Computerized Accounting System: Need and Types

Computerized Accounting System: Need and Types

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Jaya
Jaya Sharma
Assistant Manager - Content
Updated on Dec 21, 2022 12:25 IST

Computerized accounting is an advancement over traditional accounting methods since it saves time, effort and scope of error. With the help of computerized software, accounting processes are expedited.

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In this article, we will be discussing the details of computerized accounting. 

Table of Contents

What is computerized accounting?

It is a software application system for processing financial transactions as per GAAP to produce financial reports according to requirements. In the computerized accounting system, storage framework and data processing is known as operating environment. This environment is dependent on the accounting system. 

The operating environment consists of both software and hardware in which the accounting system work. Software determines the structure of the hardware. Hardware selection is dependent on the privacy required, hardware selection, the number of users and the nature of activities of functional departments.

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For large-scale organizations, computerized accounting software is a database-oriented application. The database is implemented using the database management system defined by computer software to manage and effectively organize data. It provides access to stored data through application programs. 

This accounting system is used for automating records and financial reporting processes. This reduces the efforts of manual data entry which makes the process faster and more accurate. In short, it reduces redundant operations and reduces accounting error risks with built-in controls. Overall, it acts as a method to track and manage business finances.

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Requirements for Computerized Software

The following are the basic requirements for computerized accounting system:

  • Accounting framework: Such software consist of grouping, coding and principles of accounting.
  • Operating procedures: Well-defined operating procedures that are blended suitably with operating environment of the organization.
  • Data processing: A sequence of actions is undertaken for transforming data into information useful for making decisions. 
  • Reporting system: It is a set of objects for constituting reports.
  • Front-end interface: This acts as an interactive link between user and database-oriented software. Through this interface, user communicates with the back-end database.
  • Back-end database: It is a data storage system that responds to the requirements of the user to the extent that the user is authorized to access.

Features of Computerized Accounting

It has the following features:

  1. Data storage: Through computerized accounting system, users can store the data in a centralized location. Due to this digital storage, the data remains secure without the risk of being stolen.
  2. Automates processes: Through computerization, processes are automated which reduces manual efforts, increases efficiency and reduces the scope of error. Overall, it improves reporting of statements and transactions.
  3. Scalable in nature: This system is scalable due to which adjusts to different business volume. Due to this flexibility, it is useful for business of any size.
  4. Multiple features: According to the needs of a business, there are several computerized software for accounting that comes with featurs such as multiple user access and inventory management. 
  5. Accurate financial reporting: Since these accounting software are computerized in nature, they reduce the scope of error due to which financial reporting is very accurate. 

Types of Accounting Software

Depending on the requirement of the business, organizations can choose among one of the following accounting software:

  • Ready to use: These are used by small-scale businesses that have few accounting transactions and limited users. These are easy to understand software that can be easily adapted by accountants. However, they are not very secure since they lack privacy measures, These software have less scope of linking to other information systems.
  • Customized: These software are customized as per the specific requirement of users that can otherwise not be fulfilled through ready-to-use software. Medium to large businesses use such software that can be linked with other information systems. These are comparatively expensive due to cost of installation and maintenance. 
  • Tailored: Large organizations with multiple users and different locations use tailored computer accounting software. These are an important part of organizational MIS with a higher level of security and authenticity checks. 

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How To Select Computerized Accounting Software?

While choosing computerized software of accounting, it is important to consider the following points:

  • There should be a flexibility between user of software and hardware. The accounting software should be able to run on multiple platforms.
  • Computerized accounting software must be affordable in nature. Both installation and maintenance costs should be friendly to the budget of the organization.
  • Size of the organization is another important factor to be considered while purchasing the software. A large organization may require more scalable and multi-featured accounting software.
  • It is also important to choose an accounting software that can be easily understood by users. It should be less complex and have simple training schedule.
  • There should be useful, latest and advanced accounting features to automate most accounting processes. Features such as multi-user access, authenticity check, and data import and export facility should also be there.
  • The software should be able to protect and secure the software as well as the data to prevent unauthorized access to confidential data. 

Advantages of Computerised Software for Accounting

The following are the benefits of computerized accounting software:

  • Since these accounting systems are automated, they process the accounting data faster and more efficiently.
  • With the use of computerized accounting software, there is less manual effort which in turn mitigates the scope of error. This ensures that the data is more accurate. 
  • Data entered within computerized accounting systems is updated automatically which is quickly produced and printed in accounting reports.
  • The data provided through automated accounting systems is provided on a real-time basis to multiple users. This is because these software are interlinked through computer networks. 
  • Accounting software automatically generates accounting reports such as statements of accounts and trial balance, in a user-defined format.
  • The computer accounting system helps in the production of real-time MIS reports. Through these MIS reports, management can effectively monitor and control business. 
  • It also helps in saving storage space since it does not require physical space. The accounting data os stored digitally instead of ledgers, journals or accounting registers. 
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Disadvantages of Computerized Accounting Software

While these expedite the accounting process, these computing software have certain limitations:

  1. These software are expensive in nature since they have installation, maintenance, and training costs. 
  2. Since they involve technicalities, they require professionals to be trained for optimized use. 
  3. Any technical glitches in the system can render it faulty or even useless in the worst-case scenarios. 
  4. Since accounting data is available on central locations, these software are prone to data breaches.  
  5. These software lack the ability to detect unanticipated human errors, due to which they still require human intervention. 

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About the Author
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Jaya Sharma
Assistant Manager - Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio