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Accounting is the method in which financial information is gathered, processed, and summarized into financial statements and reports.
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:
Every business has numerous processes. Some are simple, others complex and cumbersome. However, 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.
Problems Faced In Computerized Accounting System:
Advantages of Computerized Accounting:
Disadvantages of Computerized Accounting:
The various types of accounting software are:
This type of software is readily available in the market with prescribed and standard features. This accounting software is basically used by the small-size business enterprises, where the number of transactions is not so large. The cost of its installation and maintenance is also low. It has limited number of users. Its adaptability is very high as it is relatively easier to learn and operate. It does not have a wide scope to link it with other information systems.
Customized software is the software that has standardized features to meet the special requirements of the users. It provides the scope of changing the features of accounting software. The functions of this software can be programmed as per the needs and requirements of the users. This type of software best suits the needs of medium and large businesses. Its cost of installation and maintenance is comparatively higher. It can be easily Linked to the other information systems.
Tailored or Tailor-made accounting software is the software that is developed as per the specifications and requirements of the users. This accounting software is generally used in the Large business organizations with multi-users and geographically scattered locations. It is designed to meet the specific needs of the users and form an integral part of the organizational MIS. It has infinite number of users .
Advantages of Ready-made Accounting Software :
Disadvantages of Ready-made Accounting Software :
Advantages of Customised and Tailor-mad. Accounting Software :
Disadvantages of Customized and TaiLor-made Accounting Software :
The main difference between manual and computerized systems is speed. Accounting software processes data and creates reports much faster than manual systems. Calculations are done automatically in software programs, minimizing errors and increasing efficiency.
The Main difference is:
Speed : The main difference between manual and computerized systems is speed. Accounting software processes data and creates reports much faster than manual systems. Calculations are done automatically in software programs, minimizing errors and increasing efficiency. Once data is input, you can create reports literally by pressing a button in a computerized system.
Cost : Another difference between manual and computerized systems is cost. Manual accounting with paper and pencil is much cheaper than a computerized system, which requires a machine and software. Other expenses associated with accounting software include training and program maintenance. Expenses can add up fast with costs for printers, paper, ink and other supplies.
Backup : A third difference between manual and computerized systems is the ease of backup of a computerized system. All transactions can be saved and backed up, in case of fire or other mishap. You cannot do this with paper records, unless you make copies of all pages--a long and inefficient process.
Automatic Payments : When used synonymously with automatic payment plans, automatic bank drafts are a convenient and paperless means of paying bills whereby funds are debited from one account and credited to another.
ACH System : The Automated Clearing House computerized system processes electronic debit and credit transactions for financial institutions with the assistance of the Federal Reserve. Through the ACH system, funds are moved quickly from one account to another electronically with no paperwork.
Terminology : A business wanting to accept automatic bank drafts for ongoing regular payments or pay bills using automatic bank drafts can set up the process with the appropriate financial institution. Consumers offered this option to pay bills can then authorize the process and begin regular bank drafts to pay recurring bills.
Accounting refers to identifying transactions and events of financial nature, record them in the books of account and produce meaningful information for the users. Thus, the foremost function of accounting is to identify transactions and events of financial nature and record them in the books of account.
Accounting process means preparing vouchers for the transactions, writing them in the Journal, posting the recorded transactions in the Ledger Accounts,drawing Trial Balance and thereafter, preparing the Financial Statements, i.e.,Trading Account, Profit and Loss Account and Balance Sheet.
The accounting process, whether carried out manually or by use of computers generates accounting records such as Cash Book, Bank Book, Journal,Purchases Book, Sales Book, Ledger and Trial Balance. Besides the accounting records certain reports such as Payroll, Stock Report, Statutory Returns (VAT,CST, etc)., Debtors Report, Creditors Report and Exception Report., etc., are also prepared under both the method.
When the accounting is carried out by means of computers, the accounting process remains exactly the same except that posting of recorded transactions to the ledger accounts and also the totaling of individual accounts and drawing of trial balance is carried by the computers with the help of softwares.
An example of Operating Software is "Windows", "Windows XP" and "Windows Vista" etc. Accounting function is carried out utilizing accounting software. Accounting softwares fall in the category of "Application Softwares". The end product of accounting process is producing financial statements, i.e., Trading, Profit and Loss Account and the Balance Sheet and the accounting softwares are so designed that the financial statements are produced by the system itself. A credible financial statement can be prepared if the accounting concepts and principles are followed. It necessarily means capital expenditure and capital income or receipts be transferred to Balance Sheet while revenue expenditure and revenue incomes be transferred to Trading, Profit and Loss Account. This objective of accounting can be achieved when the account heads are defined in a manner that capital expenditures and capital incomes form part of the Balance Sheet under appropriate main head. Similarly, revenue expenditure and revenue incomes form part of the Trading, Profit and Loss Account. The process by which this objective is achieved is known as "Grouping of Accounts".
