What are advantages of computerized accounting?

April 17, 2010

1. Advantages of computerized accounting

Accounting is a necessary function for any business. All businesses must keep a record of their income and expenses and the records should be as detailed as possible. For some, the idea of spreadsheets, general journal books and ledger sheets is frightening. For these people, computerized accounting could be a welcome relief.

The two biggest advantages of a computerized accounting system are speed and accuracy. When using a manual accounting system, each step in the accounting cycle must be performed by hand. For example, if a business pays their electric bill, a check has to be written, an entry must be recorded into the check register, and the transaction has to be posted to the respective ledgers: in this case, a debit to the electric company’s ledger account and a credit to cash. This process would need to be repeated for every transaction a business makes. If the business is small and makes only a few transactions a month, it would not be much of a problem. But for other businesses, there could be thousands of transactions, and it could take both a large amount of time and a substantial staff to keep up.

With a computerized accounting system, the steps described above are completed with one entry. The journal entries for cash and the electric company are automatically posted to their respective ledgers. What could take several minutes manually takes only seconds with a computerized accounting system. Also, because only one entry needs to be made with a computerized system, the likelihood of an incorrect entry is greatly reduced.

Another advantage is the ease of producing end of period reports. With a manual system, each general ledger entry would have to be posted to the financial statements by hand. With a computerized accounting system, each computerized transaction is automatically posted to both the general journal and the respective ledgers, which makes producing balance sheets, trial balances, and end of period financial reports as simple as selecting the desired report from the menu.

Other advantages to using computerized accounting are:

  • Instant access to accounting information. Because each entered transaction is automatically posted to its respective account, all account information is always up-to-date.
  • Easy document production. Purchase orders, debit memos, sales receipts, sales invoices, inventory lists and others can be printed in moments.
  • Staff motivation. Accounting and bookkeeping departments should run more smoothly and be more efficient with computerized accounting software. There will be less time spent on compiling reports.
  • Legibility. Computerized accounting software eliminates the need to decipher poor or odd handwriting, eliminating much of the possibility of error due to misreading a hand-written line item.
  • Ability for taxes to be computed automatically. This makes paying quarterly or annual taxes easier since the computerized system will keep a running total of all taxes owed.
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