U 4

PART 2
Accounting software packages

What are accounting software packages?

Accounting software manages and records the day-to-day financial
transactions of an organization, including fixed asset management,
expense management, revenue management, accounts receivable, accounts
payable, subledger accounting, and reporting and analytics.

name three accounting software packages

FRESHBOOKS
ZOHOBOOKS
QUICKBOOKS
XERO
NEAT

The accounting packages are classified into the following categories :

(a) Ready to use
(b) Customised
(c) Tailored

Basis Ready to use Customised

Tailored
----- ----------- ----------
---------

Nature of business Small, conventional Large, medium Large,

typical
business business
business

Cost of installation and Low Relatively high

High
maintenance

Expected Level of secrecy Low Relatively high

Relatively high
(Software and Data)

Number of users and Limited As per

Unlimited
their interface specifications

Linkage to other Restricted yes

Yes
information system

Adaptability High Relatively high

Specific

Training Low Medium

High
requirements
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Role Of Computers In Accounting
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One of the earliest applications of the computer in accounting was
for the purpose of processing of a pay roll in the U.S.A. Later on,
computer application extended to sales transactions which involve the
invoicing, billing and updating of customers accounts. Posting to
customer’s ledger for transactions taking place frequently is done
by computers at the touch of a button. Computers play an important
role in maintaining up to date inventory records so that management
can take quick decisions to get suppliers without obstructing the
productions process or supply to its customers. The preparation of
the trail balance and then financial statements – balance sheet and
income statement – requires the processing of innumerable business
transactions. The business transactions are recorded, analyzed and
summarized through computers with speed and without error. The only
requirement is that data and instructions are fed to the computer by
knowledgeable person.
In the field of financial accounting, the roles of computers involve:
a) Preparation of sales ledger e.g., Debtors’ accounts.
b) Preparation of purchases ledger, i.e., accounts of suppliers.
c) Preparation of general ledger e.g., accounts of income and expenses, cash
account etc.
d) Processing and maintaining pay rolls.
e) Maintenance of stock records.
f) Classification of business transactions through sorting, merging and
updating.
g) Preparation of trial balance.
h) Preparation of trading and profit and loss accounts and the balance sheet.

Grouping of accounts
In any organisation, the main unit of classification is the major head which is
further divided into minor heads. Each minor head may have number of sub-heads.
After classification of accounts into various groups namely, major, minor and sub-
heads and allotting codes to each account these are programmed into the computer
system.

A proper codification requires a systematic grouping of accounts. The major groups

or heads could be Assets, Liabilities, Revenues and Expenses. The sub- groups or
minor heads could be capital, non-current liabilities, current assets, sales and so
on.*****
A computerised accounting system
is an
accounting information system that processes the financial
transactions and events as per Generally Accepted
Accounting Principles (GAAP) to produce reports as
per user requirements. Every accounting system,
manual or computerised, has two aspects. First, it
has to work under a set of well-defined concepts
called accounting principle of Computerised Accounting System

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SIGNIFICANCE/IMPORTANCE OF Computerised accounting system

• Speed : Accounting data is processed faster by using a computerised

accounting system than it is achieved through manual efforts. This is because
computers require far less time than human beings in performing a task.
• Accuracy : The possibility of error is eliminated in a computerised
accounting system because the primary accounting data is entered once
for all the subsequent usage and processes in preparing the accounting
reports. Normally, accounting errors in a manual accounting system occur
because of repeated posting of same set of original data by several times
while preparing different types of accounting reports.

• Reliability : The computer system is well-adapted to performing repetitive

operations. They are immune to tiredness, boredom or fatigue. As a result,
computers are highly reliable compared to human beings. Since computerised
accounting system relies heavily on computers, they are relatively more reliable
than manual accounting systems.

• Up-to-Date Information : The accounting records, in a computerised

accounting system are updated automatically as and when accounting
data is entered and stored. Therefore, latest information pertaining to
accounts get reflected when accounting reports are produced and printed.
For example, when accounting data pertaining to a transaction
regarding cash purchase of goods is entered and stored, the cash account,
purchase account and also the financial statements (trading and profit and
loss account) reflect the impact immediately.

Storage and Retrieval : The computerised accounting system allows the

users to store data in a manner that does not require a large amount of
physical space. This is because the accounting data is stored in
hard-disks, CD-ROMs, floppies that occupy a fraction of physical space
compared to books of accounts in the form of ledger, journal and other
accounting registers. Besides, the system permits fast and accurate
retrieval of data and information.

• Efficiency : The computer based accounting systems ensure better use of

resources and time. This brings about efficiency in generating decisions,
useful informations and reports.
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Features of a Computerized Accounting System:

1. Data Security: A computerized accounting system allows users to
store their data in a central location. In this way, if any piece
of paper that contains valuable information is lost, no one is at risk
of having their information stolen. All the data is hence stored at a
central location.

