COMPUTERIZED ACCOUNTING

Accountants measure a business entity's income, expenses and changes

resources. Back in the day, prior to the widespread use of spread sheet
and computer applications, Accountants used journals and ledgers in
which they recorded business transactions. Hence the term, keeping the
books.

As computer applications became main stream, this keeping of the books

Accountants do, has gradually migrated into computerized spreadsheets

Gradually, Accounting systems dedicated to this function were developed

and the term Computerized Accounting was born.

Computerized accounting systems are important to businesses in various

ways.

The use of computers is time-saving for businesses and all financial

information for the business is well-organized.
 1. The Accounting System
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.

Information processes include:

Recording
Maintaining
Reporting

Every business has numerous processes. Some are simple, others

complex and cumbersome. But as the business grows, acquires new
customers, enters new markets and keeps pace with constant
changes in statutory regulations ... ... ... the company will need to
maintain highly accurate and up-to-date accounting, inventory and
statutory records.

This is where a computerized accounting helps simplify, integrate,

and streamline all the business processes, cost-effectively and
easily.
 2. Salient Features of Computerized accounting
2.1. 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.

2.2. 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.
2.3. 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.

2.4. 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.

2.5. Scalability
Computerized accounting adapts to the current and future needs of the
business, irrespective of its size or style.

2.6. Power
Computerized accounting has the ability to handle huge volumes of
transactions without compromising on speed or efficiency.
2.7. For 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.

2.7. Quick Decision Making

Generates real-time, comprehensive MIS reports and ensures access to
complete and critical information, instantly.

2.8. Complete Reliability

Computerized accounting makes sure that the critical financial information is
accurate, controlled and safe from data corruption.
3. Advantages of Computerized accounting
Automation of tedious clerical jobs
Speed and accuracy
Low cost of packages
Automatic generation of standard reports
Redundant data storage permits efficient generations of some reports
Increase revenue while lowering operating costs and enhancing
competitive advantage of the company.

4. Disadvantages of Computerized accounting

Transactions orientation only
Periodic not real time reporting
Limited flexibility for ad hoc reports
Codification and Grouping of
Accounts
 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
 Significance / Need for codification

Speed
Unambiguity
Saving of efforts
Space saving on forms
Ease of classification,
Mechanization
 Benefits
Accurate and logical identification.
Avoidance of Long and unweilding description.
Prevention of duplication.
Product Simplification.
Efficient Purchasing.
Minimizing of clerical work.
Efficient Purchasing.
Accurate ane reliable accounting and recording.
Easier computerisation.
Better alternative selection
Simplifies Costing
 Special Characteristics
Simple
Brief
Flexible
Unique
Layout should be easy to handle
Self Decoding
Objective Oriented
 Characteristics of Codes

Code should be Simple.

Code should be unique.
Coding should be compact, concise and
consistent.
Code should be sufficiently flexible to meet
future demands
 What is the Codification?
The source of authoritative US GAAP recognized by FASB to be
applied by all nongovernmental entities

An effort to reduce the complexity of accounting standards

and to facilitate international convergence.

The effort resulted in a major restructuring of accounting

and reporting standards.

Level AD U.S. GAAP (previously issued by a standard setter)

was codified into a topically organized format (approximately
90 topics).
 It is NOT intended to change U.S. GAAP.

It supersedes existing sources of U.S. GAAP, and any prior sources of

U.S. GAAP not included in the Codification or grandfathered are not
authoritative.

It is the authoritative source for U.S. GAAP in addition to guidance

issued by the SEC.

It eliminates the four prior levels of the U.S. GAAP hierarchy (for
nongovernmental entities) and instead integrates U.S. GAAP in
which all guidance carries an equal level of authority.
Financial Accounting and Accounting Standards

Financial Generally
Issues in
Statements and Parties Involved in Accepted
Financial
Financial Standard-Setting Accounting
Reporting
Reporting Principles

Accounting and Securities and FASB Codification Political

capital allocation Exchange environment
Commission
Objectives Expectations gap
American Institute
Need to develop Financial reporting
of CPAs
standards challenges
Financial
International
Accounting
accounting
Standards Board
standards
Changing role of
Ethics
the AICPA
 Financial Statements and Financial Reporting

Essential characteristics of accounting are:

(1) the identification, measurement, and communication

of financial information about

(2) economic entities to

(3) interested parties.

LO 1 Identify the major financial statements and other means of financial reporting.
 Financial Statements and Financial Reporting

Economic Entity Financial Statements Additional Information

Financial Balance Sheet Presidents letter

Information
Income Statement Prospectuses
Accounting?
Statement of Cash Reports filed with
Identifies Flows governmental
and agencies
Statement of
Measures Owners or News releases
and Stockholders
Forecasts
Equity
Communicates Environmental
Note Disclosures
impact statements
GAAP Etc.

