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Comparing Manual and Electronic Systems

Tue, 02 Mar 2010 12:32:55 +0000

Despite the tremendous capabilities of computers, one should not conclude that electronic systems are always better. As with any choice, the costs and benefits of each alternative should he weighed before the choice is made. The following key points should be considered when evaluating and comparing manual and electronic systems.
Dollar Costs
The costs of bookkeepers’ salaries and manual accounting records must be compared to the costs of computer hardware and software. Electronic systems also have some hidden costs that must be considered, such as computer training of personnel and salary differences between bookkeepers and competent computer operators. Another consideration is the possibility that fewer individuals are needed to run an electronic system. As noted in the opening story about Safeguard Business Systems, with microcomputers widely available, as well as an abundance of user-friendly software packages, the manual system is losing its comparative advantage in even the smallest businesses.

Processing Speed

When the number of transactions is large, electronic systems offer real advantages. Thousands of transactions can be processed quickly by a computer, and high-speed printers can generate reports. However, delays in computer processing can occur because of power shortages and computer breakdowns.

Processing Errors
Unless a hardware failure occurs, the computer will not make a processing error. Both hardware and software controls generally ensure accurate processing

Posting the Cash Payments Journal

Tue, 02 Mar 2010 12:29:15 +0000

The procedures for posting the cash payments journal are similar to those for posting the cash receipts journal. Specifically, the amounts recorded in the Accounts Payable column are posted individually to the subsidiary ledger and in total to the control account. Purchase Discounts and Cash are posted only in total at the end of the month. When a transaction is recorded in the Other Accounts column, it is posted individually to the appropriate account(s) affected. No totals are posted for this column.
The posting of the cash payments journal is shown in Illustration 6-17. Note that the symbol CP is used as the posting reference for this journal. After postings are completed, the equality of the debit and credit balances in the general ledger should be determined. In addition, the control account balances should agree with the subsidiary ledger total balance.
Effects on General Journal
Special journals for sales, purchases, and cash substantially reduce the number of entries that are made in the general journal. Only transactions that cannot be entered in a special journal are recorded in the general journal. For example, the general journal may be used to record such transactions as granting of credit to a customer for a sales return or allowance, receipt of credit from a supplier for purchases returned, acceptance of a note receivable from a customer, and purchase of equipment by issuing a note payable. In addition, correcting, adjusting, and closing entries are made in the general journal.

Manual Accounting Systems

Tue, 02 Mar 2010 12:18:09 +0000

In a manual accounting system, each of the steps in the accounting cycle is performed by hand. For example, each accounting transaction is entered, manually in the journal and posted manually to the ledger. To obtain ledger account balances and to prepare a trial balance and financial statements, additional manual computations must be made. In this section, therefore, we discuss how the manual processing system can be more efficiently used to process accounting data.
At this point you might be wondering, “Why cover manual accounting system-is if the real world uses computerized systems?” First, small businesses still abound. Most of them begin operations with manual (or even “shoe box”) accounting systems and convert to computerized systems as the business grows. Second, to understand what computerized accounting systems do, you need to understand how manual accounting systems work.

Subsidiary Ledgers
Imagine a business that has several thousand charge (credit) customers and shows the transactions with these customers in only one account Accounts Receivable in the general ledger. It would be virtually impossible to determine the balance owed by an individual customer at any specific time. Similarly, the amount payable to one creditor would be difficult to locate quickly from a single Accounts Payable account in the general ledger.
To provide such information, companies use subsidiary ledgers to keep track of individual balances. A subsidiary ledger is a group of accounts with a common characteristic (for example, all customer accounts that is, accounts receivable). The subsidiary ledger frees the general ledger from the details of individual balances. A subsidiary ledger is an addition to, and an expansion of, the general ledger.

Developing an Accounting System

Tue, 02 Mar 2010 12:15:56 +0000

Good accounting systems do not just happen. They are carefully planned, De- signed, installed, managed, and refined. Generally, developing an accounting, system involves the following four phases:
1. Analysis. The starting point of analysis is to determine the information needs-of internal and external users. Once this is established, the system analyst development of proceeds to identify the sources of the information and the records and pro- accounting system procedures for collecting and reporting the data. If an existing system is being analyzed, its strengths and weaknesses must be identified.
2. Design. For a new system, forms and documents must be designed; methods and procedures selected from alternatives, job descriptions prepared; con troll integrated; reports formatted; and equipment selected. Redesigning an existing system may involve only minor changes, a complete overhaul, or replacement of a manual system by a computerized system.
3. Implementation. Implementation of either new or revised systems requires that documents, procedures, reports, and processing equipment must be in stale and made operational. Personnel must be hired, trained, and closely supervised through a start-up or transition period.
4. Follow-up. After the system is up and running, it must he evaluated and monitored for weaknesses and breakdowns. Also, its effectiveness and efficient must be compared to design and organizational objectives. Correction in design or changes in implementation may be necessary.