Document Management in Accounting
Accounting Was One of the Major Beneficiaries of Computerization
First, a brief look at what we mean by accounting. It can mean an in-house process or public accounting practice. In-house accounting has two major branches - Financial Accounting and Management (or Cost) Accounting. We look at how each of these benefited from the modern computerized DMS.
Financial Accounting
Financial accounting is typically an in-house process. It seeks to keep score of a business' revenues, expenses, profits, assets and liabilities. Lenders, investors and tax departments as well as the owners of the business and its managers use financial accounting reports.
Documents generated by financial accounting include:
- Sales Invoices with supporting shipping documents and customer orders
- Purchase Invoices with supporting goods receipt notes and order copies
- Cash payment vouchers with any supporting details indicating its authenticity and authorization
- Cash receipt documents with similar supporting details
- Documents supporting other kinds of business transactions, like sales or purchase returns
- Documents detailing any accounting adjustments made, such as error corrections and accounting for accrued expenses or revenues
- Sales, Purchase, Cash, Adjustments and any other registers and accounts ledgers
- Financial reports such as Profit & Loss Account, Balance Sheet and different kinds of analyses.
Computerized Financial Accounting
In traditional manual accounting systems, details were transcribed from original documents into registers, and "posted" from there to relevant accounts in the ledgers. The accounts in the ledgers were then summarized to prepare a list of account balances called Trial Balance. The Trial Balance was the source document for preparing final accounting reports like Profit & Loss Account and Balance Sheet.
With the use of computerized accounting packages, all you had to do was to enter the details from original vouchers into the computer records, in a structured manner. The computer then did the rest, providing registers and ledgers that you wanted, and generating different kinds of reports including P&L Account and Balance Sheet. Very elaborate analyses, as well as speedy reports generation, were now possible.
Management Accounting
Management (or Cost) Accounting is also typically an in-house process. It seeks to provide control reports to managers, such as production cost details, analyses of deviations of actual income and expenses from budgeted income and expenses, etc. These are strictly internal reports used by the managers of the business.
Documents generated by management accounting include:
- Estimates of costs by cost items, departments and products
- Cost allocation analyses for overhead expenses
- Budget comparison reports comparing actual revenues and costs with budget estimates
- Variance analyses seeking to highlight the reasons for any deviations of actuals from estimates
- Breakeven analyses that brings out profitability requiremens like margins and sales volumes
- Analytical statements and reports bringing out the implications of different business decisions
Management Accounting reports would require that documents like cost estimates, material consumption and time spent by workers on different jobs and such operational aspects be recorded. Many of the financial accounting entries could also be used for generating some management accounting reports, by entering a few additional details during data entry.
Once all the required source information is in the computer, it could generate timely reports to tell managers what exactly is going on. It is such operations reports that help managers control the business results. Under a manual system, such timely reports involving complex analyses would have been impossible.
Accounting Practice
Accounting practice involves providing accounting-related services like auditing and tax consultancy. Professional accounting firms provide these services to their clients.
Assuming audit and tax consultancy services, an accounting practice would typically generate the following kinds documents:
- Audit worksheets for each audit assignment carried out
- Audit queries raised during the assignment and replies received
- Copies of audited accounts and audit reports
- Tax returns of clients
- Tax consultancy service-related correspondence
- Accounting records relating to the practice itself, showing revenues, expenses, costs by assignments and so on
Computers impacted accounting practice also. Audit practices had to change with increasing adoption of computerized accounting. Audit trails now had to be specifically programmed. Specialized audit programs were also used to identify problem areas requiring deeper investigation. These programs tried to discover trends and patterns and to assess overall reliability.
Tax practice was also transformed with the newfound ability to do complex and elaborate computations quickly with the help of a computer. Productivity of the practitioners was improved by the new facilities of preparing tax returns using computer programs, and electronic filing of the returns with tax offices over the Web.
Another development was the ability to access customer histories quickly from the computer database. It was no more necessary to go to the filing cabinets and handle bulky folders searching for particular documents.
Conclusion
Like in all areas, computers have transformed document management practices (and productivity) in accounting also. Financial and Management Accounting reports, of far more complexity, could now be generated extremely fast. Accounting practice was also transformed with the increasing adoption of computerized accounting and the computer's ability to speed up tax return related tasks.