The Core Features of Manual and Computerized Accounting - Term Paper Example

Accounting systems for business organizations Table of Contents Introduction 3 Manual Accounting 3 Computerized Accounting 4 Comparing Manual and Computerized Accounting Systems 5 Speed and Accuracy 5 End-of-Period Reports 5 Data Manipulation 6 Database Security 6 Distribution Method 7 Required Skill-Set 7 Cost Benefits 8 Conclusion 8 References 10 Introduction Accounting is certainly a very important aspect of a company’s business operations. Organizations are required to maintain a record of their operational activities on a consistent basis. From a technical perspective, accounting can be stated as a mode of communication of trade and commerce that is acknowledged and recognized all over the globe (Meigs and Mary, 1998). Companies all over the globe are required to implement accounting because it is a widely accepted phenomenon that organizations are required to reveal their business related information to the local government, public and other viewers of their financial statements because accounting is a highly important tool in business management. Due to the consistent development in science and technology, the overall accounting process has become highly agile and relatively easy to use. As a result, business accounting can now be divided into two broad and very important categories: Manual accounting Computerized Accounting This essay will analyze the core features of manual and computerized accounting, their strengths and weaknesses and will thus create a comparison of their core traits. Manual Accounting From a technical perspective, a manual accounting system allows an accountant in posting business transactions through various manual tools such as the general ledger, worksheet and general journal. It could be executed by utilizing an actual journal and ledger, which can also be used for creating spreadsheets for various technical and business programs. The manual accounting system is thought to be cumbersome and timely because the transactions are entered within the system through an individual basis (Mott, 2012). In addition, it has been widely used over the years by companies as the ledgers can be reviewed easily and accountants can make the desired changes whenever required. Individual accounts, journal entries and general ledgers are also reconciled as information is presented in a systematic manner. Accountants do have the privilege to handle each ledger and to rectify any issues, which is of relative concern. Computerized Accounting On the other hand, computerized accounting can allow businesses to do software programs, which can be stored and interlinked with the companys database and network server and can also be accessed through the internet. Due to the complexity of modern day business, companies are also allowed to use the software to meet overall needs of their business. Companies are also required to make sure that their staff are adequately trained and are able to understand how the business system works so that they are able to successfully use their accounting software (Ayeboafo, 2012). Computerized system of finance and accounting helps a user in entering the business transaction and updating them simultaneously as necessary. Moreover, computerized accounting system is comprised of various technical attributes and traits, they require accountants to enter the relevant financial information, and as the part of the process, the system calculates the information to the desired general ledgers (Bell & Payne, 2011). They also allow accountants in creating forecasting and trending analysis and help in portraying favorable and adverse variances flawlessly and accurately. According to Xu (2014), computerized accounting system helps to integrate financial performance of all departments within a company and as a result, business transactions of all company departments can be accessed with the help of computerized accounting systems and this provides convenience to users of financial information. Comparing Manual and Computerized Accounting Systems Before implementing any business accounting system, an organization has to first evaluate its business needs. Some companies may only need to check journal entries and reconcile their accounts while others may require a more comprehensive business system, which can interlink all business functions of a company which including bill and invoice creation, payroll processing, maintaining inventory record etc. Depending on the size and complexity of organizations, accounting systems can be implemented. Following is a comparative analysis of manual and computerized accounting software: Speed and Accuracy When compared to manual accounting system software, a computerized accounting system is much quicker and faster for storing and entering information for programs (Bell & Payne, 2011). However, this may not always be helpful because computer programs do have the ability to detect any built-in error but it is often very easy in verifying and crosschecking journals ledgers for a manual accounting system due to the conventional flexibility and mobility provided by this process. End-of-Period Reports According to Meigs and Mary (1998), for all relevant and highly suitable ledger reports, the computerized accounting systems can provide technical accuracy. Although manual accounting is a long and cumbersome process but it helps a bookkeeper to understand and analyze the posting and overall accounting process. The core concepts of accounting such as ledger posting, trial balance, double entry can be better understood and assessed through the manual accounting system. For this reason, accounting professionals and students have to first take manual accounting courses before they can opt for a computerized accounting course. This can help them to better adapt to core requirements for software and computerized related accounting. Data Manipulation With the help of a computerized accounting system, information can be processed quickly and swiftly as they are compiled in a smooth manner. Compared to a manual accounting system, substantial of time and energy is required for allocating information from books and to compile it in a book report. Apart from that, data entered through computerized accounting can be easily accessed which means that accountants have