I'm Larry Walther, and this is principlesofaccounting.com, Chapter 2.
I'm Larry Walther, and this is principlesofaccounting.com, Chapter 2.

In this module, we will be discussing Computerized Processing Systems.
In this module, we will be discussing Computerized Processing Systems.

Computerized Processing Systems present an attempt to simplify and
Computerized Processing Systems present an attempt to simplify and

automate data entry and processing.
automate data entry and processing.

They divide accounting processes oftentimes into unique or
They divide accounting processes oftentimes into unique or

distinct modules relating to particular functional areas.
distinct modules relating to particular functional areas.

For example, there might be a module that relates to the sales function
For example, there might be a module that relates to the sales function

where someone would at the data entry terminal
where someone would at the data entry terminal

enter information about sales transactions that would be converted into what would
enter information about sales transactions that would be converted into what would

appear to be journal entries that can then be processed into financial statements.
appear to be journal entries that can then be processed into financial statements.

Or in more sophisticated systems, it may be that a terminal at a store, a checkout
Or in more sophisticated systems, it may be that a terminal at a store, a checkout

terminal or a scanner, would also be the interface to the computer system.
terminal or a scanner, would also be the interface to the computer system.

So that as customers bought goods, the particular transaction say, it was a sale
So that as customers bought goods, the particular transaction say, it was a sale

on account, would be completely processed and entered into the accounting system.
on account, would be completely processed and entered into the accounting system.

Obviously, that would do away with the need for
Obviously, that would do away with the need for

someone to additionally enter the transaction into the accounting record.
someone to additionally enter the transaction into the accounting record.

This system should be user-friendly and very intuitive.
This system should be user-friendly and very intuitive.

There's an attempt to minimize key-strokes.
There's an attempt to minimize key-strokes.

There's things like pick lists in the software,
There's things like pick lists in the software,

automated call-up functions, auto-complete functions and so
automated call-up functions, auto-complete functions and so

on that are very much a part of the Computerized Processing System.
on that are very much a part of the Computerized Processing System.

Most of them are built on a database logic set so,
Most of them are built on a database logic set so,

although they may appear to be debit/credit base,
although they may appear to be debit/credit base,

it's probably not really maintaining the records in a debit/credit form.
it's probably not really maintaining the records in a debit/credit form.

Instead, it's captured and housed in a database of information.
Instead, it's captured and housed in a database of information.

The transaction data can therefore be sorted and
The transaction data can therefore be sorted and

processed based on an particular query structure.
processed based on an particular query structure.

For example, give me the sales between October 4th and October 7th,
For example, give me the sales between October 4th and October 7th,

some particular query such as that.
some particular query such as that.

It's very likely the system will provide up-to-date data that can be assessed by
It's very likely the system will provide up-to-date data that can be assessed by

a business decision makers on a real time basis.
a business decision makers on a real time basis.

The idea that you would post at the end of a month may be replaced by a real time
The idea that you would post at the end of a month may be replaced by a real time

posting of information as the account balances are updated within the database.
posting of information as the account balances are updated within the database.

That can be used to produce numerous specialized reports in addition to the key
That can be used to produce numerous specialized reports in addition to the key

financial statements that we customarily think of in an accounting system.
financial statements that we customarily think of in an accounting system.

Computerized systems, they range a lot in complexity.
Computerized systems, they range a lot in complexity.

There's very simple systems that are very appropriate for
There's very simple systems that are very appropriate for

small businesses that might cost just a few hundred dollars.
small businesses that might cost just a few hundred dollars.

Oftentimes though, you'll move up though into five and
Oftentimes though, you'll move up though into five and

$10,000 type systems that are industry specific, that help produce invoices and
$10,000 type systems that are industry specific, that help produce invoices and

track inventory and things like this for a particular industry or group.
track inventory and things like this for a particular industry or group.

And then, there's the very advanced enterprise resource packages that go well
And then, there's the very advanced enterprise resource packages that go well

beyond just the accounting function and a business plan invest
beyond just the accounting function and a business plan invest

millions of millions of dollars in a very large ERP type system.
millions of millions of dollars in a very large ERP type system.

However, whatever type of system you are referring to,
However, whatever type of system you are referring to,

it's imperative that the basic accounting structure still be understood.
it's imperative that the basic accounting structure still be understood.

And that's why some students may feel, I don't really need to learn debits and
And that's why some students may feel, I don't really need to learn debits and

credits and preparing financial statements.
credits and preparing financial statements.

Yet I assure you understanding those in your manual context is essential for
Yet I assure you understanding those in your manual context is essential for

being able to properly implement and use an automated accounting system.
being able to properly implement and use an automated accounting system.

Here's an example of a screenshot from a typical accounting software type package.
Here's an example of a screenshot from a typical accounting software type package.

This is a Journal Entry type screenshot.
This is a Journal Entry type screenshot.

It's for a particular utility bill that was received for the month.
It's for a particular utility bill that was received for the month.

The entry number is automated, it sequences as each new transaction is about
The entry number is automated, it sequences as each new transaction is about

to be entered, it automatically assigns a sequence number to the transaction.
to be entered, it automatically assigns a sequence number to the transaction.

The entry date, the date of the transaction,
The entry date, the date of the transaction,

is probably automated to the accounting system with perhaps an override function.
is probably automated to the accounting system with perhaps an override function.

But ordinarily, you'll notice the account number list might be
But ordinarily, you'll notice the account number list might be

a pick list when you click on that.
a pick list when you click on that.

A listing of account numbers would drop down and you would select the appropriate
A listing of account numbers would drop down and you would select the appropriate

account number and automatically up would pop the account name.
account number and automatically up would pop the account name.

You would enter an amount, it might automatically enter an offsetting amount
You would enter an amount, it might automatically enter an offsetting amount

for the logically corresponding account.
for the logically corresponding account.

That you would have an opportunity to override that if it was not
That you would have an opportunity to override that if it was not

the right amount.
the right amount.

But before you could post this or before the computer would accept the transaction,
But before you could post this or before the computer would accept the transaction,

it would be imperative that the entry be in balance.
it would be imperative that the entry be in balance.

And so, there would be some sort of check box to indicate that the item
And so, there would be some sort of check box to indicate that the item

is entered appropriately.
is entered appropriately.

And finally, there would be some sort of button to click or return key to go and
And finally, there would be some sort of button to click or return key to go and

indicate you're happy with the entry and
indicate you're happy with the entry and

ready to enter it into the accounting system.
ready to enter it into the accounting system.

And now, in closing this discussion on Computerized Processing Systems,
And now, in closing this discussion on Computerized Processing Systems,

it's very important to consider in your own business that you think about
it's very important to consider in your own business that you think about

how important it is to maintain control over this system.
how important it is to maintain control over this system.

With a manual system, it's fairly easy to look at it and
With a manual system, it's fairly easy to look at it and

see if there's been alterations or unauthorized entries into the system.
see if there's been alterations or unauthorized entries into the system.

In a computerized system, it's very important to have appropriately authorized
In a computerized system, it's very important to have appropriately authorized

personnel with password protection to make sure that all transactions that
personnel with password protection to make sure that all transactions that

are entered into the system are appropriate.
are entered into the system are appropriate.

It's just simply harder to look back into an electronic database and
It's just simply harder to look back into an electronic database and

find things that are not appropriate or were entered incorrectly.
find things that are not appropriate or were entered incorrectly.

So, while they have the beauty of simplifying the accounting process,
So, while they have the beauty of simplifying the accounting process,

they also pose unique controlled risk to the organization.
they also pose unique controlled risk to the organization.