A small business typically keeps records of its transactions using a revenue accounting system. Such a system allows the company to record the money it receives during each accounting period. The company can then use the information the system provides to make important financial decisions. The use of the revenue accounting system in business has both strengths and weaknesses.
About Revenue Accounting
Revenue accounting is the process of recording the revenue a business receives from financing, cash advances, investments and the sale of goods and services. Some revenue accounting systems also deduct certain expenses from the revenue received, such as the cost of producing goods or providing services. Businesses use their revenue accounting systems to evaluate their financial situation during each accounting period. They may also use these systems in tax preparation.
Using the revenue accounting system, a business can check on the progress of its revenue at any point during an accounting period. A business can also use the system to determine which sources provided the most revenue. By comparing revenue accounting reports from multiple periods, a business can analyze changes in revenue patterns and use the information in decision making. Finally, having a separate accounting system devoted to revenue provides a business with better organization, which can be helpful during tax preparation and corporate audits.
If the revenue accounting system is not computerized, human error is likely and may result in inaccurate calculations. Even if the system is computerized, employees may input information incorrectly, which can also cause the company's financial statements to reflect errors. Errors in the financial statement can lead to poor decision making and tax complications. Revenue accounting systems also subject the company to embezzlement, especially if an employee has unrestricted access to the company's accounts.
To prevent problems in the revenue accounting system, a business should require multiple employees to check the entries made into the system. If the system is not computerized, at least two employees should perform all calculations to reduce inaccuracies. To prevent employees from embezzling, businesses should not allow any employee to have unlimited access to the company's financial accounts.
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