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COMPUTERIZED ACCOUNTING
A Term Paper Submitted to
the Language and Arts
Department Mountain View College,
College Heights Valencia City, Bukidnon
In Partial Fulfillment
of the Requirements of the Course
English II: Writing in the Discipline
By
Ven Bryan L. Abesta
BSIT-1
Ryckdan Kercheval R. Gauzon
BSA-1
March 2014
COMPUTERIZED ACCOUNTING
Introduction: Computers play an important role in business today.
I What is Computerized Accounting
II The role of computers in accounting
III The advantages of using computers in accounting
1. Speed
2. Accuracy
3. Security
4. Legibility
5. Automation
IV Disadvantages of using computers in accounting
1. Cost
2. Difficulty
3. Reliance in computer
Conclusion: The fact that nearly all firms make some use of computers in accounting suggests that the benefits outweigh the costs.
COMPUTERIZED ACCOUNTING
Introduction
With the expansion of business the number of transactions increased. The manual
method of keeping and maintaining records was found to be unmanageable. With the
introduction of computers in business, the manual method of accounting is being
gradually replaced. And finally, the database technology has revolutionized the accounts
department of the business organizations. In this lesson, we will study about
characteristics of computer role of computers in accounting, need of computerized
accounting, etc.
Computers are essential tools in a wide range of fields and occupations. In accounting,
computers have largely replaced paper ledgers and accounting machines, combining
typewriters with calculators to make the job faster and easier. Modern accountants
perform their work of tracking a business’s financial transactions using computers that
run spreadsheet, ledger, list and calendar software (Hartman 1999).
As software programs are written to aid, simplify and automate almost every human task,
why should financial accounting be an exception? In fact, some of the earliest software
programs, including Microsoft Excel were written with the requirements of the business
user in mind. One thing that computers are exceedingly good at is number crunching and
since accounting is all about dealing with numbers, it makes perfect sense to switch over
to computerized accounting. Still, there are many who still rely on manual accounting,
due to overall skepticism about automated accounting (Phatak 2011).
I Computerized Accounting
This type of accounting is all about using software programs to carry out every task that
is part of the yearly accounting cycle. This involves the use of payroll software,
maintaining of accounts payable and accounts receivable, besides maintaining a record of
invoices using software programs. There are many programs that can assist in tax
calculations too. Some businesses may restrict themselves to just the use of spreadsheet
software and some may completely handle their entire accounting cycle by using
specialized software. Let us take a look at what are the pros and cons of switching over to
automated accounting (Phatak 2011).
I. The Role of Computers in Accounting
Because of the rapid changes in finances and its related fields, accurate record keeping is
critical. Computerizing a business’ tasks of accounting procedures, increases efficiency.
With a computer and its appropriate software, one can request and receive an in house
balance sheet, an income statement, cash flow and statements of affairs and other
accounting reports within a short time: hence an increase in productivity.(Walnes 1999)
Computers are essential tools in a wide range of fields and occupations. In accounting,
computers have largely replaced paper ledgers and accounting machines, combining
typewriters with calculators to make the job faster and easier. Modern accountants
perform their work of tracking a business's financial transactions using computers that
run spreadsheet, ledger, list and calendar software (Polimeni 1980).
II. The Advantages of Using Computers in Accounting
1. Speed –
Data entry onto the computer with its formatted screens and built-in databases of
customers and supplier details and stock records can be carried out far more quickly than
any manual processing (Hadler 2005).
A computerized accounting system eliminates many cumbersome and time consuming
manual processes. In addition to calculations being automated, many accounting software
programs allow various reports, such as year-end and statistical, to be generated at the
touch of a button. A document that once took junior accountant hours to compile can now
be created in a matter of seconds (Henderson 2014).
Using a computerized accounting system can save time. Accounting software allows
faster data entry than manual accounting, and allows documents such as invoices,
purchase orders and payroll to be collated and printed quickly and accurately. Because of
its efficiency and ease of use, computerized accounting systems also allow them to
improve inventory control and payment collection, saving time and improving cash flow.
