Friday, December 24, 2010

Computerized Accounting System

Computerized Accounting System

 

Introduction
Accounting is the method in which financial information is gathered, processed, and summarized into financial statements and reports. An accounting system can be represented by the following graphic.
The purpose of accounting is to provide information used in decision making. Accounting may be viewed as a system (a process) that converts data into useful information.
Computerised Accounting
Transaction processing system (TPS) is the first stage of computerised accounting system. The purpose of any TPS is to record, process, validate and store transactions that occur in various functional areas of a business for subsequent retrieval and usage.

TPS involves following steps in processing a transaction: Data Entry, Data Validation, Processing and Revalidation, Storage, Information and Reporting. It is one of the transaction processing systems which is concerned with financial transactions only.

When a system contains only human resources it is called manual system; when it uses only computer resources, it is called computerised system and when it uses both human and computer resources, it is called computer-based system.

The computerized accounting is one of the database-oriented applications wherein the transaction data is stored in well- organized database. The user operates on such database using the required interface and also takes the required reports by suitable transformations of stored data into information. Therefore, the fundamentals of computerised accounting include all the basic requirements of any database-oriented application in computers.

Computerised accounting systems refer to packages like
·        Sun
·        MYOB
·        Mamut
·        Sage
·        QuickBooks
·        Tally
·        Cash Manager
·        Best Books etc

A good computerised accounting system should possess the following characteristics:
  • Ability to produce accounts at a short notice
  • Should provide audit trail
  • Compatibility with external programmes
  • Should detect error
  • Should enable internal controls to be embedded.
Purposes of CAS:
Business Management Softwares, Financial Accounting, Inventory, Invoicing, Sales / Purchases Order Processing, Excise Documentation, Jobwork Processing, Sales Tax, Income Tax, Service Tax PF
Salient Features of Computerized accounting
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. With Computerized accounting, accurate, up-to-date business information is literally at the fingertips. The Computerized accounting combine with enhanced MIS, Multi-lingual and Data organization capabilities to help the company simplify all the business processes easily and cost-effectively.
2. Complete Visibility
Computerized accountings giving the company sufficient time to plan, increase the customer base, and enhance customer satisfaction. With Computerized accounting the company will have greater visibility into the day-to-day business operations and access to vital information.
3. Enhanced User Experience
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.
4. Accuracy, Speed
Computerized accounting has User-definable templates which provides fast, accurate data entry of the transactions; thereafter all documents and reports can be generated automatically, at the press of a button.
5. Scalability
Computerized accounting adapts to the current and future needs of the business, irrespective of its size or style.
6. Power
Computerized accounting has the ability to handle huge volumes of transactions without compromising on speed or efficiency.
7. 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. This helps the company access information faster, and takes quicker decisions. Computerized accounting also guarantees real-time optimization of operations and enhanced communication.
7. Quick Decision Making
Generates real-time, comprehensive MIS reports and ensures access to complete and critical information, instantly.
8. Complete Reliability
Computerized accounting makes sure that the critical financial information is accurate, controlled and safe from data corruption
LIMITATIONS OF A COMPUTER AND COMPURISED ACCOUNTING
The limitations of computer are depending upon the operating environment they work in. These limitations are given below as :
  1. Cost of Installation
Computer hardware and software needs to be updated from time to time with availability of new versions. As a result heavy cost is incurred to purchase a new hardware and software from time to time.
  1. Cost of Training
To ensure efficient use of computer in accounting, new versions of hardware and software are introduced. This requires training and cost is incurred to train the staff personnel.
  1. Self Decision Making
The computer cannot make a decision like human beings. It is to be guided  by the user.
  1. Maintenance
Computer requires to be maintained properly to help maintain its efficiency. It requires a neat, clean and controlled temperature to work efficiently.



  1. Dangers for Health
Extensive use of computer may lead to many health problems such as muscular pain, eyestrain, and backache, etc. This affects adversely the working efficiency and increasing medical expenditure.

Role of computers in accounting
The most popular system of recording of accounting transactions is manual which requires maintaining books of accounts such as Journal, Cash Book, Special purpose books, ledger and so on.
The accountant is required to prepare summary of transactions and financial statements manually. The advanced technology involves various machines capable of performing different accounting functions, for example, a billing machine. This machine is capable of computing discount, adding net total and posting the requi ite data to the relevant accounts.
With substantial increase in the number of transactions, a machine was developed which could store and process accounting data in no time. Such advancement leads to number of growing successful organisations.
 A newer version of machine is evolved with increased speed, storage, and processing capacity. A computer to which they were connected operated these machines.
As a result, the maintenance of accounting data on a real-time basis became almost essential. Now maintaining accounting records become more convenient with the computerised accounting. The computerised accounting uses the concept of databases.
For this purpose an accounting software is used to implement a computerised accounting system. It does away the necessity to create and maintain journals, ledgers, etc., which are essential part of manual accounting. Some of the commonly used accounting softwares are Tally, Cash Manager, Best Books, etc.
Accounting software is used to implement a computerised accounting. The computerised accounting is based on the concept of database. It is basic software which allows access to the data contained in the data base. It is a system to manage collection of data insuring at the same time that it remains reliable and confidential.

