The Benefits of Using a Computerized Accounting System for Your Business

Wednesday, April 8, 2015, AM | Leave Comment

Company accounting policies are extremely diverse. They usually vary depending upon the location of the company as well as the size of the company.

For instance, companies in the UK follow the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), whereas companies in the USA follow the Generally Accepted Accounting Principles (GAAP).

Previously, all accounting used to be done by hand. Large ledgers were maintained for different items. For instance, a sales ledger was used to record sales, while a purchase ledger was used to record purchases.

Now, while accounting policies were created years ago, they have evolved with the passage of time.

Passing double entries by hand always leaves a doubt about whether the employee has made the right entry.

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Accounting by hand is difficult, since everything must be done by an individual with no technological help. At the end of the year, the finance manager will have to finalize all the financial statements on his own, which can be pretty time consuming. That is why computerized accounting systems were developed.

Here are some of the benefits of a computerized accounting system for your business:

  • It Automates Accounting Related Tasks

    Double entries are passed whenever a business makes a transaction. Because of the frequency with which a business makes transactions, there’s a very high chance that a wrong entry can be made.

    In case this is done by hand, the finance managers will have to ponder over the trial balance at the end of the fiscal year, find the wrong entries and then pass adjusting entries.

    However, the chances of human error are minimized when a computerized accounting system is used. For instance, when a sale is made, a receipt is generated.

    The system automatically passes a double entry to debit the cash amount received and credit the sales. From thereon, the inventory is also credited.

  • It Makes Inventory Management Very Easy

    One of the most important components of an accounting system is inventory management. The physical stock count is usually carried out at the cut- off date.

    However, due to the changing circumstances of a business, this may not always be possible. The counting strategy is different if the stock count is carried before the cut- off date as compared to after. This always leaves a chance of human error.

    However, if a computerized accounting system is implemented, the chances of error are reduced. The computerized accounting system automatically updates inventory when purchases or sales are made.

    Hence, provided that controls are effective and the accounting system is implemented properly, the figure shown in the system will correspond to the physical stock at the end of the year.

  • Payroll Calculations

    Calculating employee salaries and remuneration is very important. In some companies, separate departments are created to calculate the salary of each employee based on the amount of work done.

    In most cases, the salary written on the contract is not a definitive figure. For instance, an employee that works overtime will be paid an additional amount. Similarly, unpaid absences will have to be marked down.

    Calculating the payroll is a pretty complicated task. There’s always a major chance of error. In some cases, employees may be paid more than they have earned or they may be paid less.

    A computerized accounting system can negate the need for human calculation. When an employee works overtime, they will have to clock in the number of hours.

    The system will simply calculate the total number of hours worked and provide the total salary at the end of the month. Receipts are generated automatically, and all records are updated at the end of the month to reflect the total payroll costs. This makes the whole process extremely easy.

  • The Financials Are Updated Daily

    One of the biggest advantages of using a computerized accounting system is the fact that the system updates all the financials automatically.

    In case you are running a trading business, it might be a legal stipulation that all financials be updated by the end of the day.

    At the end of the day, you can review your balance sheet, profit and loss statement, cash flow statement and the statement of changes in equity (if needed). Since everything is automated, it is significantly easier to create the new documents.

  • Auditing Becomes Easy

    Auditors generally use software programs in order to help them audit the financials of a company known as CAAT (computer assisted auditing techniques).

    If a business already has a computerized accounting system in place, the auditors can simply use established auditing practices and look for any discrepancies.

    Usually, auditors install their own program or use embedded audit facilities, which generate data in real time based on the company’s transactions.

  • Computerized Systems Are Easy to Maintain

    Computerized records are not only easier to manage, they are also very easy to maintain. The company can simply upload these records on their cloud server and access them from anywhere.

    They don’t have to worry about storing large journals and ledgers within the company’s safe anymore. Computerized records also occupy significantly less space as compared to physical records!

  • Finding Errors Is Very Easy

    Since the whole process is automated, it is very easy to find errors within the system. If you know the day when a wrong entry was made, you can simply search for it by pulling the records from that date.

    In case a supplier/customer gives a conflicting report on the goods purchased/received, you can refer to the computerized accounting system and find the correct bit of information.

  • Complete Automation

    When used with other systems, a computerized accounting system can help automate many tasks and save money.

    For instance, let’s assume that a business uses RFID tags to record goods coming in or going out of the warehouse.

    Whenever goods are received, the supply chain system will automatically be updated. The accounting system will be updated automatically, reflecting the new goods.

    You don’t need to hire a goods inwards/ outwards officer to handle such transactions anymore, which saves a lot of expenses in the long run.

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