Because computerized systems update some records automatically, your account records
will always be up to date, saving time in updating (Maglof 2014).
The use of a computer should be able to speed up the whole process of keeping
accounting records. This is especially likely to be the case when the firm wishes to
produce the final financial statements at the end of a period. The computer will be able to
extract a trial balance (if necessary at all- perhaps this won't be needed?) and produce the
trading and profit and loss account as well as the balance sheet almost instantaneously,
based on the data already inputted (Polimeni 1980).
These tasks in themselves can be incredibly time consuming, and none of it makes them
any more money. All the time that is spent completing them is time not spent on the
actual running of your business. Accounting software that can help them to cut down that
amount of time spent on these tasks is therefore an essential part of your business
management software (itzbits.co.uk).
The primary advantage of computers over earlier methods of accounting is speed.
Accountants can input numbers with a keyboard and screen at a much faster rate than
with a pen and paper. An accountant may need to enter the same data in two or more
sections of the ledger, but accounting software handles these duplicate entries
automatically. Accounting software features automated functions that reduce the tedious
work of data entry and give accountants more time to be productive (Walnes 1999).
2. Accuracy
There is an old proverb that begins with the statement “to err is human.” Although the
sentiment of this statement was not originally intended as a comment on life in the
information technology age, it still applies. Humans do make errors. An absent decimal
point or the addition of one too many zeros can drastically alter the accuracy of a
financial report. Computerized accounting systems, on the other hand, are designed to
minimize the existence of such blunders. Additions, subtractions and other calculations
are performed by the machine. This ensures that only the correct total listed at the end of
the general ledger (Henderson 2014).
There is less room for errors as only one accounting entry is needed for each transaction
rather than two (or three) for a manual system (Hadler 2005).
Computers are less likely to make errors. In fact they should not make errors at all.
Things will still go wrong, but this is likely to be the fault of the person entering the data
into the computer, rather than the computer itself making an error (sites.google.com).
The information content of reports generated by the computerized accounting system is
accurate and therefore quite reliable for decision- making. In a manual accounting system
the reports and information are likely to be distorted, inaccurate and therefore cannot be
relied upon. It is so because it is being processed by many people, especially when the
number of transactions to be processed to produce such information and report is quite
large (Kumar 2014).
Computers offer much greater accuracy than manual methods of accounting. Instead of
relying on mental arithmetic, spreadsheets and ledgers on a computer total columns and
perform other math functions automatically. With a paper ledger, an accountant must
perform equations on paper, with each transcription and calculation offering a new
opportunity for human error. The time that accountants save also gives them more
opportunities to check their work and examine potential problems with the bookkeeping
(Hartman 1999).
The most important advantage of using the computer is the speed with which we can get
accounting done. In addition, we find that it is very easy to do accounting functions.
Posting to the ledger, a tedious task of double entry, when done directly from the general
ledger module, can be largely automated when done through special purpose modules
like accounts payable or accounts receivable. With an accounts receivable module, you
just need to enter the actual cash totals of items purchased and the software distributes
these amounts to the general ledger so they become credits to corresponding revenue
accounts. At the same time, an offsetting entry is made automatically to the accounts
receivable account (Cook 1989).
3. Security
Under manual accounting system it is very difficult to secure such information because it
is open to inspection by any eyes dealing with the books of accounts. However, in
computerized accounting system only the authorized users are permitted to have access to
accounting data. Security provided by the computerized accounting system is far superior
compared to any security offered by the manual accounting system (Kumar 2014).
For record-keeping and compliance with the law, businesses often must keep
financial records for years. It is extremely difficult to keep copies of paper records in
multiple locations, and a catastrophic incident that results in the destruction of paper
records can damage a business in many ways. With a computerized accounting solution,
files and important financial information can be stored online or on off-site data
cartridges--or both--giving a business the level of redundancy that it needs to recover
from a catastrophe and ensuring compliance with all applicable data retention laws
(Rashid 2014).
