Bachelor of Commerce

(B.COM)

BCO-11
Computerised Accounting & E-Filing of Tax Returns

Block-1
Computerised Accounting Package

UNIT 1 Computer and computerised accounting System

UNIT 2 Electronics Spreadsheet

UNIT 3 Use of Spreadsheet in Business Application

Material Production

Dr. Jayanta Kar Sharma

Registrar
Odisha State Open University, Sambalpur

© OSOU, 2017. Computerised Accounting Package

is made available under a Creative Commons Attribution-Share
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Printed by : Shri Mandir Publications, SahidNagar, Bhubaneswar

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UNIT – I COMPUTER AND COMPUTERIZED ACCOUNTING
SYSTEMS

Structure
1.1 Meaning of Computerized System
1.2 Manual vs. Computerized Accounting
1.3 Benefits of Computerized Accounting
1.4 Role of Computers in Accounting
1.5 Installation of a Computerized Accounting System
1.6 Limitations of Computerised Accounting System
1.7 Accounting Packages
1.8 Source Document
1.9 Cash Memo, Invoice/Bill, Receipt
1.10 Types of Vouchers
1.11 Voucher Entry
1.12 Let‘s Sum-Up
1.13 Key Terms
1.14 Self-Assessment Questions
1.15 Further Readings
1.16 Model Questions

1.0 LEARNING OBJECTIVES

After reading this chapter, the students should be able to know:

• Understand the meaning and relevance of computerized accounting system
• Discuss the difference between manual and computerized system of
accounting
• Elaborate the utility of computerized accounting system
• Know the procedure, formalities and limitations associated with installation
of a computerized accounting system

1.1 MEANING OF COMPUTERIZED SYSTEM

A computerized accounting system is a system used by businesses for recording

their financial information. Many systems are available and companies look for a
system to match their needs. A computerized 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
principles. Another, that there is a user -defined framework for maintenance of
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records and generation of reports. In a computerised accounting system, the
framework of storage and processing of data is called operating environment that
consists of hardware as well as software in which the accounting system, works.
The type of the accounting system used determines the operating environment. Both
hardware and software are interdependent. The type of software determines the
structure of the hardware. Further, the selection of hardware is dependent upon
various factors such as the number of users, level of secrecy and the nature of
various activities of functional departments in an organisation.

Take the case of a club, for example, where the number of transactions and their
variety is relatively small, a Personal Computer with standardised software may be
sufficient. However, for a large business organisation with a number of
geographically scattered factories and offices, more powerful computer systems
supported by sophisticated networks are required to handle the voluminous data and
the complex reporting requirements. In order to handle such requirements, multi-
user operating systems such as UNIX, Linux, etc. are used.

Modern computerised accounting systems are based on the concept of database. A

database is implemented using a database management system, which is define by
a set of computer programmes (or software) that manage and organise data
effectively and provide access to the stored data by the application programmes.
The accounting database is well-organised with active interface that uses accounting
application programs and reporting system. Every computerised accounting system
has two basic requirements;

(i) Accounting Framework: It consists a set of principles, coding and grouping

structure of accounting.
(ii)Operating Procedure: It is a well-defined operating procedure blended suitably
with the operating environment of the organisation.
The use of computers in any database oriented application has four basic
requirements as mentioned below;
(i)Front-end Interface: It is an interactive link or a dialog between the user and
database-oriented software through which the user communicates to the back-end
database. For example, a transaction relating to purchase of goods may be dealt with
the accounting system through a purchase voucher, which appears on the
computer‘s monitor of data entry operator and when entered into the system is stored
in the database. The same data may be queried through reporting system say
purchase analysis software programme.
(ii)Back-end Database: It is the data storage system that is hidden from the user and
responds to the requirement of the user to the extent the user is authorised to access.
(iii)Data Processing: It is a sequence of actions that are taken to transform the data
into decision useful information.
(iv) Reporting System: It is an integrated set of objects that constitute the report.
The computerised accounting is also one of the database-oriented applications
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wherein the transaction data is stored in well-organised database. The user operates
on such database using the required and desired interface and also takes the desired
reports by suitable transformations of stored data into information. Therefore, the
fundamentals of computerised accounting embrace all the basic requirements of any
database-oriented application in computers. Accordingly, the computerised
accounting system has the above four additional requirements.
Following components form the Computerized Accounting System:
(a) Hardware
(b) Software
(c) Company personnel
Each component is critical to the system‘s success.
(i) Hardware: Hardware is the electronic equipment that includes computers,
disk drives, monitors, printers and the network that connects them. Most
modern accounting systems require a network, the system of electronic
linkages that allow different computers to share the same information. In a
networked system many computers can be connected to the main computer,
or server, which stores the programme and the data. With the right
communication of hardware and software, an auditor in London can access
the data of a client located in Sydney, Australia. The result is a speedier audit
for the client, often at lower cost than if the auditor had to perform all the
work on site in Sydney.
(ii) Software: Software is the set of programmes that cause the computer to
perform the work desired. Accounting software accepts, edits (alters), and
stores transaction data and generates the reports managers use to run the
business. Many accounting software packages operate independently from
the other computing activities of the system.
(iii)Personnel: Personnel are critical to the success of any Endeavour because
people operate the system. Modern accounting system gives nonaccounting
personnel access to parts of the system. Management of a computerized
accounting system requires careful planning of data security and screening
of the people in the organisation who will have access to the data. Security
is sought by using passwords, codes that permit access to computerized
records.

