Role of Computer in Accountancy

            Now a day’s computer is everywhere and it playing important role in our daily life. Over the past two decades the way accounting data is entered, stored and processed has changed considerably. This is due to the introduction of computerized accounting software. Due to use of Computerized accounting system it is no longer necessary for large business unit to have large store room full of ledgers and records. Since all information can be stored in computer hard discs.  Computerized Accounting System software gives many advantages over manual systems for example. Ledger entries are not recorded in multiple ledgers separately. A single entry is made and the software will update all the appropriate accounts automatically.

Concept of computerized account system:

            A computerized accounting system is an accounting information system that processes the financial transaction and events as per Generally Accepted Accounting Principles to produce report as per user's requirements.

Every account system, manual or computerized, has two aspects are as follows:

A)  It has to work under a set of Well-defined concepts called accounting principles.

B) There is a user-defined Framework for maintenance of record and generation of records.

Definition:

        It can be defined as "A computerized account system is a system used by businesses for recording their financial information."

        Accounting is a financial method used by Business to collect, organize, process and summarize data for reports and statements. Accounting is used to keep track of business Trends and to keep report a relevant fact within the business. Computer and business software allow more efficient processing and organization of data.

Elements of computerized account system: 

Following are the elements of Computerized Accounting System: 

1. Preparation of Accounting Documents:

                    Computer helps in preparing accounting documents like Cash Memo, Bills and invoices etc., and preparing accounting vouchers.

2) Recording of transactions: 

                     Everyday business transaction is recorded with the help of computer software. Logical scheme is implied for codification of account and transaction. Every account and transaction is assigned a unique code. The grouping of accounts is done for from the first stage. This process simplifies the work of recording transactions.

3) Preparation of trial balance and financial statements:
                      After recording of transaction, the data is transferred to ledger account automatically by the computer. Vouchers are prepared by the help of accounting vouchers, the computer can be programmed to prepare trading, profit and loss account and balance sheet. For example. Contra, payment, receipt etc. 

Features of Computerized accounting system: 

1) Accuracy, Speed:  

                   Computerized Accounting System has user-definable templates. Which provides, fast and accurate data entry of the transactions. All documents and reports can be generated automatically, at the press of button.

2) Simple, fast and powerful and integrated data:

                    Computerized account system is this is designed to automate and integrate all the business operations, such as Purchase, Sales, finance, inventory and manufacturing. With computerized accounting, accurate, up-to-date business information is literally at the fingertips.

3) Enhanced User experience:  

                    Computerized account system allows the company to enter data in various ways in which makes work a pleasure by adapting to the specific business/organization.

4) Complete visibility:  

                    Computerized Accounting System gives the company sufficient time to plan, increase the customer base, and enhance customer satisfaction. With computerized accounting system the company will have greater transparency to the day-to-day business operations and access to vital information.

5) Grouping of accounts: 

                     Groups are collection of ledgers of the same nature. Account groups are maintained to determine the hierarchy of ledger accounts which is helpful in determining and presenting meaningful and compliant reports.

Limitations of Computerized Accounting System: 

1) Human errors: 

                 Human errors can occur at all levels within a system, from programming to user errors. A system could be set up incorrectly, with an account reporting in the wrong report. A user could also enter enormous numbers or employ wrong accounts. Because of human errors, a new system implementation should undergo a rigorous testing before it goes live.  And comprehensive training should be provided to users to minimize errors.

2) Security: 

          System Security concern can pose limitations on accounting software. Besides worrying about viruses and worms, small-business owner also should be concerned with unauthorized access of Computerized Accounting data.  User ID and Passwords are common minimum security measures business can use to protect the accounting software against intrusion, but they may not be enough. Hacking is very common with small business however, only one in five small firms antivirus software and over half don’t use wireless connections.

3) Cost: 

         According to system costs have decreased substantially, but they still can be costly, not only to purchase, but to maintain them as well. Extra costs for training new employees in the system should be considered along with ongoing customer service. Charges for customizing reports and other processes can pose limitations on small and medium-sized business that cannot afford these services. Other program costs to be considered include new version upgrades and even hardware that may be required as Technology progresses. If business can't afford these costs they will be left behind.

4) Other considerations: 

            When dealing with accounting programs, you should consider Electrical power as a major limitation of the system. Without electricity, most small-business accounting systems are useless.... because no data can be inserted or reports generated. Any electrical fluctuations can have a negative impact on accounting data, deleting information and creating confusion.  Another consideration that limits the usage of accounting system is a network where the program may reside...if the computer network is not properly set up the software cannot be accessed and cannot be utilized. 

 

See also....The importance of a Computerized Accounting System