ECommerce Ch 12 Manual Computerized Accounting Manual Computerized

E-Commerce Ch# 12 Manual & Computerized Accounting

Manual & Computerized Accounting 1 What Are Differences Between Manual & Computerized Accounting? - Manual accounting requires that all journal entries, invoices and other financial documents be created by hand. - Computerized accounting allows users to input information into accounting software programs.

Differences Between Manual & Computerized Accounting v v Speed - Computerized accounting produces information much faster than manual accounting. - Accounting software packages, such as Quick. Books and Peachtree, come with built-in databases that allow users to input data. Accuracy - Manual accounting systems are lying face down to mathematical errors and misplaced numbers. - With a computerized accounting system, your company data is automatically calculated based on numbers you input.

v v Financial Statements - In a manual accounting system, you have to prepare your company's income statement, balance sheet and statement of owner's equity by hand. Information from your journal entries helps formulate your company's financial statements. - Computerized accounting systems allow financial statements to be created from information stored in the database. Cost - The cost of computerized accounting systems can range from hundreds to thousands of dollars for large businesses. A computerized accounting system may save on man hours used for creating financial statements and other reports. For this reason, many small and mid-sized businesses use computerized accounting software.

v v Reports - Reports are created in a timely manner when using a computerized accounting system. Reports generated from computerized accounting software allow managers to run the company in a more efficient manner. - Creating reports in a manual accounting system may lead to more staff frustration and result in having to work with outdated information. Safety - Accounting records kept on the manual system can be lost or damaged easily, such as by coffee spills. - On the other hand, records kept by a computer are likely to be safer because many systems are backed up often. If you lose pages in a paper pad, you may have to recreate the transactions by conducting research and writing them in again. In a computerized system, you simply restore the latest backup and add a few transactions that were not saved. In this area, accounting software is obviously superior to manual systems.

v Organization - Data processed through software is organized and easy to find. That's not the case with manual systems, where you may have to review several pages to find what you need. Accounting programs organize the information in one place, classified by type. For instance, if you want to find certain data about a vendor, you can go to the accounts payable section of the software, usually by clicking a link or tab, and conduct a search for the vendor. - If you conduct the same process on a manual system, you may have to go through several pages and take your time to find what you're looking for.

v v v Both the computerized and the manual accounting got the merits and the demerits. They can be differentiated only in terms of cost, speed and the mobility. It can be implemented according to the size of the business. Small and Medium sized companies prefer manual accounting considering the low cost. They could utilize quality accountants and carry out the day to day activity or even they could simply offshore their accounting tasks to an outsourcing firm. Large scale businesses completely rely on the computerized accounting as it gives fast and accurate results. It would be really helpful for them to have the accounting records without any chaos.

2 The Importance of Information Technology in Accounting Generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) require a company to prepare full and accurate financial statements. A company's senior management establishes adequate computerized accounting systems to prepare accurate operating reports. v Accounting Defined Accounting is a business practice that helps a firm record operating transactions in financial accounts and report operating data at the end of each month. v Computerized Accounting Computerized accounting involves the tools, methods and computer software and hardware that a firm uses to automate recording and financial reporting processes.

v Significance Information technology plays an important role in accounting processes because it improves financial reporting procedures and prevents errors in financial statements. v Time Frame Computerized accounting activities help an accountant perform month-end close procedures. These activities also help a company report profit information over a period, such as a month or quarter. v Recording Procedures An accountant uses computerized accounting software to make journal entries in financial accounts, such as assets, liabilities, revenues, expenses and equity. The accountant debits an asset or expense account to increase its amount and credits it to reduce the account balance. The opposite is true for revenue, liability and equity accounts.

3 The significance of accounting information v v There are various importance of accounting information to a business entity. Getting to know what an accounting information is and the importance (need) of it is a great step to improving one's capital base, both from the finance aspect to the resources (raw materials) an organisation uses in carrying out its objectives. An accounting information is simply the data which an organisation/business entity is able to make known to its users. It should be taken note that these users of accounting are of various sections - to which a business entity is one of.

v v A business entity will require an accounting information so as to enable it manage and control its finances and resources. It also needs it for it to be able to improve on its level of profit earning, should it realises it is declining in its profitability level. It also needs to for it know the differences between its marginal liability and its marginal assets. There are so many importance of a business information to a business enterprise, but the little I've been able to highlight above are some of the vital needs of an organisation's need of an accounting information.

