accounting - the application of cloud computing to accounting systems and processes. Cloud computing - access to software and data storage that is hosted on remote servers and is accessed via the internet. Cloud computing enables data and information stored to be accessed from any location at any time by multiple users if the user has an internet connection and can log in. Faceted codes - codes that are broken down into a number of facets or fields, each of which signifies a unit of information. General ledger - the complete set of ledger accounts used by a business in which transactions are recorded. It may also be referred to as a 'nominal ledger' or 'chart of accounts'. Ledger account - a record of transactions assigned to a specific asset, liability, source of income or expense, along with a capital account for a sole proprietor. It will identify increases and decreases in that item during an accounting period. Mnemonic codes - a code in alphanumeric form and incorporate some descriptive element that makes it easy to find the correct code. Real-time processing - the processing of transactions in a computerised system whereby, as soon as a transaction has occurred, processing of that transaction is immediate. Sequential codes - codes that are allocated to items in strict numerical order. Significant digit codes - codes that incorporate digits that are part of the description of the item. Tab 2