Using Manual System of Accounting

Question: Discuss about the Using Manual System of Accounting ? Answer : Introduction Using of manual system of accounting has become negligible after introduction of electronic softwares that have simplified the work. Still there lies doubt in the minds of the managers regarding the authenticity and complexity of this software. The discussion below has taken into consideration the benefits of implementation of accounting software. Also the report identifies the risks and limitations involved in implementation of this accounting software. Outline the economic transactions that would take place at a small business Economic transactions are business transactions which initiates the process of recording of financial data in the accounts of the company. Now transactions may be simple or complex. (AICPA., 2017) Simple transactions would be the transactions such as payment for purchases, recording for cash sales, payment of petty expenses, etc. Others transactions are complex transactions which come with a series of transactions such as credit transactions, issue of debit or credit notes, recording of loans, etcetera. All the transactions however simple or however complex form an important part of accounting and must all be recorded in the books of accounts. The intensity and frequency of transactions are more in large business as compared to that of small business. Large business involve branch transfers, maintaining subsidiary accounts, off shore transactions, etc which make the whole process of transaction recording complex. Small business also has a lot of transactions record. Few examples of economic transactions that would take place at a small business would be: Cash sales and purchases Credit sales and purchases Sale and purchase returns Payment of administrative expenses Recording of capital transactions Calculation and recognition of depreciation on capital assets Writing off of impaired assets Recognition of profit or loss on sale of investments or capital assets Therefore, we see that though intensity and frequency of transactions are lower in small business as compared to large ones, but complexities still lie in all kinds of businesses. (Carlton and Perloff, 2005) Outline the benefits of using an online accounting software tool. The requirements of companies in the accounting world have become complex. In order to continue the smooth functioning of a business it is very important to carry out the accounting in a very planned and articulate manner. The small business entities generally go for manual form of accounting as there are not many transactions to record. But manual accounting involves great risk. `(Certo and Certo, n.d.) Online accounting software tools now a days simplify the work of accounting along with increasing the reliability and reducing risk. There are a lot of advantages of using the online software tools. These online software tools simplify the work by flowing data in all necessary departments (Gleeson-White, n.d.). It saves time and also accuracy of data is not compromised with the use online software. These softwares help the management generate necessary reports based on which many bank release loans for the functioning of the entity. Also, the softwares help the management generate a forecast which is more like budget based on which decision can be made. Use of online software saves a lot of time and manual human labour. It helps to generate electronic invoices which helps eliminate the chances of mistake in data feeding. Online software also provides function such as ageing analysis which helps the entity collect its funds. Therefore, we see that use of online accounting software has a lot of advantages. Also customisation of software according to ones requirement helps in cost savings. Outline the problems Lydia and Sam face by using a manual accounting system. In the given situation we see that Lydia and Sam are owners of a small business which is situated in four different locations, also they follow a manual system of accounting. Manual system of accounting is generally used by small business which does not have its operations distributed to many places. Sam and Lydia have four store of eye wear and eye care business, in which use of manual system of accounting makes it difficult for them to maintain the books of accounts. (Hoffer, Ramesh and Topi, 2013) There are a lot of difficulties that arise due to use of manual system of accounting. Since they have store with eye wear they would have stock of the eye wear goods. In the manual system of accounting it becomes difficult to monitor the stock flow from four different locations. Also, use of manual accounting creates a lot of burden when it comes to book keeping. One transaction needs to be recorded in many places which carry an element of risk. It also is very time consuming and requires a lot of manpower. Due to huge involvement of human labour many times important issues do not come in sight such as debtor collection, due date of payment of an expense, etc, missing these can create a financial harm to the entity. Use of manual system also makes it easier in cash embezzlement. (Hurt, n.d.) Therefore, manual system is carries a lot of risks and also makes it difficult to execute the operations easily. With reference to three (3) specific economic transactions that would take place at I SEE, detail how MYOB would be used and useful. In the given situation Lydia and Sam have been using a manual form of accounting. Let us now consider the following cases in which MYOB will be useful to them: Smooth movement of stock: under the manual system of accounting it becomes very hard for the stock keeper to maintain the flow of stock in four different locations. Also any shortage, losses become very hard to detect. In case the MYOB is implemented in this case then a centralised system of stock recording and movement can be maintained. Therefore, it would help Lydia and Sam save time and also help them save resources. (Micklethwait and Wooldridge, 2005) Centralised data recording for all transactions: under manual system of accounting becomes hard to collect data from four different locations and consolidate them it involves too much work and also the risk of misstatements. Under the MYOB the entity will be able to store data under a centralised system and view them anytime. It would keep the data safe and accurate; also it would save a lot of manual work for Lydia and Sam. Proper accounting for Sale and purchase transactions: being the business divided in four different locations the manual system records sales and expenses of their specific location. Under the MYOB system the data is stored at a centralised platform. It will help the managers to segregate the data store wise and it can show them as one entity. Therefore classification of data becomes easy. (Romney and Steinbart, n.d.) Also it would help them generate invoices which will automatically register sales and reduce multiple feeding of data in system. Outline any limitations or risks that I SEE may face in the implementation of MYOB. Though implementation of MYOB will be of great advantages to I SEE, Lydia and Sam may come across few risks and limitations (Walker and Madsen, n.d.): Security issues: data in these softwares are generally very safely kept, but in case the passwords get to the wrong hand it might become dangerous and harm the business of the entity Limitations due to automation: due to a lot of automatic transactions the system tends to automatically send payment and issue invoices. It helps to save a lot of time and labour. But if information is not properly fed then it may issue payments to wrong persons or issue incorrect invoices. (Tanenbaum, 2009) Training and coping with technology: technology is dynamic and involves continuous training. Lack of proper knowledge makes it difficult to manage the software. Therefore training and keeping in pace with technology becomes a necessity. References AICPA., (2017).REVENUE RECOGNITION 2016. 1st ed. [S.l.]: JOHN WILEY. Carlton, D. and Perloff, J. 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