Question

Respond to the following in a minimum of 175 words PLEASE TYPE RESPONSE:

Can you explain the advantages and disadvantages to using the T-accounts and Excel?

Please make sure you explain it with examples in a way that your peers would understand.

Answer 1

T-accounts are commonly used to prepare adjusting entries. The matching principle in accrual accounting states that all expenses must match with revenues generated during the period. The T-account guides accountants on what to enter in a ledger to get an adjusting balance so that revenues equal expenses.

A business owner can also use T-accounts to extract information, such as the nature of a transaction that occurred on a particular day or the balance and movements of each account.

Accounts are the visual representation of a double entry system of accounting. There are disadvantages to this system, such as:

INFORMATION NOT PROPERLY RECORDED

This can cause a company’s general ledger to not balance. However, since debits and credits are entered at the same time, these kinds of mistakes can be easier to catch if the accountant checks his numbers after every journal entry.

THERE ARE COMPLETE OMISSIONS

This is when a transaction is not recorded at all. These errors may never be caught because a double entry system cannot know when a transaction is missing.

TRANSACTIONS ARE CATEGORIZED INCORRECTLY

This is a common accounting error. For instance, a company hires some extra temporary labor for a busy period in their factory. The accounting department later catalogs those labor payments under “operating expenses” instead of under “inventory costs” (which is where factory labor costs should go). If the labor costs are still debited and credited fully, then this type of mistake can also be difficult to catch. However, it will most likely be caught if there’s an audit.

TIME CONSUMING AND COSTLY

A double entry system is time-consuming for a company to implement and maintain, and may require additional manpower for data entry (meaning, more money spent on staff). This will depend on the amount of business a company does.

Even with the disadvantages listed above, a double entry system of accounting is necessary for most businesses. This is because the types of financial documents both businesses and governments require cannot be created without the details that a double entry system provides. These documents will allow for financial comparisons to previous years, help a company to better manage its expenses, and allow it to strategize for the future.