1.2 MANUAL VS. COMPUTERIZED ACCOUNTING

Accounting is an intrinsic part of any business, large or small--owners and other

interested parties want to know whether they are making a profit or not. Many small
businesses do their accounting manually and they are happy with this setup. Others
may be considering using a computerized system, since accounting software is so
affordable these days. Manual and computerized accounting systems perform
basically the same processes; the accounting principles and concepts are the same

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with differences lying in the mechanics of the process. The basic differences on the
basis of operations are as follows:

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.

Aim of both manual and computerized accounting is to record, classify and

summarize the accounting transactions. Both are used for preparing financial
statements but the difference in the system. The difference between manual
accounting and computerized accounting on the basis of accounting practices are as
follows:
Basis of Manual Accounting Computerized Accounting
Difference
1. Definition Manual accounting is the In this system of accounting,
system in which we keep we use computer and
physical register of journal different accounting
and ledger for keeping the software for digital record of
records of each transaction. each transaction.

2. Calculation In manual accounting, all In computerized accounting,

calculation of adding and our duty is to record the
subtracting are done transactions manually in the
manually. For example, we database. All the
find the balance of any calculations are done by
ledger account. We will computer system. We need
calculate the debit and credit not to calculate each
side and then we will find its account's balance, it is
difference for showing calculated automatically by
balance computerized accounting
system

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 3.Ledger In manual accounting, we Computerized accounting
Accounts check the journal and then system will automatically
we transfer figures to related process the system and will
accounts' debit or credit side make all the accounts
through manual posting ledgers because we have
pass the voucher entries

under its respected ledger

account.
4.Trial Balance In this system of accounting, Our computerized
we have to collect the accounting system
information of the balances will produce trial
of all accounts in our ledger, balance
on this basis, we have automatically.
prepared the trial balance
manually.

5. Adjustment Both adjustment journal Only adjustment entries will

Entries Record entries and its posting in the pass in the computerized
ledger accounts will be done accounting system, posting
manually one by one. in the ledger accounts will
be done automatically.
6.Financial We have to make the We need not prepare
Statements financial statements financial statement
manually by careful manually, financial
transferring trial balance's statements will become
figures in income statement automatically. It will also
and balance sheet. change after each voucher
entry in the system which
facility is not available in the
manual accounting system.

1.3 BENEFITS OF COMPUTERIZED ACCOUNTING

Accounting has been done manually till the 1980s, when the advent of fast
computers and easy-to-use, accurate and reliable software started. An accounting
system is a collection of processes, procedures and controls designed to collect,
record, classify and summarize financial data for interpretation and management
decision-making. Computerized Accounting involves making use of computers and
accounting software to record, store and analyze financial data. A computerized
accounting system brings with it many advantages that are unavailable to analog

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accounting systems. Benefits accruing from automation may be summed up in the
following areas:

(i) 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,
Multilingual and Data organization capabilities to help the company simplify all the
business processes easily and cost-effectively.
(ii) 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.
(iii) 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.
(iv) Accuracy and 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.
(v) Scalability
Computerized accounting adapts to the current and future needs of the business,
irrespective of its size or style.
(vi) Power
Computerized accounting has the ability to handle huge volumes of transactions
without compromising on speed or efficiency.
(vii) 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.
(viii) Quick Decision Making
Generates real-time, comprehensive MIS reports and ensures access to complete
and critical information, instantly.
(ix) Complete Reliability
Computerized accounting makes sure that the critical financial information is
accurate, controlled and safe from data corruption

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1.4 ROLE OF COMPUTERS IN ACCOUNTING

A computer is an electronic device that receives data or a set of instructions,

processes them and then gives the information. These data and instructions are
called input, whereas information is termed as output. A computer makes our work
easy. It is a machine having memory. It works with instructions. We can store words
and numbers in its memory. It works fast and does not get tired. A computer never
forgets and thousands of facts can be stored in its memory. It never makes careless
mistakes.
Computer helps in preparing accounting documents like Cash Memo, Bills and
invoices etc., and preparing accounting vouchers.

