computerized accounting unit- 5

Accounting in Accounting in Computerized Computerized EnvironmentEnvironment

Accounting in Accounting in Computerized Computerized EnvironmentEnvironment

UNIT 5UNIT 5UNIT 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 Significance of Computerized Accounting SystemAccounting SystemSignificance of Computerized Significance of Computerized Accounting SystemAccounting System

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.

Definition of Computerized Accounting.

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


accounting system




Codification and Grouping of Codification and Grouping of AccountsAccountsCodification and Grouping of Codification and Grouping of AccountsAccounts

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 Maintaining the Hierarchy of LedgersLedgersMaintaining the Hierarchy of Maintaining the Hierarchy of LedgersLedgers

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 Prepackaged Accounting SoftwareSoftwarePrepackaged Accounting Prepackaged Accounting SoftwareSoftware

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

– 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




computerized accounting unit- 5

Documents

computerized environmentunit

business processes

daytoday business operations

improved business performance

specific business needs

vital information

auchennai syllabus unit

greater visibility