An Overview of Computerized Accounting Systems

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An Overview of Computerized accounting systems

There are many different ways of implementing a computerized accounting system. This description is based on the system used by ACCPAC accounting software. A computerized accounting system records the same financial information as a manual accounting system, but with a different method. The general ledger is maintained in a database. The database contains information on each account in the chart of accounts. Information kept in the database includes account number, account name, budget figures, and account balances. Computerized accounting systems are able of keep more than one balance per general ledger account. For e.g. a balance is kept for each month for each account hence financial statements can be produced for any month. Balances for previous years can also be stored.

For this, a general journal is not required. Transactions are entered into subsidiary ledgers or transaction batches before being posted to the general ledger. For better management control, transactions are sometimes recorded on paper-based journals and got approved by the appropriate authority before they are entered into the computerized accounting system. Because this extra step is quite time-consuming, it is often bypassed, and other forms of internal control are substituted. For example, the transactions can be entered electronically, then printed and reviewed by a supervisor prior to posting.

Transactions are recorded into the computerized accounting system by one of two methods:

• Batch method — Enter transaction to a batch and then post each transaction batch to the master table. Or
• Direct-entry method — Enter each transaction directly into the master table.

Each method has its advantages and disadvantages. The batch method enables you to check the transactions before we enter (post) them to form the permanent record. Also, the transaction entry can be delegated to clerks while the accountant retains control by reviewing each batch prior to posting. However, batching requires an extra step.

The direct-entry method enables you to enter the transactions directly, which reflects the results of the transactions immediately. The disadvantage, however, is that control over transaction entry is significantly lighter than with the batch method because there is no means to verify each transaction entry before it is reflected in the general ledger. Errors are also more difficult to correct once they are discovered.

Whichever method is used, a computerized accounting software system is designed to keep the general ledger continuously in balance by only allowing transactions to be recorded or posted if they are in balance. That is, the debit and credit totals of each transaction should be equal before the program allows them to be posted. A manual accounting system has no comparable safeguard.

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