Advantages and Limitations of a Computerised Accounting System

Computerising the accounts of a business brings real benefits, but it is not without genuine drawbacks — a balanced view of both is expected in the MSBSHSE HSC examination.

Advantages of a Computerised Accounting System:

1. Speed. Vouchers, once entered, are posted and reports are generated almost instantly, compared to the many hours a manual system needs for the same work.
2. Accuracy. Once a voucher is entered correctly, all further calculations, postings and balancing are done by the software itself, eliminating arithmetical and posting errors.
3. Reliability and up-to-date information. Ledgers and the Trial Balance are always current the moment a voucher is entered, so management always has fresh information for decision-making.
4. Quality of reports (MIS). A wide range of reports — age-wise outstanding debtors and creditors, stock statements, cash-flow and fund-flow statements, and tax-related returns — can be generated instantly, supporting better Management Information Systems (MIS).
5. Storage and retrieval. Years of data can be stored on comparatively little physical space, and any past transaction or report can be retrieved within seconds, instead of searching through old bound registers.
6. Scalability. As a business grows and the number of transactions increases, a computerised system handles the extra volume far more easily than adding more clerical staff.
7. Data security through backup. Regular backups allow data to be recovered even if the original computer is damaged — something a single set of paper books cannot offer once destroyed.
8. Multiple, simultaneous use. On a networked system, several authorised users can enter or view data at the same time, from different locations if required.

Limitations of a Computerised Accounting System:

1. High initial cost. Purchasing hardware and accounting software, and training staff to use them, requires a significant upfront investment that a small business may find hard to justify.
2. Dependence on power and technical failure. The system cannot function during a power failure, and a hardware breakdown, virus, or software malfunction can bring accounting work to a complete halt.
3. Risk of data loss, hacking or virus attack. If proper security and backup measures are not followed, data can be lost, corrupted, or accessed by unauthorised persons.
4. Need for trained personnel. Staff must be trained not only in accounting principles but also in operating the specific software, and resistance to changing over from a familiar manual system is common.
5. Cost of maintenance and upgrades. Software needs periodic updates (for example, to keep pace with changing statutory requirements), and hardware needs periodic replacement, both adding to ongoing cost. …