What Are the Benefits of an Information System in Accounting?

by Sheila Shanker

Related Articles
 1 The Advantages of Accounting Information
 2 Advantages & Disadvantages of Computerized Accounting
 3 The Use of Information Systems and Accounting
 4 Tangible Benefits of Information Systems
Information systems changed forever the way accounting tasks are processed. The days of green paper pads are
gone, and instead businesses have a centralized place where all accounting transactions are entered and saved.
No more looking for paper journals or adding up long columns--computer software does that for you, error-
free. Thanks to reasonably priced hardware and software, even small businesses can benefit from computerized
accounting.
Speed

The main benefit of information systems in accounting is the speed of processing tasks. Data is entered once
and can then be used and reused in compiling reports by literally pressing a button. If a transaction needs
correction, it is easily done, with reports generated afterward at speeds never possible with manual accounting
systems.

Classification

When data is entered in an accounting system, manual or computerized, an accountant needs to classify it in a
detailed fashion. For example, a transaction could be a sales revenue or an interest revenue. Using information
systems, this classification process is easily accomplished with a drop-down menu from which you choose the
proper category. You can also quickly generate reports involving classifications. With a manual system, this
process takes much more time.

Safety

Once data is entered into a computer, it is safe. The chances of losing data are remote, especially when you
perform regular system backups. In manual systems, paper pads can be lost or damaged more easily. You can
save data on the Internet, where it will not only be accessible anytime you need it but will also still be secure
even if your computer is lost or damaged.

Tangible Benefits of Information Systems

by Roy Sylvan

The primary benefit of information systems is their ability to provide a user with the information needed to do
any task effectively and efficiently. Computer databases and paper records provide data, but information
systems provide the appropriate data about each user’s tasks in a format best suited to that user. Information
systems can present real-time or archived data as needed and are adaptable to new or modified information
requirements.
Custom Information

An information system provides each user the information he needs to make decisions or take action. A sales
manager looking at sales data may see an overall picture of her department’s activities during the current week,
while a salesperson, using the same data set, sees his records displayed so that they indicate what customers
have or haven’t been contacted. Digging the information out of a paper record system would take much longer,
be more prone to missed data and cost more to produce than the time and expense needed by a clerical person
to key in the data.

Custom Formats

Custom formats make information systems more effective because the data is easier to use. A salesperson
seeking information about his week’s productivity might see on his screen a list of his contacts and the recent
purchase orders of each. The sales manager, based on the same data set, may see a pie chart showing each sales
representative‘s share of total sales and a bar graph displaying the volume of sales for each product, while
another screen might display the same data compared to an earlier time period. An accountant looking at the
same data might have a listing of the dollars generated by each sales representative and the total dollars
generated for each product.

Real-Time Information

An information system can be a boon to a manufacturing operation. If a production line stops, the real-time
information provided can help the line operator quickly determine if the shutdown is the result of a mechanical
failure, a lack of product or some other cause. The benefit is having immediate data converted to useful
information presented to people who can act upon it.

Adaptability

Information systems are flexible and can be reprogramed to grow with the need. Often, individual parts of the
system can be upgraded and installed without disruption of the total system.

The Use of Information Systems and Accounting

Most accounting tasks these days are processed in a computer, so information systems have a huge impact on
how accounting is done and what reports are generated. Not only are accounting tasks performed at a high
speed, they are also made easy to do for most businesses. Calculations are done automatically with fewer
errors than manual accounting, greatly improving efficiency.
Spreadsheets

The first spreadsheet program was called VisiCalc, and was designed by Robert Frankston and Dan Bricklin in
1979 to simplify financial analysis. It performed calculations over 254 rows and 63 columns. In 1983, a more
sophisticated spreadsheet program, Lotus 1-2-3, allowed more rows and columns plus data management and
graphs. This was a hit with accountants, who often need to analyze data, and perform complex computations
and modeling. For instance, a cell--the intersection of a column and row--can be changed and calculations are
automatically updated with the new information. Nowadays, Excel and other spreadsheets are the bread and
butter of many accountants, making life easier and more efficient.

General Ledger

Years ago, a general ledger, a list of accounts and transactions, was kept in paper pads and then manually
maintained, a time-consuming task for accountants. If the balance sheet didn't balance, it sometimes took
accountants days to find the mistake. These days are over with computerized accounting, where math is
handled automatically and financial statements are compiled at the push of a button.

