Advantages & Disadvantages of Accounting Technology

by Sundaram Ponnusamy; Updated September 26, 2017
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Accounting operations have undergone tremendous changes recently due to growth in accounting technology. Accounting technology enables accountants to manage accounts and perform accounting operations using computer software applications. These software applications are commonly known as accounting software or financial management software, which are helpful to track transactions, categorize income and expenses, calculate taxes, facilitate bill payments, create financial reports, and analyze investments.

Types of Accounting Software

Two types of accounting software are available, namely single-entry systems and double-entry systems. Single-entry systems or personal finance managers are the simplest accounting programs designed to automate tasks such as record keeping and check writing. Double-entry systems support functions such as financial ledgers, accounts receivable and accounts payable. Some advanced enterprise solutions possess multi-user capabilities and support functions for payroll, invoice, inventory, sales analyses, manufacturing and marketing.

Automation

Automation of accounting processes is the most important benefit of accounting software. With automation, generation of accounting documents such as invoices, checks and account statements have become simple. Necessary financial reports can be generated in a timely manner. Financial data are posted to respective financial ledgers or accounts automatically, which avoids manual errors and ensures consistency and integrity. Employees are able to automate routine and repetitive manual tasks using accounting software. Data storage ability of accounting software allows rapid information sharing and better communication among employees. Sophisticated accounting software applications handle complicated issues such as foreign currency transactions, supply chain management and logistics management.

Increased Management Efficiency

Accounting software applications keep the work force more focused and efficient. Faster and more efficient processing of financial reports simplify the process of management decision-making. Employees are able to automate cumbersome and labor-intensive accounting processes, and focus on other important and strategic activities. Advanced accounting software, with its inbuilt mechanism, ensures stringent risk and compliance procedures to meet the regulatory standards. Comprehensive business performance and sales reports help management take important decisions on revenue-generating strategy.

Disadvantages

All accounting software require data be entered manually. If the data are not examined for accuracy and completeness, the reports generated by accounting software will lead to misconception. Many of the accounting software needs to be customized to match business requirements. It is necessary for management to train employees specifically to access and use the accounting software, which involves huge cost and time. If tax rates and rules change, accounting software used to calculate taxes must be rewritten accordingly to avoid errors. Power failure, computer viruses and hackers may affect computerized systems if proper precautionary and security measures are not in place.

About the Author

Sundaram Ponnusamy is a writer with more than four years of experience in financial market studies and work-flow management. He worked briefly for "International Business Times" as a content analyst and has served as a senior associate in Bank of America Global Operations. Ponnusamy holds a Master of Arts in economics from Hyderabad Central University.

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