Pros and Cons of Computerized Accounting Advantages Disadvantages of Computers in Accounting PDF

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Pros and Cons of Computerized Accounting Advantages Disadvantages of Computers in Accounting...

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Pros and Cons of Computerized Accounting  Businesses must keep accurate records of purchases, expenditures, money owed and other accounting factors.  Traditionally, businesses tracked accounting records manually, which could be time-consuming and expensive to complete.  As businesses increasingly turn to computerized accounting systems, you may begin to wonder if this is the right financial decision for your enterprise.

 Accuracy  Computerized accounting reduces the margin for human error, creating fewer mistakes and greater accuracy in tracking your business's finances. Since computers perform basic accounting functions, there’s less chance that simple human mistakes will result in grave accounting problems.  Accuracy is one of the main pros for computerized accounting, since companies must rely on correct calculations to make informed business decisions.

 Access  Increased access is another pro related to computerized accounting. Having accurate, trackable records increases credibility with outside investors and business partners; companies can securely and efficiently share selected records with relevant parties by sharing a link, passcode or electronic file.  Data from numerous company departments can be easily shared for more transparency and greater access to information during decision making. More than one person can view and manipulate computerized accounting records without the risk involved with making multiple copies of sensitive financial documents.

 Accountability  Another pro for computerized accounting is increased accountability. When accounting files are saved and backed up electronically to an external hard drive or off-site computer system, there’s less risk that records will be destroyed or lost in a fire, flood damage or cleaning frenzy. Well-maintained, accurate business records can save you time and money during audits, since information should be readily available.

 Limits  Computerized accounting has its limits, however. One con related to computerized accounting is that while software programs may be equipped to run sophisticated evaluations of financial records, you’ll still need a business-savvy human who understands the software and its capabilities enough to authorize reports.  Accuracy remains a problem when humans must still enter data into required fields. Misplaced commas or decimal points can result in serious accounting errors despite software mechanisms designed to catch mistakes.

 Money  Another con associated with computerized accounting is the expensive of purchasing sufficient computers and accounting software. Money saved from paying employees long hours to manually log accounting information can be easily lost compared with the high cost of highly trained accountants familiar with the software.  Software companies regularly come out with new, updated accounting systems that can be pricey but deemed necessary because of vulnerability to system flaws or hacker accessibility in older versions.

Advantages & Disadvantages of Computers in Accounting 

Like so many areas modern life, computers have transformed the way that accounting is performed, both for personal finances and for small and large businesses.

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Instead of making endless rows of manual entries and doing calculations by hand, computers have made much of the accounting process automatic once the basic data has been entered.

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But computerized accounting is not without disadvantage, and pros and cons should both be considered before utilizing computerized accounting.

 Increased Productivity  Computers are renowned for efficiency, and accounting is no exception to this rule.  The use of computerized accounting eliminates duplicating entries, hand-written ledgers and notes and manual calculations, saving staff time and allowing the same staff to handle larger numbers of transactions and reports.

 Automated Report Generation  Rather than being forced to create standard financial reports by hand each time they’re needed, computerized accounting provides for nearly instantaneous creation of standard reports such as account balances, trial balances, general ledgers, profit and loss statements and other typical reporting requirements.

 Enhanced Accuracy  Because so many calculations are required for accurate accounting, computers are an ideal solution to human error.  While errors may still be made in data entry, the computer’s calculations will increase the accuracy and reliability of the company’s reports.

 Flexibility and Timeliness  Computerized accounting excels at manipulating data and provides a flexibility in reporting and data analysis that manual accounting cannot match.  What’s more, as long as data is entered in a timely fashion, updated reports can be instantly generated that incorporate the company’s latest information.

 Ease of Data Protection  In the event that data is corrupted or reports are damaged or lost, computerized accounting provides instant restoration from backup, ensuring that critical information isn’t lost.  Digital backups may be maintained on- or off-site for additional protection of vital information.

