For many sole traders and smaller businesses, they have to look at reasons for not being able to cope with the computerised system, these could be:
- Lack of skill in entering up the accounts
- Shortage of time/shortage of staff for entering accounts
- An increasing large volume of transactions
- Too much time spent on VAT returns
- Too little information available for management decisions
- Not knowing which customers are late in paying.
Lack of skill may point to the need in improved training. For many larger businesses they may have the option of running an induction day where they may have the opportunity to train future employees on the computer accounting system, if it was to be installed.
Staff shortage may show there is a need for improvement in the management of the manual accounting system, so there may not be a necessity for a computer accounting system. The solution would be to consult an accountant due to the case of a lack of expertise. Again this is a costly solution which is why the remainder of the points suggest that a computer accounting system would be beneficial to the business. This is because it will become more efficient, and therefore have a better idea of what to do with more accurate figures, so future business decisions, for example, expansion, may be made more easily and positively.
Types of computer accounting software:
There are basically two types of systems. The simple Cash Trader Programme and the Complete Ledger Programme. The latter can either be integrated ‘all in one’ packages or modular systems:
Cash Trader Programme:
These simple systems assume that the business keeps only a cash book and it needs to keep track of money received and money spent, and to analyse the expenditure. Such programmes are inexpensive and are clearly suitable for small businesses which deal on cash basis. This type of programme would not be suitable for large multinational companies such as Cadbury’s as it deals with many types of transactions. This programme would also have to require a workforce which is highly skilled as it is not as in depth as the ‘complete ledger system’.
Complete Ledger System:
These programmes are suitable for businesses that keep a full set of double entry accounts. The following facilities are normally available:
- Sales ledger
- Invoicing (sometimes integrated in sales ledger)
- Purchase ledger
- General/Nominal ledger (incorporating in the cash book)
- Stock control
- Payroll
The complete ledger systems are available in two formats:
Integrated packages: These will normally contain all of the functions listed above. An integrated package may be expensive and initially more complex to operate. This means that this particular programme may require a skilled workforce, and it may also involve a lot of training. It is also suited to a PLC or an LTD as they are more financially able to purchase it. Eventually it will prove very beneficial as it also automatically produces reports such as the trial balance, the trading, profit and loss account and the balance sheet. This will make the business more efficient as it will not be as time consuming as to when producing the accounts manually. A main advantage of this system is that it will be extremely accurate.
Modular systems: These are suitable if the business does not need the full range of facilities offered. It may select individual functions, for example the Sales Ledger and Invoicing, which may be purchases separately. This benefits, many organisations which may not be able to purchase the full package all at once as they are unable to afford it. It is also an opportunity to train staff to their specialist ledger, so they are fully equipped to any problem which may arouse. When separate ledgers are purchased, as a result the organisation will run more smoothly and efficiently. It is also useful because a business can purchase extra modules, for example, Purchase Ledger and General/Nominal Ledger, as the need arises. Each model added is completely compatible with other modules from the same software house.
A larger business which employs many accounts staff may consider networking a number of computer terminals in different parts of the office, linking them to a central storage system or printer. This can be a cost-effective solution, but professional advice must be taken for its implementation, when connecting PC’s to the standard of the computer accounting systems.
The benefits of a Computer Accounting System:
The main benefits of the accounting system is its ability to handle a high volume of transactions, its simplification of double-entry, its improved credit control, instant VAT reports and rapid access to management information.
Volume Transactions:
Although the system may take time to set up, and may have problems for staff in understanding how to use the system, one of its main principals is the benefit of its ability to handle large volumes of transactions and to enable the owner of the business to access information immediately. For example, if the customer telephones to query an invoice amount or discount allowed, the owner does not need to search through paper files, with the invoice possible missing or misplaced, they can instead call the transaction up on their screen and give an immediate answer. It also benefits the business as it expands, as the ability of the computer to deal with a high volume of transactions will lead to a saving in staff costs, as fewer accounts staff will be needed. This is very useful to many businesses as it will mean that many people will be made redundant, as the organisation will have fewer people to employ. This could also result as a drawback, as the system may break down and therefore the company will not have the right number of staff to prevent any inconvenience.
