Question

Explain three advantages and three disadvantages of computerized accounting system.

Answer 1

Advantages of Computerized Accounting

Business owners need to look for every advantage when it comes to running a business. 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.

Simplicity: 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.
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.
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. 
Ability to Collaborative: 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.

Disadvantages of Computerized Accounting

With all the advantages of computerized accounting software, business owners need to realize that problems do arise for a variety of reasons. Dependence on computers sometimes leads to bigger problems.

Potential Fraud: 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. 
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. 
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.