Describe about the Introduction to Financial Accounting for Increasing Organisation.
Accounting is one of the very important and critical aspect of every business that is being handled manually as well as using customised application softwares.This report outlines the source document that are required in manual accounting system to record sales, cash receipts, and cash Payments. In present times, the pace of economic transactions are increasing in accounting system, so it becomes difficult to manage all the transactions through manual accounting system. This takes more time and efforts to handle accounting transaction through this system. This report also discusses about the benefit of converting manual accounting system into computerized accounting system. Moreover, computerized accounting system is effective in handling the accounting with more efficiency and accuracy. Further, the report discusses the effectiveness of computerized accounting system which is helpful for business in taking decision and management of business activities successfully.
Manual accounting system is defined as method of keeping financial transactions and records of business by recording transactions in a written ledger. Manual accounting system is also explained as cost less accounting system because there is no requirement to incur expenses of computerized software and equipments (Marshal, 2011). However, the accountant has to maintain many documents that are required for recording the transactions of different nature.
Sales day book is defined as book of original entry in which all transactions related to credit sales are recorded by businessman. The total of amount of sales book is credited to sales account and the account of customers to whom goods are sold (on credit) is debited with the amount outstanding against their particular names. All the entries are made on journal and a sales invoice is sent to each customer every day. The invoice includes details and price of goods sold to each customer. In addition to this, a copy of sales invoice is kept by seller for recording the sales information on sales journal. Cash sales of goods are not recorded in sales journal. There are five columns is sales journal which includes Date, Invoice number, Folio number, Particulars(containing name of customers) and total values of the amount of invoice. There may be column for account receivable, sales and sales tax. All the values in the column of sales book/ journal are totalled at the end of each month. The format of sales day book is as follows:
|
Date |
Invoice No. |
Particulars |
Folio No. |
Invoiced Amount |
Cash receipt journal is prepared to record cash received from sales. In this journal sales made on account and credit sales are not recorded because there is no cash collected on these transactions. This journal may include large number of entries but it totally depends on frequency of received from customers (Gilbertson and Lehman, 2016). The balance of this journal is summarized in an aggregated total amount for posting it into general ledger. In cash receipt journal, the transactions are made both in debit and credit side because there is requirement of accounting transaction to always remain in balance on both sides. The journal includes details like date, customer name, Folio column, cash, discount, sales, debtor and sundry column.
Cash Payment journal is special journal which is used to record all cash payments. This journal does not record credit purchase transactions instead they are recorded in purchase journal. Cash payment against account payable is also recorded in this journal. This journal includes data column, account debited column, Folio column, cash, discount, purchase, creditor and sundry column. The number of column in the journal depends on the nature of business (Klooster, et al., 2014). The discount column in the journal is used to record the purchase discount. The use of cash payment journal makes the accounting system more efficient. This journal has many columns that simplify the recording of routine entries effectively. The source of recording information in this journal is check book of business.
Computerized accounting system involves use of computer and accounting software that effectively helps to record, store and analyze financial data. This system helps in taking business decisions efficiently. Use of computers and software in this system helps to handle large amount of data. Preparation of accounts and records with the help of computer and accounting software brings efficiency and accuracy (Warren, et al., 2015). This helps business to make effective decision and make easier managing of various activities in business. This system provides easy backup and restoration of important information in business whenever it is required to use in business as compared to manual accounting because if once the data is destroyed it cannot be recovered back which can cause a great loss to business.
Computerized accounting system also helps business to maintain reliability and accuracy in storing business data. It also effectively helps in getting required amount of information that ensures efficient performance of accounting work. This system avoid duplication of data as it effectively stores the data and information with the use of accounting software that helps to maintain accuracy and authenticity in data. This in turn effectively helps to manage various activities in business and taking business decision efficiently (Yona, 2013).However, manual accounting system may involves duplication of data that effect business decision adversely. This system involves maintaining of accuracy in the stored data that helps business to use error free data in taking decisions effectively.
On the other hand, using of computerized accounting system helps business to make auditing of the data electronically that saves time and cost of business that helps to bring efficiency in taking decisions. But manual auditing of each and every data consumes unnecessary time and cost of the business. With the help of software in computerized accounting system data is stored more quickly because it helps business to maintain permanent database of customers and suppliers. These software’s help business in easy retrieval of its customers and suppliers data at the time of receiving cash and making payments. (Griff, 2014) In addition to this, stock records can also be carried out more quickly and effectively than manual processing. This system helps business to carry out each and every activity with more efficiency and effectiveness, that reduces the stress and frustration level of person doing business that helps to take productive decisions for increasing profitability.