(i) Recording of transactions

Every day business transactions are recorded with the help of computer software.
Logical scheme is implied for codification of account and transaction. Every
account and transaction is assigned a unique code. The grouping of accounts is done
from the first stage. This process simplifies the work of recording the transactions.
(ii) Preparation of Trial Balance and Financial Statements
After recording of transaction, the data is transferred into Ledger account
automatically by the computer. Trial Balance is prepared by the computer to check
accuracy of the records. With the help of trial balance the computer can be
programmed to prepare Trading, Profit and Loss account and Balance Sheet.
(iii) Reporting
Reports can be prepared on the basis of the required information content according
to the decision usefulness of the report.
Inventory Control
(iv) Inventory Control
Electronic Inventory Control module has multiple functions, which includes
tracking inventory for both costing and tax purposes, aid managers in controlling
purchasing (and the overall level of expenditure) and minimizing the investment in
inventory (and subsequent loss of cash flow).It is integrated with the general ledger
so it can automatically set aside the correct amount for processing further.
(v) Pay roll management
A computerized payroll system is comprised of a set of software programs. The
programs have various screens into which managers and clerks enter employee data
and time sheets; other programs calculate check amounts and produce reports. The
programs contain formulas that take the input data, such as hours worked and pay
rates, and compute the gross and net pay amounts. Payroll software typically also
has a password-based security to restrict access to confidential information.

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1.5 INSTALLATION OF A COMPUTERIZED ACCOUNTING SYSTEM

Accounting software can provide small business with many efficient ways of
managing daily financial tasks, as well as provide management and ownership with
useful reports to help analyze business performance. Without proper consideration,
business owners sometimes make costly mistakes by investing in the wrong
accounting software, and then they struggle to make the software work or incur even
more cost by converting to different software. The installation of computerized
accounting system depends on the following factors:

(i) Scope of Business

The first and most important thing business owners should document before
choosing accounting software is the scope of the business and what accounting tasks
the software should ideally perform. In addition to basic accounting requirements,
owners should make a list of other items which should be available in accounting
software such as payroll, inventory management and cost accounting. Software that
fits perfectly today may not be enough a year from now. So accounting software
should be compatible and flexible enough to cope up with changes.
(ii) Modules Included
Once the owner has defined the scope of the business and the purpose of the
accounting package, screening software possibilities becomes an easier task,
because you can easily eliminate those that do not cover items on your scope list.
For each accounting package that covers the scope of the business, owner should
determine which modules are included in the base price and which modules have
an additional cost. For example, some software manufacturers charge an additional
price for a payroll module.
(iii) Access and Portability
If the owner has a single business location and do not expect that to change, any
accounting package that installs on a network server is suitable for his business. But
if the owner has, or intends to have, multiple locations, he needs to consider how
field employees will access the accounting software, if needed. If he does not have
an information technology employee, setting up exchange server logins may be too
complicated a process to install. In the case of a small business with multiple
locations, or employees that work from home, Internet-based software may be the
best choice.
(iv) Knowledge Required
When choosing accounting software, owner must take into account the education
level of your employees and the difficulty of the software selections. Some
accounting software requires high-level accounting knowledge for setup and use,
while other software packages are geared toward business owners and employees
who do not have accounting education or experience.

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(v) Cost
Once the owner has eliminated software packages by scope, portability, module and
knowledge requirements, the last factor to consider is the cost of the remaining
software packages. When considering cost, take into account fees for upgrades,
annual licensing and support. Compare technical support packages and factor
additional fee support packages into the overall cost of the accounting software.

1.6 LIMITATIONS OF COMPUTERISED ACCOUNTING SYSTEM

The main limitations emerge out of the environment in which the computerized
accounting system is made to operate. These limitations are as given below;

• Cost of Training: The sophisticated computerized accounting packages

generally require specialized staff personnel. As a result, a huge training costs are
incurred to understand the use of hardware and software on a continuous basis
because newer types of hardware and software are acquired to ensure efficient and
effective use of computerized accounting systems.
• Staff Opposition: Whenever the accounting system is computerized, there is
a significant degree of resistance from the existing accounting staff, partly because
of the fear that they shall be made redundant and largely because of the perception
that they shall be less important to the organization.
• Disruption: The accounting processes suffer a significant loss of work time
when an organization switches over to the computerized accounting system. This is
due to changes in the working environment that requires accounting staff to adapt
to new systems and procedures.
• System Failure: The danger of the system crashing due to hardware failures
and the subsequent loss of work is a serious limitation of computerized accounting
system. However, providing for back-up arrangements can obviate this limitation.
Software damage and failure may occur due to attacks by viruses. This is of
particular relevance to accounting systems that extensively use Internet facility for
their online operations. No fullproof solutions are available as of now to tackle the
menace of attacks on software by viruses.

