Introduction to Computerized Accounting.

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Introduction to Computerized Accounting

Over the past two decades the way accounting data is entered, stored and processed has changed considerably. This is due to the introduction of computerized accounting packages.

        It is no longer necessary for large companies to have huge store rooms full of ledgers and records. Instead all information can be stored in computer hard disks.

        Accounting packages give many advantages over manual systems, for example entries do not have to be recorded in multiple ledgers. A single entry is made and the package will update all the appropriate accounts automatically.

        Computerized accounting packages also make it possible for people in other departments, not just accounting to enter data. It does not require a vast amount of accounting knowledge for a pay role clerk to enter wages details into the accounts. Just a basic understanding of how to use the package is needed.

        Furthermore these packages simplify the use of the double entry system greatly. In a manual accounting system, as well as creating an audit trail to record all transactions, a trail balance, profit and loss account and a balance sheet would have to be manually drawn up.

        Computerized accounting packages have the ability to do all this from just having the companies transactions entered into the relevant spreadsheets.

        A great benefit of these packages is that, as the business grows the cost of using the software will remain constant, unlike a manual system where the cost will increase in proportion to business transactions.

        The downside to this is that some of the cheaper packages on the market cannot grow beyond their capacity. This means that if a company grows too big the package will have to be replaced by a better one. Although some advanced packages can be customized to grow with the company.

        Computer systems make tracking down clerical errors much faster than in manual systems, and respond immediately to requests for accounting information instead of having to go and find the correct ledger.

        So overall accounting packages save extra clerical work, time and expense.

But it must be remembered, that if a mistaken entry is made and is not picked up by the computers controls, then all relevant accounts will have the wrong data transferred to them by the system.

        In a manual system only one ledger would have the wrong info entered, meaning it is easily recognized and put right.

 A Sage Scenario

Ralph Jones worked as an apprentice for a mechanic in his home town. After learning the trade Ralph decided that he wanted to set up his own business.

        As he lives in a small town where there is already a mechanic Ralph decided that he could use his skills to buy old cars, fix them up and sell them on at a profit.

        He decides to run his business from a car lot, based on a leasehold of £10,000 PA to be paid up front.

        He planned to start off with cheap cars and gradually build up his business to selling more expensive models.

        He also decided to set it up as a private limited company issuing 250 shares. Keeping 180 shares or himself and selling the rest to family and friends.

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        Ralph plans to use ‘Sage Line 50’ to record his accounts.

The following is a list of transactions taken from the first two months of the business year 2002

Date            Details                                                        N/C code                 VAT code

04/01             Ralph opens up a current account under the name of        2300                N/A

                 Ralph’s Motors Ltd using £15,000 from his own savings

                 (REF 001)

04/01       Ralph’s Motors Ltd issue 250 shares at £1 ...

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