Accounting in Computerized Environment: Introduction, features, Applications in various areas of Accounting

Computerised accounting system is a software that helps businesses to manage the big financial transactions, data, reports, and statements with high efficiency, speed, and better accuracy. Better quality work, lower operating costs, better efficiency, greater accuracy, minimum errors are some of the advantages of Computerized Accounting. Let us learn more about Computerized accounting environment.

Need for Computerised Accounting

Its need arises from the benefits of speed, accuracy and lower cost of handling the business transactions. Also, it has the capability to record a large number of transactions with speed and accuracy. It allows quick and quality reporting because of its speed and accuracy.

Manual accounting system requires large storage to keep accounting records, and vouchers. The requirement of books and stationery and books of accounts along with vouchers and documents is dependent on the volume of transactions.

There is a need to reduce the paperwork and dispense with a large volume of books of account. This can be achieved working with the help of computerized accounting system.

Features of Computerised Accounting Environment

This Accounting System and its awareness among entities have become a necessity in the present environment. Businesses of whatever field and size are shifting from the practice of maintaining accounts manually. The manual process is more time-consuming and exposed to human error.

Storage and retrieval of data and generation of a report cannot be ensured in real time in the traditional system. There is a need to shift to computerized accounting systems.  They have empowered business to project accurate information of financial performance.

1. Simple and Integrated: It helps all businesses by automating and integrating all the business activities. Such activities may be sales, finance, purchase, inventory, and manufacturing etc. It also facilitates the arrangement of accurate and up-to-date business information in a readily usable form.
2. Accuracy & Speed: Computerised accounting has customized templates for users which allows fast and accurate data entry. Thus, after recording the transactions it generates the information and reports automatically.
3. Scalability: It has the flexibility to record the transactions with the changing volume of business.
4. Instant Reporting: It can generate a quality report in real time because of high speed and accuracy.
5. Security: Secured data and information can be kept confidential as compared to the traditional accounting system.
6. Quick Decision Making: This system Generates real-time, comprehensive MIS reports and ensures access to complete and critical information, instantly.
7. Reliability: It generates the report with consistency and accuracy. Minimization of errors makes the system more reliable.

Advantages of Computerised Accounting

1. Better Quality Work: The accounts prepared with the use of computerized accounting system are usually uniform, neat, accurate, and more legible than a manual job.
2. Lower Operating Costs: Computer is a reliable and time-saving device. The volume of job handled with the help of computerized system results in economy and lower operating costs. The overall operating cost of this system is low in comparison to the traditional system.
3. Improves Efficiency:This system is more efficient in comparison to the traditional system. The computer makes sure speed and accuracy in preparing the records and accounts and thus, increases the efficiency of employees.
4. Facilitates Better Control: From the management point of view, there is greater control possible and more information may be available with the use of the computer in accounting. It ensures efficient performance in accounting records.
5. Greater Accuracy: Computerized accounting make sure accuracy in accounting records and statements. It prevents clerical errors and omissions in records.
6. Relieve Monotony: Computerized accounting reduces the monotony of doing repetitive accounting jobs. Which are tiresome and time-consuming.
7. Facilitates Standardization: Computerised accounting provides standardization of accounting routines and procedures. Therefore, it ensures standardization in the accounting records.
8. Minimizes Mathematical Errors: While doing mathematical work with computers, errors are virtually eliminated unless the data is entered improperly in the system.

Need for Computerized Accounting:

The need for computerized accounting arises from advantages of speed, accuracy and lower cost of handling the business transactions.

Numerous Transactions:

The computerized accounting system is capable of large number of transactions with speed and accuracy.

Instant Reporting:

It is capable of offering quick and quality reporting because of its speed and accuracy.

Reduction in Paper Work:

Manual accounting system requires large storage space to keep accounting records/books, and vouchers/documents. The requirement of books and stationery and books of accounts along with vouchers and documents is directly dependent on the volume of transactions beyond certain point.

There is a dire need to reduce the paper work and dispense with large volume of books of account. This can be achieved with the help of computerized accounting system.

Flexible Reporting:

The reporting is flexible in computerized accounting system. It is capable of generating reports of any balance as when required and for any duration which is within the accounting period.

Accounting Queries:

There are accounting queries, which are based on some external parameters. For example, a query relating to overdue customers’ accounts can be easily answered by using the structured query language [SQL] support of database technology in the computerized accounting system. Such an exercise would be quite difficult and expensive in manual accounting system.

Online Facility:

Computerized accounting system offers online facility to store and process transaction data so as to retrieve information to generate and view financial reports.

