There are several steps to the complete accounting cycle. The first step in this cycle is the collection and analysis of data. This can include invoices, receipts, payments, sales, write-offs, and any other accounting transactions. Computerizing this step would be beneficial because keeping track of all of the miscellaneous papers involved increases the risk for lost or incomplete information. If everything is contained electronically, no manual input of the information is needed and there is less time involved in the process.
Journalizing the information is the second step. This step should be completed utilizing the double-entry system in chronological order as they occur. Special journals can be used for “transactions that recur frequently such as sales, purchases, cash receipts, and cash disbursements” (The Accounting Cycle, 2017, n.p.). The general journal is for transactions that cannot be categorized into a special journal. Computerizing this process can lead to cleaner reporting and easier reference when looking for specific information.
Posting to general ledger is the next step. This entails moving all transactions to their appropriate accounts. Computerizing this step could save time because in most accounting software, this process is automatic as journal entries are made.
The next step is preparation of the trial balance. This is where to check to see if debits and credits match. Computerization of this step allows for a report to be run and discrepancies to be shown.
Next comes adjusting the entries. The purpose of this step “is to match incomes and expenses to appropriate accounting periods” (Adjusting Entries, 2017, n.p.). The types of adjustments that can be made in this step include accruals, prepayments, and non-cash adjustments. Computerization assists in this step by recording the adjustments in every place they need to be adjusted when just one entry is made.
Preparing the adjusted trial balance is the next step. This is where the list of the ledger account balances is created and revenues, expenses, assets, equities, and liabilities are shown. Reviewing these balances is much easier with computerized reporting. There is a great time savings that stems from computerizing this step of the accounting cycle.
Next comes creating financial statements. This includes income statements, balance sheets, and cash flows. The benefit of computerizing this step is much the same as the others. There is a tremendous time savings in being about to easily print out a report with the specified parameters rather than develop a manual report that could take hours or days. Additionally, “computerized accounting provider better internal control report system” (Weber, 2017, n.p.).
Near the end of the accounting cycle comes the step where the books are closed. This finalizes all transactions and prepares the entity for the next accounting period. Computerizing this step can put safeguards into place so accounts are not changed or amended after the closing date.
The final step in the accounting process is the preparation of the post-closing trail balance. This step again tests the balance between credits and debits after the close of the books. This step only includes permanent accounts, not temporary accounts such as the income, withdrawal, or expense accounts. Computerization of this step allows for an easy report preparation form the data already entered.
Overall, there are multiple benefits to computerizing an accounting cycle system. Generally, it is a faster way to keep records as transactions only need to be entered once and all accounts are updated as needed form this one entry. However, a manual system does allow the accountant to have complete control over every entry in every step of the cycle. This does create a higher risk of error, though, where a computerized system has less risk for errors caused by incorrect entries.
- Adjusting entries. (2017). Accounting Explained. Retrieved from http://accountingexplained.com/financial/cycle/adjusting-entries
- The accounting cycle: 9-step accounting process. (2017). Accountingverse. Retrieved from http://www.accountingverse.com/accounting-basics/accounting-cycle.html
- Weber, M. (2017). Manual accounting versus computerized accounting. Accounting. Experience by Simplicity. Retrieved from https://www.experience.com/alumnus/article?channel_id=accounting&source_page=breaking_in&article_id=article_1173385201144