Benefits of Computerized Record Keeping System

The assignment emphasizes the importance of financial accounting in business, specifically using journal entries, trial balances, and final accounts to assess a company's financial health. It also suggests that Epic, a small business owner, should implement a computerized record keeping system due to its numerous benefits, including cost-effectiveness, security features, and visual presentation capabilities.

INTRODUCTION TO
FINANCIAL
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
QUESTION 1 ..................................................................................................................................3
QUESTION 2...................................................................................................................................8
Explaining prudence concept and accruals (matching) concept by identifying application of
these concepts in the annual reports of business..........................................................................8
QUESTION 3.................................................................................................................................10
Explaining importance of use of computerised record keeping system and benefits in business
...................................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
Financial accounting is crucial for recording transactions on daily basis for up keeping
operational activities. Present report deals with Epic who is small business trader of which
journal entries will be made followed by ledger accounts. After posting accounts into ledgers,
trial balance will be prepared. Moreover, final accounts will be produced from the given
information. Accounting concepts of matching and prudence concepts will be enumerated in
effective manner. Moreover, benefits of installing computerised system of record keeping will be
done so that business will be able to reduce errors occurred due to traditional method of keeping
records and leading to time-saving factor for firm.
MAIN BODY
QUESTION 1
Journal Entries in the book of Epic are enumerated below:
Particulars Amount (in £) Amount (in £)
Rent a/c Dr
To cash
10120
10120
Bank a/c Dr
To loan a/c
15000
15000
Equipment a/c Dr
To Cash a/c
15000
15000
Wages a/c Dr
To cash
3000
3000
Wages a/c Dr
To outstanding wages
a/c
1200
1200
Prepaid rent a/c Dr
To Rent a/c
800
800
Depreciation a/c Dr
To Equipment a/c
12000
12000
Ledgers of Epic ‘
Sales day book
Date Customer Invoice No. Amount

Opening balance 289400
01-Sep Rita plc 1 1000
02-Sep Vera plc 2 1500
03-Sep Godwin Plc 3 1200
04-Sep Sush Plc 4 2000
05-Sep Gem Plc 5 1800
06-Sep Cash 6 750
07-Sep Cash 7 550
08-Sep Cash 8 1250
10-Sep Sush Plc 4 1400
15-Sep Gem Plc 5 1000
20 Sep Discount allowed 3 400
TOTAL 296650
Sales Returns Day Book
Date Customer Invoice No. Amount
Opening balance 1400
08-Sep Rita plc 1 200
12-Sep Vera plc 2 100
Total 1700
Purchase Day Book
Date Customer Invoice No. Amount
Opening balance 143300
01-Sep Dyna Plc 9 850
02-Sep PUG Plc 10 900
03-Sep ABC plc 11 1050
04-Sep XYZ plc 12 600
05-Sep M&S Plc 13 770
06-Sep Cash 14 1200
07-Sep Cash 15 350
08-Sep Cash 16 480
13-Sep ABC plc 11 950
15-Sep XYZ plc 12 520
20 Sep. Discount received 13 150
Total 147880

Purchase return day book
Date Customer Invoice No. Amount
Opening balance 7600
15-Sep Dyna Plc 9 200
20-Sep PUG Plc 10 400
Total 8200
Cash receipts book
Cash receipt account
Date Customer Invoice No. Amount
Loan 15000
06-Sep Cash 6 750
07-Sep Cash 7 550
08-Sep Cash 8 1250
Cash payments book
cash payment account
Date Customer Invoice No. Amount
rent 10120
Equipment purchased 15000
wages 3000
Doubtful debts 168
30-Sep Depreciation 12000
06-Sep Cash 14 1200
07-Sep Cash 15 350
08-Sep Cash 16 480
Trial balance of Epic at 30 September 2018
Particulars Debit (in £) Credit (in £)
Sales 296650
Purchase 147880
Carriage inwards 1700
Returns outwards 8200
Wages 55400

