Modern accounting systems
Developments in Information and communication technologies have lead to the development of numerous accounting software. These accounting software have facilitated development of modern accounting systems. Examples of accounting packages are; QuickBooks, Sage, Cashcall, Mind Your Own Business (MYOB) and Enterprise Resource Planning (ERP), [ CITATION Ree05 \l 1033 ].Modern accounting systems have revolutionized the way accounting is done and had a great impact on businesses. This paper discusses the impact of modern accounting systems on organizations.
Improvement in financial reporting
Many organizations obtain funds from various sources. The various providers of funds have different information needs therefore financial reports need to be structured to meet their informational needs. Similarly, different types of organizations are required to comply with different accounting standards in preparation of financial reports. According to Paul Rees in his article ‘Computerized Accounting’[ CITATION Ree05 \l 1033 ], modern accounting systems have made it easier to comply with these standards. For example Cashcall is accounting software that assists charity organizations in complying with charity organizations reporting regulations such as the Statement of Recommended Practice (SORP).
Better record keeping
Modern accounting systems create less room for human error, for example entering figures in the incorrect field. Modern accounting software minimize this likelihood by providing a reference for each transaction. Traditional accounting systems are characterized by manual posting of entries into registers which are then transferred to ledgers, this makes it more prone to errors especially errors of transposition. Although vouchers, receipts and invoices will still be filed manually, it is easier to track them with the references provided when there is need to verify details. This makes it easier to trace errors. Accounting software such as QuickBooks and sage are designed for users with limited accounting knowledge about the double entry system. They therefore facilitate proper record keeping by individuals responsible for accounting function even if they may not be trained accountants. This is especially useful for small and medium size enterprises that may not be able to afford the services of a qualified accountant [ CITATION Gil08 \l 1033 ].
Modern accounting systems facilitate automatic updating of account balances. Once an entry is posted in one ledger, it automatically posts the entry in the corresponding ledgers. This has led to the development of back flush accounting. Back flush accounting is a product costing approach where computation of cost of items produced is delayed until the production process has been completed. Standard costs that have been incurred will then be flushed backwards in the entire system to allocate costs to products. This ensures a comprehensive and accurate determination of product cost [ CITATION Gil08 \l 1033 ].
Modern accounting systems have made data entry faster. They can generate reports automatically facilitating decision making. According to Veyis Tanis in his article ‘Benefits of Computerized Accounting Information Systems on JIT Production Systems’[ CITATION Tan08 \l 1033 ], computerized accounting information systems has enabled businesses adopt the Just in Time (JIT) system. This is a strategy that businesses use with the intention of minimizing inventory holding cost by purchasing or producing products when they are demanded by customers rather than for stock. Just in Time system seeks to achieve; zero inventory, zero defects, zero breakdowns and elimination of non-value adding activities. Modern accounting systems haves made adaptation of this system possible by providing timely reports about customers and suppliers when they are required.
Modern accounting systems have facilitated faster production of financial reports. Traditional accounting systems relied on manual posting of entries to the ledger books which are then summarized and complied into the appropriate financial statements. Most of the modern accounting software automatically produce financial reports. The financial reports generated are also easier to audit since they have fewer errors. This has made it easier for organizations to source for funds and has enhanced corporate transparency [ CITATION Gel08 \l 1033 ].
Availability of information
Modern accounting systems have made data that has been input available instantly to different users at different places at the same time. This has enabled transactions to be conducted in real time improving efficiency in service delivery. It has also facilitated outsourcing so that the business focuses on its core business. The external party hired can easily access the information system of the organization to perform the service they have been contracted to perform. Accounting software such as Access Accounts Horizon can allow upto ten users at the same time [ CITATION Ree05 \l 1033 ].
Management of information
Modern accounting systems facilitate faster production of reports that are necessary for management in control and monitoring the business. For example, information about customers accounts that are overdue can be obtained from an aged debtors’ analysis report, this information is relevant for management in determining whether to extend credit to a particular customer and the effectiveness of their credit policy. Other reports that can be produced instantly to aid management in decision making are; sales analysis, stock valuation, payroll analysis, budget analysis and variance analysis [ CITATION Gel08 \l 1033 ].
