Definition: A general accounting system is almost a dinosaur. It is a thing of the past mainly because it is outdated and modern management needs a more sophisticated accounting system. A general accounting system is a system that keeps track of inventory on a periodic basis. This was most often used in manufacturing companies.
What Does General Accounting System Mean?
Basically, a general accounting system would count the inventory or track it periodically rather than continually. In other words, the inventory would be counted in one stage then a few weeks or months would go by and the inventory would be counted at another stage. Think about how horrible this data is for management.
It is completely outdated and inaccurate. How is management supposed to make decisions and strategies based on inventory numbers that are always out of date and inaccurate? That is why more companies are moving away from traditional general accounting systems.
In the modern world of manufacturing and retailing, just-in-time inventory systems are crucial. These accounting systems track inventory on a continual or perpetual basis. Some systems track inventory on a daily basis whereas others track it in real-time. As soon as a piece of inventory leaves, the system marks it off and gets ready to replace it. As you can see, general accounting systems or periodic inventory systems are a thing of the past. The vast majority of businesses are turning to cost accounting systems or perpetual inventory systems because they are more up to date and reliable for decision-making.