Computerized Accounting System – Meaning, Features, Advantages, and Disadvantages | AFM

In this post, we will quickly go through Computerised Accounting System, a topic from Accounting & Financial Management for Bankers Syllabus 2024.

Hello, Bankers!

Here I am, with the new topic from the JAIIB syllabus applicable for MAY 2024 Exams, which might not be so fun….. As this concept is theoretical, I have to warn you that you must keep yourself focused & well… more focused. 

So, let’s get started straight with the topic today i.e. JAIIB’s precious paper on Accounting & Financial Management for Bankers, particularly – Computerized Accounting Systems. 

So, as you already understand how a company’s accounting system is at the heart of its financial management, as it processes all transactions within the organization. 

MEANING: It is a software application that automates financial records and reporting processes to make them faster, more accurate, and easier to manage. It helps so much as it: 

  • reduces manual data entry, 
  • eliminates redundant operations and 
  • reduces the risk of accounting errors with built-in controls. 

An accounting system comes with a set of procedures and record systems for managing the financial and operational activities of an organization. Basically, it is a method for tracking and managing business finances.

What does accounting software actually do?

  • Accounting software automates and streamlines accounting processes by using computers to record and track a business’s financial transactions.
  • The software is designed to make accounting tasks easier and more accurate.
  • Records purchases of goods and services, value of sales, and other financial transactions.
  • Accounting software saves time, money and resources.
  • It is a financial record keeping and analysis software.
  • It is a business tool for accounting and other financial operations. Accountants use this software to record and track financial transactions.

Features of a computerized accounting system:

  • Data Security: A computerized accounting system allows the users (businesses/banks) to store their data in a central location. This way, if any piece of paper that contains valuable information is lost, no one is in danger of having their information stolen. All data is thus stored in a central location.
  • Quick decision-making: As the computerized accounting system generates real-time information, managers quickly come up with immediate decisions or solutions to a particular problem.
  • Accuracy and Speed: Automating accounting processes using various accounting software ensures that accounting work is done quickly and accurately.
  • Improvement in reporting: In accounting software, various things are automated and much fewer things are recorded manually. This helps improve transaction and statement reporting.
  • Reliability: A computerized accounting system consistently produces standard and accurate accounting information.
  • Scalability: A computerized accounting system is so flexible that it adapts to the changing volume of business.
  • Other Advanced features: While some accounting software is designed for sole proprietors and small businesses, others are tailored for larger businesses. If the business is run on a large scale, you may want to consider a computerized accounting system that comes with features like inventory management and multi-user access.

Advantages of a computerized accounting system:

  • Accuracy: Accounting errors are one of the biggest problems businesses face in their accounting process. Accounting software is designed to anticipate common errors and correct them before they are added to the company’s records. It is more accurate than most manual systems.
  • Simplicity: Regardless of the size of the company, accounting software is designed to be simple and easy to use. This means that even new employees can quickly understand how to use the system and record their financial activities.
  • Financial report accuracy: Accounting software has essentially been designed to be completely accurate. Companies can be confident that their financial reports are free of errors. This means that managers can make quick decisions based on accounting data.
  • Standardized financial reporting: The use of accounting software in a business ensures the creation of standard financial statements over the years. These reports are very important when comparing a company’s financial performance over the years or when comparing different businesses that are operationally similar.
  • Greater Control: A computerized accounting system helps a company’s management have greater control over its operations. This is more suitable for a company that is large and has multiple departments. All important information is easily accessible with one click.
  • Integration: Most accounting systems are usually integrated with other vital accounting systems like online banking. This means that important business processes are carried out together and quickly.

Disadvantages of a computerized accounting system:

  • Costing: Although accounting software is designed to simplify bookkeeping and reduce the cost of accounting services, it can also be expensive to set up and maintain. Many businesses decide to use computerized accounting systems once they reach a certain level of growth.
  • Lack of expertise: Many business owners like to do their bookkeeping in-house. This means they may not want to rely on an outside service to manage their accounting. In this case, they may choose to use manual systems until they have the means to implement computerized accounting tools.
  • High cost of installation and training: The cost of accounting software depends on its usage. Some software is at very high prices that the company cannot afford. In addition to acquisition costs, installation and training costs can also be so high and out of reach for a company.
  • Too many Updates: As newer versions of hardware and software are introduced in the market, there is a need for businesses to update them regularly. Employees must be retrained to use such new tools effectively. Reinstallation and retraining result in a work stoppage.
  • Compromised Accuracy: The accuracy of financial records is only as good as the data fed into the accounting software, so the saying goes “garbage in, garbage out.” If the accuracy of data entered is compromised, the software is bound to produce erroneous or misleading accounting information.
  • Potential of Fraud: Since most financial/accounting data is stored in the cloud, professional hackers can gain access to company records. Such actions may expose the assets of the business to greater risks.
  • Technical failures with machines: Accounting software can become unusable if the premises where the business is located are affected by technical failures such as regular power outages and computer virus attacks.

Well, at the end of the day, Computers are here to help like you cover your JAIIB 2023 Syllabus from the screen instead of reading a complicated book. The computerized accounting system is to help the businesses scale up & focus on main activities instead of just writing & recording what they did for the day. 

Like you, you can take up classes for more conceptual clarity on the all or any of the Junior Associate of the Indian Institute of Bankers Papers for NOV 2023 Attempt!

Here is how:


And you will be good to crack your AFM Exam!

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