4 The Basic Functions of an Accounting Information System An accounting information system (AIS) provides financial information about a business. This information helps managers plan and control operations and provides reports to outside parties such as stockholders, creditors and government agencies. Parts of an accounting information system might include financial reporting, cost accounting, management accounting and enterprise resource planning (ERP). A welldesigned AIS gives a business a consistent way to view and analyze financial information and has three basic functions.

v v Collect and Store Data One function of an accounting information system is to efficiently and effectively collect and store data about business activities and transactions. The system must capture transaction data on source documents, record transaction data in journals to present a chronological record of transactions, and post data from journals to ledgers that sort the data by account type. Provide Information The second function of an accounting information system is to provide information useful for making decisions. This information usually involves reports in the form of financial statements and managerial reports.

v Provide Controls The third function of an accounting information system is to incorporate controls to ensure the accurate recording and processing of data. The system must make certain that the information that comes out of the system is reliable, ensure that business activities are efficient and in line with management's objectives and keep business assets safe. Traditionally, bookkeepers and accountants did the work of accounting systems by hand on paper, but today much of the work is automated with computers. According to Maryville University, setting up an accounting information system requires knowledge of topics such as database design and development, business process analysis, accounting applications, internal control requirements, information technology (IT) auditing and accounting requirements.

5 Importance of Accounting Information Systems An accounting information system is typically a computerized accounting program that keeps records for a company. The information is entered into the system and the system tracks and organizes the accounting information. The accounting information system is used also to provide detailed information about the company, including financial statements.

Business Transactions An accounting information system is designed to record all transactions of a business. An accounting clerk enters all business transactions into the program and the transactions automatically are posted to the corresponding accounts. This is important because any time information is needed, it can found on the computer and is organized. v Accounts Payable An accounting information system allows for easier payments made on accounts payable. Many systems are designed to pay all bills due with a click of a button. A date is selected and checks are automatically made out for all bills due. Most systems allow a clerk to unselect certain bills if a company is not ready to pay a specific bill. v

v Accounts Receivable This type of system also allows for easier billing. Information is recorded on the system and a clerk chooses when to print bills. This is done daily, weekly or monthly, depending on the business. The system generates all bills efficiently and easily for the clerk. v Financial Statements An accounting information system generates all financial reports without the clerk calculating anything. The dates for the reports are entered into the system and the computer generates reports for that specific period. This comes in handy when a report from a different period is needed immediately. The system has the capability of producing reports for any period that the information was recorded.

v Year-End Closing Year-end closing is often a tedious process for an accountant. An unadjusted trial balance is created, adjusting entries are made and recorded, an adjusted trial balance is calculated, closing entries are made, and, finally, a post-closing trial balance is generated. This process is complicated and time consuming, but with an accounting information system, the computer does most of the work on its own.

Accounting Software An accounting software is an integral part of the computerized accounting system. Need of Accounting Software: a. When computerized system is replacing manual system. b. When computerized system already existing in the organization and it is to be altered according to the recent changes. Types of Accounting software: a. Ready to use software b. Customized software c. Tailor-made software

Ready to use software: Which are available in market for users at large and not for specific users requirement. e. g. Tally, EX. Busy, etc. Advantages: v Easy to learn v Cost of installation is low v Better after sale services v Take care of problem area Disadvantages: v These software use laser printers which are costly than Dot matrix v Level of secrecy is very low v Offer very little scope of linking with other information system v Suitable for small organization

Customized software: Customized software means making changes in the ready to use software so as to suit the specific requirements of the user. Advantages v Used by large and medium enterprises. v Level of secrecy is high. v Linkage to other information systems is available on the basis of need of the enterprise. Disadvantage v Cost of installation is high v Training requirement of using this packages is high.

Tailor-made Software: means developing a software according to the needs and specifications of the user. These softwares are not available off-theshelf. Advantages: v Take care of the specific need of the enterprise. v Level of secrecy of data and authenticity checks are robust in such softwares. v They can be effectively linked to some other information systems. Disadvantages: v Costly v Difficult to learn and require specialized training. v If the accounts are grouped in an incorrect manner, the results will be misleading.

BENEFITS v Track your transactions v See what’s most profitable v Organize your data in one place v Prepare for tax time v Make informed decisions