Computerised accounting systems (A Level)

A computerised accounting system is a software application that processes and records a business's financial transactions. Unlike a manual system which uses physical books (like ledgers and day books), a computerised system stores data electronically. These systems are typically 'integrated', meaning they have different modules for sales, purchases, inventory, and payroll that are all linked together. The key feature is automatic posting: when a transaction is entered once, for example a sales invoice, the system automatically updates all relevant accounts, such as the customer's account in the sales ledger, the sales account, and the sales ledger control account in the general ledger. This eliminates the need for multiple manual entries for a single transaction, which is a core part of manual bookkeeping.

Switching to a computerised accounting system brings significant benefits but also comes with challenges. It's crucial for a business to weigh these pros and cons before investing.

Advantages:

• Speed and Efficiency: Data is entered once and posted automatically, saving vast amounts of time compared to manual entry. This frees up staff for other tasks.
• Accuracy: The system performs calculations automatically, reducing the risk of arithmetic errors. Most systems also prevent unbalanced journal entries.
• Reporting: A wide range of reports (e.g., trial balance, financial statements, aged receivables schedules) can be generated instantly, providing managers with up-to-date information for decision-making.
• Space Saving: Digital records eliminate the need for bulky physical ledgers, saving office space.
• Professionalism: Invoices, statements, and other documents can be produced quickly and to a high professional standard.

Disadvantages:

• Cost: There are significant initial costs for software, hardware, and installation. Ongoing costs include maintenance, upgrades, and support.
• Training: Staff must be trained to use the new system effectively, which takes time and money.
• Resistance to Change: Employees may be comfortable with the old system and resist learning a new one, potentially causing a temporary drop in productivity.
• Security Risks: Data is vulnerable to viruses, hacking, and unauthorised access if not properly secured.
• System Failures: A power outage, hardware crash, or software bug can bring all accounting work to a halt until it is resolved.

Transferring from a manual to a computerised system is a critical project that must be carefully managed to ensure data is moved completely and accurately. The process involves several key stages and safeguards.

Process:

1. System Setup: Before any data is entered, the 'Chart of Accounts' must be established. This is a list of all the accounts the business will use (e.g., sales, rent, motor vehicles), each assigned a unique code. Customer and supplier accounts are also created.
2. Choosing a Cut-off Date: The business must decide on a specific date to switch over, often the start of a new financial period to make year-end accounting simpler.
3. Entering Opening Balances: The closing balances from the old manual system become the opening balances for the new computerised system. This involves entering the trial balance figures as at the cut-off date, including the individual balances for every customer and supplier.

Safeguards: To ensure the transfer is accurate, several checks are vital:

• Parallel Running: The old manual system and the new computerised system are run alongside each other for a short period (e.g., one month). The results from both systems (e.g., profit for the month, trade receivables total) are compared. If they match, it provides confidence that the new system is working correctly.
• Reconciling Trial Balances: Immediately after entering the opening balances, a trial balance should be generated on the new system. This must be compared line-by-line with the final trial balance from the old system. They must be identical.
• Control Totals: Before entering lists of data (like all supplier balances), a total is calculated manually from the source documents. After the data has been entered into the computer, the system's total is compared to the pre-calculated manual total. Any difference indicates an entry error.

Once a computerised system is running, it is vital to protect the data within it. This involves two related concepts: data integrity and data security.

Data Integrity refers to maintaining the accuracy, completeness, and consistency of data. It ensures the information in the system is reliable. Measures to ensure integrity include:

• Access Levels/Permissions: Restricting what users can see and do. For example, a sales clerk might be able to create invoices but not access payroll data or change supplier bank details. This prevents accidental or fraudulent changes to data outside their role.
• Data Validation: Automatic checks performed by the software during data entry to ensure data is sensible. For example, preventing alphabetic characters in a number field or flagging an invoice date that is in the future.

Data Security refers to protecting data from unauthorised access, corruption, or loss. It is about keeping the data safe. Measures to ensure security include:

• Passwords: Requiring all users to have strong, unique passwords that are changed regularly. This is the first line of defence against unauthorised access.
• Regular Backups: Creating copies of the entire accounting database at frequent intervals (e.g., daily). Crucially, these backups must be stored securely in a different physical location (off-site) or on the cloud. This allows the data to be restored in case of fire, theft, or hardware failure.
• Firewalls and Anti-virus Software: A firewall acts as a protective barrier between the company's network and the internet, blocking unauthorised access attempts. Anti-virus software detects and removes malicious software (malware) that could corrupt or steal data.
• Physical Security: Restricting physical access to the computer server or key terminals by keeping them in locked rooms.