The latest data can be saved and stored in offsite locations so it is safe from natural and
man-made disasters like earthquakes, fires, floods, arson and terrorist attacks. In case of
disasters, the system can be quickly restored on other computers. This level of precaution
is taken by Clever Accounting (Romano 2013).
4. Legibility
Computerized accounting software eliminates the need to decipher poor or odd
handwriting, eliminating much of the possibility of error due to misreading a hand-
written line item (Simplestudies.com 2010).
Viewing your accounts using a computer allows you to take advantage of the option to
view your data in different formats. They can view data in tables and using different
types of charts (Romano 2013).
5. Automation
A computerized accounting system eliminates many cumbersome and time consuming
manual processes. In addition to calculations being automated, many accounting software
programs allow various reports, such as year-end and statistical, to be generated at the
touch of a button. A document that once took junior accountant hours to compile can now
be created in a matter of seconds. An additional benefit to automating the accounting
process is the ability to expediently share information. Information regarding business
accounts can be independently entered into an automated system by multiple authorized
parties. In addition, accounting documents, such as financial statements, can be emailed
from one colleague to another in just a few moments (Henderson 2014).
Accounting software has the ability to generate reports on demand--something that could
take a team of humans hours or days. These reports can be customized to what the
company is spending money on, such as rent, day-to-day operations, salaries and
marketing. In addition, when used properly, this feature can assist the business in its
budgeting needs, telling executives in a quick and easy to use format exactly where their
money is going. Reports empower executives to make informed decisions, and having
instant access to them can only make success more likely (Rashid 2014).
Since all the calculations are handled by the software, computerized accounting
eliminates many of the mundane and time-consuming processes associated with manual
accounting. For example, once issued, invoices are processed automatically making
accounting less time-consuming (Romano 2013).
Computerized accounting systems automatically complete many parts of the accounting
cycle. Once a user enters a transaction, the software posts the transaction to the ledger
and updates the financial statements. In addition, computerized accounting systems
perform financial calculations such as totaling revenue and expenses and determining net
income (www.cengagesites.com).
The general ledger accounting systems gets automatically updated once the entry in a
subsidiary ledger is posted. For example, when invoicing a debtor through the Debtors
Ledger there is an automatic entry made to the general ledger. This means if all entries
are recorded the general ledger is up to date (Lenley 2008).
Computerized systems create a trial balance automatically. For example, when electricity
is paid, the Bank account (Asset) gets credited and Electricity (Expense) account gets
debited. Both figures would be included if you were to run a trial balance. From a trial
balance we produce a Profit and Loss Statement and a Balance Sheet and both are
generated in seconds (Lenley 2008).
IV Disadvantages of using computers in accounting
1. Cost
When using accounting software, they must buy the software and any additional licenses
necessary for other users and computers. Some software requires them to purchase
upgrades or updates for additional features. They must also ensure your computer is
capable of running the software. If not, they’ll need to upgrade your computer as well
(Crowder 2008).
Although some small business accounting packages are reasonably priced, the cost of the
software is not the only cost of using the software. Accounting software requires
minimum standards for computer use in regards to RAM, processor speed and hard drive
memory. Making a backup of your accounting data may also require more storage space
than an Excel spreadsheet, which is easily copied to a flash drive. Technical support for
the software may cost extra, and they can incur annual licensing fees in order to receive
upgrades. If they are not skilled in software installation or accounting setup, you may also
incur the cost of hiring a consultant to perform those tasks for you (Morris 2014).
At first glance, a cloud computing application may appear to be a lot cheaper than a
particular software solution installed and run in-house, but they need to be sure you're
comparing apples and apples. Does the cloud application have all the features that the
software does and if not, are the missing features important to them? They also need to be
sure they are doing a total cost comparison. While many cloud computer vendors present
themselves as utility-based providers, claiming that their only charged for what they use,
Gartner says that this isn't true; in most cases, a company must commit to a
predetermined contract independent of actual use. To be sure they're saving money; they
have to look closely at the pricing plans and details for each application.
