The electronic speed of computers and accounting software gives the appearance that many of the bookkeeping and accounting tasks have been eliminated or are occurring simultaneously. For example, the preparation of a sales invoice will automatically update the relevant general ledger accounts (Sales, Accounts Receivable, Inventory, Cost of Goods Sold), update the customer’s detailed information, and store the information for the financial statements as well as other reports.
The accounting software has been written so that every transaction must have the debit amounts equal to the credit amounts. The electronic accuracy also eliminates the errors that had occurred when amounts were manually written, rewritten, and calculated. As a result, the debits will always equal the credits and the trial balance will always be in balance. No longer will hours be spent looking for errors that occurred in a manual system.
But while the accounting software is amazingly fast and accurate in processing the information that is entered, the software is unable to detect whether some transactions have been omitted, have been entered twice, or if incorrect accounts were used. Fraudulent transactions and amounts could also be entered if a company fails to have professional controls.
After the sales invoices, vendor invoices, payroll, and other transactions have been processed for each accounting period, some adjusting entries are still required. The adjusting entries will involve:
- Revenues and assets that were earned, but not yet entered into the software
- Expenses and liabilities that were incurred, but not yet entered into the software
- prepayments that are no longer prepaid
- Recording depreciation expense, bad debts expense, etc.
The adjusting entries will require a person to determine the amounts and the accounts. Without adjusting entries the accounting software will be producing incomplete, inaccurate, and perhaps misleading financial statements.
This same accounting software caused a lot of issues for the small business owners in the US whereby, business owners couldn’t make good use of it accurately and they ended up messing with their financial records. A type of service was later introduced, which is called “Clean up the Mess”. There is a need for the service of an Accountant to help the small business owners to record all financial transactions appropriately and to give advice in the area where it is necessary.