Revise Computerised Accounting Systems for Cambridge 9706 (3.4.1)

System Selection and Setup: The first step is to choose appropriate software. This depends on the size and complexity of the business. Once selected, the system must be configured. This involves creating the company file and setting up the chart of accounts, which is a structured list of all the accounts the business uses (e.g., Sales, Rent, Motor Vehicles). You also need to input details for customers, suppliers, and employees.

Planning the Changeover: A specific 'cut-off' date must be chosen for the switch. This is often the end of a financial period (month, quarter, or year) to make transferring balances easier. For example, if the changeover date is 1 January, the closing balances from the old system at 31 December become the opening balances in the new system.

Entering Opening Balances: This is a meticulous task. The opening trial balance from the old system must be entered into the new system. This includes the balances on all asset, liability, and equity accounts. Furthermore, detailed lists of outstanding sales invoices (trade receivables) and purchase invoices (trade payables) must be entered for each individual customer and supplier, ensuring the subsidiary ledgers agree with the control accounts.

Staff Training: It is essential that all staff who will use the new system receive comprehensive training. Untrained users are a major source of errors. Training should cover daily tasks like raising invoices, recording payments, and running reports.

Going Live: This is the point at which the new system becomes the primary system for recording transactions. As we'll see, this is often done in conjunction with 'parallel running' to ensure everything is working correctly.

Advantages: Speed (transactions are posted instantly to all relevant ledgers), Accuracy (reduces arithmetic errors), Automation (automates repetitive tasks like invoicing and bank reconciliation), Reporting (generates a wide range of financial reports instantly), and Scalability (can handle growing transaction volumes).

Disadvantages: Cost (initial software purchase, hardware upgrades, and ongoing maintenance can be expensive), Training (staff require training which costs time and money), Security Risks (vulnerable to hacking, viruses, and data theft if not properly secured), System Failures (power outages or system crashes can halt all accounting work), and Data Loss (risk of data loss if backups are not performed regularly).

Verification of Data Input: All opening balances and static data (customer/supplier details) must be carefully checked against the source documents from the old system. This can be done by having a second person review the entered data or by printing reports from the new system and comparing them line-by-line with reports from the old system.

Reconciliation: This is a critical control. The opening trial balance generated by the new system must be reconciled with the closing trial balance from the old system. The total must be zero. Similarly, the total of the individual trade receivables balances entered must equal the opening balance of the sales ledger control account. The same applies to trade payables.

Parallel Running: For a set period (e.g., one month), the business runs both the old and new systems simultaneously. All transactions are recorded in both systems. At the end of the period, key reports (like the trial balance, profit and loss, and balance sheet) from both systems are compared. If they match, it provides strong evidence that the new system is configured and operating correctly. If they don't, the discrepancies must be investigated and resolved before the old system is retired.

Access Controls and Security: To prevent unauthorised changes or data entry errors, user access rights should be properly configured. For example, a sales clerk might only have access to create invoices, while the financial controller has rights to access all areas, including the general ledger. Passwords and regular backups are fundamental security measures to protect against data loss.

Audit Trail: A good computerised system maintains a clear audit trail, which is a record of all changes and transactions made, including who made them and when. This is vital for tracking down errors and preventing fraud.