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Computerized Accounting System – Meaning, Features, Advantages and Disadvantages

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  • Difficulty Level : Expert
  • Last Updated : 08 Jun, 2022
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A company’s accounting system is the core of its financial management, as it processes all transactions within the organization. A computerized accounting system is a software application that automates financial records and reporting processes to make them faster, more accurate, and easier to manage. It reduces the manual entry of data, eliminates redundant operations, and reduces accounting error risk with built-in controls. An accounting system is a set of procedures and record-keeping systems for managing the financial and operational activities of an organization. Basically, it’s a method for tracking and managing the business’s finances.

What Accounting software does:

  • Accounting software automates and streamlines the accounting processes by using computers to record and track a business’s financial transactions.
  • It is software for financial record-keeping and analysis.
  • It records the purchase of goods and services, sales value and other financial transactions. 
  • Accounting Software saves time, money and resources. 
  • It is a business tool for bookkeeping and other financial operations. Accountants use this software in recording and tracking financial transactions.
  • The software is designed to make accounting tasks easier and more accurate.

Features of a Computerized Accounting System:

1. Data Security: A computerized accounting system allows users to store their data in a central location. In this way, if any piece of paper that contains valuable information is lost, no one is at risk of having their information stolen. All the data is hence stored at a central location.

2. Improved Reporting: In Accounting software, various things are automated, and very less things are recorded manually. This helps in improving reporting of transactions and statements. 

3. Accuracy and Speed: The automation of accounting processes with the help of various accounting software ensures that accounting work is done fast and accurately.

4. Scalability: Computerized Accounting system is so flexible as to accommodate the changing business volume. 

5. Quick Decision Making: Since a computerized accounting system generates real-time information, managers are quick to come up with instant decisions or solutions to a particular problem.

6. Advanced Features: While some accounting software is designed for sole proprietors and small business owners, others are tailored for larger enterprises. If the business is operated at a large scale, you may want to consider a computerized accounting system that comes with features like inventory management and multiple user access.

7. Reliability: A computerized Accounting system produces standard and accurate accounting information consistently.

Advantages of Computerized Accounting System:

1. Accuracy: Accounting errors are one of the biggest problems that businesses face in their accounting process. Accounting software is designed to anticipate common errors and correct them before they are added to the company’s records. It is more accurate than most manual systems.

2. Simplicity: Regardless of the size of a company, accounting software is designed to be straightforward and easy to use. This means that even new employees can quickly understand how to use the system and record their financial activities.

3. Financial Report Accuracy: Accounting software is designed to be completely accurate. Companies can be assured that their  financial reports have no errors. This means that managers can quickly make decisions based on the accounting data.

4. Standardized Financial Reporting: The use of accounting software in a business ensures the production of standard financial statements over the years. These reports are very vital when comparing a company’s financial performance over the years, or when comparing different businesses that are similar in operation.

5. Greater Control: A computerized Accounting system helps the management of a company to have greater control over its operations. This is more suitable for a company which is large in size and has multiple departments. All vital information is easily available with one click.

6. Integration: Most Accounting systems are usually integrated with other vital accounting systems, such as online banking. This means that important business processes are performed together and with speed.

Disadvantages of Computerized Accounting System:

1. Cost: Although accounting software is designed to simplify bookkeeping and reduce the cost of accounting services, it can also be costly to set up and maintain. Many businesses decide to use computerized accounting systems once they have reached a certain level of growth.

2. Lack of Expertise: Many business owners like to keep their accounting in-house. This means that they may not want to rely on an outside service to handle their bookkeeping. In this case, they may choose to use manual systems until they have the resources to implement computerized accounting tools.

3. Heavy Installation and Training Costs:  The cost of Accounting software depends on its use. Some software goes at very high prices that are unaffordable to the business. Besides acquisition costs, installation and training costs can also be so high and beyond the company’s reach.

4. Disruption of Work: As newer versions of both the hardware and the software are introduced in the market, there is a need for businesses to update them regularly. Employees must be retrained for efficient use of such new tools. Re-installation and retraining result in a disruption of work. 

5. Loss of Employment Security: The adoption of computerized accounting software means a lot of work is done by fewer employees. Such a move at times leads to lay-offs. Where lay-offs have not been done, employees live in fear of anticipated job loss.

6. Compromised Accuracy: The accuracy of financial records is as good as the data fed to the accounting software, thus the saying,’garbage-in, garbage-out.’ If the accuracy of the data entered is compromised, the software is bound to produce faulty or misleading accounting information.

7. Potential Fraud: Since most of the financial/accounting data is stored in the cloud, professional hackers may gain access to a company’s records. Such actions may expose the assets of a business to greater risks.

8. Technical Failures:The accounting software may be rendered useless, when the premises where a business is housing are affected by technical glitches, such as regular power outages and computer virus attacks.

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