Advantages/benefits of computerised accounting
The decision generally comes down to the owner and their previous experience or the advise they get from those around. Owners who have had a computerised accounting system in the past can see the benefits. They wouldn’t contemplate the idea of a manual system and realise they need an efficient accounting system to be serious and compete in the market. They may also be aware, that the easiest time to set up a computer based accounting system is from Day 1.
On the other hand, another owner may not have prior experience and be perfectly happy (for years) using a manual cashbook. For them to change, they need to see benefits both in efficiency and cost saving. They may reluctantly change after a heart-to-heart with their accountant. Occasionally owners computerise only one part of the system (typically invoicing) but all other parts are done manually.
More business owners are moving their businesses onto computerised systems and most are moving to online accounting systems. It is usually only the very small business (the self-employed or sole traders) who continue to work with a manual handwritten cashbook and handwritten invoices. These small businesses are heavily reliant on their accountants. They generally keep an eye on their bank statement for a financial ‘reading’. They have only a vague idea of their ‘profit’ until 6 months after the end of the financial year (when they get their tax accounts).
Advantages of computerised accounting
Automatic ledger entries
The general ledger accounting systems gets automatically updated once the entry in a subsidiary ledger is posted. For example, when invoicing a debtor through the Debtors Ledger there is an automatic entry made to the general ledger. This means if all entries are recorded the general ledger is up to date.
Accounts always in balance (Debits = Credits)
Computerised systems recognise double entry bookkeeping where for every debit entry there is a corresponding credit entry made. The computerised accounting system accounts are always in balance. For example, when entering a payment, the system will not allow you to record a transaction unless you have allocated to an expense (or other) account.
Accuracy and speed of automatic calculations (such as GST and invoices)
Computerised systems have automatic calculations built in and therefore there is a slim chance of making mistakes calculating invoices and GST. The system automatically calculates GST inclusive and exclusive figures. This means GST reports and forms provided all relevant entries have been made. Invoicing is usually a breeze because all lines (quantity x price) are calculated automatically.
Automatic production of a trial balance from ledger entries
Computerised systems create a trial balance automatically. For example, when electricity is paid, the Bank account (Asset) gets credited and Electricity (Expense) account gets debited. Both figures would be included if you were to run a trial balance. From a trial balance we produce a Profit and Loss Statement and a Balance Sheet and both are generated in seconds.
Potential to create customised reports and provide additional analysis
Computerised systems allow you to customise professional looking reports (which may include your company details and logo). These reports provide additional analysis which may be needed by the bank, shareholders, suppliers and/or the owners. Far less time is spent creating reports than using a manual system.
Entries from your bank come directly into the software saving you added time and enabling quick coding. Feeds have revolutionized the accounts persons job making it quicker, easier and more fun.
Data lives in the cloud (a remote file server)
This means you have access to your invoices from your smart phone or other devices. Backups are done for you and your financial advisor/accountant/bookkeeper/staff can also access your data & post entries.
Lower accounting fees?
This may or may not eventuate and depends on the ability of the business to produce an accurate set of accounts from their computerised system. With competent set up and good training and accurate inputting, then yes, accounting fees should definitely be lower as you are reducing the workload of your accountant doing your bookkeeping. If your fees increase, then ask why! You can always ask for timesheets to justify your accounting fees.
Computerised files produced by businesses and supplied to accountants vary from very bad to outstanding. If your file is on the ‘bad’ end of the scale it will need many corrections done! Good communication between you and your accountant is vital.