Overview of Computerised Accounting System

Transcription

1 Chapter- 1 Overview of Computerised Accounting System Introduction A Computerized Accounting System is now a basic necessity and no longer a luxury among businesses of whatever orientation and size. In the past, accounting was done manually by business owners. The process proved time-consuming, cumbersome and prone to human error. There were also problems with storage and retrieval of information, consolidation and reporting of data etc. Computerized accounting systems have revolutionized the way businesses are conducted. They have enabled companies to draw a more accurate picture of their organization s financial performance and to make comparisons across places and periods of that performance A Computerised Accounting System (AIS) refers to the process of accounting with the help of Computers and Accounting softwares. It receives the transactions as its inputs and processes it as per the Accounting Rules and generates various types of reports as we require Data and Information Data is raw, unorganized facts that need to be processed. Data can be something simple and useless until it is organized. When data is processed, organized, structured or presented in a given context so as to make it useful, it is called information. A computer is an information processing machine. Computers process data to produce information. In Computerised Accounting System, It receives data from the Accountant in the form of transactions, processes the data and generates reports which are useful to the user. See the example given below:- Data Processing Information Mahesh's A/c Debited `.20,000 Mahesh's A/c Credited `.12,000 Sold goods to Mahesh `. 20,000 Received Cash from Mahesh `.12,000 Balance payable by Mahesh `.8,000 Every data may have different Data Element (Data item). For example, if a transaction is considered as Data, its Date, Account Name, Account Code, Amount etc can be said as Data Element. Salient Features of Computerised Accounting System (CAS) 1. Simple and Integrated Computerized accounting is designed to automate and integrate all the business operations, such as sales, finance, purchase, inventory and 1 P a g e

2 manufacturing. With Computerized accounting, accurate, up-to-date business information is available at the fingertips 2. 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. 3. Scalability The system can cope easily with the increase in the volume of business. It requires only additional data operators for storing additional vouchers 4. Instant Reporting: It is capable of offering quick and quality reporting because of its speed and accuracy 5. Security: This system is highly secured and the data and information can be kept confidential, when compared to manual accounting system 6. Quick Decision Making Generates real-time, comprehensive MIS reports and ensures access to complete and critical information, instantly. 7. Complete Reliability Computerised accounting makes sure that the critical financial information is accurate, controlled and safe from data corruption. Grouping of Accounts Grouping of Accounts is the process of classifying the ledger accounts and organizing them under major heads of accounts. The group of account determines where to place a particular ledger accounts under trading account, Profit and Loss A/c or Balance sheet. It helps in presenting summarized reports and information. Basically, there are four groups of accounts viz. Assets, Liabilities, Income and Expenditure. Reserved or Default Groups All accounting packages have pre-defined accounting groups. They are called reserved groups. Reserve groups can be studied under three heads. 1. Accounting Groups of Trading Account 2. Accounting Groups of Profit and Loss Account 3. Accounting Groups of Balance Sheet Accounting Groups of Trading Account Sales Account Direct Income Purchase Account Direct Expenses 2 P a g e

3 Accounting Groups of Profit and Loss Account Indirect income Indirect expenses Accounting Groups of Balance Sheet Liabilities Side Capital Account Reserves and Surplus Loans (Liability) Bank O/D Accounts Secured Loans Unsecured Loans Current Liabilities Sundry Creditors Duties and Taxes Provisions Assets Side Fixed Assets Investment Current Asset Cash in Hand Bank Account Sundry Debtors Stock in hand Deposits Loans and Advances (Asset) Miscellaneous Expenses Suspense Account Codification of Accounts Giving a numerical number or alphabet or both to a particular account for identification is known as Codification of Accounts. For example for the primary code '1' can be given to Asset, '2' to Liabilities, '3' to Income and '4' to Expenditure. Again for fixed assets the code can be given as 1.1 and the current assets can be coded as 1.2. Thus Building under Fixed Assets can be coded as and Furniture can be coded as 1.1.2, Cash Account can be coded as and so on Types of Codes Sequential Codes The code is sequential when each succeeding code is one number greater than the preceding code. These codes are primarily applied to source documents such as invoices, cheques etc 3 P a g e

