Computerized vs. Manual Accounting Essay

King Fahd University of Petroleum and MineralsENGLISH 214:Academic and Professional CommunicationSemester (113)| Term Report Prepared For : Mr. Nelson Title:| Computerized Accounting should completely replaces Manual AccountingPrepared By : Ali H. Al-MuslimID#: 200628620Section# : 05SN#: 02Group#:01Word Count:1,333| 10/7/2012 10/7/2012 Table of Contents Table of ContentsII Introduction3 I. Manual Accounting4 A. Benefits4 1. Cost effective4 2. Availability4 B. Limitations4 1. Finding Errors4 2. Time Factor5 II. Computerized Accounting5 A. Benefits5 1. Speed5 2. Saving Money6

B. Limitations6 1. Lack of security6 2. External events7 Conclusion7 C. Summary. 7 D. Evaluation7 E. Recommendation8 WORKS CITED9 Computerized Accounting should completely replaces Manual Accounting Accounting is the backbone of every existing business. Starting with the definition of accounting: “Accounting is the art of recording, summarizing, reporting, and analysing financial transactions” (Snyder, 2008). It is clear from the definition that accounting has three main activities: recording the transactions, summarizing the accounts and analysing the financial statements.

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These main activities can be approached through what is called the accounting cycle which is basically what accountants do before they prepare the financial statements. Image 1 below illustrates the accounting cycle and how accountants move from one step to another. Image 1: The accounting cycle (Glaser, 2011) It starts from journal entries which are record the transaction in the company’s book called the general journal as debits and credits. Then these transactions are posted into the related accounts to get the balances in another book called the general ledger.

After that, adjustments are made until we reach the final result which is preparing the financial statements that are the balance sheet, income statement, Owner’s equity and statement of cash flow. This procedure can be obtained either manually using pens and papers or by computer using spread sheets software like MS Excel or MS Access. Before the computer was invented, accountants used several devices for calculating the figures involved in the transactions like the abacus for instance. However, after the computer was invented, they should use it completely for the whole process in replacement of hard papers.

I. Manual Accounting “A manual accounting system requires the acting accountant or bookkeeper to post business transactions to the general journal, general ledger and worksheet by hand. ” ( Schreiner, ND). Some companies nowadays still use the hard papers in recording their transactions. This old way has two benefits but it also has two limitations. A. Benefits The benefits of manual accounting can be summarized into two benefits: 1. Cost effective An important factor is that manual accounting is cheaper to implement. What is needed are only books and pens and a place to save the files.

Also it doesn’t require any skills other than the basic ones such as the skill of knowing which accounts to be affected if a transaction occurred. 2. Availability In manual accounting, the data are available whenever it’s requested by a manger or an auditor. In addition, it’s not possible for the data to get corrupted even in the long-term. B. Limitations The limitations of manual accounting can be summarized into two limitations: 3. Finding Errors Since making mistakes is part of the human nature, it’s possible for accountants to make mistakes while recording the transactions or preparing the financial statements.

However, finding these mistakes is the real problem. As image 2 shows it’s almost impossible to find an error even when using a magnifier and as big the company is the more transactions it has which means the bigger chance of having errors. Image 2: Using a magnifier not always a solution (Drew, ND) 4. Time Factor Manual accounting consumes a lot of time. Accountants need to know exactly the accounts that will be affected then prepare the journal entries in the general journal. In addition, auditing is a time killer in this case.

The auditor would go over hundreds of pages which take hours to do. II. Computerized Accounting Computers play a big role in every modern business especially in the field of accounting. Computerized accounting has become popular nowadays. According to Mr Avinash the computerized accounting is highly demanded and it’s continuing growing in all industries. Using the computer would make it easier for accountants to do their job. However, Computers also have two limitations that are not negligible. A. Benefits Computerized accounting provides us with two important benefits: 5.

Speed Image3: computer can speed up the process (OTS , ND) Using the computer makes the process faster and what is taking hours can be done in a short notice because reports and financial statements can be produced by the software . The software like MS Access is designed to update the information in every related account by using the relationship function that is installed in the software. “A computerized accounting system allows the user to enter the transaction into the program once, and all accounts are updated as necessary. ” (Francis, ND).