Inability to Check Unanticipated Errors: Since the computers lack capability to

judge, they cannot detect unanticipated errors as human beings commit. This is
because the software to detect and check errors is a set of programmes for known
and anticipated errors.
• Breaches of Security: Computer related crimes are difficult to detect as any
alteration of data may go unnoticed. The alteration of records in a manual
accounting system is easily detected by first sight. Fraud and embezzlement are
usually committed on a computerized accounting system by alteration of data or
programmes. Hacking of passwords or user rights may change the accounting
records. This is achieved by tapping telecommunications lines, wire-tapping or
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decoding of programmes. Also, the people responsible for tampering of data cannot
be located which in a manual system is relatively easier to detect.
• Ill-effects on Health: The extensive use of computers systems may lead to
development of various health problems: bad backs, eyestrain, muscular pains, etc.
This affects adversely the working efficiency of accounting staff on one hand and
increased medical expenditure on such staff on the other.

1.7 ACCOUNTING PACKAGES

Every Computerised Accounting System is implemented to perform the accounting

activity (recording and storing of accounting data) and generate reports as per the
requirements of the user. From this perspective, the accounting packages are
classified into the following categories:

(a) Ready to use

(b) Customised
(c) Tailored

Each of these categories offers distinctive features. However, the choice of the
accounting software would depend upon the suitability to the organization
especially in terms of accounting needs.

Ready-to-Use
Ready-to-Use accounting software is suited to organisations running small/
conventional business where the frequency or volume of accounting transactions is
very low. This is because the cost of installation is generally low and number of
users is limited. Ready-to-use software is relatively easier to learn and people
(accountant) adaptability is very high. This also implies that level of secrecy is
relatively low and the software is prone to data frauds. The training needs are simple
and sometimes the vendor (supplier of software) offers the training on the software
free. However, these software offer little scope of linking to other information
systems.

Features of Ready to Use Software:

1. Used by small and conventional business enterprise
2. Cost of installation and maintained is very low
3. Expected level of secrecy for the data is very low.
4. Number of users and their interface is very limited.
5. Linkage to other information system is restricted.
6. These packages can be easily adapted by any business enterprises.
7. Training requirement for using these packages is very low.

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Customised
Accounting software may be customised to meet the special requirement of the user.
Standardised accounting software available in the market may not suit or fulfil the
user requirements. For example, standardised accounting software may contain the
sales voucher and inventory status as separate options. However, when the user
requires that inventory status to be updated immediately upon entry of sales voucher
and report be printed, the software needs to be customised.

Features of Customized software:

1. Used by large and medium sized business enterprises
2. Cost of installation and maintenance is relatively higher.
3. Expected level of secrecy for the data is relatively higher.
4. Number of users and their interface can be increased as per the requirement of
the enterprises.
5. Linkage to other information system is available on the basis of need of the
enterprise.
6. The adaptability is reaction low as compared to ready – to use packages.
7. Training requirement for using these packages is relatively higher.

Tailored
The accounting software is generally tailored in large business organizations with
multi users and geographically scattered locations. These software requires
specialised training to the users. The tailored software is designed to meet the
specific requirements of the users and form an important part of the organizational
MIS. The secrecy and authenticity checks are robust in such softwares and they
offer high flexibility in terms of number of users.

Features of Tailored software:

1. Used by large and unique business enterprises.
2. Cost of installation and maintained is very high.
3. Expected level of secrecy for the data is very high
4. Number of users and their interface is unlimited.
5. A wide linkage option to other information system is available.
6. These packages can be used by those enterprises for which these are tailored or
made. In other words, we can say that adaptability is specific. 7. Tanning
requirement for using these packages is very high.

1.8 SOURCE DOCUMENT

A source document is the original record containing the details to substantiate a

transaction entered in an accounting system. For example, a company's source
document for the recording of merchandise purchased is the supplier's invoice
supported by the company's purchase order and receiving ticket.
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A company's source documents for its weekly payroll are the employees' time cards.
A manufacturer's production records will also include source documents such as
materials requisition forms. In the past, source documents were printed on paper.
Today many of the paper documents are being converted to an electronic format.
Source documents should be retained for future reference. For instance, auditors
will review a portion of a company's transactions and will need to examine the
pertinent source documents.

1.9 CASH MEMO, INVOICE/BILL, RECEIPT Cash Memo

When the goods are purchased or sold in cash, in that case the cash memo is
prepared by the seller of goods. The contents of cash memo are same as of Invoice.
Only difference is that the Invoice is prepared for credit sale and Cash Memo is
prepared for cash sales.

For example, a business firm purchased some goods on 11.08.15 and the payment
was supposed to make on 21.08.15. In this case, Invoice will be prepared. But if the
goods is purchased against 100% cash payment then the Cash Memo shall be
prepared.