The process of "Grouping of Accounts" is carried out by giving a code to each main head, sub- heads and thereafter individual account heads. Code of the main head signifies whether the account is an item belonging to assets, liabilities, expenses or incomes. Code of the sub-head signifies the head under which individual account head will appear. Account if wrongly coded, will lead to errors of principle whereby an item of liability may be treated as income and vice versa. Similarly, an item of asset may be treated as expense and vice versa. The financial statements prepared without rectifying such errors will reveal incorrect financial results and position.
Therefore, extreme caution needs to be exercised when grouping of accounts is done and also when the transaction is recorded using computers.
It is essential to consider some factors before sourcing an accounting software, i.e.,
1. Flexibility – A computerized accounting system must be flexible in respect of data entry, retrieval of data and generating designs of report. The user should be able to run the software on a variety of computer environments and machines, that is, on any configuration of computers and available operating systems.
2. Cost of Installation and Maintenance – It is a must to consider that the cost of the accounting software, its relevant hardware and the maintenance, cost of addition of modules, training of staff, updating of versions and data recovery in case of data failure are negotiable and within the ability of the organization to afford it.
3. Size of organization – An accounting system must be according to the size of the organization, i.e., volume of business transactions,multi – user requirements.
4. Ease of Adaptation and Training Needs – some accounting softwares are user – friendly and require a simple training to the users. However, some other complex software packages, linked to other information systems, require intensive training on a continuous basis. The software must be capable of attracting users.
5. Expected Level of Secrecy (Software and Data) – Security features of an accounting system software are also important. Software should ensure that it prevents unauthorized access and manipulation of data. In tailored software,the user rights may be restricted according to the departments and their relevant accounting software functions.
6. Exporting/Importing Data Facility – The software should allow easy data transfer option for flexible reporting, such as transfer of information directly from the ledger into the spreadsheet software like Lotus or Excel
The term ‘ Customised Software’ means making changes in the readymade software to suit the specific requirements of the user, i.e., making it user – specific. The software available off-the-shelf is modified to suit the requirements of the user. For example, the design of the invoice is changed to the specifications of the user. The developer, to meet specific user requirements, can modify all the readymade softwares.
The term ‘Tailor – made software’ refers to designing and developing user –These softwares, being user – specific, are not available off – the shelf but are developed to meet the requirement of the user on the basis of discussion between the users and the developers.
Readymade softwares are the softwares that are developed not for any specific user but for the users in general. Since, the readymade softwares are for general user, it is not necessary that all the modules of such softwares are of use for every user. It is likely that a particular module says ‘Payroll’ may ndot be used because the enterprise has very few employees.
The four basic requirements of database applications are
Ready-to-Use Accounting Software :
Tailored Accounting Software :
Need for Computerized Accounting:
The need for computerized accounting arises from advantages of speed, accuracy and lower cost of handling the business transactions.
Numerous Transactions: The computerized accounting system is capable of large number of transactions with speed and accuracy.
Instant Reporting: It is capable of offering quick and quality reporting because of its speed and accuracy.
Reduction in Paper Work: Manual accounting system requires large storage space to keep accounting records/books, and vouchers/documents. The requirement of books and stationery and books of accounts along with vouchers and documents is directly dependent on the volume of transactions beyond certain point.
There is a dire need to reduce the paper work and dispense with large volume of books of account. This can be achieved with the help of computerized accounting system.
Flexible Reporting: The reporting is flexible in computerized accounting system. It is capable of generating reports of any balance as when required and for any duration which is within the accounting period.
Accounting Queries: There are accounting queries, which are based on some external parameters. For example, a query relating to overdue customers’ accounts can be easily answered by using the structured query language [SQL] support of database technology in the computerized accounting system. Such an exercise would be quite difficult and expensive in manual accounting system.
Online Facility: Computerized accounting system offers online facility to store and process transaction data so as to retrieve information to generate and view financial reports.
Accuracy: The information and reports generated are accurate and quite reliable for decision-making. In manual accounting system, as many people do the job and the volume of transactions is quite large, such information and reports are likely to be distorted and unreliable and inaccurate.
Security: This system is highly secured and the data and information can be kept confidential, when compared to manual accounting system.
Scalability: The system can cope easily with the increase in the volume of business. It requires only additional data operators for storing additional vouchers.
Computerized payroll accounting systems allow you to process all your normal payroll tasks via a computerized system, rather than by hand. Essentials like name, address, Social Security number and withholding rate for each employee are automatically filled in for every pay period until you make an employee’s record inactive. Many different vendors offer computerized payroll systems. Like different word processors or other computer programs, they largely offer the same types of features with slightly different interfaces.
Computerised Accounting Related Interview Questions
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