up-to date and relevant information available. However, organizations implementing the computerized accounting systems have to beware as data can be accessed through several illegitimate and illegal means. Manual accounting software, however, is much safer in this regard, as data cannot be easily manipulated, accessed or altered (Ying, 2012). Database Security According to Ayeboafo (2012), accounting software can help the financial statements to be safe and secure. The database of a company’s financial information can be protected through a password. Users can use their accounting data and regularly save their work for the company’s convenience. Comparatively, manual accounting is much less secure as documents are consistently piled up with the passage of time and they require a large database to store information. Apart from that, information can be easily backed up through computerized accounting with the help of various back up techniques but the same cannot be done for manual accounting. Therefore, it is certainly easier to recover data in computerized accounting software. However, it is also a fact that computer hardware is certainly more fragile when compared to manual accounting because information can be accessed through hacking and various other cyber crimes. It is a fact that recording of financial transactions through manual accounting systems is done through books of original ledger and journal entries. However, within the computerized system of accounting, the financial data can be installed in a highly agile and sophisticated database, which can be easily reproduced. Distribution Method The data distribution method for computerized and manual accounting varies to a great extent. In manual accounting, users can create and distribute all financial information by hand. However, in computerized accounting, information can be processed and distributed in a relatively less time and can be provided to a wide array of users. It can be accessed instantly through email thus allowing creating flexibility and eliminating the time required to access the information (Woolley, 2012). With the help of computerized accounting system, companies can utilize their data with great convenience. Required Skill-Set Manual accounting system does require a substantial number of skills but the skill set required is not highly competitive. In computerized accounting software, however, the required skills and technical expertise should not only be high but even the accounting knowledge has to be of a relatively high level (Sinkey, 1990). Manual accounting practices, on the other hand, requires a thorough understanding of accounting standards. However, due to vast array of accounting software tutorials available on the internet, information and knowledge can be accessed without any additional cost and potential users of accounting software can learn the mechanics of the software with ease. Cost Benefits The automation and computerization of accounting systems requires substantial amount of financial investment and a high level of technical expertise to guide organizational members and to get accustomed with the technical attributes of the accounting software. The financial benefits may not be visible at an initial level but can certainly be reaped with the passage of time, specifically if the cost benefit analysis is carefully evaluated and analyzed (Ying, 2012). In the manual accounting system, however, the implementation cost is very low but the cost of maintaining this system is high in the long run as a considerable number of staff is required to keep accounting data on a regular basis. Conclusion Due to its convenience and agility, several companies across the globe have now transferred to the computerized system of accounting and now present their financial information in the computerized format only. This mode allows a firm to present its financial statements in an accurate manner and can provide an in-depth analysis of a company’s financial position. Although the prominence of manual accounting may not be the same but its importance will never fade away completely. However, there are several benefits associated with computerized accounting system but there are some limitations associated to it. As compared to manual accounting, computerized accounting’s implementation costs are very high and lack of technical expertise, electricity and software failure can certainly create a massive hindrance for companies who are dependent on computerized accounting. Because technology has become a pivotal tool for the survival of a business, it is very important to thoroughly analyze the manual accounting system with the computerized accounting systems before its implementation. From a business perspective, Computerized and Manual accounting systems will always be interlinked. Accountants are required to review the information presented in the financial statements to be truthful, relevant and reliable. They are required to ensure that the financial statements comply with the relevant accounting standards and adhere to the regulatory standards necessary for presenting the business transactions. References Ayeboafo, B. 2012. The role of accounting educators in bridging the gap between accounting theory and accounting practice: Research Journal of Finance and Accounting, 3(10), 111-114. Bell, T. B. & Payne, J. L. 2011. Audit risk attributes in computerized environments. Review of Business Information Systems (RBIS), 3(2), 27-40. Meigs, F.R. and Mary, A. 1998. Financial Reporting. New York: Irwin McGraw Hill Publishers. Mott, G. 2012. Accounting for Non-Accountants: A manual for managers and students. New York: Kogan Page Publishers. Sinkey, J. F. 1990. Commercial Bank Financial Management in the Financial Services Industry. San Francisco: Colin Publishing. Woolley, D. J. 2012. A Teaching Case for Understanding the Data Structure of an Accounting Database: Comparing a Commercial System to Rea. Journal of the International Academy for Case Studies, 18(1), 25 Xu, S. 2014. Research of new risks of internal accounting control and the prevention within the ERP system. Advances in Services Science and Services Information Technology, 52 (41). Ying, Z. O. U. 2012. Analysis of security of computerized accounting system. Journal of Harbin University of Commerce (Natural Sciences Edition), 3, pp. 31-32. Read More