While in the long run, cloud hosting is a lot cheaper than traditional technologies, the fact
that it’s currently new and has to be researched and improved actually makes it more
expensive. Data centers have to buy or develop the software that’ll run the cloud, rewire
the machines and fix unforeseen problems (which are always there). This makes their
initial cloud offers more expensive. Like in all other industries, the first customers pay a
higher price and have to deal with more issues than those who switch later (although it
would be very hard to create and improve new technologies without these initial
adopters) (Cloud Techie).
In the same article, Gartner also points out that the cost savings of cloud computing
primarily occur when a business first starts using it. SaaS (Software as a Service)
applications, Gartner says, will have lower total cost of ownership for the first two years
because SaaS applications do not require large capital investment for licenses or support
infrastructure. After that, the on-premises option can become the cost-savings winner
from an accounting perspective as the capital assets involved depreciate (Ward 2011).
Notwithstanding the pocket friendly prices of some small business software, the purchase
price of the software is usually only one part of the total cost of using the software.
Accounting software requires minimum standards for computer use in regards to RAM,
processor speed and hard drive memory. Making a backup of your accounting data may
also require more storage space than an Excel spreadsheet, which can be easily copied to
a flash drive. Technical support for the software may cost extra, and you can incur annual
licensing fees in order to receive upgrades. If you are not skilled in software installation
or accounting setup, you may also incur the cost of hiring a consultant to perform those
tasks for you. Such added costs are usually not foreseen by a low budget business owner,
but compound the disadvantage of accounting software to his business (Phatak 2011).
2. Difficulty
Some accounting software packages are designed specifically for non-accountants, but
you will still experience a learning curve when converting to any software package. If
you have never used accounting software before, learning the accounting terms, layouts
and determining a proper setup may be more difficult than the benefits received from
utilizing the software. Running your own business already comes with enough stress and
aggravation. You should not add the stress of learning accounting software to the mix
unless it is absolutely necessary or the gains from utilizing the software outweigh the
losses (Morris 2014).
3. Reliance in computer
If your computer crashes or data is corrupted by a virus, you won't be able to use your
accounting software until the problem is fixed. This also means you won't have access to
any entered data until the computer is running again. Your data can also be corrupted,
meaning you will have to re-enter information unless you've backed up your files. In
addition, if there's a power failure, your software will be unusable unless you're on a
battery-powered laptop (Crowder 2008).
Computers are generally very reliable but problems do occur. If the computer hardware
(they physical computer and other devices used in the system) or the software develops a
fault, then it is likely that the whole system will not able to be used until the fault can be
addressed. This could be very problematic if the fault takes time to found and corrected.
(Student room).
Using a computerized accounting system comes with its own set of problems, such as the
need to protect against data loss through power failure or viruses, and the danger of
hackers stealing data. Computer fraud is also a concern, and you need to instigate a
system of controls for who has access to the information, particularly customer
information. If there is a security breach and data is stolen, management can be held
personally liable for the loss of data. You also need to make sure that the data has been
correctly entered into the system, as a mistake in data entry can throw off a whole set of
data (Magloff 2014).
Conclusion
The fact that nearly all firms make some use of computers in accounting suggests that the
benefits outweigh the costs. Most firms have found computers a very valuable addition to
their abilities in processing the vast amounts of finical data. However one can never
underestimate the benefits of having a skilled human operator who understands the who
accounting system and can reason and use intuition in a way that computer cannot
Obviously both computerized and manual accountings have advantages and
disadvantages but they perform the same task, and the final result is the same. The main
differences between them are the costs, Health Fitness Articles, speed and mobility.
To summarize, a computerized accounting system makes a business save money
rectifying those errors and making the work efficiency to a top levels. It is highly
advisable for a business which follows manual accounting system to adopt CAS to get a
more efficient and accurate accounting reports to monitor the status of the business and
which will alternatively help in making those crucial business decisions even faster with
the help of using such a system.
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