Unit 8: Financial Statements

Listen to the recording as you read the text. Then complete the activities.

If you walked into any accounts office twenty years ago, you would have seen piles of financial statements and reports in every corner. However, now, there is an increasing trend towards the paperless office.

Accounting teams, much like other office workers, are using electronic copies to replace the traditional hard copies of everything from tax returns to financial statements. But how has this electronic revolution changed the accountant’s working day?

As you can imagine, accounting especially for larger corporations generates a lot of paperwork. The actual accounts are only a small portion of the accounting records. To start with each transaction has to be meticulously recorded which before computerized programmes meant a large number of ledgers. These books were the basis for the accounts so it was essential that they were accurately maintained. Each accounting function would operate a different set of ledgers which would then be reconciled in the process of generating the final accounts.

In each set of accounts, for each company the accounting firm had to prepare the workings, otherwise known as T-accounts, the trial balance summarizing these accounts, the bank reconciliations showing the cash in hand, a draft set of accounts and of course the approved set of accounts, with accompanying notes to the accounts and this was just the beginning.

Each company was also expected to keep records of all tax matters, in case of the need to produce them for an audit. This meant hundreds or even thousands of receipts, bills and invoices. All of which were summarized on the tax returns, again more paper.

Additionally if a company made use of management accounting services, the number of reports which were produced increased dramatically. Although these management reports were only internal and as such did not need to be retained by law, it was common practice for companies to store these along with the accounting records for that year thus allowing easy reference.

All in all, a lot of paperwork was generated by the act of accounting which was not a problem until it came time to find a certain piece of information from a previous year. Then, accountants were completely reliant on the filing clerks who knew the system – but if something went wrong it could take weeks to find the right document.

The electronic revolution in accounting started with the invention of spreadsheets, which allowed bookkeepers to perform complex calculations without the need of a calculator. This greatly speeded up the process of reconciliation. Instead of waiting until after all figures had been entered into the ledgers to see if the accounts balanced a bookkeeper could keep track of the balance after each entry.

Of course spreadsheets had their limitations as it still required the user to manually post each transaction using the double entry system and as such the process still requires a skilled bookkeeper to ensure that no errors occur.

With the development of computerized accounting programmes such as SAGE, the double-entry system has been automated and the user need only enter the transaction once and the second side will be automatically posted into the correct account. These systems make the process of report generation much faster as all of the data is stored and can be extracted in a variety of methods, by various criteria thus reports for any given period can be generated almost instantly. The one disadvantage of computerized accounting programmes comes from the difficulty in cross-checking journal entries for irregularities as the data is presented as a list of transactions rather than being clearly visible as a set of T-accounts. As such many experienced accountants still use hard copies for ledger control.

Even governmental institutions have started accepting returns filed online which eliminates the need for a printed hard copy at all although, it is still advisable to keep a copy of any important document – just in case.

Now continue to the Activities