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Cost Savings from Computerized Accounting are Not What They Should Be

by msdodger

The basic advantages of a computerized accounting system are
efficiency and speed. In a manual system receipts and
disbursements are initially recorded in registers. This can
involve writing a check and then writing a description in a
register or this can be done on a one-write system. Either way
the transactions in the registers must be manually posted to the
general ledger and then compiled into financial statements. This
manual transfer of information is time consuming and subject to
error (such as transpositions).

In a computerized system all the multiple steps of a manual
system are collapsed into one entry. For example when you create
a check there is an automatic and simultaneous posting to a
register and to the general ledger accounts. Financial statements
can be created at any time and as often as needed.

You would think that with these advantages computerized
accounting would be both cheaper and more error free than manual
accounting. But it turns out that this is not always true. First
of all while software costs have come down there is a fairly big
learning curve involved in using the software properly. Much of
the problem lies in ill conceived software design.

The problem of poor design stems from an over ambitious attempt
on the part of developers to allow users with no bookkeeping
training to make entries without reference to the debit and
credit structure. The software hides this structure on the
assumption that the user does not understand it. All manner of
problems ensue from this design flaw. Often even CPAs and
experienced bookkeepers cannot figure out what is going on with
these software packages. This necessitates expensive training and
consultation with experts in the software.

It would be far better if the software mirrored and exposed the
debit and credit structure so anyone with basic bookkeeping
knowledge could understand how to use the software. I am
convinced anybody can learn the debit and credit system within a
few hours (see my book). But the software developers believe that
business owners are too stupid or intimidated to learn the system
and that it has to be hidden. This causes all kinds of expensive
problems.

The software developers also try to set up default charts of
accounts and financial statement formats that create all manner
of problems that could be avoided simply by insisting that the
user learn enough about accounting and their own business. Again
these "simplifying" designs increase the reliance on expensive
experts.

Finally, software developers do not make money by selling
excellent and reliable software that works for years. Rather
developers make money by selling new and improved upgrades. But
guess what? An accounting package that was any good to begin with
should not require frequent upgrades, or for that matter upgrades
at all Basic bookkeeping and financial statement compilation
procedures have not changed for centuries. Yet any popular
software package user will be inundated with new versions of the
package which will require yet more expensive consultations. Most
of these upgrades are simply unnecessary bells and whistles or
fixes for bugs that should have never been in earlier versions.

So what should a small business do? By all means buy a software
package but do not expect that your costs will end with the
purchase of the package. Undoubtedly you will need to pay a
consultant to set the program up and give you basic training.
Overall cost savings from conversion from a manual system will
not be as great as they should be.

<body>Michael Sack Elmaleh is a Certified Public Accountant and
Certified Valuation Analyst. His book, "Financial Accounting: A
Mercifully Brief Introduction", has received wide critical
acclaim. He has nearly 30 years of accounting and 10 years of
teaching experience.His web site is <a
href="http://understand-accounting.net">understand-accounting.net<a/>
</body>

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