Significance of Computerised Accounting System- Codification and Grouping of Accounts- Maintaining the hierarchy of ledgers- Prepackaged Accounting software

1. ACCOUNTING
FOR
MANAGEMENT
Dr.N.Ramesh Kumar
Associate Professor- MBA
NIET

2. Unit-5:
ACCOUNTING IN COMPUTERISED
ENVIRONMENT
Significance of Computerized Accounting
System- Codification and Grouping of
Accounts- Maintaining the hierarchy of ledgers-
Prepackaged Accounting software
.

3. What is Computerized
Accounting System?
• Computerized accounting systems are
software programs that are stored on a
company’s computer, network server, or
remotely accessed via the Internet.
• Helps to analyze the company’s operations,
efficiency, and profitability.
• Most importantly, firms prepare its reports as
per Generally Accepted Accounting
Principles (GAAP) under this system.

4. 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.

5. Features of Computerised
Accounting System
1. Very neat and accurate work
2. Need for less clerical work
3. Cost and time efficient
4. Less possibility of errors and omissions
5. Complete Visibility & Scalability
6. For quick decision making & improved
Business Performance

6. 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.

7. Role / Benefits / Advantages
• Better Quality Work
• Lower Operating Costs
• Improved Efficiency
• Facilitates Better Control
• Greater Accuracy
• Relieve Monotony
• Facilitates Standardization
• Minimizing Mathematical Errors

8. Limitations / Disadvantages
• Security / Integrity / Virus / Hacking
• May lead to unemployment
• High cost of installation
• Requires special skills for operation
• Frequent repairs
• Frequent power failures

9. 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

10. Codification and Grouping of
Accounts
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.

11. Coding Procedure

12. 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

13. Maintaining the
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

14. Maintaining Hierarchy of Ledgers
• 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

15. Prepackaged Accounting
Software
•Maintained by using a spread sheet
package,
•Pre-Packaged Accounting Software
Customized Accounting Software
•ERP

16. 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

17. 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

18. List of Master Files
Typically, any standard prepackaged s/w will have
the following master file screens:
1. Company master file
2. Accounts master file
3. Sub ledger master file
4. Customer master file
5. Vendor master file
6. Product master file

19. 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

20. 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

21. 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.

22. 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

23. 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

24. 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.

25. 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.

26. 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

27. 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