Computerised Accounts

When should you consider computerising your accounts and what system should you use?

People who do not like writing up their accounting records often think a computer would be the answer.  This is not always the case.  It is better to have a good manual system first and then consider computerised options.  Computers can certainly assist in the financial management of a business but they can also hinder it.  Proper use of computers should be carefully planned and should be part of your information technology strategy.

This is not a specialist guide on information technology strategy, but does attempt to clarify some points on the use of computers in financial management and to help you to think through some of the decisions you may face.

There are two main options:

Spreadsheets

Using Microsoft Excel (or similar) programme, is ideal for budget preparation, management accounts, cash flow forecasts and writing some financial reports.  It will allow amendments and will automatically recalculate the totals.

Some people use spreadsheets for writing up the cash and petty cash books instead of a manual system.  This has the advantage of being able to track financial information more easily than in a manual cash book.  However, the following points should be considered:

  • It is easy to delete figures by mistake
  • It is easy to put figures in the wrong column or row
  • It is easy to assume that a formula is still correctly set up when in fact it is wrong because something else has been changed
  • A mistake in setting up will make the whole thing wrong
  • It can be difficult for other people to access or use
  • If it is a large spreadsheet, it can be difficult to read when printed out (can involve gluing pieces of paper together and it is still difficult to scan across the whole spreadsheet)
  • Cross checks should be built in to ensure that the spreadsheet adds across as well as down.

Accounting software packages

An accounting package is a whole system for the book-keeping of the business.  Every package will be based on the double entry book-keeping system and for most packages a sound understanding of double entry book-keeping is required: the meaning of such terms as debit and credit and how to enter journal transactions.    It may be wise to undertake training in this aspect first before attempting to computerise, as trying to learn both the accounts and computer aspect of a new system simultaneously is very daunting.   

In addition, decisions will need to be made about how the system should be set up before it can be used.   If the system is not correctly set up, it will not work correctly.

Computerising the accounts will be a big step for most businesses and if you are not happy or ready for it, it will fail.

It is important to consider carefully both the advantages and disadvantages of computerising the accounts:


Advantages of Computerised Accounts

  • Standardised format
  • Quick to enter data
  • Manual calculations eliminated
  • Reports produced from system

Disadvantages of Computerised Accounts

  • Less accessible for non-financial people
  • Training required
  • Untrained users may make mistakes which are difficult and costly to resolve
  • Poorly set up systems may make audit more difficult
  • Cheap or inappropriate packages may not incorporate sufficient controls

There are many software packages on the market at present, some very expensive (e.g. Sun Accounts, Pegasus) and some very affordable (e.g. QuickBooks, Sage, Mind Your Own Business, Microsoft Money).  

Some software has integrated payroll.  

Before deciding on whether or not to computerise the accounts, you will need to satisfy yourself on the following questions:

Is there really a need to computerise?

Is there the level of expertise and knowledge to operate a computerised accounting system not only now, but also in the future?

Is the hardware compatible?

Can the system be set up internally or does the business need to buy in the expertise to do this?

Can the business afford it?

The process of computerising accounting records has several stages:

  • Assessing the needs of the business
  • Preparing a specification
  • Choosing a package
  • Implementation plan
  • Testing
  • Parallel running
  • System operational

Needs Assessment

Listed below are some sample questions you should consider:

  • How many transactions do you need to process in a month – e.g. number of purchase invoices, number of receipts and payments?
  • Do you need to use the accounts system to provide invoices to clients?
  • Do you sell any goods or services on credit?
  • Do you only supply after cash received?
  • How many different activities or areas of work do you have?
  • How many different sources of income do you have?
  • How many different expenditure categories do you have?
  • How many regular suppliers do you have?
  • How is the business likely to expand in the future?
  • How many staff do you have and how do you prepare the payroll?
  • What sort of reports do you want and how often?
  • Do you need different reports for different people?

Specification

Having looked at the above, a specification of what you want from the system can be written.  It may not be possible to get everything needed from one package and you may have to compromise in some areas.  However it is still better to start from what you want.  Each package can then be measured against the specification.


Choosing a package

Using the needs assessment and specification, you can now start looking at packages.  Whilst there are many packages on the market, it will be possible to eliminate many of them very quickly. A shortlist of two or three should then be examined more closely.

It is useful to find out other businesses and organisations similar to your own who are using the software.  It is often worthwhile to take up references with existing users as it is possible to find out a lot more than simply by looking at brochures or speaking to the manufacturer or dealer – after all, they have a vested interest in selling their product whether it is suitable or not.

Implementation

A timetable needs to be carefully thought through and agreed.  The changeover to a new system may cause disruption in some areas and you do not want everyone to blame the new system for everything, especially when it is due to lack of human planning.

Testing

If you intend to set up and run the system alone, it is very tempting to switch on and go for it!  However, it is better, to help you to learn the system to set up a dummy organisation and enter some test data.  Alternatively, you can use the services of an external consultant who knows the package well to provide set up and training.

Parallel Running

As part of the implementation plan, you should allow a period of parallel running of the old system alongside the new system.  This is extra work, but does allow the opportunity to check the accuracy of the new system.  It also means that the old system can be used for management information whilst implementation of the new system is ongoing.

System Operational

Having trained appropriate staff, tested and parallel run, you should be ready for the system to be fully operational.   It is useful to write your own operations manual as you go along.  Although the software will have its own manual (some of which are not very user friendly) you will need to write something very simple for people in the business needing to access information occasionally.  This will also be useful for new staff.

Pitfalls to Avoid

  • Don’t skimp on training:  good systems are usually under-utilised and so the real benefits are lost because staff do not know how to use the system properly or to its full extent.
  • Don’t skimp on software:  a cheap but inappropriate package will be a waste of money not a cost saving.  Don’t just buy for today, think about tomorrow.
  • Don’t ask anyone with a vested interest what package you should use:  manufacturers and dealers will obviously recommend what they sell, the auditors will recommend what they use themselves as it makes their life easier, all irrespective of whether it is the right package for you.
  • Don’t rush into setting up a system: think through the whole operation and plan carefully.  It is not necessary to start the new system at the beginning of the financial year; it is not a problem to transfer balances mid-year and it is better to have prepared properly for the changeover.
  • Don’t underestimate the amount of time and effort a new system will require.
  • Don’t forget to set up appropriate controls and checks as part of the system.
  • Don’t forget to set up good paper based systems for controlling what goes into the computer.   Remember GIGO (Garbage In, Garbage Out)
  • Don’t forget to set up a sensible referencing system so that transactions can be traced from one part of the system to another.  This includes paper as well as computer records
  • Don’t make adjustments to the accounting records or transactions without recording the reason for the entry.  A system of numbered journal vouchers or forms to show the entry, the reason for it and the date should be set up
  • Don’t forget to make regular back-ups of the information on the system
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