1、Manual Accounting Versus Computerized Accounting Proceedings of International Conference on Accounting Education Reform and Development Conference James As many professional accountants and auditors state - accounting is a language of business which is accepted in all developed and developing countr
2、ies. Every company applies accounting because it is generally accepted that companies have to reveal certain financial and management information to the government and public users and of course because accounting is indispensable tool in business decision-making process. With the development of inf
3、ormation technologies there were developed many computer products (software) that make accounting as easy as ABC for those who uses them. From this point accounting can be divided into two basic categories:those which apply manual accounting and those which prefer computerized accounting systems. Th
4、is paper is targets the main features of manual and computerized accounting, their benefits and shortcomings, and their comparison. From the accounting theory it is known that accounting cycle includes the following steps: journalizing the transactions, posting them to ledger accounts, preparing tri
5、al balance, making adjustment entries, preparing adjusted to end-of-period trial balance , preparing financial statements and appropriate disclosures, journalizing and posting the closing entries, and preparing after-closing trial balance at last. From the first look it is not very difficult and it
6、is so indeed, but when there are thousands or millions of transactions the situation dramatically changes. Lots of transactions that must be processed in the accounting cycle make this process routine and even a little mistake or inaccuracy can cause all the cycle from the very beginning in order to
7、 find and correct the mistake. So as to shed some light on the matter lets examine accounting cycle more thoroughly. Every transaction (event that change the financial resources or obligations of the company) must be recognized, classified and documented； in addition there must be corresponding acco
8、unts identified and changed. The transactions are recorded in appropriate journals (general journal, sales journal etc) with transaction data, affected accounts? titles, debit and credit of each affected account and explanation specified in the journal record. The above procedure is used for each tr
9、ansaction. All the journal records must be posted to the ledger on a periodic basis (daily or weekly), which is a group of accounts put together and classified (assets, liabilities, revenue, expenses and equity) ? in other words general ledger summarizes all the transactions within a period of time.
10、 In addition there is a subsidiary ledger can be used, which is a more detailed source, where individual items comprised (inventory, accounts payable and accounts receivable). General ledger contains controlling accounts which summarize the content of subsidiary ledger. At the end of accounting peri
11、od with the help of general ledger there is a trial balance calculated to make sure that debit and credit are in balance (if they are not equal it means that there is an error somewhere). Then there must be appropriate adjustments made like depreciation and income tax expenses, adjusted records post
12、ed to the ledger and adjusted trial balance calculated. After this there are financial statements should be prepared, which include balance sheet, income statement, statement of retained earnings and statement of cash flows. Then journal entries of temporary accounts are closed to permanent accounts
13、 and posted to the ledger, and at last after-closing trial balance can prepared. In order to stay on top companies have to analyze the performance of all organizational cells (starting from unskilled workers and operating personnel, and finishing with top managers and other key personnel) and discov
14、er all the deviations from the plan, their causes, and finally companies? management has to take corresponding measures to avoid such deviations in the future. These procedures are called internal controls and include the following five elements: control environment, risk assessment, monitoring, inf
15、ormation and communication, which are assessed separately and put together a single rate of organizations performance. Control environment means the way of organizations internal control? which manager controls the employees, how and whom does that manager reports next about the plan performance etc
16、. Risk assessment implies measures to determine all the potential risks in advance, their causes, probabilities and counter-measures to avoid and manage them； how can those risks influence companys performance and financial state； how to minimize the costs of facing financial risks etc. Monitoring i
17、mplies quality control of companys operations and personnel. Information and communication element means the control over communication flow and the quality of information flow within the organization in order to minimize the time of communication and information losses. Internal control procedures
18、allow to keep companies? assets from dissipation and control productivity and usefulness of all departments. Lets return to the main issue of the paper. Manual accounting implies that employees perform the whole accounting cycle manually on a periodic basis: they calculate trial balances, journalize
19、 transactions, prepare financial statement reports and other routines. Of course it takes much time, resources and effort in large organizations. Computerized accounting implies that the only thing that employees do is recording transactions into the computer which processes the other steps of accou
20、nting cycle automatically or by a request. But this is a very simplified view on the computerized accounting because transaction is a complex category which includes not only sales or acquisitions, but depreciation, premiums and wages calculation, dividends etc. So computers provide accurate calcula
21、tions and smart reports but it takes much time, resources and effort too and it s difficult to assess which accounting type is more fast and economic. If manual accounting requires qualified accountants to keep a record of business transactions, computerized requires accountants which can use specif
22、ic software and thus they cost more. Computer software calculates faster but it does not know what you need until you can clearly explain what exactly you need. In addition good computerized accounting system can cost thousands and even millions dollars, depending on the complexity and the size of o
23、rganization. Computerized accounting provides better internal control report system for any given period of time (computer can control thousands indicators simultaneously and create notifications to the appropriate departments or workers if some indicators do not correspond to the normal state), whi
24、le manual control takes more time. Among the advantages of manual accounting there are: comparatively cheap workforce and resources, reliability, independence from machines, skilled workers availability； the disadvantages include: reduced speed, increased effort of accountants, relatively slower int
25、ernal control reporting, routine work and some others.Among the main advantages of computerized accounting there are: high speed and mobility of reporting, reliability, no routine work, increased accuracy, internal control system of increased productivity, easy back up and restoration of records； the disadvantages include: extremely
