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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