The Contents of Cash Memo

Like invoice, the cash memo also contains the following particulars:-
Name and address of the supplier.
• Name and address of the purchaser.
• Serial Number of cash memo.
• Date of cash memo.
• Customer or Purchaser‘s Order number.
• Description of goods.
• Quantity of goods.
• Rates of Goods.
• Amount.
• Discount (Trade discount or cash discount, to be shown separately).
• Sales Tax number of purchaser and supplier in case of sale of goods.
• Service tax number of the supplier in case of sale of services.
• Total amount of cash memo must be written in words and figures.
• The cash memo must be signed by the duly authorized person.
• The area of Jurisdiction must be defined in cash memo.
• Normally, E. & O. E. also printed on all cash memos. It means if there is
any mistake in cash memo that is subject to correction.
The cash memo is made in duplicate but according to the requirement of business
firm, more than two copies also can be prepared.

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Invoice/Bill
An invoice, bill or tab is a commercial document issued by a seller to a buyer,
relating to a sale transaction and indicating the products, quantities, and agreed
prices for products or services the seller had provided the buyer. Payment terms are
usually stated on the invoice. These may specify that the buyer has a maximum
number of days in which to pay and is sometimes offered a discount if paid before
the due date.

Receipt
A receipt is a written acknowledgment that a person has received money or property
in payment following a sale or other transfer of goods or provision of a service.

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1.10 TYPES OF VOUCHERS

A voucher is a bond of the redeemable transaction type which is worth a certain

monetary value and which may be spent only for specific reasons or on specific
goods. Examples include housing, travel, and food vouchers. The term and voucher
is also a synonym for receipt and is often used to refer to receipts used as evidence
of, for example, the declaration that a service has been performed or that
expenditure has been made.

There are two categories of vouchers i.e. (i) Accounting Voucher and (ii)
Supporting Vouchers

(i)Accounting Vouchers
These vouchers are prepared on the basis of supporting vouchers by the accounts
clerk or the accountant of the organisation and which are countersigned by an
authorised signatory. As soon as it is signed the same is recorded in the books of
accounts. These vouchers are made both for cash and non-cash transactions.

(ii)Supporting Vouchers
Supporting Vouchers are the documentary evidence of business transactions which
have happened. They are of two types:
(i) External Supporting Vouchers; and ii)
Internal Supporting Vouchers.
(i) External Supporting Vouchers:
These vouchers are prepared by the third parties who are associated with the firm.
For example:
(a) Debit Note Received;
(b) Credit Note Received;
(c) Purchase Invoice Received from the Supplier of Goods, etc. and (d) Cash Memo
Received from the Sellers, etc.

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1.11 VOUCHER ENTRY

The Tally software has developed such a way that a non-commerce students and
professional can use it. Tally has many voucher types for entering transactions
.They are classified into three based on its nature. Here is the types and some of its
examples.

1. Accounting Voucher: – Payment, Receipt, Contra, Sales, and Purchase

2. Non Accounting Vouchers: – Memorandum voucher, Optional Voucher,
Reversing Journal, Post-dated vouchers.
3. Inventory Vouchers: – Purchase order, Sales order, Receipt Note, Delivery
Note.

These classifications help to enter vouchers by any users without further mistakes.
Most of the vouchers name says why it is used for. For entering a receipt you need
not know the debit aspects and credit aspects of transactions..The magic of tally is
that the entry will get posted into ledgers as you enter transactions.

The appearance of a Tally Voucher

The voucher entry screen has divided into three.
1. Main Area: This is the area where you are input the transactions details
like,ledgers,amount,narration.
2. Button Bar: The area with various buttons available to change different
voucher types like receipt,purchase & configuration button etc.
3. Calculator: Calculator in tally is invisible in voucher entry screen,You can
activate it by pressing Ctrl+M & to go back to main area Ctrl+N.
4. Close button: to close the voucher entry screen and go back to Main menu
gateway.

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Payment transaction as an example for voucher entry.
We can consider some payment voucher to strat with.Payment vouchers are used to
enter payment transactions or expense. For example traveling expense, Rent, staff
welfare expense, loading and unloading expense, clearing expense and many more
Consider the following transaction for voucher entry

Sr
.No
Transactions details Date Amount

1 Stationery expense paid 01/09/2012 2200

2 Tea expense paid 05/09/2012 1500

3 Courier charge paid 07/09/2012 3500

Initial Requirements for voucher entry

We need the following ledgers to be created before starting voucher entry.
1. Printing & Stationery
2. Tea expense
3. Postage & Courier charges
4. Cash Account

1.12 LET’S SUM-UP

A computerized accounting system is an accounting information system that

processes the financial transactions and events to produce reports as per user
requirements. It is based on the concept of database and has two basic requirements:
(a) Accounting framework and (b) Operating Procedure. Computerized accounting
system is fast and powerful and most of the time it provides accurate data. There
are also different types of accounting packages and the scope of these accounting
packages are also different.

