Every company applies accounting because it is generally accepted that companies have to reveal certain financial and management information to the government and public users and of course because accounting is indispensable tool in business decision-making process. With the development of information technologies there were developed many computer products (software) that make accounting as easy as ABC for those who uses them. From this point accounting can be divided into two basic categories: those which apply manual accounting and those which prefer computerized accounting systems. This paper is targets the main features of manual and computerized accounting, their benefits and shortcomings, and their comparison.
From the accounting theory it is known that accounting cycle includes the following steps: journalizing the transactions, posting them to ledger accounts, preparing trial balance, making adjustment entries, preparing adjusted to end-of-period trial balance, preparing financial statements and appropriate disclosures, journalizing and posting the closing entries, and preparing after-closing trial balance at last. From the first look it is not very difficult and it is so indeed, but when there are thousands or millions of transactions the situation dramatically changes. Lots of transactions that must be processed in the accounting cycle make this process routine and even a little mistake or inaccuracy can cause all the cycle from the very beginning in order to find and correct the mistake. So as to shed some light on the matter lets examine accounting cycle more thoroughly.
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Every transaction (event that change the financial resources or obligations of the company) must be recognized, classified and documented; in addition there must be corresponding accounts identified and changed. The transactions are recorded in appropriate journals (general journal, sales journal etc) with transaction data, affected accounts’ titles, debit and credit of each affected account and explanation specified in the journal record. The above procedure is used for each transaction. All the journal records must be posted to the ledger on a periodic basis (daily or weekly), which is a group of accounts put together and classified (assets, liabilities, revenue, expenses and equity) – in other words general ledger summarizes all the transactions within a period of time. In addition there is a subsidiary ledger can be used, which is a more detailed source, where individual items comprised (inventory, accounts payable and accounts receivable). General ledger contains controlling accounts which summarize the content of subsidiary ledger.
At the end of accounting period with the help of general ledger there is a trial balance calculated to make sure that debit and credit are in balance (if they are not equal it means that there is an error somewhere). Then there must be appropriate adjustments made like depreciation and income tax expenses, adjusted records posted to the ledger and adjusted trial balance calculated. After this there are financial statements should be prepared, which include balance sheet, income statement, statement of retained earnings and statement of cash flows. Then journal entries of temporary accounts are closed to permanent accounts and posted to the ledger, and at last after-closing trial balance can prepared.
In order to stay on top companies have to analyze the performance of all organizational cells (starting from unskilled workers and operating personnel, and finishing with top managers and other key personnel) and discover all the deviations from the plan, their causes, and finally companies’ management has to take corresponding measures to avoid such deviations in the future. These procedures are called internal controls and include the following five elements: control environment, risk assessment, monitoring, information and communication, which are assessed separately and put together a single rate of organization’s performance. Control environment means the way of organization’s internal control – which manager controls the employees, how and whom does that manager reports next about the plan performance etc. Risk assessment implies measures to determine all the potential risks in advance, their causes, probabilities and counter-measures to avoid and manage them; how can those risks influence company’s performance and financial state; how to minimize the costs of facing financial risks etc. Monitoring implies quality control of company’s operations and personnel. Information and communication element means the control over communication flow and the quality of information flow within the organization in order to minimize the time of communication and information losses. Internal control procedures allow to keep companies’ assets from dissipation and control productivity and usefulness of all departments.