LO 1 Identify the major financial statements and other means of financial reporting.
 Why Codify U.S. GAAP?
Constituent concern was that U.S. GAAP was
overly confusing and difficult to research.
Multiple types of standards, multiple standard
setters, multiple indexing schemes, and
different levels of authority made it difficult to
ensure completeness of all relevant guidance
and accuracy of its application to an
accounting issue.
 Goals of the Codification
Simplify user access to all authoritative U.S.
GAAP
Reduce the amount of time and effort
required to solve an accounting research issue
Mitigate the risk of noncompliance with
standards through improved usability of the
literature
Provide accurate information with real-time
updates as new standards are released
Year Authority Official Release
1934 Congress
SEC Regulation S-X
ASR and FRR
Staff Accounting Bulletins
1938 Accounting Profession
AICPA
1938-1959 CAP ARBs (51)
1959-1973 APB APB Opinions (31)
1973 FASB . 1. Statement of Financial
Accounting Standards
2. Interpretations
3. Concepts of Financial
Accounting
4. Technique Bulletins/Staff P.
5. Abstracts issued by EITF24
Environment and Theoretical Structure of
Financial Accounting
24
 GAAP
(General Accepted Accounting Principles)
Accounting methods having substantial
authoritative support and used by business
entities in preparing financial statements.
Generally Accepted Accounting Principles (GAAP) in
United States

Major Sources of GAAP

Securities and Exchange Commission (SEC)
American Institute of Certified Public Accountants (AICPA)
Financial Accounting Standards Board (FASB)
 U.S. GAAP (contd.)
Includes:
1. FASB statements (1973 - Present)
2. FASB Interpretations ( 1973 - Present)
3. APB Opinions (1959 - 1973)
4. APB Interpretations (1959 - 1973)
5. CAP, ARBs (1938 - 1959)
6. Other Authoritative Pronouncements (i.e., ASR & FRR
of the SEC, Technique Bulletins/Staff Positions of FASB,
and Staff Acct. Bulletins of the SEC, Abstracts of EITF,
SOP of the AICPA, etc.)
 FASB Accounting Standards Codification (ASC)
(Source: SFAS 168)
Effective July 1, 2009, FASB Accounting Standards
Codification became the single source of authoritative,
nongovernmental US GAAP.
The pronouncements of the SEC are also sources of
authoritative GAAP for SEC registrants.
All other non-grandfathered, non-SEC accounting
literature NOT included in the Codification will be non-
authoritative.
The Codification does not change GAAP but only the way
the existing accounting standards are organized.
ACCOUNTING PACKAGES
 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 Entry screens provide add,
modify or delete options
Petty Cash Voucher Entry and also special options
Journal Entry like date modification and
voucher number
Purchase Order, GRN, Bill, Purchase return Entry modification in some s/w
Sales Order, Challan, Invoice, Sales Return Entry
Debit Notes and Credit Notes Entry
Cash Sales & Purchase Memos
Production , Consumption and Stock Transfer
 List of Reports
Following reports are common to most s/w:

Cash Book General Ledger

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
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
 BUSY
It is an integrated business accounting
software for small & medium bunnies.

Busy is known for its simplicity & reliability. It

is available in Singly User (Desktop), Multi-
user (LAN) and Client server (MS-SQL based)
editions.
 Financial
Accounting Multi
(Multi Location
Payroll Currency) Inventory
Manageme
MIS nt
Production
reports
/ Bill
and
materials
Analysis

Direct e- Sales and

The
mail / SMS purchasing
Salient
facility work.
Features
of BUSY
are
Fully User
Service Tax
/ TDS / FBT configurabl
e Invoicing
User
Mfg. / Configurab
Training le
Excise VAT Documents
Registers reports / Sales Tax / State-
Registers Reports / wise
(State- Registers
wise)
 TALLY
The Software used for computerized accounting system at
present is known as Tally.

The significance of tally are:-

Helps for the full control over every aspect of accounting system
of a company.

Provides instant results about the financial status of the business.

One need not wait for many days to ascertain the financial status.

Provides all details on the debtors and creditors.

Data tampering is impossible through high security system for

keeping the data related to different aspect of accounts.
 Flexible system so that it can be adjusted as per
the change in the system of functioning of a
business unit.

Helps in Open Database Connectivity. Due to this,

data can be exchanged from one programme to
another.

Possible to publish reports and documents

through Internet (www.) or intranet.

Possible for e-mailing of reports and documents.