Rent 44620
Electricity 26100
Inventory 57000
Loans 15000
Trade receivables 52600
Allowances for receivables 600
Trade payables 34430
Equipment’s 205000
Depreciation on equipment’s 61000
Bank 42000
Drawing 15000
Capital 196400
Income statement of Epic at 30 September 2018
Particulars Details Amount
Sales revenue 296680
Less: COGS 148980
Opening inventory 51600
Add: Purchase 147880
Less: carriage inwards 1700
Add: Return outwards 8200
Less: Closing stock 57000
Gross Profit 147700
Operating expenses
Wages expenses 3000
Rent expenses 10120
Electricity expenses 26100
Depreciation on equipment 12000
Total operating expenses 51220
Total Profit 96480
Epic’s Statement of financial position at 30 September 2018
Particulars Amount (in £) Amount (in £)
Assets
Current assets
Inventory
Opening inventory 51600
Add: Purchase 147880
Less: carriage inwards 1700
Add: Return outwards 8200
Less: Closing stock 57000 148980

Trade receivables 52600
Less: Allowances for trade
receivables
600 52000
Bank 42000
Total current assets 242980
Non-current assets
Equipment 205000
Less: Depreciation 61000 144000
Total non-current assets 144000
Total Assets 386980
Liabilities
Current liabilities
Trade payables 34430
Total current liabilities 34430
Non-current liabilities
Loans 15000
Long term loan 190580
Total long-term liabilities 205580
Shareholders’ equity
Capital 196400
Less: Drawings 15000 181400
Total Liabilities and shareholders’
equity
386980
It can be interpreted from above financials that Epic has good financial position as
clarified by income statement and balance sheet. The income statement is showing that COGS,
operating and non-operating expenditures are being controlled in a better manner. On the other
hand, net profit of 96480 is being attained. This provides clarity that firm will attain operational
activities in streamlined manner. While, balance sheet is also carried out which provides clarity
that total current assets are 242980 and total current liabilities are 34430. This clarifies that firm
has higher amount of current assets which means high liquidity position. It will be able to pay-
off short-term obligations without any difficulty.
It can be analysed that total assets amounts to 386980 and liabilities are 205580 which
implies that firm has higher assets in comparison to liabilities. Thus, overall financial health of
small business is good as income statement and statements of financial position are favourable to
it. Hence, it will not face any difficulty in meeting obligations and scaling up business
operations.

QUESTION 2
Explaining prudence concept and accruals (matching) concept by identifying application of these
concepts in the annual reports of business
The accounts are to be prepared by the company in order to ascertain financial position at
certain date. It is required to analyse financial health of company so that shortcomings if any can
be ascertained and remedial actions may be taken in the best manner possible. It can be analysed
that accounting concepts are much helpful for accountants to prepare and record financial
records so that they may provide accurate records of business to intended stakeholders with ease.
There are two widely used accounting concepts which are helpful for preparation of financials in
effective manner. These are prudence concept and matching concept which are explained below
with reference to Epic-
Prudence concept
It states that business should never estimate for profits but estimate for losses. In simple
words, revenues and incomes must not be overstated and liabilities, expenses must not be
underestimated (Prudence concept of accounting. 2018). This is because future is uncertain and
profits may or may not be attained and thus, anticipation of losses should be done by company so
that future position can be secured. It can be referred to income statement of Epic that revenue
earned by the small trader amounts to 296680 and COGS were 148980. On the other hand, by
deducting both figures, gross profit of 147700 has been attained. Thereafter, all operating
expenses are being accounted for which totalled 51220. Thus, net profit comes to 96480 which
clarifies that firm has generated good profits as represented by income statement.
Prudence concept of accounting lays emphasis on increasing trustworthiness of figures
which are being reported in financials. Concept gives suggestion that final accounts of business
must always show caution and reporting the same which impacts income and expenses in
effective manner. It can be stated in clear words that accountant preparing final accounts must
always use conservative approach while reporting profits, assets and revenue. He should record
these items only when actual realisation occurs (Reid, 2018). In simultaneous to this, business
should adopt proactive approach for recognition of liabilities, expenditures and losses. Epic must
not understate the liabilities and overstate profits until actual items are arrived for or realised.
The provision should be made even for contingencies.

