Computerized accounting systems are widely used by even the smallest of companies. These systems simplify the record-keeping process in that transactions are recorded in electronic forms at the same time, posting them electronically to general and subsidiary ledger accounts.
Computerized systems provide management with current account balance information to support decision making since account balances are posted as the transactions occur.
Features of Computerised Accounting System
A computerized accounting system is based on the concept of a database. This system offers the following features:
- Online input and storage of accounting data.
- Printout of purchase and sales invoices.
- Every account and transaction is assigned a unique code.
- Grouping of accounts is done from the beginning.
- Instant reports for management, for example, Stock Statement, Trial Balance, Income Statement, Balance Sheet, Payroll Reports, Tax Reports etc.
A computerized accounting system can offer many advantages; however, some problems associated with the use of computers need to be recognized.
Some of the major advantages and disadvantages of a computerized accounting system are described below:
Reduction in processing costs
The low cost of hardware and software and the availability of user–friendly packages such as Xero and Reckon give computerized accounting systems a cost advantage over manual systems. Invoices can be sent electronically and paid from the customer’s mobile device eliminating the need for printing and postage.
Speed of processing
Thousands of transactions can be processed at high speed, and high‐speed printers enable output at thousands of lines per minute. In fact, there is significantly less need to print
Once programmed, the computer is virtually error‐free compared with manual systems, which are much more prone to human error. But control procedures must exist to ensure the accuracy of data input. Input processing is facilitated by computer help and interactive feedback.
All posting is performed automatically at high speed and is virtually error‐free if the accurate data input is correct.
Automatic production of reports
The system can be programmed to produce up‐to‐date reports on request, thus providing owners/managers with more timely and relevant reports. Reports can be accessed in real-time anywhere, anytime using a mobile device. Also, various accounting documents such as invoices, cheques, and statements can be produced automatically or electronically.
Improved reporting and decision making
A wide range of reports beyond the scope of manual systems can be produced in seconds, such as analyses of sales by territory, salespeople, products and customers. The system gives greater inventory control, and detailed reports on inventory movements are instantly available.
Faster response time
A wide range of queries can be answered very quickly, such as queries from customers regarding their current balances. Stock levels of a particular item of inventory are always available.
Some advantages may not be realized because of hardware, software or personnel problems. Inappropriate or unsuitable programs may cause a system failure. People without the necessary expertise may also cause problems. Regular backing up of files is essential.
Power failure, power surges and lightning strikes can cause the whole system to crash, so all systems require back‐up records.
Undetected viruses can destroy all files in the system, so security is a high priority.
Unauthorized people may gain access to computer files and make amendments, or gain access to confidential information.
People both within or outside the organization may gain access and use the computer to cover up cases of fraud or embezzlement.
Automation of Accounting Process
When accounting functions are done by computerized accounting software that is known as automation of accounting process under the automation of accounting process human activity is less but accounting software is more used.
So, accounting functions like posting into the ledger, Balancing, Trial Balance and Final Accounts are prepared by computers.
Stages of Automation
There are different stages of automation in a computerized accounting system:
Under this stage, the assessment of the size and business transactions is done for which automation has to be made.
Selection of Accounting Software:
As there are many accounting softwares available in the market. So, in this stage, appropriate accounting software is to be selected according to the company’s needs.
Selection of Accounting Hardware:
Under this stage of automation, computer hardware is selected. This hardware should be such which can fulfill the accounting requirement and support the accounting software.
Chart of Accounts:
Under this stage list of required heads of accounts is prepared.
Grouping of Accounts:
There are various transactions for Expenses, Income, Assets, Liabilities. All these transactions cannot be shown directly. So, these transactions are grouped as salary, wages, discount, and commission, etc.
Generation of Reports:
This is the final stage of automation, the final reports are prepared in the form of Cash Book, Journal, Ledger, Trial Balance, P&L A/c and Balance Sheet, etc.