Role of Technology in Cost Accounting

Date: Nov 23, 2018

Statement of Purpose

The purpose of this study is to understand the various ways in which technology is applied in the storage and transfer of accounting information, communication, and enterprise resource planning systems. Additionally, the paper will discuss the advantages, disadvantages, and the future of technology use in cost accounting.

Literature Review

Cost accounting entails collection and analysis of an organization’s financial information with the purpose of enabling the management to understand the best way to make operations of the organization cost efficient (Vanderbeck, 2013). Also, it enables organizations to get information they need in order to control operations and plan their future development. In recent times, as technology has been improved and spread, it has become incorporated into cost accounting in order to make the process more streamlined, efficient, and faster. With the invention of rudimentary adding machines such as the abacus and later calculators, accountants’ work became easier, but the problem of recording information still remained, which required usage of paper. However, it has radically changed with technological advancements. At the end of the twentieth century, computers and software were widely used in the accounting. It has allowed accountants to do more work in a shorter time. Technology has changed the way cost accounting is carried out by easing an accountant’s work in analyzing data and increasing storage capacity.

The paper examined the use of technology in cost accounting and how it is perceived by the people who use it. It examined the impact that technology has on communication, storage, and dissemination of data; the way ERP systems have been changed by technology; and the current and future trends in the use of technology in accounting. It was found that technology influences every facet of accounting, and it continues to make organizations more efficient and work less difficult and more convenient for the accountants. Also, it was found that there are certain trends that the technology will take in the future including its continuous use in the improvement of the accounting (Intuit, 2013).

Moreover, it was found that even though technology simplifies the work of accountants, it has certain disadvantages such as the cost of purchasing and maintaining software and equipment as well as training employees to use new technology, which is especially a major problem for small businesses.

Research Methodology

Research methodology used in this study was interview. Business professionals were interviewed to find what their views on the use of technology in accounting are and analyze the gathered information in order to completely understand how technology is used in accounting. The research will explain the impact technology has on cost accounting; future of technology in accounting; as well as advantages, disadvantages, and limitations of its usage in cost accounting.

Summary of Findings

There are various ways in which technology has affected the accounting. Consequently, this paper will discuss some of the ways in which cost accounting uses technology and how the technology has changed the processes of cost accounting.

How Email, the Internet, Intranet, and Extranet Have Changed Cost Accounting

In the modern world, the use of electronic communication is quite popular. In cost accounting, it can be used to pass information within the organization or outside it. A platform called the intranet, which centers on a single point of access can be used for communication within the company to relay information that is not meant to be seen by people outside it. Intranet networks are used to enable communication within workgroups and for data sharing. The platform uses Ethernet, Wi-Fi, TCP/IP, web browsers, and web servers and includes the Internet access, which is protected by a firewall to limit access by unauthorized people (Mitchell, 2014).

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A different platform, the extranet, which would allow limited access to information for people outside the organization, can also be used for communication. Extranet is basically the same as the intranet, but some access by outsiders is allowed. Email and applications such as Skype can also be used for communication. Its advantage is that real time and accurate information is relayed, and people do not have to be physically present in the same room or even country to hold a meeting (The Houston Chronicle, 2014). Besides the communication, the Internet is also a great research tool. If a cost accountant requires any information that is not readily available, it will be convenient to search for it on the Internet. The Internet is a vast library accessible with the mouse click, and anyone doing cost accounting can effectively use it.

Input, Processing, and Output

At the time when all information was recorded on paper and stored in paper folders, it was quite easy to record the wrong information or lose what had already been recorded. Inputting information manually was also tedious and sometimes messy. However, with the technological advancements, inputting, processing, and outputting of information has become quicker, more accurate, reliable, and efficient. Efficiency in input, processing, and output is mainly achieved by the use of hardware such as computers, specialized printers, scanners in addition to certain software.

Today, accountants use software that helps them to keep track of all work and organize necessary data with a mouse click. If information is required to be transferred to a different person, the software can do that without printing information out and carrying it in a briefcase or paper folders (The Houston Chronicle, 2014). Also, data stored in this manner is safer as it can be encrypted to ensure that it is not stolen and used to harm the organization. The need for large filing cabinets is also eliminated with the use of technology in cost accounting (Intuit, 2013).

Cloud Computing

Cloud computing is a system, where remote computers with software and storage space are available for use by another organization. It can be quite costly for organization to buy software, which requires multiple licenses and numerous computers for employees. For a cost accountant, cloud computing is a better option. All the organization would have to do is to install one program that allows a user to log in a web-based server, where all necessary programs are hosted. It eliminates the need to buy software and multiple licenses (Strickland, 2014). Companies that offer cloud computing also offer storage space at a fee. The advantage of cloud storage is that the information is stored on servers that are accessible only to authorized people, and there is little chance of data loss or theft. Another advantage is that the computers being used by the cost accountant will not have to run several programs, which can be difficult for some computers.