1.13 KEY TERMS

• Voucher
• Computerized Accounting
• Cash Memo Invoice

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1.14 SELF-ASSESSMENT QUESTIONS

(i) Define computerized accounting system. Also, differentiate between manual

system and computerized system of accounting.
Ans :

(ii) Briefly explain the benefits and drawbacks of computerized accounting. Ans
:

1.15 FURTHER READINGS

(i) Accounting for Managers, Ruchi Bhatia, Himalaya Publishing House, 2011 (ii)
Accounting for Business Managers, Sakshi Vasudeva, Himalaya Publishing
House, 2009

1.16 MODEL QUESTIONS

(i) What do you mean by source documents? Briefly describe the various types
of source documents.
(ii) Explain the meaning of voucher and different types of voucher with example.

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UNIT-II ELECTRONIC SPREADSHEET

Learning Objectives
After reading this chapter, the students should be able to:
• Know fundamental functions and operations of spreadsheets
• Identify the components of a worksheet
• Elaborate the entering and editing data in a worksheet
• Explain simple mathematical operators and building a formula using values
• Discuss the use of function and cell address for writing formulae
• Enumerate formatting a worksheet
• Understand the use of relative and absolute cell addresses, Narrate the
process of creating charts.

Structure
2.1 Introduction to Electronic Spreadsheet
2.2 Scrolling in a Work Sheet
2.3 Entering Data
2.4 Formulae
2.5 Use of Functions to do Calculations
2.6 Formatting the Work Sheet
2.7 Types Cell Reference
2.8 Creation of Charts Using Spreadsheets
2.9 Printing of Sheets
2.10 Let‘s Sum-Up
2.11 Key Terms
2.12 Self-Assessment Questions
2.13 Further Readings
2.14 Model Questions

2.1 INTRODUCTION TO ELECTRONIC SPREADSHEET

A spreadsheet is an interactive computer application for organization, analysis and

storage of data in tabular form. In 1978, Dan Bricklin, a young graduate student at
the Harvard School of Business, developed a piece of software called Visicalc
which simulated a worksheet. It was the first electronic spreadsheet, a prototype of
the many varieties of spreadsheets available today. The Excel spreadsheet is
considerably more powerful than Visicalc, able to handle much larger sets of
numerical data at greater speeds. Like Visicalc, however, it goes beyond the
traditional manual worksheet in so far as it is programmable. One can build
instructions into an electronic spreadsheet to do relatively complex mathematical
calculation and analysis.

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Spreadsheets are developed as computerized simulations of paper accounting
worksheets. The program operates on data entered in cells of a table. Each cell may
contain either numeric or text data, or the results of formulas that automatically
calculate and display a value based on the contents of other cells. A spreadsheet
may also refer to one such electronic document. Spreadsheet users can adjust any
stored value and observe the effects on calculated values. This makes the
spreadsheet useful for "what-if" analysis since many cases can be rapidly
investigated without manual recalculation. Modern spreadsheet software can have
multiple interacting sheets, and can display data either as text and numerals, or in
graphical form. Besides performing basic arithmetic and mathematical functions,
modern spreadsheets provide built-in functions for common financial and statistical
operations. Such calculations as net present value or standard deviation can be
applied to tabular data with a pre-programmed function in a formula. Spreadsheet
programs also provide conditional expressions, functions to convert between text
and numbers, and functions that operate on strings of text. Spreadsheets have
replaced paper-based systems throughout the business world. Although they were
first developed for accounting or bookkeeping tasks, they now are used extensively
in any context where tabular lists are built, sorted, and shared.

Electronic spreadsheets are primarily used to store and organize financial and
statistical information, such as income statements, balance sheets and frequency
distribution tables. Because of their built-in formulas, spreadsheets let users
calculate and readjust numerical results much faster than using traditional pen and
paper. Data stored in spreadsheets can also be rearranged to highlight specific
information when printed or incorporated into presentations or other documents.

2.1.1 Electronic Spreadsheet Application Software

The Electronic Spreadsheet Application Software developed by different companies
are (i) Excel by Microsoft Corporation (ii) Numbers by Apple Inc (iii) Libreoffice
Calc by the Document Foundation (iv) Openoffice Calc by Apache Foundation etc.
Microsoft Excel is a spreadsheet developed by Microsoft for Windows, macOS,
Android and iOS. It features calculation, graphing tools, pivot tables, and a macro
programming language called Visual Basic for Applications. Microsoft Excel is a
spreadsheet program used to store and retrieve numerical data in a grid format of
columns and rows. Excel is ideal for entering, calculating and analyzing company
data such as sales figures, sales taxes or commissions.