4 Codes AC001 AC002 AC003 Accounts Arun Traders Goodluck Furnitures Rajendra Kumar Block codes In block code, a range of numbers is partitioned into a desired number of sub ranges and each sub range is allotted to a specific group. Codes Account Group Direct Expense Indirect Expense Direct Income Indirect Income In most of the block codes, accounts coming under a range follows sequential codes. For example in the above case Wages Account can be coded as '001', Carriage Inward as' 002', Salary as '501', Rent as '502' and so on. Mnemonic Codes A mnemonic code consists of alphabets or abbreviations as symbols to codify an Account. E.g. Salary Account can be coded as 'SLR', Building Account can be coded as 'BLD' and so on Methodology to develop coding structure Let us examine how to develop a coding structure for each of the students coming under Higher Secondary education department. First of all we have to design an hierarchy of the school system and attributes of the students. It can be as follows School Code Year of Admission Combination Code Admission No The coding for the students will be as follows based on the above consideration School Code 5 Digits Year of Admission 2 Digits Combination Code 2 Digits Admission No 4 Digits Thus, if we allocate a 13 digit code to a student who is studying in the school 11142, who got admission in the year 2015 in the combination commerce (39) with Admission No.3456, the code will be as follows Security Features of CAS Software Your business depends on its accounting software for its very existence. If data is lost or tampered you stand to lose time, money, business secrets etc. So every Accounting Software ensures Data Security, Safety and Confidentiality by providing the features like Password Security, Data Audit and Data Vault 4 P a g e

5 Password Security Password is the key to allow the access to the system. Computerised Accounting system protects the unauthorized persons from accessing to the business data. Only authorized person, who is supplied with the password, can enter to the system. Data Audit It enables one to know as to who and what changes have been made in the original data thereby helping and fixing the responsibility of the person who has manipulated the data and ensures data integrity. Data Vault Software provides additional security through data encryption. Encryption means scrambling the data so as to make its interpretation impossible Advantages of CAS Following are the advantages of Computerised Accounting System 1. Timely generation of reports and information in desired format. 2. Alterations and addition in transactions are easy and gives changed results instantly 3. Ensures effective control over the system 4. Economy in the processing of accounting data 5. Confidentiality of data is maintained. Limitations of CAS Following are the limitations of CAS Software 1. Faster obsolescence of technology necessitates investments in shorter period of time. 2. Data may be lost or corrupted due to power interruptions. 3. Data are prone to hawking 4. Un programmed or unspecified reports cannot be generated. Accounting Information System (AIS) Accounting information system and its various sub systems may be implemented through computerized accounting system. The sub system of AIS are briefly described below. 1. Cash and Bank Sub system It deals with the receipts and payments of cash. Both physical cash and electronic fund cash. 2. Sales and Accounts Receivable sub system it deals with recording of sales, maintaining of sales ledger and receivables. 3. Inventory sub system it deals with recording of different items purchased and issued specifying the price, quantity and date. 4. Purchased and Accounts payable sub system it deals with the purchase and payments to creditors. 5 P a g e

6 5. Pay Roll Accounting sub system It deals with payment of wages and salaries to employees. 6. Fixed Asset Accounting Sub system it deals with recording of purchases, additions, deletions and usages of fixed assets. 7. Expense Accounting Sub system - It records expenses under broad groups such as manufacturing, administrative, financial, selling and distributions and others. 8. Tax Accounting Sub System It deals with compliance of VAT, Excise, Customs and Income Tax Rules. 9. Final Account sub system It deals with the preparation of final Accounts. 10. Costing sub system It deals with the ascertainment of cost of goods produced. 11. Budget Sub system It deals with the preparation of budgets 12. Management information System (MIS) It deals with generation and processing of reports that are vital for management decision making. 6 P a g e