Computerised accounting systems

What changes and what does not

A computerised system runs on exactly the same double entry as a manual one. The accounting equation, the ledgers and the trial balance are all still there; what changes is who does the arithmetic and how the data is stored.

The practical difference is that data is entered once. In a manual system a credit sale is written in the sales journal, then posted to the customer's account and to sales. In a computerised system the invoice is entered and the software updates the sales ledger, the sales account and the sales ledger control account itself. Reports and the trial balance are then produced on demand rather than prepared.

Advantages

• Speed. Posting, balancing and report production are effectively instant.
• Accuracy of arithmetic. Additions and balances are not miscalculated, and the trial balance always agrees, because the software will not accept a one-sided entry.
• Information on demand. A customer's balance, an aged receivables analysis or a draft income statement can be produced at any moment rather than at the month end.
• Integration. Invoicing, inventory, payroll and the ledgers share one set of data, so a sale updates inventory at the same time.
• Storage and retrieval. Years of records take no physical space and can be searched in seconds.
• Lower staff costs once the system is running, because fewer clerks are needed.
• Legibility. No handwriting to misread.

Disadvantages

• High initial cost: software, hardware and installation.
• Training, which costs money and time and may meet resistance from staff.
• System failure. A crash or power cut stops work completely, and data can be lost without backups.
• Fraud and unauthorised access are harder to spot because there is no paper trail to notice.
• Viruses and other malicious software.
• Loss of expertise. Staff who only key data may not understand the accounting behind it, so an absurd output goes unquestioned.
• Dependence on the supplier for updates and support.

The point that carries the marks

The trial balance in a computerised system always agrees, and that is a weakness as much as a strength.

The software prevents one-sided entries, so the errors that cause an imbalance cannot happen. But every error that a trial balance never revealed anyway is still possible: omission, commission, principle, original entry, reversal and compensating errors all survive computerisation untouched. Posting a new machine to the repairs account is just as easy to do on a keyboard, and now there is no imbalance at all to prompt an investigation.

This is the sense in which "garbage in, garbage out" is an accounting statement rather than a slogan. The computer checks the form of the entry, never its sense.

Controls

• Backups, kept regularly and stored away from the premises.
• Passwords and access levels, so a sales clerk cannot alter the general ledger.
• An audit trail, recording who entered or changed what and when.
• Validation checks on input: a range check on a quantity, a check digit on an account code, a compulsory field that cannot be left blank.
• Separation of duties, so the person who enters a supplier is not the person who authorises the payment.
• Anti-virus software and a firewall.

Common mistakes

• Saying a computerised system uses different accounting rules from a manual one. It uses the same double entry.
• Saying a computerised system eliminates errors. It eliminates arithmetic and one-sided errors only.
• Listing advantages without any disadvantage when the question asks for an evaluation.
• Saying the system is cheaper, without noting that this is true only after a high initial cost.
• Giving "it is faster" three times in slightly different words instead of three distinct points.

Check you have it

Question 1

A purchases ledger clerk has to use a password to access the ledger in a computerised accounting system.
What is the purpose of the password?

A1 and 3B1 onlyC2 and 3D2 only

Question 2

Which statements describe ways in which the security of data can be ensured within a computerised accounting system?
1 avoiding the use of updates from the accounting software provider
2 frequent backing-up of all work entered into the accounting system
3 making sure that anti-virus protection is put in place
4 using a single password to allow access to the entire accounting system

A1 and 2B1 and 4C2 and 3D3 and 4

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