Concept of Computerized Accounting

System

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

Browse more Topics under Computerised Accounting System

 ● Sourcing of Accounting Software

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

Computerized Accounting
Basis of Difference Manual Accounting
System

Under this system, a firm

Under manual accounting, a records the transactions in a
firm records the transactions well-designed computer
1. Recording transactions
through physical books of database with virtual books of
accounts. accounts. Hence, no need
space to store books.
 Under this system, a firm need
Under this system, a firm
not post its data more than
posts similar data more than
once. The system
once. Like firstly in Journal
2. Duplication of Data automatically generates many
and then its posting in
reports with the single entries.
Ledger. Therefore, there is a
Hence, there is no duplication
duplication of data.
of data.

Under this system, a firm

cannot prepare trial balance Under this system, a firm can
3. Need for ledger to prepare
without preparing Ledgers. prepare trial balance without
Trial Balance
Hence, No Ledger means preparing Ledgers
No Trial Balance

Under this system, financial

statements are dependent Under this system, financial
4. Independent Financial on the availability of the trial statements are independent of
Statements balance. Hence, No Trial the availability of the trial
Balance means No Financial balance.
Statements

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?

Solution:

Difference between Different Types of Softwares

Basis of Difference Ready-to-use Customized Tailored

Small Medium and Large Large

1. Suitable for
Businesses Businesses 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
Low Relatively high High
requirement

Sourcing of Accounting Software

Now that almost all ​organizations​ use accounting software to maintain

their books of accounts, a new question arises. Which accounting
software should the company use? Well, there are a number of ​factors
to consider when sourcing ​accounting software​. Let us take a look.

Accounting Software

Having accounting software in place will allow you to stay on top of

the ​cash flow​ and focus on what you do best. You won’t have to create
a duplicate for yourself and it keeps your record clean. People who
don’t manage their household with a budget don’t manage their
business​ with a budget. Businesses that don’t make their decisions
based on up-to-date financials don’t make many dollars and doesn’t
make many dollars and that doesn’t make any sense.
Tracking the financial side of any business can be a lot of work, but
understanding the numbers is essential to success. You don’t have to
manage the ​money​ inflows on your own, there are several software
options that will improve the efficiency of these accounting records.
This is one of the early and important decision that every business
must make. Don’t hesitate to take the advantage of the free-trials offer
before jumping in.

There are 5 main considerations while selecting the accounting

software for your small business. Let us take a look at them in some
detail.

1. Ease of Use

Ask yourself how is it use the program. The interface and navigation
should be simple and self-explanatory. There should also be an option
for data backup. I personally like to purchase from companies that
offer help at no additional cost, have reasonable service plans or offer
tutorial training that walks me through the most popular business cost
and transactions. If the program is not easy to navigate, it will be
installed on your ​computer​ but you will never want to use it and you
don’t want it to happen.

2. Features

What your software offers is an important consideration. Make a list

of the primary things that you need to track an account for. You must
know how much each service or ​product​ costs and be able to track
your cost of goods sold. Features like invoicing, online payments,
payrolls, auto payments, reporting, bank balances will help you to stay
up-to-date on your small business income, expenses and where you
may need to make adjustments. Narrow the choices and compare
program features by using the accounting libraries and free software
tools.

3. Compatibility

If other financial tools are being used by the business- for example, A
POS or e-commerce system, then you want to look into compatibility
on your particular software with any other essential software to run the
online or storefront portion of the business. In an ideal world, you
want a solution that provides most of what you need in one program.
If you must have multiple software packages make sure that the data
can be automatically linked for real-time updates or transferred daily
with the upload of excel or CSV file.

4. Collaboration

In many companies, knowing the ​number​ is a team effort. Consider a

software program that allows you to have several users including a
financial user, accounting, and bookkeeper. Billing is one of the most
important activity of an organization so it should not take
overwhelming effort.

5. Price

While price is a factor it should not necessarily be the deciding one.

The ability to manage the one is far more important of it’s the
difference of saving the few dollars. What you should be aware of are
the different pricing models that used by software products. For
example – you can purchase quick book software for a one time fee of
$249, or use their online version which starts at $12.95.Fano

Solved Example for You

Q1. Why Do you need accounting software for your small business?

Ans: A small business with just 5 employees may find that accounting
software may save them 3hrs each month on paperwork. Another
business of the same size may see no gains. A fortune 500 business
absolutely needs your accounting software, on the other hand, a
published author can manage without.

Benefits of having accounting software:

● It automatically calculates general entries for the balance sheet

for p/l statement
● You can easily transfer the data to your accountant and
auditors.
● Bookkeeping software has abundant useful tools and
functionalities to analyze your business and perform financial
analysis.
● Journal entries, drafts, invoices and financial statements can
automatically be printed in good and professional formats for
your accountants to use.
Q2. What are 3 major types of accounting software?

Ans:

● Database accounting software: This type of system is used by

large companies. Since businesses need to have a large
database to install this type of software data is more secured s.
Oracle accounting software falls into this category. One needs
to hire system engineer and system consultant to install in your
company. Basically, this type of software can handle financial
management, more complex tasks, large network and complete
accounting functions.
● Installed accounting software: Limited businesses can take
advantage of accounting software in the form of CDs and
DVDs which can be installed on your computer, in the area
where internet connection is slow and
● Cloud accounting software: this accounting software is
available online and data can be accessed through the internet
or cloud. For example fresh book or quick book, sage 50
premium accounting 2k15 and zero.