Avoidance of Double Entry:
This is a major boost for many organisations as the time saving element of the computer accounting system is that the double entry is automatic. This means that it will be very accurate as when employees manually produce the double entry, managers have to allow for human errors. As the demands for the companies products increases so does the workload. This can cause conflict between some employees, but most importantly the company is able to deal with demand as they have technological system to do so. Each transaction is recorded as a single entry into the system with an appropriate code input for automatic entering of the correspondence double entry transaction.
Credit Control:
The use of computerised Sales Ledger and Invoicing Functions can help the owner of a business keep track of overdue payments from his customers and will reduce the time consuming paperwork generated by credit control. A main advantage of this is keeping track of payments. Companies are therefore able to have a suitable credit period which fits in their customers, for example 40 days. This will make organisations more efficient as they are able to spot outstanding debts.
- Invoices
- Statements with Remittance Advices attached
- Aged Debtor Summaries (list of debtors showing amount of time invoices have been outstanding)
VAT Reports:
Many businesses are registered for Value Added Tax (VAT) and are required to make regular returns on the amount of VAT paid on purchases and charged on sales. Manual calculations of the VAT position can be time consuming and tedious. Computer records which contain sales and purchase ledger functions will automatically produce VAT reports and save many troublesome hours. Therefore the reports will be far more accurate and work for many employees will be made far easier.
Management Information:
Accounts packages containing a general/nominal ledger should be able to produce trading, profit and loss accounts and balances automatically. This will be a benefit of the owner, as not only will he or she be able to obtain up-to-date information on profitability, but computer produced financial statements will impress the bank manager and save the accountants time and fees. This also shows the company is forward thinking and is able to react to changes in the market rapidly, as of the instalment of the accounting system.
The Drawbacks of a Computer Accounting System:
There are considerable benefits from the computer accounting system, but like everything, it inevitably has its problems.
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The difficulty of deciding on the appropriate computer software and hardware: Some organisations may purchase software or hardware which is not needed by the company. This is seen as a waste of money, which is why it is important to notify an account on your final decision.
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The necessity for keeping parallel manual accounting system for a suggested 12 months: This may cause confusion with staff and also may interfere with work which could have been down on the computer system if the business is unorganised.
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The danger of mechanical breakdown, and software problems or bugs: This is a huge business risk which comes with the package. It can cause disruption and can be a liability to the company due to the inconvenience.
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The need to train staff who may not like computers: This is very expensive as businesses will have to set up induction days, whilst time is being taken out of work. This can also cause human error if employees were not trained properly in what they are doing.
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The problem of security: This means for example the wrong person obtaining access to the system. This again is costly as the organisation could hire security to prevent this happening or purchase security cameras.
It is clear that anyone considering purchasing of the computer accounting system must obtain reliable professional advice. This can be provided by accountants and computer consultancy firms.
The Benefits and Limitations of a Computer System compared to a Manual System:
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Computer Accounting Systems can greatly improve the efficiency of the business: A small sole trader such as a local shop will benefit a computer accounting system as it will save a lot of time whilst preventing error. It will also reduce staff expenditure as you do not have to pay an accountant.
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Computer Accounting Systems can either be simple cash trader programmes or a full ledger system in an integrated or modular form: This can benefit many of the larger organisations such as PLC’s or LTD’s. This is because they are therefore able to find an accounting system which is suited to their needs. It is a more in depth system which means the company will be more efficient and accurate.
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Computer Accounting Systems, by providing management information, can assist the business owner in making decisions: This can show the profitability of either a small or large organisation. This may also be able to predict the future cash flow of the company. For example, if you are a larger company like a PLC you know where you stand if you are looking to invest; solvency of the organisation.
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Computer Accounting Systems cannot work miracles; they should only be introduced after a thorough understanding and full staff training: For many small organisations like partnerships or sole traders, this can question the need for a computer accounting system. If companies say yes to a computing accounting system, and they are able to run it, it is useless to them if they can’t properly use it, as it will just waste time and make the company inefficient.
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Professional advice should be sought when introducing an accounting system: Companies may question whether the system does what it intends to do. It may be a time consuming project which may prevent the efficiency of the running of the company. This may also question whether it is being used properly.
