Computers in accounting
Uses and advantages and disadvantages of computers in accounting
Traditionally accounts were kept by the means of handwritten record. Computers have only begun to be used in some of the functions of accounting over the last fifteen years or so. As computers became cheaper, easier to use, and more powerful, more firms have decided to computerise their own accounting records. However, some firms, (albeit a declining number) still prefer to use handwritten accountings. This leads us to believe that there must be reasons for and against using computers in accounting.
What we need to consider here is how computers are used in accounting, and then we should be able to evaluate the potential uses and limitations of using computers in accounting.
How are computers used in accounting?
Most firms will make some use of a computer within accounting at some point. Some firms will have all their accounting performed by computers. What we need to understand is how the computer can be used.
A computer-generated spreadsheet is commonly used by firms when presenting their accounts. A simple spreadsheet will appear as a grid to which both numbers and text can be inserted. Each 'cell' of the spreadsheet can be used to insert data. A typical spreadsheet will appear as follows:
Cost of goods sold
One of the attractions of using a spreadsheet is that the calculations can be done by the computer. Some data, such as sales and cost of goods sold would need to be manually typed in, but then the gross profit can be automatically calculated by inserting a formulae into the relevant 'cell' which states how the profit is to be calculated, Once inserted then the formulae can apply to the whole row (or whole column) which makes the process both easier and more less likely to be inaccurate.
Obviously the example above is a fairly limited illustration of how spreadsheets can be used but for many small firms, the use of a spreadsheet is the main way in which computers are integrated into the work of the accountant.
There are accounting software packages then can be purchased by a firm that will perform many, if not all of the tasks that would normally be manually entered by the person responsible for the firm's accounts. These packages will be able to produce many of the accounting records that were previously produced by hand. Transactions may be entered into the computer package and many will produce the double entry records based on this one entry. Although the exact capabilities of each package will vary, it is possible that most, if not all of these packages will be able to produce invoices for purchases and sales. They calculate VAT returns, discounts and all the other areas of the accounting information system. Logically, these packages will also produce the final accounts for the business when required.
For larger firms this software can actually be tailor-made for the firm's own specific requirements. This sort of tailor made package is known as a 'bespoke' system. These packages are normally produced by a specialist computer software firm who have experience in producing accounting packages. Technically, these packages are available for any firm, but given the expense of a bespoke system and the general low cost of a 'off the shelf' system (one that can be used by any firm), most firms will simply purchase a general package.
Advantages of using computers within accounting
The main benefits of using computers (to any level within accounting) can be summarised as follows:
Computers are less likely to make errors. In fact they should not make errors at all. Things will still go wrong, but this is likely to be the fault of the person entering the data...
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