Digital Technology in Accounting (Cambridge International IGCSE Accounting)
Digital technology in accounting
What systems can be used for bookkeeping and accounting?
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Businesses can choose to use a manual accounting system
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Manual accounting systems are common in very small businesses, or in those which have operated at a modest level for a long time
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These systems include:
- Physical journals
- Physical ledgers
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Alternatively, a digital accounting system may be used, such as:
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Accounting software (Sage, Xero, Quickbooks, etc) can be used for:
- Sales ledger accounts
- Purchases ledger accounts
- General ledger accounts
- Cash books
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Spreadsheets, such as Microsoft Excel or Google Sheets, can be used for:
- Financial statements
- Cash flow statements
- Forecasts
- Budgets
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Exam Hint You do not need to know any specific accounting software packages or programs.
What are the benefits of using a digital system over a manual system?
| Calculations are completed by the software | Information is stored electronically |
|---|---|
| - This eliminates human calculation errors - Calculations are automatically updated when a value is changed - Information is up-to-date | - Physical storage space is not needed - It is easier to share the information with other people - The information can be backed up in case it is lost |
| Financial information is readily available | Information can be processed quickly |
| - Financial statements can be produced instantly - This helps managers with decision-making | - This reduces the cost of wages for staff - Time and resources can be spent elsewhere |
What are the limitations of using a digital system over a manual system?
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There are a few limitations of using a digital system
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Computers or laptops are needed
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Accounting software costs money
- There might be an initial installation cost
- There might be subscription costs
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Staff need to be trained to use the software
- This will contribute to expenses
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There are security issues
- Data can be hacked just as physical documents can be stolen
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Exam Hint If you are asked to advise a business whether they should use a digital system, give a balanced view. You should state and describe an advantage and a disadvantage, and then give an overall conclusion.
Worked Example Khalid keeps physical records of his accounting information. He is considering whether he should change to a computerised system of bookkeeping.
Evaluate whether Khalid should change from his manual system to a computerised system.
Answer:
State and describe an advantage.
Final answer: Using a computerised system means that Khalid will be able to process the accounting information quickly. This means that he will spend less time on bookkeeping and have more time for other tasks.
State and describe a disadvantage.
Final answer: There will be costs involved when using a computerised system such as installation and training costs. This means that the profits will be lower due to these costs.
Give an overall conclusion.
Final answer: Overall, Khalid would benefit from changing to a computerised system.
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