2.1.2 The User Interface and the Components of Microsoft Excel 2010
Beginners to Excel are often intimidated by all the different elements that appear
within Excel‘s user interface. After you become familiar with the various parts, it
all starts to make sense. Below figure shows a typical Excel 2010 user interface,
with the important parts labeled.

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 Excel 2010 User interface Description

Name Description

Active cell This dark outline indicates the currently active cell (one of
indicator the 17,179,869,184 cells on each worksheet).

Application Close Clicking this button closes Excel.

button

Application Clicking this button minimizes the Excel window.

Minimize button

Column letters
Letters range from A to XFD — one for each of the 16,384
columns in the worksheet. You can click a column heading
to select an entire column of cells, or drag a column border
to change its width.

Expand formula Clicking this button expand formula bar to display more.
bar button

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File button Click this button to open Back Stage view, which contains
many options for working with your document (including
printing), and setting Excel options.

Formula bar When you enter information or formulas into a cell, it

appears in this line.

Help button Clicking this button displays the Excel Help system
window.

Horizontal Use this tool to scroll the sheet horizontally.

scrollbar

Insert function Clicking this button insert function.

button

Insert Sheet
By default, each new workbook that you create contains
button three sheets. Add a new sheet by clicking the Insert
Worksheet button (which is displayed after the last sheet
tab).

Macro recorder Click to start recording a VBA macro. The icon changes
indicator while your actions are being recorded. Click again to stop
recording.

Minimize Ribbon
Clicking this button hides the Ribbon, giving you a bit
button
more space onscreen. When you click a tab, the Ribbon
reappears.

Name box This field displays the active cell address or the name of the
selected cell, range, or object.

Page View Change the way the worksheet is displayed by clicking one
buttons of these buttons.

Quick Access This customizable toolbar holds commonly used

toolbar commands. The Quick Access toolbar is always visible,
regardless of which tab is selected.

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Ribbon This is the main location for Excel commands. Clicking an
item in the tab list changes the Ribbon that displays.

Row numbers Numbers range from 1 to 1,048,576 — one for each row in
the worksheet. You can click a row number to select an
entire row of cells.

Sheet tab scroll Use these buttons to scroll the sheet tabs to display tabs that
buttons aren‘t visible.

Sheet tabs Each of these notebook-like tabs represents a different

sheet in the workbook. A workbook can have any number
of sheets, and each sheet has its name displayed in a sheet

tab.

Status bar
This bar displays various messages as well as the status of
the Num Lock, Caps Lock, and Scroll Lock keys on your
keyboard. It also shows summary information about the
range of cells that is selected. Right-click the status bar to
change the information that‘s displayed.

Tab list Use these commands to display a different Ribbon, similar

to a menu.

Title bar
This displays the name of the program and the name of the
current workbook, and also holds some control buttons that
you can use to modify the window.

Vertical scrollbar Use this to scroll the sheet vertically.

Window Close Clicking this button closes the active workbook window.
button

Window
Clicking this button increases the workbook window‘s size
Maximize/Restore to fill Excel‘s complete workspace. If the window is
button already maximized, clicking this button ―unmaximizes‖
Excel‘s window so that it no longer fills the entire screen.

Window Clicking this button minimizes the workbook window, and

Minimize button it displays as an icon.

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 Zoom control Use this scroller to zoom your worksheet in and out.

2.1.3 Worksheet
A worksheet or sheet is a single page in a file created with an electronic spreadsheet
program such as Excel or Google Spreadsheets. A workbook is the name given to
an Excel file and contains one or more worksheets.

The term spreadsheet is often used to refer to a workbook, when, as mentioned, it

more correctly refers to the computer program itself. So, strictly speaking, when
one opens an electronic spreadsheet program it loads an empty workbook file
consisting of one or more blank worksheets for his use.

A worksheet is used to store, manipulate, and display data. The basic storage units
for data in a worksheet are the rectangular-shaped cells arranged in a grid pattern in
every worksheet. Individual cells of data are identified and organized using the
vertical column letters and horizontal row numbers of a worksheet which create a
cell reference - such as A1, D15, or Z467.

Naming the Column in a Worksheet

Each column of a worksheet is assigned an English letter or a combination of
letters as shown below:
A,B,C,D,……………………upto Z
AA,AB,AC.AD,AE,.................upto AZ
BA,BB,BC,BD,BF.................upto BZ
Naming the row in a Worksheet
Each row of a worksheet is assigned a row number as 1,2,3,4,5... etc as shown
below:

2.1.4 Active Cell

In spreadsheet programs such as Excel or Google Spreadsheets, the active cell is
identified by a colored border or outline surrounding the cell, as shown in the image.
The active cell is also known as the current cell or the cell that has the focus.

