Because of the minute by minute change in finances, accurate record keeping is critical. Computerizing a business’s general ledger, payroll, and other accounting tasks increases office efficiency. With a computer, you can request and receive an in house balance sheet, an income statement, or other accounting reports at a moment’s notice.
While keeping your checkbook on a computer may not be practical, computers are great for handling complex home financial records. You can get statements on net worth and year’s tax deductible expenses within minutes.
Electronic spreadsheets allow you to do anything that you would normally do with a calculator, pencil and columnar scratch pad. Spreadsheets were primarily designed for managers who in the process of planning must do “what if” calculations. Due to their flexibility, electronic spreadsheets have found their way into small businesses and, to a lesser extent to homes.
A typical integrated double entry accounting system will contain some or all of the following components: accounts receivable, accounts payable, general ledger, inventory, order entry, payroll, time, and billing.
It takes its name from the accountant’s spreadsheet—a sheet of paper with rules for rows and columns—on which such work was usually done. Spreadsheet programs are much faster, more accurate, and easier to use than traditional accounting techniques. The programs are widely used on personal computers for keeping sales, expense and inventory records, and for budgeting and forecasting future sales and expenses. As a result of these and many other applications, computer spreadsheets have become the most important of all software tools for modern businesses.
Early programs such as VisiCalc provided 254 rows and 63 columns for entering data and formulas for calculations. Some modern programs for computers with large memories provide thousands of rows and hundreds of columns. VisiCalc was introduced by Robert Frankston, a young computer programmer, and Dan Bricklin, a Harvard Business School student who was looking for a way to use the power of a computer to simplify complex time-consuming financial analyses. VisiCalc proved so useful in such applications that it provided an entry for personal computers into the business world. In 1980, the Sorcim Corporation introduced SuperCalc, a similar spreadsheet program for personal computers using the CPM operating system.
A new generation of computer software for business began with integrated spreadsheet programs, which can be used to prepare spreadsheets, create graphs, and manage data. In such programs, for example, it is easy to display spreadsheet data in the form of a graph or to transfer data from a data base to a spreadsheet. One of the first such programs was Lotus 1-2-3, an immediate success following its introduction in 1983.
In the third generation of integrated business software, spreadsheet, graphics, and data management capabilities were supplemented by word processing and communications capabilities. With such comprehensive programs, it became possible to create multiple windows on the computer display. Each window could contain a different application—a graph in one, a spreadsheet in another, and word processing in a third. The window capabilities of integrated programs such as Symphony and Framework make it easy, for example, to transfer a spreadsheet or a data-base report to word processing for styling and formatting before printing.
In testing the use of a spreadsheet, I did a manual spreadsheet using mileage information. This spreadsheet took me 12 minutes to set up and 18 minutes to perform the computations. (See Appendix A) It took another person, who is familiar with the software, a total of 30 seconds to load the spreadsheet; 4 minutes to input the information; and less than one second for it to be tabulated and printed. (See Appendix B) This was a very simple program. Imagine if it were extremely involved. I have observed people spending hours trying to find an error in a spreadsheet, because the columns would not rationalize. This could not happen with a computer. However, neither one of these is useful if incorrect information is put into them.
B. General Ledger
General Ledger is a labor saving device for the preparation of financial statements and for establishing multiple income and cost entries.
C. Accounts Receivable
Accounts receivable, when computerized, can get your bills out the same day you’ve performed a service. An accounts receivable module prepares invoices and customer accounts, adds credit charges where appropriate, handles incoming payments, flags your attention to customers that are delinquent, and produces dunning notices. It allows you to have daily cash control. You get out the bills on time, yet you avoid errors such as billing a customer twice for the same item. The further advantage is that debits and credits are posted automatically to the general ledger, order entry, and in some instances inventory, once they are entered in accounts receivable.
D. Accounts Payable
Accounts payable, when computerized, will provide for purchase order control, invoice processing, payment selection and handling, check writing and control, cash-requirements, forecasting, and Form 1099 preparation. It will also double-check the accuracy of the vendor’s invoice, and some software systems will cross-check it against the purchase order and the inventory module.
E. Inventory Control
Inventory Control module has multiple functions, including tracking inventory for both costing and tax purposes, controlling purchasing (and the overall level of expenditure) and minimizing the investment in inventory (and subsequent loss of cash flow).
The payroll module prepares and prints payroll checks, including all itemized deductions. It is integrated with the general ledger so you automatically set aside the correct amount for FICA and withholding.
F. Point of Sale
Point of sale module captures all sales information at (or in place of) the cash register, including salesperson, date, customer, credit information, items, and quantity sold. It can produce sales slips or sales invoices, plus it reports on items, customer, and salesperson activity.
G. Purchasing and Receiving
Purchasing and receiving module can represent an invaluable addition. It can generate purchase orders and track their fulfillment. You can find out which vendors are delivering on time and saving you the expense of having to follow up on partial and incomplete orders.
H. Time and Billing Module
Time and billing module reduces manual and clerical work, simplifies the billing process, prompts you and your partners to bill on time, reduces unbilled work-in progress, minimizes unreported time, reduces unbilled time, measures and analyzes nonchargeable time and provides criteria to analyze staff performance.
Because a computerized accounting system is basically a computerized data management system, the disposition of labor is almost the same. One staff member must serve as a data-base manager and be in charge of setting up the chart of accounts, establishing the interrelationships among the files and establishing and maintaining an audit trail.