The concept of prudence clearly shows that business should adopt realistic approach for
every possible event that could occur. It is quite important for business to carry out the same sio
that it can easily prepare for uncertain events and take desired actions in the best manner possible
(Magnan and Parbonetti, 2018). It is essentially required as any event which is not recorded has
major impact on decision-making of users of accounting information up to a major extent. Thus,
it can be said that prudence concept of accounting should be incorporated in business so that it
may take necessary actions in effectual way.
Matching concept
As the name suggests, it is one of fundamental concept of accounting. It states that all
items of expenditures must be recorded in which related earnings are made. This means that if
expenditures is incurred in a particular period, profit attained from such expenses must be
recorded in a similar period only (Simons and VOß, 2018). It becomes crucial for Epic to match
revenue and expenditures for the period because for arriving at net income, operational and non-
operational expenses are to be deducted from revenue for determining figure in the best way
possible. If expenditures are not recorded in a particular period, revenues cannot be calculated. If
it is computed, amount received may be either understated or overstated. Moreover, balance
sheets prepared on this basis will not be accurate as well.
Matching concept is based on accrual basis of accounting on which expenses incurred in
a period are matched with revenue being earned in similar period only. Matching concept is the
main point which makes differentiation between accrual basis and cash basis of accounting up to
a major extent. It requires making recognition of expenditures and incomes without reference of
actual receipt of cash from income and actual payment of cash for expenditures. For applying
matching concept of accounting in business, Epic needs to analyse and apply judgement for
estimating timing of expenditures and revenues with ease.
It can be analysed from Statement of financial position of Epic that trade receivables
comprises amount of 52600, these are amount which will be collected from debtors or customers
within the agreed time limit of paying off credit. The promise has been made by credit customers
that they will pay the amount in time (Singhvi and BODHANWALA, 2018). The revenue is
recognised when goods are delivered to them. Now risk continue that whether customer would
not get default on making payment. If he defaults, it is recognised as bad debts. So, in

accordance to matching concept, revenue should be recognised only when outstanding amount
from debtor is received. Thus, expenses and revenues are matched in a particular period.
QUESTION 3
Explaining importance of use of computerised record keeping system and benefits in business
Traditional method of record keeping had been used for several decades. The use of
registers and handwritten accounts involves lots of paperwork. It has resulted into increase in
errors and more time is engaged for maintaining accounts (Laudon and Laudon, 2018). On the
other hand, Epic should use electronic accounting system for recording transactions in the best
manner possible. Manual accounting system leads to collection of processes, procedures and
controls which are designed for collecting, recording, classifying and summarising accounting
data for providing financials to management of firm. However, this leads to accomplishment of
record keeping but has various demerits such as increment in errors, difficulty in making analysis
of errors, time-consuming etc.
It is advised to Epic that electronic system of record keeping should be incorporated in
order to enhance proper keeping of records in timely and reliable manner. The benefits of
implementing computerised record keeping system are as follows-
Complete Automation-
The automation is one of the main benefit of computerised accounting as all calculations
are handled in accounting software. This system eliminates time-consuming process which are
associated with that of manual accounting. Moreover, it can be said that firm will be able to
enhance its record keeping (Gibbings and Wickramasinghe, 2018). As once invoices are issued,
automatic processing takes place leading to time-saving.
Accuracy-
It is another benefit of computerised accounting system that firm is able to attain
efficiency in effective manner. Once data is being entered in the accounting system, all
calculations relating additions and subtractions are effectively handled by it. This is
automatically done by software and as a result, accurate output can be generated in a better
manner.
Accessing data-

