An accounting system is a collection of processes, procedures and controls designed to collect, record, classify and summarize financial data for interpretation and management decision-making. Done manually until the early 1980s, it has largely been computerized with the advent of fast computers and easy-to-use, accurate and reliable software. It makes use of computers and accounting software to record, store and analyze financial data.
Like any accounting system, the main purposes of computerized accounting are to keep accurate records of financial transactions, detect and prevent frauds, prevent wastage and theft and to generate reliable financial statements for the decision-makers.
This modern accounting system has the following advantages:
- Automation: Since all the calculations are handled by software, computerized accounting eliminates many of the mundane and time-consuming processes associated with manual accounting. The accountants do not have to sit for hours trying to find where the few missing cents have gone.
- Accuracy: This accounting system is designed to be accurate to the minutest detail. Once the data is entered into the system, all the calculations, including additions and subtractions, are done by software. These days, accounting packages are so accurate that they never make any mistakes.
- Reliability: Because the calculations are so accurate, the financial statements prepared by computers are highly reliable. Having been generated by software, the statements are unbiased. Thus, financial statements and reports generated by a computer accounting system can be trusted in the making of every management decision.
- Speed: This makes the entire accounting process fast and painless. Statements and reports can be generated instantly at the click of mouse. Managers do not have to wait for hours, even days, to lay their hands on an important report. Payrolls can be processed on time so that there are no delays in salary payments.
- Security: The latest copies of data can be saved and stored in offsite locations so they are safe from natural and manmade disasters like earthquakes, fires, flood, arson and terrorist attacks. In case of a disaster, the system can be quickly restored.
- Information sharing: Computerized accounting makes it easier for different departments of an organization to share financial information. The statements and reports can be sent by email or accessed by other means instantly.
- Cost-effective: Using this system, a single accountant can smoothly handle the tasks that would need several accountants to accomplish manually. Because most of the functions are automated, it doesn’t require accountants to work overtime. This makes the system highly cost-effective in the long term.
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