Compliance with legal requirements
Modern accounting systems make it easier to comply with legal requirements. Electronic tax registers which automatically generates figures for the regular VAT returns makes it easier to comply with VAT regulations. Computerized PAYE and tax submission and online filing of tax returns ensures they are filed on time reducing potential penalties [ CITATION Ree05 \l 1033 ].
Activity based costing
Activity base costing involves accumulating product cost, operational and financial information on the basis of activities that are required to produce a good or achieve operational or financial goal. This is achieved by allocating overhead cost on the basis of production. The aim of activity base costing is to eliminate non value adding activities by identifying costs in the production chain that cannot be traced to the product. It also makes it easier to control costs at the level of activity where it is incurred. Modern accounting systems have made it easier to trace cost to products through the production chain. The traditional accounting system emphasized on controlling costs at the end of the production process. Activity based costing has therefore improved production efficiency of organizations [ CITATION Gil08 \l 1033 ].
Ease of dealing with multiple currencies
Modern accounting systems can allow organizations to easily trade in multiple currencies. There numerous computerized accounting packages that automatically convert currencies at the prevailing market rates hence minimizing difficulties associated with dealing with foreign currencies. Organization can also easily evaluate and mitigate financial risks associated with currency fluctuations. This has facilitated organizations to operate on a global scale to take advantage of success opportunities existing internationally [ CITATION Ree05 \l 1033 ].
Modern accounting system has reduced the multiple steps in traditional accounting systems into a single step. A single entry automatically updates corresponding ledgers. It facilitates automatic updating of suppliers’ account and purchase ledger, automatic adjustment of records of stock, automatic computation of payroll and related entries. This reduces the staff required by combining various accounting functions that have been simplified. This helps organizations save on salaries and associated expenses[ CITATION Ree05 \l 1033 ].
Modern accounting systems have facilitated e-commerce by enabling faster, secure and reliable payments by online shoppers. Electronic payments are made in three ways. Buyers can send a check for payment through an email. Buyers can also send the customer’s credit card number over the internet. Buyers can also use electronic or digital cash that can be obtained from banks specializing in e-cash. Electronic payments have made many organizations to embrace e-commerce [ CITATION Gil08 \l 1033 ].
Electronic Data Interchange (EDI)
Modern accounting systems have facilitated organizations to electronically generate transmit, translate and store business transaction documents between the parties transacting. It includes documents such as purchases invoice, sales invoice, shipping notice and receipts. EDI requires synchronization of the accounting systems of the two organizations. Electronic Data Transfer has replaced the standard paper document exchange that was associated with inefficiencies and delays [ CITATION Gil08 \l 1033 ].
Modern accounting systems have been designed with better controls over input function, processing function and output function. Application control designed in modern accounting packages contains security features. Passwords, PIN, phrase code and smart cards have been used to ensure authorization and authentication. Control such as edit controls, total control and automatic reconciliation ensure integrity of data. Also most of the modern accounting systems have backup systems to ensure data is not lost. This has reduced fraudulent and erroneous corruption of accounting records in organizations [ CITATION Gel08 \l 1033 ].
Incorporation of modern accounting in the daily operation is critical for any modern organization. Adoption of modern accounting systems results in improvement in financial reporting, better record keeping, keeping up-to-date information easier management of information, easier compliance with legal requirements and enhanced security.
Gelinas, U. J., & Dull, R. B. (2008). Accounting Information Systems (illustrated ed.). New York: Centage Learning.
Gilbertson, C. B., & Lehman, M. W. (2008). Century 21 Accounting: Multicolumn Journal (illustrated ed.). New York: Centage Learning.
Rees, P. (2005). Computerized Accounting. VAN Briefing .
Tanis, V. (2008). Benefits of Computerized Accounting Information Systems on the JIT Production Systems. Review of Social,Economic and Business Studies,Vol.2 , 45-65.