Gone are the days when accountants used to record the accounting transactions using the ledger books and pen/pencil. Firstly, computers technology has registered its importance in the last 3 decades in every industry. Earlier, it’s only use was in the field of science and technology. But recently, organizations are finding the importance of modern computers for carrying out economic planning and forecasting processes. Organizations are now using them in the field of accounting too. Hence, Computerized Accounting System has become commonplace in many firms, from Fortune 100 companies all the way down to one-person businesses.
What is Computerized Accounting System?
Firstly, Computerized accounting systems are software programs that are stored on a company’s computer, network server, or remotely accessed via the Internet. A firm prepares various reports with the help of it.
Hence, it also helps to analyze the company’s operations, efficiency, and profitability. Most importantly, firms prepare its reports as per Generally Accepted Accounting Principles (GAAP) under this system.
Features of Computerised Accounting System
1. Very neat and accurate work
2. Need for less clerical work
3. Cost and time efficient
4. Less possibility of errors and omissions
5. Generated real-time comprehensive MIS reports
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Requirements of Computerized Accounting System
1. Operating Framework
It is a well-defined operating procedure made according to the operating environment of the organization.
2. Accounting Framework
It consists of Principles, grouping and coding structures of accounting.
Difference between Computerized Accounting System and Manual Accounting
|Basis of Difference||Manual Accounting||Computerized Accounting System|
|1. Recording transactions||Under manual accounting, a firm records the transactions through physical books of accounts.||Under this system, a firm records the transactions in a well-designed computer database with virtual books of accounts. Hence, no need space to store books.|
|2. Duplication of Data||Under this system, a firm posts similar data more than once. Like firstly in Journal and then its posting in Ledger. Therefore, there is a duplication of data.||Under this system, a firm need not post its data more than once. The system automatically generates many reports with the single entries. Hence, there is no duplication of data.|
|3. Need for ledger to prepare Trial Balance||Under this system, a firm cannot prepare trial balance without preparing Ledgers. Hence, No Ledger means No Trial Balance||Under this system, a firm can prepare trial balance without preparing Ledgers|
|4. Independent Financial Statements||Under this system, financial statements are dependent on the availability of the trial balance. Hence, No Trial Balance means No Financial Statements||Under this system, financial statements are independent of the availability of the trial balance.|
Advantages of Computerized Accounting System
1. The accounts prepared with the use of computers are usually uniform, neat, accurate, and more legible than a manual job.
2. Computers bring speed and accuracy in preparing the records and accounts and thus, increases the efficiency of employees. Hence, time is saved.
3. Also, greater control is possible and more information may be available with the use of computers in accounting.
4. Computerized accounting reduces the monotony of doing repetitive accounting jobs, which are tiresome and time-consuming
5. Using accounting software it becomes much easier for different individuals to access accounting data outside of the office, securely. This is particularly true if an online accounting solution is being used.
6. The financial statements prepared by computers are highly reliable because the calculations are so accurate.
7. Using accounting software, the entire process of preparing accounts becomes faster.
8. Also, the data record is secure under this system.
Disadvantages of Computerized Accounting System
1. The effectiveness of the data output completely depends on the information input. Hence, if the input is incomplete or incorrect then it will lose effectiveness.
2. Biased or incompetent employees may affect the data.
3. Virtually every aspect of a computerized accounting system is costly. Hence, the expenses of the company increase.
4. Computerized accounting systems are vulnerable to cybersecurity issues. Hence, Cloud-based systems store your company’s information remotely, where it can be hacked.
5. Excess is anything is dangerous. Similarly, excess use of computers can affect the health of the operator.
Types of Accounting Softwares
1. Ready-to-use Softwares
Firstly, this kind of software is suitable for small businesses in which there are very less accounting transactions. The cost of the software is very low. Hence, the expenses of the firm will not increase.
The user base too is very less. Such software is prone to risks as it is less secure. There is no need for special training for using the software. It may not comply with other information systems.
2. Customized Softwares
Sometimes the software is customized to meet the special requirement of the user. It happens when general software is not helpful. It is suitable for medium and large businesses.
Hence, a firm can use it with many Information Systems. Cost of the software is relatively high. It includes modification and addition to the basic software.
Unlike ready-to-use software, it is more secure. Training cost is relatively high. Hence, the expenses of the firm will increase.
3. Tailored Softwares
This software is suitable for Large organizations having various divisions. It is helpful when the user base is geographically scattered. In contrast, its cost is very high.
Special training is necessary to use this software. Hence, the expenses of the firm will increase. It is highly secure.
Question For You
What are the differences between the 3 different types of accounting software?
Difference between Different Types of Softwares
|Basis of Difference||Ready-to-use||Customized||Tailored|
|1. Suitable for||Small Businesses||Medium and Large Businesses||Large Businesses|
|2. Cost||Low||Relatively High||High|
|3. Security Level||Low||Relatively High||High|
|4. Number of users||Limited||As per specifications||Unlimited|
|5. Adaptability||High||Relatively high||Specific|
|6. Training requirement||Low||Relatively high||High|