Traditional vs Computerized Accounting System

It is known that accounting cycle includes the following steps: journalizing the transactions, posting them to ledger accounts, preparing trial balance, making adjustment entries, preparing adjusted to end-of-period trial balance, preparing financial statements and appropriate disclosures, journalizing and posting the closing entries, and preparing after-closing trial balance at last.
From the first look it is not very difficult and it is so indeed, but when there are thousands or millions of transactions the situation dramatically changes. Lots of transactions that must be processed in the accounting cycle make this process routine and even a little mistake or inaccuracy can cause all the cycle from the very beginning in order to find and correct the mistake. So as to shed some light on the matter lets examine accounting cycle more thoroughly.
Manual vs Computerized Accounting System
Manual accounting implies that employees perform the whole accounting cycle manually on a periodic basis: they calculate trial balances, journalize transactions, prepare financial statement reports and other routines. Of course it takes much time, resources and effort in large organizations. Computerized accounting implies that the only thing that employees do is recording transactions into the computer which processes the other steps of accounting cycle automatically or by a request. But this is a very simplified view on the computerized accounting because transaction is a complex category which includes not only sales or acquisitions, but depreciation, premiums and wages calculation, dividends etc. So computers provide accurate calculations and smart reports but it takes much time, resources and effort too and it’s difficult to assess which accounting type is more fast and economic.

Accounting Process

Review of Journal and Special journal
Looking at the table , you can see that the main difference in the accounting cycle is that the only step to be done is Journalizing and everything is done by the computer. So let review Journalizing in the context  of computerized accounting.

Journalizing between Manual vs Computerized
Manual System
Computerized System
General Journal
Sales journal,
Purchases journal,
Cash Receipts journal,
Cash Payments journal
General Journal
Accounts Receivable Module
includes (Sales journal,
Cash Receipts journal)
Purchases journal,
Cash Payments journal
also usually includes
Sales Order
Purchase Order
Payroll Journal
Depreciation Journal
Production Journal

Reviewing our Special Journals, the common special journals that is introduced to us are Sales journal, Purchases journal,Cash Receipts journal,
Cash Payments journal. (please refer to your discussion of special journal).
However Accounting software is typically composed of various modules, different sections dealing with particular areas of accounting. Among the most common are:

Core Modules

  • Accounts receivable—where the company enters money received
  • Accounts payable—where the company enters its bills and pays money it owes
  • General Journal—the company's "books"
  • Billing—where the company produces invoices to clients/customers
  • Stock/Inventory—where the company keeps control of its inventory
  • Purchase Order—where the company orders inventory
  • Sales Order—where the company records customer orders for the supply of inventory

Non Core Modules

  • Debt Collection—where the company tracks attempts to collect overdue bills (sometimes part of accounts receivable)
  • Electronic payment processing
  • Expense—where employee business-related expenses are entered
  • Inquiries—where the company looks up information on screen without any edits or additions
  • Payroll—where the company tracks salary, wages, and related taxes However for usually the payroll system integrated are not applicable for Philippine setting for example for SSS and Philhealth.
  • Timesheet—where professionals (such as attorneys and consultants) record time worked so that it can be billed to clients
  • Purchase Requisition—where requests for purchase orders are made, approved and tracked

Comparison of Manual Accounting System VS computerized system

1.comparatively cheap capital Exenditure
2.independence from machines
3. Ideal for small valume transactions
1.reduced speed, This manual transfer of information is time consuming and subject to error (such as transpositions).
2. increased effort of accountants,
3.relatively slower internal control reporting routine work and some others.
4. Requires skilled workers availability;

Computerized system

1) the multiple steps of a manual system are collapsed into one entry (see table 13.1
2)Faster and efficient in processing of information; No more manual processing of the data- all automatically been posted to the various ledgers/accounts.
3) Accuracy – there is less room for errors as only one accounting entry is needed for each transaction rather than two (or three) for a manual system.
  • internal control system of increased productivity,
  • Efficiency – better use is made of resources and time; cash flow should improve through better debt collection and inventory control.
6)easy back up and restoration of records;
7)Automatic document production – fast and accurate invoices, credit notes, purchase orders, printing statements and payroll documents are all done automatically.
8)Cost savings – computerized accounting programs reduce staff time doing accounts and reduce audit expenses as records are neat, up-to-date and accurate. …it is relatively cheaper like maintaining a manual accounting system in the long run
9)Availability of information – the data is instantly available and can be made available to different users in different locations at the same time. Financial statements can be created at any time and as often as needed.
10)Up-to-date information – the accounting records are automatically updated and so account balances (e.g. customer accounts) will always be up-to-date.
11)Management information – reports can be produced which will help management monitor and control the business, for example the aged debtors analysis will show which customer accounts are overdue, trial balance, trading and profit and loss account and balance sheet.
12)Legibility ­– the onscreen and printed data should always be legible and so will avoid errors caused by poor figures.
13)Taxation Requirements -Generally can provide taxation compliance reports
14)Staff motivation – the system will require staff to be trained to use new skills, which can make them feel more motivated.  Further to this with many ‘off-the-sh
15) The ability to deal in multiple currencies easily – many computerized accounting packages now allow a business to trade in multiple currencies with ease.  Problems associated with exchange rate changes are minimized.
1)extremely high costs on developing,
2)special trainings for personnel,
3) increased implementation cost
5)dependence on machines etc.
6)Power failure, computer viruses and hackers are the inherent problems of using computerized systems;
7) ·Once data been input into the system, automatically the output are obtained hence the data being input needs to be validated for accuracy and completeness,
8) Accounting system not properly set up to meet the requirement of the business due to badly programmed or inappropriate software or hardware or personnel problems can caused more havoc
10) Danger of computer fraud if proper level of control and security whether internal and external are not properly been instituted.
11) most software package don’t exposed the debit and credit structure so anyone with basic bookkeeping knowledge could understand how to use the software.
11) developers make money not by selling excellent and reliable software that works for years, but by selling frequent "new and improved" upgrades.
12) Paperless audit trail