Modules

While the general ledger contains general accounts and transactions, details of transactions are often kept in
separate modules. Information from these modules is then transferred to the general ledger. For example, the
accounts payable module handles all issues regarding accounts payable, including vendor names, invoice
dates, check printing and other data important to the bill paying process. When invoices are entered and paid,
expenses, accounts payable and cash are recognized and transferred to the general ledger. There are modules
for accounts receivable, inventory and other processes that need working space outside the general ledger, but
connected to it.

Specialized Accounting Software

A trend in programming practices is to target certain industries and make entire programs customized for those
industries. The result is entire systems made with tools specific to certain sectors, such as retail, non-profit or
manufacturing. That makes computerized accounting fast to set up and use. Instead of waiting for a
programmer to develop your software, you can buy one off the shelf that is about 90 percent good for your
purposes and requires only minimal customization.

Risks

Information systems help with speed and accuracy, but there is still room for human error. If incorrect
information is entered, the system may not catch it. For example, the system doesn't know that a $200 payment
was actually $20 and was entered and paid by mistake. Errors and fraud still happen in accounting and internal
controls are needed to prevent or detect these risks. A computerized system should have secure access to avoid
unauthorized use; management must review reconciliations to make sure they are reasonable and accurate; and
payments should be made only on approved bills to avoid fraud and errors.
Advantages & Disadvantages of Computerized Accounting
by Kimberlee Leonard; Reviewed by Jayne Thompson, LLB, LLM; Updated January 31, 2019

Computerized accounting software programs have made many advancements over the years. These programs
tout making life easier for business owners when it comes to tracking expenses, preparing taxes and looking at
revenue growth. Accounting software programs have become common, there are both advantages and
disadvantages to relying on a computer for all accounting.

Advantage: Simplicity

Most business owners are not accountants or bookkeepers by trade and find it challenging to do most
accounting tasks. This is where accounting software programs give a business owner advantages. A wide
variety of accounting software programs are consumer friendly. Business owners can shop around to find a
program that is easy to install, learn and use. Many programs provide prompts for the type of data that should
be entered in each section. Once the system is established with bank accounts, debts and vendors, the business
owner only needs to update information as it comes in.

Advantage: Reliability

Most of the major software programs make using the program simple. The math is accurate and reliable, so a
business owner can accurately determine available funds at any time.

Advantage: Cost-Effectiveness

Hiring an in-house bookkeeper or outsourcing the work to a bookkeeper or accounting firm can be costly. The
software program has an upfront cost and might require contracting a bookkeeper to set up the accounts and
coach the business owner on using the program, but it quickly becomes cost-effective. The owner doesn't need
to pay for anything beyond the software purchase and setup. Most programs work with operating systems for
years and only occasionally require an inexpensive upgrade.

Advantage: Ability to Collaborate

Many software programs allow business owners to set permissions that give an outside bookkeeper or
accountant access to the data. Business owners can sync information with bank and credit accounts and import
data with a click of a mouse. This allows business owners to quickly reconcile accounts and import the correct
information that needs to be reviewed by key advisors.

Business owners should review the best options for the business. Consider backups either on the cloud or on
separate hard drives to maintain accurate records should problems arise.

Disadvantage: Potential Fraud

Dependence on computers sometimes leads to bigger problems. With more software data being housed in the
cloud, there are more opportunities for hackers to get your business's financial data and use it. This puts assets
at risk and creates potential liability if hackers use employer tax identification to open credit cards and business
loans. There is also the risk of someone within the business accessing the information, perhaps pilfering money
from daily deposits and altering the data in the program. Business owners must diligently protect financial
information.

Disadvantage: Technical Issues

When dealing with computers, issues can arise. You may be completing year-end data for your accountant and
experience a power outage. Computers might acquire a virus and fail. There is also the potential of users
incorrectly performing software tasks that they are not familiar with. If a user tries to do one thing but
inadvertently does something else, it might take some work to undo the error.

Disadvantage: Incorrect Information

Bookkeeping records are only as good as the data put into the system. Business owners that don't take the time
to establish account categories properly may enter data and generate reports that are not accurate.

Business owners can do a lot to mitigate the disadvantages and potential problems associated with
computerized accounting with proper planning and software integration. Taking the time to establish it
correctly is easier and cheaper than trying to backtrack because when a problem occurs.