Examples of cloud computing that are used every day include web-based email services such as Gmail and Yahoo, which allow one to access email without running an email program on one’s computer. Emails in inbox are not stored on one’s computer, but the provider’s servers.

Enterprise Resource Planning (ERP) Systems

Enterprise resource planning systems are programs, which allow the integration of an organization’s departments making information accessible through a central system (Syspro, 2014). ERP can be used to record and manage enterprise data and manage different aspects including manufacturing, inventories, shipping and payments, product planning, costs, and development. ERP does help an organization to increase overall performance, integrate the supply chain, enhance productivity through automation, and integrate all business processes. Today, ERP systems are moving towards mobile devices, social media, and cloud computing. Mobility is becoming quite popular, and some people prefer to do some work using their iPads while in transit, and it is logical that ERP will move in that direction. The popularity of social media and gradual acceptance of cloud computing make some organizations consider implementing ERP systems.

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Online Stores and Shopping

With the excessive use of the Internet and its resources, online shopping has become considerably popular. Online shopping or e-shopping is the process of purchasing goods and services from a retailer without physically visiting a shop. It is done by using a web browser. Examples of the world’s biggest online stores are EBay and Amazon.com (The Economist, 2013). For people wanting to trade without building or renting physical stores, online shopping is the best option as it is much cheaper alternative to physical stores. Also, such stores are not limited by geographical borders and can be reached by any client in any country, where the delivery is possible.

Disadvantages of Using Technology in Cost Accounting

Using technology in cost accounting has many advantages, but this does not mean that there are no downsides to it. The disadvantages are the following:

  • Investing in computers and software, which requires multiple licenses, can be considerably costly. Also, maintaining such hardware and software is an added cost that an organization will have to incur.
  • Even though it is reliable, cloud computing is quite expensive, especially when an organization has to buy space on the cloud.
  • The amount of time needed to learn how to use new software may also be high. Staff should be trained on how to use new software. The amount of time it will take for staff to get used to the software will also be large.

Possible Future Trends in the Use of Technology in Cost Accounting

Technology constantly develops and modernizes, and everyone who uses it has to keep up with it. In cost accounting, the following trends may become visible:

  • With the improvement of software organizing and processing data, the time and efforts needed to collect such data will be greatly reduced, and organizations will have more time to analyze their data.
  • The presence of errors in accounting will be greatly reduced as precision machines and software are designed for cost accounting. Also, such technologies will be able to correctly predict and project future situations and simplify the process of analyzing and providing accurate data (The Houston Chronicle, 2014).
  • Departments in organizations will become better integrated through ERP systems, and information will be more efficiently passed around.
  • Cloud and mobile computing will become more pervasive, and accountants will be able to do their work anywhere and at any time. It will create a more flexible and comfortable schedule, which will, in turn, increase their productivity.

While carrying out this research, it was found that technology has eased communication for accountants and their clients. Through email, extranet, and the Internet, communication has become easier and more organized. Also, inputting, processing, and outputting information has become more efficient with the use of technology. The use of computers, scanners, and specialized printers has made these processes more accurate and reliable. Storage of data has also become more reliant on technology, especially with cloud computing, where data and programs can be run from offsite servers. It has made data safer and less costly to store as the cost of buying servers by the company itself is eliminated. Organization and efficiency in businesses have also been improved with the use of ERP systems. The transfer of business functions to online platforms, especially for stores that are run online is also on the increase (The Houston Chronicle, 2014).

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In the future, technology in accounting will, probably, move to mobile and cloud computing platforms as accountants try to perform their work whenever and wherever they are. Also, collection, analysis, and processing of data will become more accurate and faster with the use of software. ERP Systems will also make organizations more streamlined and better at communication.

However, technology still has its limitations such as the costs of purchasing and maintaining the hardware and software used in accounting. Training staff to use the new technology is expensive, and it takes a lot of time, which some organizations may not be able to afford.

Conclusion

The technology will make cost accounting easier, more reliable, and accurate not only for the accountants but also for the clients who will have their work delivered in better time. However, cost accountants have to be aware of new trends and evolve with them to ensure they benefit from technology as much as possible. The accountants should bear in mind that there are numerous disadvantages of the technology and be sure to use the ones that give the best balance of advantages and disadvantages.

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