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Computerized accounting

What is computerized accounting?

It is a software application system for processing financial transactions as per GAAP to produce financial reports according to requirements. In the computerized accounting system, storage framework and data processing is known as operating environment. This environment is dependent on the accounting system. 

The operating environment consists of both software and hardware in which the accounting system work. Software determines the structure of the hardware. Hardware selection is dependent on the privacy required, hardware selection, the number of users and the nature of activities of functional departments.

Requirements for Computerized Software

The following are the basic requirements for computerized accounting system:

  • Accounting framework: Such software consist of grouping, coding and principles of accounting.
  • Operating procedures: Well-defined operating procedures that are blended suitably with operating environment of the organization.
  • Data processing: A sequence of actions is undertaken for transforming data into information useful for making decisions. 
  • Reporting system: It is a set of objects for constituting reports.
  • Front-end interface: This acts as an interactive link between user and database-oriented software. Through this interface, user communicates with the back-end database.
  • Back-end database: It is a data storage system that responds to the requirements of the user to the extent that the user is authorized to access.

Advantages of Computerised Software for Accounting

The following are the benefits of computerized accounting software:

  • Since these accounting systems are automated, they process the accounting data faster and more efficiently.
  • With the use of computerized accounting software, there is less manual effort which in turn mitigates the scope of error. This ensures that the data is more accurate. 
  • Data entered within computerized accounting systems is updated automatically which is quickly produced and printed in accounting reports.
  • The data provided through automated accounting systems is provided on a real-time basis to multiple users. This is because these software are interlinked through computer networks. 
  • Accounting software automatically generates accounting reports such as statements of accounts and trial balance, in a user-defined format.
  • The computer accounting system helps in the production of real-time MIS reports. Through these MIS reports, management can effectively monitor and control business. 
  • It also helps in saving storage space since it does not require physical space. The accounting data os stored digitally instead of ledgers, journals or accounting registers. 

 

Disadvantages of Computerized Accounting Software

While these expedite the accounting process, these computing software have certain limitations:

  1. These software are expensive in nature since they have installation, maintenance, and training costs. 
  2. Since they involve technicalities, they require professionals to be trained for optimized use. 
  3. Any technical glitches in the system can render it faulty or even useless in the worst-case scenarios. 
  4. Since accounting data is available on central locations, these software are prone to data breaches.  
  5. These software lack the ability to detect unanticipated human errors, due to which they still require human intervention.