Although some businesses still use manual accounting records and processes, a significant number have now adopted computerised systems. A fully computerised system will operate using the same principles as a manual system except that all the records will be stored in one place i.e. the hard disk of the computer, or on cloud servers. This does not necessarily mean that all accounting personnel have access to all accounting records. The system will be broken down into sections in very much the same way as the manual system, with access configured and controlled by controls such as individual login credentials and the use of passwords. For example, payroll data should be accessible only to employees with payroll-related responsibilities, rather than being accessible by all employees.

Another difference in a computerised system is that when the data is reviewed on screen or printed the format of that information may appear different from a manual system particularly with regard to general ledger accounts. Whereas in a manual system the general ledger is a collection of 'T-accounts", the general ledger in a computerised system will probably appear as an arithmetic listing of debits and credits. This does not mean, however, that the system is not performing double-entry bookkeeping it is, it is simply that the ledger accounts may take the following format:

Computerised accounting systems make it easier to extract information and reports for accounting staff and managers to assist with management and control of business. activities. Examples of reports that many accounting systems normally produce include the following:

• a summary of amounts due from customers, normally broken down by how long amounts have been outstanding from individual customers
• a register of items of property, plant and equipment owned by the business
• a listing of purchase invoices received from suppliers
• a summary of amounts due for payment, so that payments can be prepared and processed
• employee wages and salary payslips, along with a summary of the total of gross pay, deductions and net pay for the workforce as a whole, or by department
• an inventory usage report which summarises receipts and issues into and from inventory during a period of time e.g. each week or month.

2.1 ADVANTAGES OF COMPUTERISED ACCOUNTING

1. (a) Speed. Computer processing is very fast-much faster than a clerk or any other type of office machine. This speed can be of value to the business in two ways:
   1. high volumes of work can be handled by a computer
   2. rapid turnaround and response times can be achieved.
   For example, one business may value a computerised system primarily for its ability to cope with a large volume of orders, whilst another may be more interested in the speed of processing orders.
2. (b) Stored programs. Once the programs have been written and tested (or standard programs purchased), a computer can perform significant amounts of work with the minimum of labour costs. Only small teams of operators are needed for the most powerful and efficient machines. This is possible because a computer runs under the control of its stored programs, and operator activity is limited to loading and unloading peripherals and indicating what work or processing is to be done.
3. (c) Decision-making. The computer can be programmed to undertake complicated decision-making processes. It can handle work to a much higher degree of complexity than other office machines and often more than a manager.
4. (d) File storage and processing. Large files of data can be stored on digital or magnetic media, which require very little space. More importantly, stored files can be reviewed and updated at speed, and information can be retrieved from them very quickly
5. (e) Accuracy and reliability. Computers are very accurate (provided always that its programs are free from faults) and reliable processors of data.

2.2 DISADVANTAGES OF COMPUTERISED ACCOUNTING

1. (a) Inability to detect human errors. The computer is a machine. It cannot recognise human errors made in its programs or notice that data is incomplete or incorrect. It may, however, ensure that an equal value of debits and credits are posted when recording a transaction, but not that the account numbers selected by the accounts clerk are the correct codes. It could be programmed to incorporate conditional requirements relating to which account codes may or may not be used to prevent some posting errors. Errors that may be detected by clerks in a manual system may go unnoticed in a computer-based system. It is therefore necessary to devote the utmost care to the development of computer-based systems in order to foresee every contingency and to test every instruction. Thus, system development may be both prolonged and costly.
2. (b) Quantifiable decisions. The program can only take decisions that can be quantified, for example, that can be expressed as two numbers or amounts that can be compared with each other. It cannot make value judgements such as selecting personnel or deciding whether to take legal action if debts are overdue. The solution indicated by the program may have to be modified because of intangible factors known to the manager but incapable of being quantified or expressed in the program.
3. (c) Initial costs. Historically, costs of hardware, software, site preparation, training and so on were high, particularly for customised systems for complex entities. However, the cost of standard, user-friendly hardware and software packages has fallen over time and are now affordable for most small entities.
4. (d) Inflexibility. Owing to the care and attention to detail needed in systems along with program development and maintenance, computer systems tend to be inflexible. They take longer and cost more to alter than manual systems.
5. (e) Vulnerability. Computerised systems do have vulnerabilities, such as the risk of hacking or unintentional loss or corruption of data. However, there are protocols and procedures that can be put in place, such as the use of firewalls and software to detect malware, along with data back-up procedures or the use of cloud accounting, that can be used to mitigate those risks.

2.3 DEVELOPMENTS IN ACCOUNTING SYSTEMS

The initial introduction of computerised systems provided little more than the facility to have faster and more reliable summarisation and totalling of monetary values but with limited analysis of the data input. Now, there is an extensive range of off-the-shelf relatively inexpensive accounting software packages available.

One benefit of these packages is that they are developed by experienced people and therefore regarded as reliable and robust. One potential downside is that any standard package may not meet the precise information needs and requirements of an individual business user. These packages are normally subject to regular software updates as the package is modified over time.