As for auditing, it’s easier for the auditor to go over all the information and if he knows an inaccuracy in a certain account he can easily use the search button to find it and correct it. 6. Saving Money Image 4: Save your money by using computerized accounting (Magloff, ND) Image 4 indicates that computerized accounting can save a lot of money in three different ways. First, since reports and financial statements are produced in seconds, According to (Magloff, ND) managers can determine the financial position of the company instantaneously hence they can take actions to avoid expected losses.

Second, instead of having large closets for saving the accounting books the company could have small hard disk with much higher capacity to save their data. The third way is by reducing the number of employees. The company could hire fewer employees because the work now is much easier and there is no need to pay extra salaries. B. Limitations Although computerized accounting provides two significant benefits, it also has two limitations 7. Lack of security The company’s data is always in danger because of the existence of hackers and viruses. This is a problem with computers in general.

Even with high rated protection software there is a risk of someone stealing the data. “Using a computerized accounting system comes with its own set of problems, such as the need to protect against data loss through power failure or viruses, and the danger of hackers stealing data” (Magloff, ND) 8. External events If the company based their business in computers it may face some external problems like cuts in the electricity or any other cause that could prevent the computer from working. This would delay all the company’s functions until they solve the problem.

III. Conclusion C. Summary. To sum up, accounting is a very important aspect in business world and it has three major activities which are: recording, summarizing and analysing financial statements. These activities can be approached through the accounting cycle. Thanks to technology accounting has two different types now: Manual and Computerized. On one hand, manual accounting is the old way and it is basically doing what is required by hand. I mentioned that this type has two benefits: minimum cost and the availability of the books.

However, it has also two limitations: the difficulties in finding errors and the time consumption. On the other hand, computerized accounting is transferring all the accounting process into computers. This type has two benefits: speed the process and saving money. However, it has two limitations: lack of security and external factors that could make the computer dysfunction. D. Evaluation Technology is growing every day. Based on that computerized accounting is the future of accounting. Although it has some weaknesses (like everything else) but these weaknesses can be minimized.

The security problem is a general problem with computers and by some sort of software we can minimize the risk. Regarding the other problem of having unexpected dysfunction of the computer, we could use a backup software that is running continuously in order to avoid losing the data. Besides, the company might use chargeable generators that could be used under these circumstances. E. Recommendation My recommendation is that every company should go towards computerized accounting direction because it saves time and money. We could use both ypes but I think in the future there will be only one type of accounting and that is computerized accounting. As for the accountant himself he/she should practise to be professional in each type of accounting because “According to the Bureau of Labor Statistics, U. S. Department of Labor, employment of accountants and auditors is expected to grow by 22 percent between 2008 and 2018. ” (Avinash,2012).

WORKS CITED Avinash. (2012, January 13). “Computerized accounting specialists. ” Retrieved from http://accounting. ezinemark. com/computerized-accounting-specialists-7d333c4528a2. tml Drew, B. (n. d. ). “The advantages of manual or computerized accounting. ” Retrieved from http://smallbusiness. chron. com/advantages-manual-computerized-accounting-4910. html Francis, K. A. (n. d. ). “The advantages of manual vs. computerized accounting”. Retrieved from http://smallbusiness. chron. com/advantages-manual-vs-computerized-accounting-4020. html Glaser, A. (2011, September 2). “Accounting completing and closing the accounting” cycle. Retrieved from http://www. economicswiki. com/accounting-completing-closing-accounting-cycle/ Magloff, L. (n. d. ). Advantages & disadvantages of computerized accounting”. Retrieved from http://smallbusiness. chron. com/advantages-disadvantages-computerized-accounting-4911. html Ots. (n. d. ). Retrieved from http://ots-sdchc. org/computerized-accounting-program/ Schreiner, E. (ND). “The advantage & disadvantage of manual accounting. ” Retrieved from http://smallbusiness. chron. com/advantage-disadvantage-manual-accounting-24515. html Snyder, S. (2008). ” What is accounting? ”. .Microsoft. com Retrieved from http://office. microsoft. com/en-us/support/what-is-accounting-HA010102445. aspx