Accounting Systems

Computerized Accounting System

Benefits of Computerized Accounting Systems

The three main advantages of using a computerized accounting system are having a simplified record-keeping process, more accurate information, and current account balance information.

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

QuickBooks is one of the most popular types of accounting software used as a computerized accounting system.

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

Date Description Debit Credit
Dec 31 Accounts Receivable $51.75
      Revenue (Fees Earned) $51.75
To record fees earned on account

Accounting Program Invoice

A computerized accounting system provides an interface, such as this invoice screen, that allows users to successfully maintain their own accounting system.
Step 2: Company ABC receives payment from the customer billed in Step 1. Therefore, the company would complete a "receive payment" form. By doing this, the computer system automatically debits cash for the amount received, as well as for the credits accounts receivable for the same amount. Remember that in a manual accounting system, this entry would have also shown up in the cash receipts journal and the accounts receivable subsidiary journal. The same rules apply here. However, this all happens behind the scenes. If a company wants to know how much a customer still owes, it would look for that customer and would see the customer's balance along with the transactions that occurred to get to the balance. That is exactly what the accounts receivable subsidiary ledger does.

Accounting Program Customer Payment

Computerized accounting systems provide user-friendly interfaces that allow users to successfully maintain their own accounting information.
Step 3: At any time, a company can run reports to provide an updated look at where the organization stands. In a manual accounting system, reports are created by hand once all the information has been calculated, closed out, and cross-checked a few times. However, in a computerized accounting system, all of the information is updated in real time. Therefore, a company is able to run a report, then make a change, and then run a report again to verify that the changes were made, all within minutes.

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.