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According to Yumi Sera and Susan Beaudry, ( 2007) Financial systems assist and notify an organization's planning and action plans. Financial System is important to Bintang sdn bhd because financial systems help the organization to make sound decisions based on cash ¬‚ow and available resources and also it track and manage the resources required to successfully complete work. Accounting is an important part of every company. Bintang Sdn Bhd. has to reveal certain financial and management information to the external and internal users. Moreover, accounting is a necessary tool in business decision-making process. From this point, there are two structures of financial system in preparing the financial statement, which consists of Manual Accounting System and Computerized Accounting System. These two accounting system acquire to help an auditor to do an inspection or checking on the ledger, journal, and cashbook in order to avoid an error.
Manual accounting implies that employees carry out the entire accounting cycle manually on a periodic basis which they prepare trial balances, journalize transactions, prepare financial statement reports and other routines. Manual Accounting takes more time than other method. Manual accounting systems utilize several paper ledgers to record financial transactions. Companies have separate ledgers for each part of the accounting system, such as accounts payable, accounts receivable and sales. Accountants then consolidate these ledgers into one general ledger, providing the balance for each ledger. The general ledger notebook assists in creating financial statement.
Manual accounting system implies that employees of Bintang Sdn Bhd perform the completely accounting cycle manually on a periodic basis. According to the scenario, Ms Joan instantly prepares a listing of the cash and cheques and a duplicate deposit slip. Cash and cheques are deposited daily in the bank by Ms Joan. In addition, she uses the listing to prepare the cash receipts journal and update account receivable in the general ledger system. This shows that Ms Joan did her work manually whereby she did the preparation and update by hand.
The steps of Manual Accounting System
Advantages of Manual Accounting
Manual accounting systems offers some benefits and advantages. The ledgers are easy to review, and accountants can make simple changes if essential and the individual accounts are easily resigned because information is in systematic order through each ledger. Accountants also have the benefit of physically handling each ledger and creating notes in customer accounts regarding any issues that need clarification or corrections.
The first advantage is independence from machines. This is because he machines is only using logic and cannot be reliable if the anything when wrong. Sometimes even when using a computerized system, people who key in the data still can makes a mistakes and the computer cannot detect it. It becomes worst when it comes to a new employee who does not know how to use a computer. It is because they prefer to use a manual accounting system.
.Secondly is experienced and skillful personnel accessibility. For example, an auditor audits all documents by using all skills and knowledge in auditing. These workers have been trained by the management in order to avoid an error in preparation of the financial statement. In addition, the identity of the person entering the data can possibly be proven by the person's handwriting. Through the evidence of person's handwriting, it is easy for manager to determine who is accountable to make a correction of error in these documents. That person will be responsible for errors or fraud.
The last advantage is clear and easily recognize. An auditor can monitor all transactions including journal, ledger, cash book and else easily because it has hard copies of all records. Furthermore, calculating figures, insert the details, and writing down numbers and transactions helps mind to remember all the details and figures easily rather than typing in computerized accounting system. Therefore, Ms Joan may gain a greater understanding through this manual accounting system because every step is written by hand in paper system
Disadvantages of Manual Accounting
Meanwhile, there are few disadvantages for Bintang Sdn Bhd to consider in maintaining the manual accounting system. By using this manual system, it can be time consuming because an auditor has to move numbers from one report to another manually.
For example, Mr. Peter enquires Ms Joan to audit on all the documents of Bintang Sdn. Bhd. However, the Head of Internal Audit Department informed to Mr Peter that Ms Joan had persistently made several posting transaction errors in the accounting systems that it affects company's financial statement. She did so by overstating figures in sales, recording improper credits to recorded account receivable and overstating receivable. This makes it difficult for the auditor to make corrections because it takes time for an auditor has to check again all the correct figures and particulars in manually.
Computerized accounting implies that the only thing that employees do is recording transactions into the computer which processes the other steps of accounting cycle automatically or by a request. But this is a very simplified view on the computerized accounting because transaction is a complex category which includes not only sales or acquisitions, but depreciation, premiums and wages calculation, dividends etc.
So computers provide accurate calculations and smart reports but it takes much time, resources and effort too and it's difficult to assess which accounting type is more fast and economic. If manual accounting requires qualified accountants to keep a record of business transactions, computerized requires accountants which can use specific software and thus they cost more.
Computer software calculates faster but it does not know what you need until you can clearly explain what exactly you need. In addition good computerized accounting system can cost thousands and even millions dollars, depending on the complexity and the size of organization.
Computerized accounting provides better internal control report system for any given period of time, computer can control thousands indicators simultaneously and create notifications to the appropriate departments or workers if some indicators do not correspond to the normal state, while manual control takes more time
Advantages of Computerized System
Computerized accounting offers several more benefits than manual accounting. Accountants process more information quicker and formulas verify calculated totals and errors are less common. Accounting systems also are customizable by industry, allowing accountants the opportunity to use preset templates for their general ledger. Accountants also can store several years of financial information with relative ease, giving them the opportunity to review previous year's information without sorting through stacks of paper ledgers.
The first advantage of computerized accounting system is timesaving. It is reasonable to say that a computerized accounting system is much faster than a manual accounting system as all the user has to do is enter the data into the computer. Then, the computer will make the calculations, produce, and print out any reports, invoices or credit notes at a touch of a button. Thus, it can save time for accountant to do the other job as well. Besides that, speed and accuracy is increased by using computerized accounting system. The main benefit of the computerized accounting system is to carry out the processing stage quicker, more consistently and accurately than the manual accounting system.
These are few of the main benefits of a computerized system as it is able to produce reports immediately for example customer statements or more enhanced reports such as a cash flow analysis. In addition, an error of calculation will not happen by using computer, unless if there is overstated, understated, or misstatements of figures. Therefore, it shows accuracy by using computerized accounting system because software of Microsoft Excel calculates all figures correctly.
DISADVANTAGE OF COMPUTERIZED ACCOUNTING SYSTEM
The first disadvantage is that it is extremely high costs. This is because a system must be updated, electrical charges, training cost for staff to use the system effectively and many more. For example, Mr Peter must provide full training to Ms Joan in term of auditing knowledge and skill and applying it to the system. The purpose of training is to avoid errors from occurring.
Besides that, computerized accounting system can be affected by virus. There are so many viruses accessible nowadays that it may destroy the software and files in the system including data and transaction. All the files in the system will be lost and it will affect the financial statement of Bintang Sdn Bhd as well. In addition, sometimes power failure, breakdowns or crashes may affect the system and data loss may occur. Moreover, computer hackers can be one of the factors that may affect the financial statement of Bintang Sdn Bhd. This unauthorized people can gain access to a computer files and make amendments to those files.
As a conclusions, Bintang Sdn. Bhd should used the computerized accounting system because the system brings a lot of benefits to the company. Now days, the majority of companies will use a computerized accounting system for recording and presenting their financial information. This system allows companies to record business transactions accurately and generate financial reports quickly for management review.
Besides that, it reduced speed in using manual accounting system. The reason is an auditor has to check all the particulars and figures compared to using a computerized system. In addition, an auditor checks all the figures by using calculator manually while computerized system is automatically calculated by using software such Microsoft Excel. Therefore, it reduces the speed of works for an auditor to check the documents and prepare the financial statement as a result.
While the functions of manual accounting have changed, it will never go away completely. Accountants must review the information presented on financial reports from the accounting system and ensure that it is accurate and valid. Accountants must also ensure that all financial information follows the Generally Accepted Accounting Principles and any other guidelines from regulatory agencies