Accounting software systems have developed to meet the needs of businesses, such as multi-site operations. More recent developments include the availability of integrated systems. These systems are able to handle, not only accounting data, but also other systems and processes relevant to other parts of the business that may include:

• inventory management, linked to purchasing and requisitions and also sales invoicing and despatch of finished goods
• human resource management, which may include allocation of employees to jobs or activities, request and approval of annual leave, training and development activities and appraisal records
• payroll operations to ensure that employees are paid the correct amount on the due date and linked with human resource management to ensure that new starters and leavers are managed appropriately.

Many larger businesses have customised systems with software tailored to meet their particular specifications. One benefit of this is that it should meet the precise information needs of the business. However, any customised or tailored system may be at increased risk of operational problems if not properly designed, tested, installed and operated.

Many businesses with computerised systems utilise 'record-to-report' (R2R) processes which involves collecting, processing, and presenting financial information in the form of documents that are used by management to perform analysis and review.

The first part of the process is to record transactions and events. This then leads on to data and information collated and presented in the form of management reports. For example, if a sales order is received, it is then input into the sales system which is linked to the inventory management system to confirm that goods are available or when they are expected to be available for despatch. Upon despatch to the customer, and confirmation of delivery to the customer, the inventory system updates the sales system to raise the sale invoice.

As the sale invoice is generated, the general ledger accounts for sales and receivables are updated. There will also be simultaneous updating of the memorandum information including the individual customer ledger account and the aged analysis of receivables. In due course, there should be a receipt from the customer which will be used to update the detailed listing of bank receipts along with the bank and receivables general ledger accounts. The memorandum information of the individual customer ledger account and the detailed analysis of aged receivables is also updated at the same time.

PRINCIPLES AND PROCESS OF BOOKKEEPING
CHAPTER 3

Many businesses use 'peer-to-peer (P2P) networks which enable files to be accessed, shared or transferred between those authorised on the network. Each user requires a personal user account to access the network and to use and share files It facilitates flexible and collaborative working arrangements between those on the network

In a computerised system, accounting information is more likely to be presented either in a columnar format, or perhaps by the use of +/-notation, rather than presented in the more traditional ledger or T-account format. The key point to remember is that the fundamental principles of double-entry bookkeeping are maintained and applied. The only difference is the format in which the information is presented.

Some, computerised accounting systems also include an integrated bank account Note, however, that the bank account is assumed not to be integrated into the accounting system in the ACCA FA1 syllabus and exam.

2.4 CLOUD COMPUTING AND CLOUD ACCOUNTING

One of the more recent developments in accounting software is that of cloud computing and cloud accounting.

Cloud computing is access to software and data storage that is hosted on remote servers and is accessed via the internet. Cloud computing enables data and information stored to be accessed from any location at any time by multiple users if the user has an internet connection and can log in.

Cloud accounting is the application of cloud computing to accounting systems and processes.

Advantages of cloud accounting

• The business does not have to pay for, install, manage or protect software on individual machines.
• Capacity for the cloud to store more data and to share it more easily. This will also enable the business to easily scale up or scale down its cloud accounting capacity as circumstances change.
• It is accessed 'on demand where and when needed which aids flexibility of working practices, particularly for businesses with multiple locations and multiple employees requiring access to stored data and information.
• Easier sharing of data and information within a business, but also with external parties who may be granted access to part of the system e.g. for customers to place an order.
• The absence of a physical server will reduce maintenance costs and the risk of physical damage.
• Disaster recovery and data security is likely to be improved. For example, loss or damage to a laptop with commercially sensitive or confidential data stored on it is a significant business risk. Cloud accounting means that the data is stored on a remote server, so loss or damage to the laptop has a reduced business impact

1: RECORDING FINANCIAL TRANSACTIONS

Disadvantages of cloud accounting

• The business is reliant upon the financial stability of the cloud service provider to the extent that it will continue to operate and provide the services required.
• The business is reliant upon the cloud service provider not suffering a cyber-attack or that its servers go down for any reason.
• In common with any other system, there is a risk of unauthorised access by the server provider staff, or by those staff permitting access to unauthorised persons.
• The cloud service provider must comply with relevant regulations such as data protection law. The business will need to satisfy itself that the service provider has the necessary controls and procedures in place and can be relied upon to avoid any breach of relevant regulation. It is the responsibility of the cloud service provider to ensure that it complies with data protection regulation. However, if there is a breach of that law, along with unauthorised disclosure of confidential data (perhaps relating to employees) the entity suffer a loss of reputation, even though it was the responsibility of the service provider.

Examples of how cloud accounting is used

This relates particularly to allowing external parties access to part of the data and information.

• A payroll bureau may be granted limited access to data such as employees' working hours and pay rates, along with other information such as personal tax codes, to enable production of the payroll. The payroll bureau would not have access to other parts of the accounting system.
• An accountant may be granted access to information that enables the annual financial statements to be prepared and, perhaps, to the sales and business tax data to complete returns if they have responsibility to prepare those documents. Access to the system would be granted only to the extent it was required for the accountant to complete the work required.