Components of Computerised accounting software:
1. Preparation of accounting documents
Computer helps in preparing accounting documents like Cash Memo, Bills and invoices etc., and preparing accounting vouchers.
2. Recording of transactions
Every day business transactions are recorded with the help of computer software. Logical scheme is implied for codification of account and transaction. Every account and transaction is assigned a unique code. The grouping of accounts is done from the first stage. This process simplifies the work of recording the transactions.
3. Preparation of Trial Balance and Financial Statements
After recording of transaction, the data is transferred into Ledger account automatically by the computer. Trial Balance is prepared by the computer to check accuracy of the records. With the help of trial balance the computer can be programmed to prepare Trading, Profit and Loss account and Balance Sheet.

NEED AND REQUIREMENTS OF COMPUTERSIED ACCOUNTING
The need for computerised accounting arises from advantages of speed, accuracy and lower cost of handling the business transactions.
  1. Numerous Transactions
The computerised accounting system is capable of handling large number of transactions with speed and accuracy.
  1. Instant Reporting
The computerised accounting system is capable of offering quick and quality reporting because of its speed and accuracy.
  1. Reduction in paper work
A manual accounting system requires large physical storage space to keep accounting records/books and vouchers/ documents. The requirement of stationery and books of accounts along with vouchers and documents is directly dependent on the volume of transactions beyond a certain point. There is a dire need to reduce the paper work and dispense with large volumes of books of accounts. This can be achieved by introducing computerised accounting system.
  1. Flexible reporting
The reporting is flexible in computerised accounting system as compared to manual accounting system. The reports of a manual accounting system reveal balances of accounts on periodic basis while computerised accounting system is capable of generating reports of any balance as when required and for any duration which is within the accounting period.
  1. Accounting Queries
There are accounting queries which are based on some external parameters. For example, a query to identify customers who have not made the payments within the permissible credit period can be easily answered by using the structured query language (SQL) support of database technology in the computerised accounting system. But such an exercise in a manual accounting system is quite difficult and expensive in terms of manpower used. It will still be worse in case the credit period is changed.
  1. On-line facility
Computerised accounting system offers online facility to store and process transaction data so as to retrieve information to generate and view financial reports.
  1. Scalability
Computerised accounting system are fully equipped with handling the growing transactions of a fast growing business enterprise. The requirement of additional manpower in Accounts department is restricted to only the data operators for storing additional vouchers. There is absolutely no additional cost of processing additional transaction data.
  1. Accuracy
The information content of reports generated by the computerised accounting system is accurate and therefore quite reliable for decisionmaking. In a manual accounting system the reports and information are likely to be distorted, inaccurate and therefore cannot be relied upon. It is so because it is being processed by many people, especially when the number of transactions to be processed to produce such information and report is quite large.
  1. Security
Under manual accounting system it is very difficult to secure such information because it is open to inspection by any eyes dealing withthe books of accounts. However, in computerised accounting system only the authorised users are permitted to have access to accounting data. Security provided by the computerised accounting system is far superior compared to any security offered by the manual accounting system.

Basic requirements of the computerised accounting system
The basic requirements of any computerised accounting system are the followings:
  1. Accounting framework
It is the application environment of the computerised accounting system. A healthy accounting framework in terms of accounting principles, coding and grouping structure is a pre-condition for any computerised accounting system.
  1. Operating procedure
A well-conceived and designed operating procedure blended with suitable operating environment of the enterprise is necessary to work with the computerised accounting system.


 CODIFICATION AND GROUPING OF ACCOUNTS:
Codification:

    The process involving collection and systematic arrangement of all accounting items relevant to the company either by subject or by the statutory provisions, rules, and regulations that govern the accounting system.
The major groups or heads could be Assets, Liabilities, Revenue Receipts, Capital Receipt, Revenue Expenditure, and Capital Expenditure.
The Codes are been classified to each section and grouping of accounts can be done effectively.A coded accounting system is more convenient where there are numerous
account heads and the complexity is high. A proper codification requires a systematic grouping of accounts.
The sub-groups or minor heads could be “Cash” or “Receivables” or “Payables” and so on. The grouping and codification is dependant upon the type of organization and the extent of sub-division required for reporting on the basis of profit centres or product lines. There could a classification based on geographical location as well.
Let us see an example about the codification process:
ASSETS
CASH (100-129)
101 Petty Cash
110 Main Cash
112 Cash at Bank
115 Cheques in hand
RECEIVABLES (130-139)
130 Debtors – Secured
132 Debtors – Unsecured
139 Other
INVENTORIES (140-179)
140 Stores and Spare Parts
150 Raw Materials
160 Work in progress
170 Finished Goods
 Here account codes were 3 digits for assets and liabilities and 4 digits for revenue and expenditure. However, many organizations prefer to have uniformly 4 digits.

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