Benefits of Computerized Accounting Systems
Using a computerized accounting system takes a great deal of the hard work off of the financial professional within a business. Oftentimes, the person doing the financial work for a start-up or small business has little or no background in accounting. Computerized accounting software systems were designed to streamline the accounting process. However, even accountants appreciate the efficiency of being able to easily duplicate transactions, run reports in real time, or as they occur, and use other features that come along with using a computer system.
One advantage to using a computerized accounting system is that the company is able to simplify the record-keeping process. In accounting, a journal entry is recorded for every transaction that occurs within a business. Therefore, if items are bought and sold 40,000 times within a week, then at least 40,000 transactions would be recorded in the general or special journals. Recording all of these transactions by hand would be tedious and time-consuming. Accountants and non-accountants have turned to these computerized accounting systems as a way to avoid the task of recording these entries.
Anytime there is a lot of data to comb through, there is always the risk of human error, particularly when counting a large number of transactions. Computerized accounting systems have mitigated this risk and in turn provide more accurate information as an advantage. The risk of human error still exists in the input stage. However, that risk is minimized by the fact that the computer is doing all of the adding and a great deal of the analytical procedures necessary to ensure success.
In almost all organizations, members of management use accounting information to make decisions. Therefore, having a computer system that allows real-time access and current account balance information is a great advantage of a computerized accounting system. Most contemporary companies desire to have instant access to their financial information. Historically, the accounting books were only closed at the end of the month, which is when financial statements were presented to provide updated financial information. However, with the proper authorization, many managers are now able to access a real-time dashboard of accounting information at any given time. Because of this, computerized accounting systems are a staple for all companies.
Computerized Accounting System Illustration
When people talk about accounting software, QuickBooks is likely mentioned at least once in the conversation. QuickBooks is one of the most popular accounting software brands on the market. It was initially designed to provide an easy-to-use accounting software option for small business owners who may or may not have had an accounting background. However, QuickBooks has since evolved into a real-time, computerized, web-based (in some cases), legitimate accounting system that many organizations use today.
Additionally, many companies integrate their accounting system with other automated business systems. For example, fictitious Company ABC has synced its credit card system with its QuickBooks accounting system. As it uses its credit cards to make transactions, data is automatically pulled into its accounting system, where it is coded and recorded in the appropriate accounts.
Here is an example of how QuickBooks is used by Company ABC to record transactions:Step 1: Through QuickBooks the company sends out invoices to its customers. An invoice is a bill sent to a customer by an organization. When the company sends out invoices to its customers, QuickBooks automatically creates a journal entry to debit accounts receivable and credit revenue. By simply creating an invoice, a journal entry is created behind the scenes that will match the traditional way of capturing accounting information.
Journal Entry Generated by QuickBooks
|Dec 31||Accounts Receivable||$51.75|
|Revenue (Fees Earned)||$51.75|
|To record fees earned on account|
Accounting Program Invoice
Accounting Program Customer Payment
These accounting software systems are designed to follow the basic principles of accounting. Double-entry accounting is ever present, and the system will not allow the company to navigate around those rules. However, technology is never perfect, and there are some exceptions to the rule. Therefore, it is very important to have at least one person within an organization or a contracted certified public accountant (CPA) who is available to ensure that all processes are running smoothly and that there is no loss of integrity in the reports being generated. Understanding basic concepts in accounting is essential when looking at a computer-generated report, because then the company is able to easily determine whether there is an error.