Computerized accounting system provides the feature of security that saves the data from natural and man-made disaster like earthquake, attacks and fire, which is not possible in manual accounting system. It helps to save time and cost of business in preparing account with the help of accounting software (Lin and Huang, 2011). If there is requirement in business to make decision regarding cash payment, cash receipt and for making further order for stock, this system provides data related to the above requirement in less time because of built in data base. It also helps to make decision whether there is requirement to use external funding to fulfil business needs and how much amount of raw material is required to order from the suppliers. This enables businessman to grow the business and deliver best products and service to customers. Effective recording of supplier’s data also helps to make timely payment to creditors, so that they supply raw material on time.
Computerized accounting system also helps business to compare current data with the past stored data for making business decision contributing to profitability of business. It also helps business to simplify the business processes cost effectively and easily. This system also helps business to generate comprehensive MIS reports and also ensure business to access required information for making effective decisions. In addition to this, it also involves automatic processing of invoices. This system helps to make accurate calculations that ensure the reliability of financial statement that are proved more helpful in effective decision making (Jerry, et al., 2010). It is effectively helpful in enhancing workflow of financial transactions of business which helps to take better and improved decisions because instead of putting transactions into ledgers manually. This system input the transactions electronically to ensure efficiency in decision making. This system deals in providing error free data for successful running of business activities. It effectively provides consolidated information to business to compare current position of business with its benchmarks so that effective decision regarding improvement of performance and profitability can be successfully taken (Hall, 2012).
Preparation of reporting is flexible in computerized accounting system. It is capable of generating report as and when required by business for any period of time during the accounting period. This leads to effective handling of cash payment, cash receipt and stock requirements of business (Weygandt, et al., 2010). It is also helpful in adapting to the current and future need of business. These systems reduce the chances of data duplication and prepare effective reports to deal with process of business decision easily. Moreover, it helps business to prepare financial statements independent of producing trial balance. Because this system generate financial statements by direct processing of originally stored data in the system. This leads to effective management of activities in the business.
The computerized accounting system ensures better and effective use of time and resources, this leads to bring about efficiency in taking business decisions and preparation of required reports and statements. Debtor analysis is done with the help of this system which indicates the possibilities of debts and its impact on balance sheet effectively. This system also provides fast and accurate retrieval of information for taking business decisions effectively. Accounting software provides faultless and up to date financial information that will effectively helps to take better decisions in future (Gelinas, et al., 2011). This will leads to increase in profitability, efficiency and customer satisfaction. This system helps to generate financial statement automatically at the end of accounting year that makes easier the management of business activities effectively.
Conclusion:
On the basis of above discussion, it is concluded that managing of manual accounting system is a tedious task. This requires various different source documents to record various transactions of sales, cash receipts and cash payments. This consumes more time, resources and efforts to handle the transactions for preparing business reports and statements. On the other hand, Computerized accounting system helps business to perform accounting activities with more speed and accuracy. It helps to prepare business reports and statements automatically from the stored data in the database. In addition to this, accounting software’s bring efficiency in handling various business activities that helps business to take better decisions effectively.
On the basis of the above report, it is recommended that computerized accounting system is more appropriate and efficient system than manual accounting system, to be used by the current business to handle the business activities effectively. This system helps business to get accurate and reliable data with less time and resources. It also helps in automatic generation of financial statements which provides the required data as and when needed to take business decisions efficiently.
References
Azmat, N., and Lymer, A. (2010) Basic Accounting: The step-by-step course in elementary accountancy. UK: Hachette UK.
Gelinas, U., Dull, R., and Wheeler, P. (2011) Accounting Information Systems. 9thedn. US: Cengage Learning.
Gilbertson, C., and Lehman, M. (2016) Century 21 Accounting. : General Journal, Copyright Update. 10th edn.US: Cengage Learning.
Griff, M. (2014) Professional Accounting Essays and Assignments.US: Lulu Press, Inc.
Hall, A.J. (2012) Accounting Information Systems. US: Cengage Learning.
Harvey, D., Mclaney, E. ,and Atrill, P. (2013) Accounting for Business. UK: Routledge.
Jerry, M., Schildhouse, R., Kieso, D. , and Kimmel, P. (2010) Accounting Principles, Peachtree Complete Accounting Workbook. US: John Wiley & Sons.
Klooster, D., Allen, W., and Glenn, O. (2014) Integrated Accounting. 8thedn. US: Cengage Learning.
Lin, S., and Huang, X. (2011) Advances in Computer Science, Environment, Ecoinformatics, and Education. Germany: Springer Science & Business Media.
Marshal, P. (2011) Mastering Book-Keeping.UK: Hachette UK.
Otley, D. ,and Emmanuel, K. (2013) Accounting for Management Control. 2ndedn. Germany: Springer.
Warren, C., Reeve, J. ,and Duchac, J. (2015) Financial Accounting .US: Cengage Learning.
Weygandt, J., Kimmel, P. ,and Kieso, D. (2010) Accounting Principles. 10thedn. US: John Wiley & Sons.
Yona, L. (2013) Financial Accounting. US: AuthorHouse.
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