The data entered into the system can be effectively accessed by central server of firm to
all departments. It is particularly possible when online accounting solution has been used. Data
can also be accessed by individuals, outside the office and thus, it can be accessed from
anywhere. However, it should be secured and unauthorised access should be stopped.
Reliableness-
The reliability exists in the accounting records as entries made in journal are effectively
posted into ledger automatically by software (Naqvi, Mehta and Sharma, 2018). This in turn,
provides trial balance from which balance sheet, income statement and cash flow statement are
prepared. Thus, all computations are automatically done and statements so prepared have high
reliability.
Scalable-
The firm when initiates for growth requires need of accounting more than ever. It can be
analysed that it is required for applying computerised accounting system which can handle all
calculations and provide results in the best manner possible. Thus, when scale of Epic will
increase, computerised record keeping is required as it is difficult for sifting through bunch of
papers involved in manual system while for sifting data using software. Thus, computerised
system is much essential for business.
Speed-
By implementing accounting software, Epic can easily handle entire process in a speedy
manner as reports can be produced much faster. Statements and reports can be generated
instantly with ease. This is much essential for firm operating at smaller and larger level as
important decision-making is to be made which are possible with accounting software.
Cost-effective-
The computerised system of accounting is more efficient than paper-based accounting as
work becomes faster and as a result, firm is able to make proper records of accounting in
effective manner. It can be analysed that Epic will be able to save cost as computerised system
incurs less cost in comparison to traditional method. Moreover, it also does not require qualified
professionals. Thus, it is cost-effective for business.
Security-

One of the important advantage of computerised record keeping system is that it has
inbuilt security features which means that even in the event of natural disasters, man-made
disasters, data can be stored offline (Mair and Mathis, 2018). Restoration is useful feature for
firm as its lost data can be easily recovered without any difficulty. Hence, firm may be able to
protect its data as security feature help to do the same.
Visuals-
It is another lucrative feature of computerised record keeping system as files can be
reviewed in variety of formats which leads to attainment of efficiency in the best manner
possible. It can be analysed that pictorial presentation can be done with reference to accounting
software as data could be viewed with charts, tables etc.
Thus, it can be summarised that Epic who is running small business by using manual
system of record keeping should apply computerised system as it has immense benefits to firm.
CONCLUSION
Hereby it can be concluded that financial accounting is important aspect in business as
records are maintained, analysed and summarised revealing financial health of it. Epic has good
financial position as it is clarified by transactions handled in journal, preparation of trial balance.
Then final accounts are prepared which means that firm may be able to enhance its position quite
effectively. Furthermore, it should implement computerised system for record keeping as it is
several benefits to firm. Moreover, matching and prudence accounting concept should be applied
quite effectually.

REFERENCES
Books and Journals
Gibbings, R. and Wickramasinghe, N., 2018. A Systematic Framework to Assess EMRs and
EHRs. In Theories to Inform Superior Health Informatics Research and Practice (pp. 403-
413). Springer, Cham.
Laudon, K. C. and Laudon, J. P., 2018. Management information systems: managing the digital
firm. Pearson.
Magnan, M. and Parbonetti, A., 2018. Fair value accounting: a standard-setting perspective.
In The Routledge Companion to Fair Value in Accounting (pp. 59-73). Routledge.
Mair, A. and Mathis, A., 2018. Completeness of handwritten preanaesthetic records at two
veterinary referral institutions.Veterinary anaesthesia and analgesia. 45(2). pp.129-134.
Naqvi, S.M.H., Mehta, S. C. and Sharma, A. D., 2018. Novel Methods and Regulation on
Electronic Data Collection in Clinical Trials. Journal of Clinical & Diagnostic
Research.12(3).
Reid, W., 2018. The meaning of company accounts. Routledge.
Simons, A. and VOß, J. P., 2018. The concept of instrument constituencies: accounting for
dynamics and practices of knowing governance. Policy and Society. 37(1). pp.14-35.
Singhvi, N. M. and BODHANWALA, J. R., 2018. Management accounting: Text and cases.
PHI Learning Pvt. Ltd.
Online
Prudence concept of accounting. 2018 [Online] Available Through:
<https://www.accountingformanagement.org/prudence-concept/>