Computerized accounting systems have replaced manual systems in many organizations-even small businesses. In discussing the three stages of data processing- input, process and output-we can observe the difference between a computerized accounting system and a manual accounting system.
Manual vs. Computerized Accounting System
The relationship among the three stages of data processing is shown in Figure 1.2.
The Three Stages of Data Processing
Inputs represent data from source documents, such as sales receipts, bank deposit slips, and fax orders and other telecommunications. Inputs are usually grouped by type. For example, a firm would enter cash-sale transactions separately from credit sales and purchase transactions.
In manual accounting system, processing includes journalizing transactions, posting to the accounts, and preparing the financial statements. A computerized system also processes but without the intermediate steps (journal, ledger, and trial balance).
Outputs are the reports used for decision-making, including the financial statements (income statement, balance sheet, and so on). Many companies make better decisions-and prospering â€“because of the reports produced by their accounting system. From computer’s viewpoint, a trial balance is also a report. But a manual system would treat the trial balance as a processing step leading to the statements. Figure 1.4 is an overview of computerized accounting system.
Overview of a Computerized Accounting System
Summary of the Accounting Cycle: Computerized and Manual
The following table summarizes the accounting cycle under both systems;
|Computerized System||Manual System|
|Start with the account balances in the ledger at the beginning of the period.
Analyze and classify business transactions by type. Access appropriate means for data entry.
Computer automatically posts transactions as a batch or when entered on-line.
The unadjusted balances are available immediately after each posting.
The trial balance, if needed, can be accessed as a report.
Enter and post the adjusting entries. Print the financial statements. Run automatic closing procedure after backing up the period’s accounting records.
The next period’s opening balances are created automatically as a result of closing.
Analyze and journalize transactions as they occur.
Post journal entries to the ledger accounts.
Compute the unadjusted balance in each account at the end of the period.
Enter the trial balance on the work sheet, and complete the work sheet.
Prepare the financial statements. Journalize and post the adjusting entries. Journalize and post the closing entries.
Prepare the post closing trial balance. This trial balance becomes step 1 for the next period.