U5 c49 c60 - accounting in computerized environment ver 7.0

transcript

Accounting in Computerized Environment

UNIT 5UNIT 5

AU-Chennai Syllabus – UNIT 5• Significance of computerized

accounting system

• Codification and grouping of accounts

• Maintaining the hierarchy of ledgers

• Prepackaged accounting software

Significance of Computerized Accounting SystemSignificance of Computerized Accounting System

Business Applications of Computers• Inventory control• Production planning• Budgeting and Variance analysis• Plant capacity utilization• Quality control• Market research• Purchase accounting• Sales accounting• Payroll accounting• Information management, etc.

Features• Processing by one or more

computers

• Operated by the entity or by a third party

• Processing with the help of one or more computer software e.g. Tally

• Software used may be a generic software purchased from the market (package software) or

• May be developed specifically for the business (custom software)

Role / Benefits / Advantages• Speeding up the process

• Automation of ledger posting, Trial balance and subsidiary ledger

• Accuracy

• Reduced error

• Eliminating duplication of work

• Immediate availability of information

• Easy access

Role / Benefits / Advantages… contd.• Flexibility

• Better quality of work, clean and neat

• Scalable

• Lower operating cost

• Improved efficiency

• Relieves employee monotony

• Facilitates standardization

• Minimization of frauds

Limitations / Disadvantages• Security / Integrity / Virus /

Hacking

• May lead to unemployment

• High cost of installation

• Requires special skills for operation

• Frequent repairs

• Frequent power failures

Features of A/cg Software• On-screen input and print outs

• Automatic updating

• Automatic stock adjustments

• Integration of database with the accounting programme

• Automatic calculation of payroll

Manual and Computerized a/cg - Distinction

Function Manual AccountingComputerized

AccountingRecording Through books of original

entryTransactions are stored in well designed database

Classification

By posting them into ledger accounts

Automatically classified and presented in the form of a report

Summarizing

Ledger account balances to be ascertained and summarized to produce trial balance

Trial balance generated automatically

Adjusting Entries

To be made in order to follow the matching principle

No adjusting entries for errors and rectifications are made

Financial Statements

Depends on the availability of trial balance

Independent of the preparation of trial balance

accounting system

Codification and Grouping of AccountsCodification and Grouping of Accounts

Coding System• Codification refers to allotting code

numbers to accounts in a hierarchical structure

• Accounts are first systematically grouped into Major Heads such as:– Assets– Liabilities– Revenue Receipts– Capital Receipts– Revenue Expenditure– Capital Expenditure, etc.

• The sub-groups or Minor Heads could be ‘Cash’ or ‘Receivables’ or ‘Payables and so on.

Coding Procedure

Coding System… contd.• The major heads, sub-heads and detailed

heads together constitute a 4-tier structure

• The detailed head is often termed as an object classification for control purposes. Ex:– Salaries– Office Expenses– Salesman Expenses– Workshop Overhead, etc.

• The classification system should be approved by the top management and auditor before coding and computerization

accounting system

Maintaining the Hierarchy of LedgersMaintaining the Hierarchy of Ledgers

Maintaining Hierarchy of Ledgers • Accounting master files are created with

codes and description of accounts

• In a hierarchical coded system reports can be generated based on codes

• General ledger, Debtors ledger and Creditors ledger are automatically created by any standard software

• At the time of creation, some of the account heads are indicated to the system as cash, bank, debtors and creditors

• The system then automatically posts sales to debtors a/c and purchases to creditors a/c

accounting system

Prepackaged Accounting SoftwarePrepackaged Accounting Software

Prepackaged Software• Prepackaged software are generic

accounting systems purchased from the market rather than developed in-house (ex: Tally accounting s/w)

• These s/w are easy to use, relatively inexpensive and readily available

• The installation of these s/w are very simple

• A network version is generally available which works on client-server architecture

• User manuals guide the user on how to use the s/w

• Vendor provides regular updates

Configuring / Customizing / Installing Prepackaged S/w

• Creation of Company, name, address, contact details, PAN, CST/TNGST, etc

• Defining accounting period• Creation of chart of accounts in master file with

codes• Each a/c to be classified according to type• Opening balances need to be entered• Creating master files for customer, supplier,

product, etc.• Defining system of valuation such as LIFO,

FIFO, Weighted average, etc

List of Master Files• Typically, any standard prepackaged s/w will

have the following master file screens:– Company master file – Accounts master file– Sub ledger master file – Customer master file – Vendor master file – Product master file– Division master file

List of Entry Screens• The entry screens differ in look and feel

between packages. However, the basic entry screens are the following:– Cash Receipts and Payment Entry

– Bank Receipts and Payment Entry

– Petty Cash Voucher Entry

– Journal Entry

– Purchase Order, GRN, Bill, Purchase return Entry

– Sales Order, Challan, Invoice, Sales Return Entry

– Debit Notes and Credit Notes Entry

– Cash Sales & Purchase Memos

– Production , Consumption and Stock Transfer

Entry screens provide add, modify or delete options and also special options like date modification and voucher number modification in some s/w

List of ReportsFollowing reports are common to most s/w:

• Cash Book• Cash Sales Book• Sales Return register• Credit Note Register• Bank Book• Cash Purchase Book• Purchase Return

register• Stock movement

register• Journal Book• Petty Cash Book

• General Ledger• Stock Ledger• Purchase Book• Creditors Ledger• Subsidiary Ledger• Production register• Sales Book• Debit Note Register• Debtors Ledger• Consumption Register

Reports…. Contd.• Document printing options such as trial

balance, POs, challans, declaration forms and invoices printing

• Bank reconciliation reports• MIS reports like aging of debtors, slow moving

and non-moving stock, etc.• House keeping section provides:

– System maintenance features– Taking back-up and system restore– Clean-up, fine tuning and re-indexing of s/w, etc.

Advantages of Prepackaged s/w

• Easy to install• Relatively inexpensive • Easy to use • Backup procedure is simple• Flexibility • Very effective for small and medium size

businesses

Disadvantages of Prepackaged s/w

• Does not cover peculiarities of specific business

• Does not cover all functional areas • Customization may not be possible in most

such software • Reports generated are not sufficient or

serve the purpose• Lack of security • Bugs in the software

Considerations Involved in Selection

• Some of the criteria for selection of prepackaged s/w could be the following: – Fulfillment of business requirements – Completeness of reports – Ease of use – Cost – Reputation of the vendor – Regular updates.

Customized Accounting Software

• Customized accounting software is one where the software is developed on the basis of requirement specifications provided by the user organization

• The need for customized accounting software could be:– Unique nature of the business or– The functionality desired may not available in

pre-packaged software.

Advantages of Customized s/w

• Uncommon functions can also be computerized

• The input screens and input documents can be matched for ease of data entry

• Reports can be designed as desired• Additional MIS reports can be included• Bar-code scanners can be used as input

devices• The system can align with the

organizational structure of the company

Disadvantages of Customized s/w

• Ambiguous specifications resulting in a defective or incomplete system

• Presence of bugs in the software• Incomplete documentation• Inadequate change management procedure

resulting in system compromise• Poor vendor support and lack of access to

source code • Delay in completion of the software

accounting system

END OF UNIT 5END OF AFM SYLLABUS

Best Wishes for Success in your Examinations !

R D Vasudevan