Question

Describe how to manually process financial transactions and outline the key features of manual and computerised accounting systems. (300 words)

Answer 1

1)  How to manually process financial transactions

A) The accounting process is three separate types of transactions used to record business transactions in the accounting records

(1) The first transaction type is to ensure that reversing entries from the previous period have, in fact, been reversed.

• Verify that all transactions designated as reversing entries in preceding periods have actually been reversed. Doing so ensures that transactions are not recorded twice in the current period.

(2) The second group is comprised of the steps needed to record individual business transactions in the accounting  records.

• 1) Identify the transaction : First, determine what kind of transaction it may be.Examples are buying goods from suppliers, selling products to customers, paying employees etc
• 2) Prepare document : There is frequently a business document to be prepared or recognized to initiate the transaction, such as an invoice to a customer or an invoice from a supplier.
• 3) Identify accounts :  Every business transaction is recorded in an account in the accounting database, such as a revenue, expense, asset, liability, or stockholders' equity account. Identify which accounts are to be used to record the transaction.
• 4) Record the transaction : Enter the transaction in the accounting system.

(3) The third group is the period-end processing required to close the books and produce financial statements.

• 1) Prepare trial balance.: The trial balance is a listing of the ending balances in every account.
• 2) Prepare adjusted trial balance.: This is the original trial balance, plus or minus all adjustments subsequently made.
• 3) Prepare financial statements ;  Create the financial statements from the adjusted trial balance. The asset, liability, and shareholders' equity line items form the balance sheet, while the revenue expense line items form the income statement.
• 4) Close the period : This involves shifting the balances in the revenue and expense accounts into the retained earnings account, leaving them empty and ready to receive transactions for the next accounting period.
• 5) Prepare a post-closing trial balance ; This version of the trial balance should have zero account balances for all revenue and expense accounts.

2)   KEY FEATURES OF MANUAL ACCOUNTING SYSTEM

• Manual Accounting is a system of accounting that uses physical registers and account books, for keeping financial records.
• Recording is possible through book of original entry.
• All the calculation is performed manually.
• Manual accounting system is slow in process
• Trial balance is prepared when it is necessary
• Financial statement is prepared at the end of the period

KEY FEATURES OF COMPUTERIZED ACCOUNTING SYSTEM

• Computerized Accounting is an accounting system that uses an accounting software, for recording financial transactions electronically.
• Data content is recorded in customized database.
• Only data input is required, the calculations are performed by computer system.
• Computerized accounting system is comparatively faster than manual accounting system
• Entries of transactions can be saved and backed up
• Financial statements are provided at the click of a button