Accounting in Computerized Environment UNIT 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 System

Definition of Computerized Accounting.

Computer information system environment exists when one or more computer(s) of any type or size is (are) involved in the processing of financial information, including quantitative data, of significance to the audit, whether those computers are operated by the entity or by a third party.

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.

A computerised accounting environment will therefore have the following salient features:
1. Fast, Powerful, Simple and Integrated:
Computerized accounting is designed to automate and integrate all the business operations, such as sales, finance, purchase, inventory and manufacturing. 2. Complete Visibility & Scalability: With Computerized accounting the company will have greater visibility into the day-to-day business operations and access to vital information. Computerized accounting adapts to the current and future needs of the business, irrespective of its size or style.

3. Customized: Computerized accounting allows the company to enter data in a variety of ways which makes work a pleasure. Adapting to the specific business needs is possible. Hence, a software can be tailor-made accordingly to the need of the business.

4. For quick decision making & improved

Business Performance: Computerized accounting is a highly integrated application that transforms the business processes with its performance enhancing features which encompass accounting, inventory, reporting and statutory processes.

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

AU-Chennai Syllabus UNIT 5

Significance of computerized accounting system

Codification and grouping of accounts

Maintaining the hierarchy of ledgers Prepackaged accounting software

Codification 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

AU-Chennai Syllabus UNIT 5

Significance of computerized accounting system

Codification and grouping of accounts

Maintaining the hierarchy of ledgers Prepackaged accounting software

Maintaining 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

AU-Chennai Syllabus UNIT 5

Significance of computerized accounting system

Codification and grouping of accounts

Maintaining the hierarchy of ledgers Prepackaged accounting software

Prepackaged Accounting Software

Accounting Package:
Maintained by using a spread sheet package, Pre-Packaged Accounting Software Customized Accounting Software ERP

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

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

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

List of Reports
Following 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 prepackaged 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

AU-Chennai Syllabus UNIT 5

Significance of computerized accounting system

Codification and grouping of accounts

Maintaining the hierarchy of ledgers Prepackaged accounting software