 Staff Satisfaction  By eliminating much of the routine work involved in manual accounting, computerized accounting allows staff to focus on wider-ranging tasks and minimizes the time spent doing boring, repetitive tasks such as manual calculations. As a result, employees can expect greater job satisfaction.

 Initial Cost  Despite many advantages, one disadvantage of computerized accounting is the initial cost of establishing the system.  While the price of computers has fallen dramatically year after year, accounting software remains expensive and can cost thousands of dollars.

 Staff Training  Computerized accounting systems also require specific software training for staff, incurring additional training expenses to the business and extending the time it takes to deploy the system before it can be utilized.

 Reliability  Computerized accounting systems are by nature vulnerable to issues such as computer viruses, power failures and hardware failures which may impact the reliability and availability of the system.  Correcting computer problems will incur lost time and productivity.

 Deployment Issues  Substantial difficulty for the business may result from any failure to properly set up the accounting software, or in choosing the wrong software package to meet the business’ needs.  Inadequate or inaccurate reporting may result, requiring lost time to correct the problem or deploy a new software solution.

Manual vs. Computerized Accounting Systems  It's possible to handle business bookkeeping in a physical, hard-copy ledger instead of a computer. Does that make it a good idea? Computer advocates say software is faster, more accurate and more secure. 

Comparing manual accounting vs. computerized accounting usually makes software look like the better alternative. However, if your accounting is simple and you prefer a hard copy, there's nothing wrong with that.

Similarities Between Manual and Computerized Accounting  The biggest of the similarities between manual and computerized accounting is that the rules of accounting don't change, regardless of how you record data. Double-entry bookkeeping, where you debit office equipment when you buy a new computer and credit the same amount to cash or accounts payable, is still the gold standard; financial statements have to meet the same requirements.

Another similarity is that whichever method you use, you face the same requirements:

 The accounting has to be accurate.  You don't want someone falsifying entries or altering entries without authorization.  You can't afford to lose your records to a computer crash or a fire.  Practical considerations matter. You don't want to spend more than necessary, and you don't want to spend more time entering information than you have to.  For most users, the difference between a manual and computerized accounting system is how well they meet these requirements.

Accuracy in Accounting  The biggest problem in keeping accounting accurate is human error. Among the similarities between manual and computerized accounting are that you can enter inaccurate figures either way. 

It's easy to transpose $1,200 in sales revenue into $2,100 and not notice whether you're typing or writing.

 Software accounting isn't just about data entry, though. It's about tracking totals, subtracting expenses from income and recording new equipment as assets on the balance sheet. 

Your computer does this automatically; if you have to do it yourself, there's a much higher chance of adding wrong and not even noticing it.

 This also makes computerized accounting much faster, although it may take time for you to master the software's quirks. Many programs can speed up or automate other tasks, such as generating invoices or reports.

Your Bottom Line  If cost is a big issue in choosing manual accounting vs. computerized accounting, manual accounting has the edge.  A bookkeeper's journal is cheaper than good accounting software. If you're a small start-up with simple, cash-basis accounting, it may be all you need.  As your business grows and the accounting becomes more complex, the money you save may not be worth it. If you run your operation on a cash basis, all you have to do is report when you spend or receive money. If you switch to accrual accounting, as most-larger businesses do, you have to track money owed to you and money you owe, which is easier to lose track of.  Software programs can still go awry if you forget to enter information, but they make it much easier to record lots of transactions. They're also quicker at complicated challenges such as drawing up financial statements.

Access and Security  Another difference between a manual and computerized accounting system is the ease of access.  If you're a sole proprietor running a one-person business, that's irrelevant: you're the only one who needs to see the ledger most of the time. If, however, you have a multi-million dollar business with a half-dozen department heads and a board of directors, lots of people may need to view the accounts.  With a computer, it's much easier to share information around the organization. If you install good safeguards on the system, it should be harder for anyone to access and alter the data.  The risk of damage and data loss exists either way. Data can be corrupted or wiped out by a virus; hard copy ledgers can die from fire or water. However, it's a lot simpler and quicker to back up digital data and store it somewhere secure than to make copies of all your ledgers....