We know that accounting in a normal sense is a process of identifying, analyzing, and recording business transactions. Traditionally, this process of accounting was carried manually i.e. by maintaining proper books of accounts such as journals, ledgers, etc. But with the passage of time as technology advanced and business transactions increased, it became difficult to maintain the accounts manually. Therefore, the process of accounting is now carried through a computerized system i.e. computers with the help of various accounting software. This process of accounting, with the help of computers, is termed a Computerized Accounting System. Records maintained in the computerized accounting system are exactly the same as maintained in the manual system i.e. Journal, Ledgers, Trial Balance, Trading Account, Profit and Loss Account, and Balance Sheet. The only difference is that, in the case of a computerized accounting system, all these records are maintained electronically with the help of accounting software. Following are the Disadvantages of Computerized Accounting System
Disadvantages of Computerised Accounting System
Given below are the various disadvantages of a computerized accounting system.
Huge Cost: The establishment of a computerized accounting system and the regular updating of various hardware and software from time to time involves substantial costs.
Requires Proper Control: Huge amount of important data is stored in a computerized accounting system. Therefore, proper control needs to be maintained at all times so as to avoid loss of data.
Training Cost: For efficient and effective working with the computerized accounting system, the organization requires specialized personnel. This requires regular training of the staff with the implementation of newer versions of hardware and software. Training of staff involves huge cost.
Destruction of Data: In a computerized accounting system, there are higher chances of the destruction of stored data due to viruses or some other technical failures. Therefore, proper backup of the data is required to be maintained at regular intervals.
Resistance: An organization may face resistance or opposition from its existing staff for the introduction of the computerized accounting system. It may happen because of their insecurity or fear that the introduction of such a system might reduce their individual importance in the organization.
Interruption: Considerable time is involved in switching over from an existing accounting system to a computerized accounting system. It is likely that the staff might take additional time to adapt to the new working environment which may lead to loss of work time.
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Interest on Capital
Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.
Interest on Drawings
Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.
What is Operating Profit?
Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.
Balance Sheet
The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period
Profit and Loss Account
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
What are Adjusting Entries?
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.