If you are a student studying accounting or intend to make a career in finance, then there are high chances that you might have heard the query, what is computerized accounting? Simply put, computerized accounting is a process of maintaining, recording, calculating, and reporting financial transactions using accounting software instead of manually entering all the financial details in the register or notebook.
Computerized accounting is used by all sorts of businesses these days to keep track of their daily financial transactions. Accounting software like TallyPrime and other accounting systems are designed to record and report sales and purchases, maintain ledgers, calculate taxes, generate invoices and receipts, manage expenses, and prepare financial statements.
What is Computerized Accounting?
Computerized accounting can be defined as the use of computers and accounting software to perform accounting processes. Rather than manually calculating all transactions, computerized accounting makes recording and reporting of financial transactions easy by storing the information virtually and performing calculations based on the entered data.
For instance, when recording sales transactions in the accounting system, the details of the transaction are automatically reflected in the ledger and the accounts. This saves the need to manually enter the same information and makes the accounting process organized and efficient.
Therefore, computerized accounting is not simply about doing accounting on a computer. As explained by its name, it is about using accounting software to make the processes of recording, reporting, and managing financial transactions easy.
How Does Computerized Accounting Work?
Computerized accounting differs from manual accounting, since the former involves recording and processing financial data electronically.
Generally, computerized accounting works through the record of a financial transaction made by a computer, which in turn incorporates the relevant data into accounting software.
For example, a business may record a purchase transaction and provide details about the nature of the goods, the supplier’s information, the money’s value, the taxes incurred, and the mode of payment.
The accounting software is then able to record the financial information into the relevant accounts and update the other related accounts.
These include:
- Sales and purchase transactions
- Cash and bank transactions
- Expenses and income
- Ledger management
- Journal entries
- Tax calculations
- Invoicing
- Inventory records
- Financial reports
All of this depends on the accounting software used by a business and its specific needs.
What Is the Difference Between Manual and Computerized Accounting?
As mentioned above, the main difference between the two systems lies in the accounting process.
Namely, in manual accounting, a business owner will record transactions and make calculations, ledgers, and reports by hand.
However, in computerized accounting, the accountant only needs to enter the relevant data into the computer accounting software, which will process the information and record it digitally.
For example, a ledger requires extensive recording and calculations to represent the figures of a business in a specific manner.
While a manual ledger requires hours of work to prepare, the computerized ledger can be updated with the proper financial transaction record.
This is why computerized accounting is preferred by many businesses that deal with large volumes of transactions.
Role of Tally in Computerized Accounting
One of the accounting software solutions used in this era is Tally. This accounting software was designed to cater to the needs of businesses that deal with recording their financial transactions and other related activities electronically.
Through this software, one can perform functions including:
- Sales and purchase accounting,
- Ledger
- Journal
- Cash and bank management
- GST accounting
- GST invoice
- Inventory management
- Taxation record
- Financial reports
- Bank reconciliation statement
Therefore, it is essential for an individual studying computerized accounting to develop an in-depth understanding of how accounting procedures are integrated into this software. Therefore, learning tally and accounting together will enable a student to comprehend how businesses record their transactions digitally.
Computerized Accounting and GST
It is common that in this current era where businesses are booming, accounting is closely tied to taxation. For instance, in India, businesses must comply with the Goods and Services Tax or GST regulations when recording their financial transactions. Thus, computerized accounting software is crucial for recording taxable events and tracking tax-related information.
When using accounting software, for instance, in GST compliance, one can perform processes including recording of GST on purchases and sales, generation of GST invoice, recording of all transaction files, and reviewing GST reports among other activities.
Nevertheless, the role of the accounting software is not to replace the role of accounting knowledge. For instance, an individual must have prior knowledge of GST terminologies such as Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST), Input Tax Credit (ITC), GST invoice, and GST returns before using accounting software to record any transaction. This is the main reason why computerized accounting and GST are taught together in colleges.
What Are the Benefits of Computerized Accounting?
Computerized accounting comes with numerous advantages to businesses and accountants.
Some of these include:
1. Fast accounting process
Most of the accounting activities are faster because the computer does most of the calculations.
2. Easy storage of information
The computerized accounting information is stored in soft copy and is easy to organize.
3. Easy calculation
The accounting software is in a position to do calculations automatically hence minimizing recurring calculations.
4. Easy generation of reports
The reports in computerized accounting are generated using the data that has been entered into the system. It is easier to generate multiple reports.
5. Easy tracking of transactions
It is easier to track transactions in computerized accounting. All the previous transactions are at hand and one can query any transaction that they want.
6. Helps in managing GST accounting
Computerized accounting can assist businesses in managing their GST accounting data and generate reports on GST.
Is Computerized Accounting Hard to Learn?
Computerized accounting can be a breeze if one starts learning it from the basics. One does not need to have a lot of computer skills to learn computerized accounting. One can start learning accounting from the basic level and work their way up to advanced accounting.
The basic level includes:
Accounting basics, journal entries, ledger, trial balance, sales and purchase, GST, Tally Prime and financial reports. Knowing these basics is important because it is easier to learn accounting software when one already knows the basics of accounting.
Students, beginners, commerce students, and career changers can acquire knowledge in accounting and computerize their skills to be able to work in a dynamic business environment.
Why Is Computerized Accounting Important in Today's World?
Businesses are generating a lot of data in today's world and it is important for them to put the data in soft copy so it is easy to follow-up on the data at a later time. Companies are generating a lot of data daily due to a high number of sales, purchases, expenses, employees, customers, and suppliers. Data management in the modern world of businesses has become complex and it requires a professional to handle the accounting activities within an organization.
Computerized accounting has become vital to business organizations because it provides a framework of managing and organizing the financial data of a business. It links other aspects of accounting such as tax, inventory, banking, invoicing, and reporting among others.
Computerized accounting has become vital and relevant in the current business world and it has become a must for individuals who are willing to make a career in finance or accounting.
Conclusion
From the above benefits and importance of computerized accounting, it is clear that computerized accounting is done using a computer to record, process, store and report financial transactions of a business entity. The process is vital because it minimizes the monotonous activities associated with manual accounting.Computerized accounting is important and relevant to businesses because it reduces the amount of paperwork associated with manual accounting. However, to learn computerized accounting one needs to have a basic knowledge of accounting and finance. It is also important to know how to use accounting software such as tally prime while also learning the basics of GST, bookkeeping, invoicing, ledger and reports. Knowing these aspects of computerized accounting is vital and relevant to a learner.
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