The Impact of Modern Day Accounting Systems

Accounting and bookkeeping haven’t always been particularly easy to accomplish. In the past, before there was mechanized bookkeeping, keeping track of financial transactions, and their ultimate effect on a business, was a matter of sorting transactions into the proper category and recording them by hand into paper ledgers, using specialized paper to physically emulate the T-Account concept. One of the many challenges facing small and medium business owners is the ability to maintain accurate financial records.

This is due to their primary focus being on the operations of the business, leaving little time to ensure that all their transactions have been properly and accurately recorded. In the past, a large company needed a big roomful of accounting clerks to prepare the accounting records manually – and that’s a LOT of wages. Using modern computerized software, the same job can be performed by a much smaller group of people, saving a small fortune in wages expense.

Another plus is that modern accounting systems make it easier to operate under a ‘perpetual’ inventory system – the inventory numbers on the books more closely match the inventory that is actually on hand (theoretically). That’s what all those bar codes and item scanners are all about. Modern accounting systems fulfill the basic accounting needs while offering increased accuracy in tracking trends, enabling collaboration and giving quick access to data.

Computerized solutions offer the traditional transaction processing, classification of data and reporting while simultaneously increasing the range of inputs to give a clearer and more comprehensive picture of the financial health of a company. These features of modern accounting systems let management make better use of resources to increase profits while identifying cost savings and spending less.

Increasing Value

The value of the goods and services a company offers is based on demand and on how quickly the company can deliver them. With better customer data and increased external inputs, the modern accounting system can better predict sales and track trends. Once sales estimates are in place, modern accounting systems let the company place corresponding orders and track progress quickly and accurately. Faster response to market demands, fewer demand bottlenecks and less overproduction add value to the company’s spectrum of products and services.

Reducing Costs

Modern accounting systems let managers monitor costs in greater detail than before. Such systems give top-level management direct access to data at the working level of the company where the costs are produced and identified. Good historical records provided by the accounting systems allow managers to construct accurate budgets. By controlling such costs and making sure they are within or below budget, managers can reduce costs and increase profits.

Continuous Improvement

In contrast to paper-based accounting systems, where older records are difficult to evaluate because the volume of paper increases with the time range of the evaluation, modern systems can easily display old records and trends based on previous years. Managers can consult old budgets and cost data to improve current estimates. When external conditions change, modern systems have the ability to predict results for different scenarios, allowing management to improve forecasting with predictions for all eventualities. A manager using such systems can continuously improve the accuracy of his forecasting.

Reduced Error

While not able to eliminate human error, modern accounting systems have verification capabilities that reduce the frequency of such errors. Once the data is entered correctly, it is permanently captured and reading errors are eliminated. Programmers can format fields so that the system only accepts data in the correct format. They can impose data verification so the system checks whether the data is reasonable, and rejects it if it isn’t. These measures improve the accuracy of reports and the reliability of management forecasts, reducing costly mistakes in operations based on such reports.

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smallbusiness.chron.com › Accounting ; Bookkeeping › Accounting

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