2. Improved Reporting: In Accounting software, various things are

automated, and very less things are recorded manually. This helps in
improving reporting of transactions and statements.

3. Accuracy and Speed: The automation of accounting processes with the

help of various accounting software ensures that accounting work is done
fast and accurately.

4. Scalability: Computerized Accounting system is so flexible as to

accommodate the changing business volume.

5. Quick Decision Making: Since a computerized accounting system generates

real-time information, managers are quick to come up with instant
decisions or solutions to a particular problem.
6. Advanced Features: While some accounting software is designed for
sole proprietors and small business owners, others are tailored for
larger enterprises. If the business is operated at a large scale, you
may want to consider a computerized accounting system that comes with
features like inventory management and multiple user access.

7. Reliability: A computerized Accounting system produces standard and

accurate accounting information consistently.

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Grouping of accounts
-----------------------
In any organisation, the main unit of classification is the major head which is
further
divided into minor heads. Each minor head may have number of sub-heads.
After classification of accounts into various groups namely, major, minor and sub-
heads
and allotting codes to each account these are programmed into the computer system.

A proper codification requires a systematic grouping of accounts. The major groups

or heads
could be Assets, Liabilities, Revenues and Expenses. The sub- groups or minor heads
could be capital,
non-current liabilities, current assets, sales and so on.

CODIFICATION OF ACC
-----------------------
Code is an identification mark. Generally, computerised accounting involves
codification of accounts.
Codification of accounts is needed where there are numerous accounts heads in an
organisation.
There is a hierarchical relationship between the groups and its components. In
order to maintain
the hierarchical relationships between a group and its sub-groups, proper
codification is required.

The coding scheme of account heads should be such that it leads to grouping of
accounts at various
levels so as to generate various reports.

Methods of codification
Following are the three methods of codification.

a. Sequential codes
In sequential code, numbers and/or letters are assigned in consecutive order. These
codes
are applied primarily to source documents such as cheques, invoices, etc. A
sequential code
can facilitate document search. For example:

Code Accounts

CL001 ABC LTD

CL002 XYZ LTD

CL003 SCERT

b. Block codes
In a 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. In most of the cases of block
codes, numbers
within a sub-range follow sequential coding scheme, i.e., the numbers increase
consecutively.
For example:

Code Dealer type

100 – 199 Small pumps

200 – 299 Medium pumps

300 – 399 Pipes

400 – 499 Motors

c. Mnemonic codes
A mnemonic code consists of alphabets or abbreviations as symbols to codify a piece
of
information. For example:

Code Information

SJ Sales Journals

HQ Head Quarters
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ACCOUNTING REPORT

What is an accounting report?

An accounting report is a financial report that a company files to show its past
and present
financial situation. With this report, businesses and financial analysts can also
predict
their financial situation in the future more easily.

An accounting report might include information from every part of the business, or
it might
only focus on a small goal, such as determining which department uses the most
cash flow.
Many businesses that closely follow their finances report accounting at least once
per month.
They might even do it more often, particularly if they are pursuing company-wide
goals related
to finances.

There are three common types of accounting reports:

Income statement
Cash flow statement
Balance sheet

With these reports, a company can see its financial status over time as well as at
one
specific snapshot in time. All accounting reports should follow Generally Accepted
Accounting
Principles (GAAP) as established by the Financial Accounting Standards Board
(FASB).
3 types of accounting reports
Accounting reports come in different forms depending on what information a company
needs to know. Below are three common types of accounting reports:

1. Income statement
An income statement is a report that details overall expenses and revenue to
determine a
company's overall net profit. Sometimes an income statement is called a profit-and-
loss report.

To prepare an income statement, accountants use data from ledgers and accounting
journals.
The statement includes both primary and secondary sources of income to get an
accurate number.
Similarly, primary and secondary expenses are included in the income statement.

2. Cash flow statement

A cash flow statement shows where cash is coming from (cash flow sources) and where
cash
is going (cash flow expenditures). This helps a business see how well they are
generating cash.
Executives and decision-makers can use this report to see where cash is coming
from and then
where it is going, which could include:

Business operations
Financing
Investments
A cash flow statement measures the cash flow between two dates. To prepare a cash
flow statement,
an accountant looks at the cash flow in every account, which may include equity
accounts,
liability accounts, expense accounts, revenue accounts and asset accounts.

3. Balance sheet
A balance sheet shows an ending balance at one specific point in time.
It often includes balances for assets, liability and equity. The balance sheet
gives the business an opportunity to evaluate its financial reserves as well as
liquid assets.
It also helps potential investors or lenders see the financial state of the
company.

Typically, a business sets an accounting cycle, and someone prepares a balance

sheet at the end
of each cycle. Like an income statement, data for a balance sheet comes from the
ledger.