Fundamentals of Accounting Computers in Accounting and Management 17. Introduction to Computers in Accounting Today, computers play an important role in just about every aspect of business especially in the field Accounting. Normally, the calculations that were done using calculators, paper and pen can now be done much more quickly and accurately using appropriate computer software.
17.0 Objectives After going through this lesson, you will be able to: • • • •
Understand the role of computers in Accounting Understand the computersied accounting system process Execute accounting procedures in a computersied environment Select right accounting software
17.1 Introduction In this era of information technology, computers systems are becoming more & more powerful as a tool for providing information. Accounting is no exception to this. Computers are playing an ever increasing role in data processing, data analysis and preparation of financial statements etc. with incredible speed and accuracy.
17.2 Role of Computer in Accounting Computers play a very significant role in the modern competitive business environment. To survive and grow it is utmost necessary that business operations are performed effectively and efficiently at faster speeds. The use of spreadsheets, database and word processors help businesses significantly improve productivity and efficiency. While word processor is most commonly used for drafting documents, reports, statements etc., database management is a tool for planning and controlling business activities. Spreadsheets are mainly used as a financial tool. The use of computers not only improves flow of information, it also eliminates duplication of data. Further it is being increasingly put to use for controlling stock, projecting cash flows, improving customer relations and analysis of sales, costs and credit.
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In the current business scenario the entire accounting process can be performed on computers. The usual aspects of accounting where computers are increasingly being used are: •
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Recording of business Transactions: Computers are being used to record day-to-day business transactions. With diversification of business activities and a subsequent increase in the number of business transactions, manual entry is becoming too labour and time intensive. Further data recorded on computers are readily available and can be used by the management for planning, decision-making, and controlling business activities General Ledger: The general ledger accounts can be prepared and updated in no of time once the details of the transactions have already been recorded onto the computer Debtors Ledgers: Computer can be used effectively in maintaining the records of various debtors and updating them. Current status of debtors account can be readily made available from this ledger. List of outstanding debtors, collection, debtor analysis and issuing reminders for speedy collection of amount is also possible Stores Ledger: Computers are very useful in stock taking. They are being effectively used for maintaining the stores record. Computers can provide ready information about possession of different items in the store along with details of receipts and issue of various items. It thus helps in effective stock control Credit Ledger: Use of computers help in obtaining information regarding status of accounts of creditors for raw material and finance. It provides information about when and how much amount is due to creditors and enables the business to meet its obligations on time Salary Ledger: Computers are now being widely used in preparing payrolls (salary register). Salary statement of large number of employees can be easily maintained through payroll accounting softwares. It helps the employer not only calculate the salary but also helps in making various deductions such P.F., ESI, Life Insurance, Loans and tax etc.
17.3 Manual vs. Computerised Accounting System Process The following flow charts helps in understand the accounting system process adopted in manual & computerized accounting. 17.3.1 Manual Input Recording of transaction in Journal & Subsidiary
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Process Application of Accounting Principles
Output Financial Statement and various Reports
Book-Keeping
Accounting
17.3.2 Computerised
Recording of transactions in computer with data entry
Preparation of Accounts based on the accounting software’s
Computerised Bookkeeping
Financial Statement and generation of various Reports
Computerised Accounting
17.4 Implementation of Accounting in Computerised Environment Computerisation of accounts requires both hardware and software. Hardware comprises of the machine i.e. a computer system whereas software is that set of instructions which brings about the desired results. Accounting softwares can be classified as: • •
Bespoke Software Commercial Software Bespoke softwares are tailor made software i.e. they are developed keeping in mind the specific requirements or need of an organization. Bespoke softwares are generally costly. Commercial Software: There are various general purpose accounting softwares available in the market which can be used by organizations. These general purpose softwares are called Commercial Software. One such very popular software is Tally, about which you will learn in greater detail in the subsequent lesson. Accounting softwares allow for transferring the monotonous work of recording repetitive transaction to computers. Computers perform the job of recording the transactions at high speed on which all arithmetical and logical operations can then be performed. The other features of computer are the high degree of accuracy with which it can perform various operations. Further computers can work continuously with same level of efficiency and thus provide error-free operation with a high degree of reliability. However computers perform the task according to what they are programmed to perform. If there is any problem related to instruction or data input, it will carry the effect to the final output. Hence while developing accounting softwares, attention should be focused on security checks which should be built into the software in order to prevent faulty outputs.
Tally is the registered trademark of Tally Solutions FZ LLC. 3
17.5 Selection of Accounting Software for Business: Large organization’s which are financially sound get accounting software, developed according to their own requirements. However, in case of small business firms, which are not financially strong, or where accounting information needs are limited may rely upon the readily available commercial software solutions. Careful consideration to the following points should be paid while selecting software for accounting: • • • • • •
Identify the requirement of the business unit Identify the system & right vendor who is able to provide after sales support Identify features missing in the software and satisfy whether they are required for organization or otherwise look to enhance the utility of the package Pilot installation should be carried out in supervision of the vendor. The entire package should be examined with sample data to find if any problems exist The staff should be provided adequate training on the package Install the system & obtain its results
17.6 Advantages & Limitations of Computerised Accounting Advantages • • • •
Routine accounting functions are performed at much faster speed than possible under manual accounting The scope of errors is less in computerized accounting hence there is greater degree of accuracy It is very useful in generating custom designed reports of various nature which can help management to discharges their functions more effectively Computerized systems can draw attention towards alarming positions if there are inbuilt security features for e.g. increasing bad-debts, deteriorating stock levels etc. Limitations
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The computerized systems, if not properly developed & checked can provide misleading information Security of data is a big concern in computerized accounting. It is much easier to manipulate data than in case of manual entry Computer programmes cannot check the reasonableness or unreasonableness of data
Self-Check Questions Answer True or False 1. Computerised accounting system doesn’t follow the principles of accounting system 2. Small business enterprises should buy a Bespoke software for solving their accounting problems Fill in the Blank 3. Computers perform the task according to what they are ________ to perform
17.7 Summing Up When accounts are recorded with the help of computers, it is called computerized accounting or mechanized accounting. These systems are becoming popular day by day all over the globe. In India also, the cost of computerization of accounting records has been gradually declining resulting in the widespread usage of computers in small and large business organizations. Computer programmes help in recording of business transactions properly with the application of accounting principles.
17.8 Answers of Self-Check Questions 1. False 2. False 3. Programmed
17.9 Terminal Questions 1. 2. 3. 4. 5.
Distinguish between manual accounting & mechanized accounting Distinguish between Commercial & Bespoke Software What are the things to be kept in mind while selecting good software? Discuss the advantages and disadvantages of computerized accounting Enumerate the role of computer in accounting
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17.10 Suggested Further Readings 1. Ashok Sehgal & Deepak Sehgal, Financial Accounting 2. P.C. Tulsian, Financial Accounting, Tata McGraw Hill Publication 3. M.C. Khandela; M.Jain, Accounting Today & Tomorrow, Arihant Publication House
17.11 Glossary • •
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Bespoke Software: tailor made system i.e. developed as per the specific requirements or need of the organization Commercial Software: various general purposes accounting software which are available in the market and can be used by any organization