What Is the Meaning of Computerized Accounting?

Computerized accounting systems replace cumbersome manual systems.

Gone are the days when recordkeeping entailed hours of painstaking manual work, sifting through piles of accounting ledgers and maintaining endless records of transactional data. Computerized accounting systems (or software) have replaced manual-based accounting in virtually all businesses and organizations, providing accountants, managers, employees and stakeholders access to vital accounting information at the touch of a button. Computerized accounting systems automate the accounting process--improving efficiency and cutting down costs.

Primary Components

A computerized accounting system performs the mechanical functions of a manual-based system, including adding items to ledger accounts, preparing schedules, updating account balances, making reports and others. Computerized accounting systems, according to Robert W. Ingram and Thomas L. Albright in the book “Financial Accounting: Information for Decisions,” are made up of programs called modules. Each module automates a particular accounting activity and/or business process. A computerized accounting system, therefore, is a set of component modules, such as production module, general ledger financial reporting module, human resources module, employees module, vendors module, customers module, sales module, financial management module and others.

Modules

Computerized accounting modules are designed to perform particular roles. For instance, a sales module automates all sales, order and purchase information, maintaining and updating all their relevant fields in the computerized accounting package. A production module is designed to track the flow of costs through a production, or manufacturing, process. A financial management module maintains debt, interest rates, repayment schedules and shareholder information. A computerized accounting system is made up of its component modules, the functions performed by each and the established links between them.

Examples

Computerized accounting systems can be basic or advanced. As of July 2010, some of the most popular computerized accounting systems include QuickBooks, Peachtree, Simply Accounting, MAS, ACCPAC, Oracle and SAP.

Advantages

According to Carl S. Warren, James M. Reeve and Jonathan E. Duchac in the book “Accounting,” computerized accounting has three main advantages over manual accounting: computerized systems automate and simplify the process of recordkeeping, allowing all transactions to be recorded in electronic format and posted automatically to ledger accounts (general and subsidiary); computerized accounting systems are typically more accurate, and make fewer mistakes, than manual accounting systems; and computerized accounting systems are real time and continuously update information on account balances and the status of accounts.

Disadvantages

Computerized accounting systems are not entirely error-free. Computers are liable to inaccurately record transactions and/or fail to record transactions. It is not uncommon for computerized accounting systems to record transactions in incorrect accounts, make multiple records of a transaction or enter incorrect information in the credit and debit parts of a transaction. These errors can be reduced and/or eliminated by manual checks of all recorded transactional data.

References

• “Accounting”; Carl S. Warren, James M. Reeve and Jonathan E. Duchac; 2008
• “Financial Accounting: Information for Decisions"; Robert W. Ingram and Thomas L. Albright; 2006
• "Accounting and Recordkeeping Made Easy for the Self-Employed"; Jack Fox; 1994