Accuracy:

The information and reports generated are accurate and quite reliable for decision-making. In manual accounting system, as many people do the job and the volume of transactions is quite large, such information and reports are likely to be distorted and unreliable and inaccurate.

Security:

This system is highly secured and the data and information can be kept confidential, when compared to manual accounting system.

Scalability:

The system can cope easily with the increase in the volume of business. It requires only additional data operators for storing additional vouchers.

Special Features of Computerized Accounting System:

1. It leads to quick preparation of accounts and makes available the accounting statements and records on time.
2. It ensures control over accounting work and records.
3. Errors and mistakes would be at minimum in computerized accounting.
4. Maintenance of uniform accounting statements and records is possible.
5. Easy access and reference of accounting information is possible.
6. Flexibility in maintaining accounts is possible.
7. It involves less clerical work and is very neat and more accurate.
8. It adapts to the current and future needs of the business.
9. It generates real-time comprehensive MIS reports and ensures access to complete and critical information instantly.

Requirements of the Computerized Accounting System:

Accounting Framework:

A good accounting framework in terms of accounting principles, coding and grouping structure is a pre-condition. It is the application environment of the computer­ized accounting system.

Operating Procedure:

A well-conceived and designed operating procedure blended with suitable operating environment is necessary to work with the computerized accounting system. The computer accounting is one of the database-oriented applications, wherein the transaction data is stored in well-organized database.

The user operates on such database using the required interface. And he takes the required reports by suitable transformations of stored data into information. Hence, it includes all the basic requirements of any database-oriented application in computers.

Advantages of Computerized Accounting:

1. Better Quality Work:

The accounts prepared with the use of computers are usually uniform, neat, accurate, and more legible than manual job.

2. Lower Operating Costs:

Computer is a labor and time saving devise. Hence, the volume of job handled with the help of computers results in economy and lower operating costs.

3. Improved Efficiency:

Computer brings speed and accuracy in preparing the records and accounts and thus, increases the efficiency of employees.

4. Facilitates Better Control:

From the management point of view, greater control is possible and more information may be available with the use of computer in accounting. It ensures efficient performance in accounting work.

5. Greater Accuracy:

Computerized accounting ensures accuracy in accounting records and statements. It prevents clerical errors and omissions.

6. Relieve Monotony:

Computerized accounting reduces the monotony of doing repetitive accounting jobs, which are tiresome and time consuming.

7. Facilitates Standardization:

Computerized accounting facilitates standardization of accounting routines and procedures. Therefore, standardization in accounting is ensured.

8. Minimizing Mathematical Errors:

While doing mathematics with computers, errors are virtually eliminated unless the data is entered improperly in the first instance.

Disadvantages of Computerized Accounting:

1. Reduction of Manpower:

The introduction of computers in accounting work reduces the number of employees in an organization. Thus, it leads to greater amount of unemployment.

2. High Cost:

A small firm cannot install a computer accounting system because of its high installation and maintenance cost. To be more economical there should be large volume of work. If the system is not used to its full capacity, then it would be highly uneconomical.

3. Require Special Skills:

Computer system calls for highly specialized operators. The availability of such skilled personnel is very scarce and very costly.

4. Other Problems:

Frequent repair and power failure may affect the accounting work very much. Computers are prone to viruses. Often time’s people will assume the computer is doing things correctly and problems will go unchecked for long period of time.

Problems Faced In Computerized Accounting System:

1. User Training:

The user, for using computer accounting software, needs to understand the concepts of the software. Hence, he should undergo proper training. A computer operator must learn the basics of computer, concepts of software, working with the operating system software [such as Windows/DOS] and the accounting software.

2. System Dependency:

Using a computer solution makes the user to depend fully on the com­puter system and necessitates the availability of computer at all times. If the system is not available [due to hardware failure or power cut], it would be difficult to verify the accounts.

3. Hardware Requirements:

A full-fledged computer system with a printer is required to operate the computerized accounting system. Most small organizations may not afford to have such facility with necessary software.

4. System Failure:

When there is a system crash [hard disk crash], there is high risk of losing the data available on the hard disk drive at any point of time. It would be highly painful, if the problem occurs at end of the financial year, when the financial statements should be ready.

5. Backups and Prints:

Backups of the data should be done regularly so that, when the data is lost, it can be restored from floppies [backups]. Regular print outs of the system information would be useful as manual records.

6. Voucher Management:

Accounting software allows easy alteration of data. If a voucher is wrongly placed in a wrong head, it would be very difficult to sort out and bring back the voucher. A good voucher management is very essential.

7. Security:

Additional security has to be provided because improper handling of the system [hardware/software] could be dangerous. Passwords, locks, etc., have to be set so that no unauthor­ized person can handle the system.