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2.2 SCROLLING IN A WORK SHEET

There are different ways to scroll through a worksheet. One can use the arrow keys,
the scroll bars, or the mouse to move between cells and to move quickly to different
areas of the worksheet. In Excel, one can take advantage of increased scroll speeds,
easy scrolling to the end of ranges, and ScreenTips that let him know where he is in
the worksheet. One can also use the mouse to scroll in dialog boxes that have drop-
down lists with scroll bars.

Use the arrow keys to move through a worksheet

To move between cells on a worksheet, click any cell or use the arrow keys. When
you move to a cell, it becomes the active cell.
To scroll Do this
To the start Press CTRL+an arrow key to scroll to the start and end of
and end of each range in a column or row before stopping at the end
ranges of the worksheet.
To scroll to the start and end of each range while selecting
the ranges before stopping at the end of the worksheet,
press CTRL+SHIFT+an arrow key.
One row up or Press SCROLL LOCK, and then use the UP ARROW key
down or DOWN ARROW key to scroll one row up or down.

One column Press SCROLL LOCK, and then use the LEFT ARROW
left or right key or RIGHT ARROW key to scroll one column left or
right.
One window Press PAGE UP or PAGE DOWN.
up or down
One window Press SCROLL LOCK, and then hold down CTRL while
left or right you press the LEFT ARROW or RIGHT ARROW key.

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 A large Press SCROLL LOCK, and then simultaneously hold
distance down CTRL and an arrow key to quickly move through
large areas of your worksheet.

Use the scroll bars to move through a worksheet

If you do not see the scroll bars, do the following to display them: (i)Click
File > Options.

In Excel 2007, click the Microsoft Office Button , and then click Excel
Options.
(ii) Click Advanced, and then under Display options for this workbook, make
sure that the Show horizontal scroll bar and the Show vertical scroll bar check
boxes are selected, and then click OK.
The following table describes different ways for using the scroll bars to move
through a worksheet.
To scroll Do this
One row up or down Click the scroll arrows or on the vertical
scroll bar to move the sheet one row up or down.

One column left or Click the scroll arrows or on the

right horizontal scroll bar to move the sheet one
column to the left or right.
Scroll through a While scrolling, hold down the mouse at the
worksheet with farthest end of the screen for more than 10
increased scroll speed seconds to increase the scrolling speed.
Moving the mouse in the opposite direction
slows down the scroll speed.
One window up or Click above or below the scroll box on the
down vertical scroll bar.
One window left or Click to the left or right of the scroll box on
right the horizontal scroll bar.
A large distance Hold down SHIFT while dragging the scroll box
.

Scroll and zoom by using the mouse

Some mouse devices and other pointing devices, such as the Microsoft IntelliMouse
pointing device, have built-in scrolling and zooming capabilities that one can use to
move around and zoom in or out on your worksheet or chart sheet. One can also use
the mouse to scroll in dialog boxes that have drop-down lists with scroll bars.
To Do this

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 Scroll up or Rotate the wheel forward or back.
down a few
rows at a time
Scroll through While scrolling, hold down the mouse at the farthest end of
a worksheet the screen for more than 10 seconds to increase the scrolling
with increased speed.
scroll speed Moving the mouse in the opposite direction slows down the
scroll speed.
Pan through a Hold down the wheel button, and drag the pointer away from
worksheet the origin mark in any direction that you want to scroll.
To speed up scrolling, move the pointer away from the origin
mark. To slow down scrolling, move the pointer closer to the
origin mark.
Pan through a Click the wheel button, and then move the mouse in the
worksheet direction that you want to scroll. To speed up scrolling, move
automatically the pointer away from the origin mark. To slow down
scrolling, move the pointer closer to the origin mark. To stop
automatic scrolling, click any mouse button.
Zoom in or out Hold down CTRL while you rotate the IntelliMouse wheel
forward or back. The percentage of the zoomed worksheet is
displayed on the status bar.
Show detail in Point to a cell that summarizes data in the outline, and then
outlines hold down SHIFT while you rotate the wheel forward.
Hide detail in Point to any cell that contains detail data, and then hold down
outlines SHIFT while you rotate the wheel back.

2.2.1 Cell Address

A cell address is denoted first by the column letter and secondly by the row number.
The address of the active cell is displayed in the name box. Ex: A cell at D column
and 3rd row would be named D3.

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2.2.2 Range of Cells
A block of adjacent cells in a worksheet which is highlighted or selected is called a
range of cells. Observe the worksheets below.

This range of cells consists of the cells namely B2,B3,B4,B5. The range of cells
starts in B2 and ending in B5. Column letter is constant in a cell range along a
column. The cell range in figure is represented by B2:B5. The methods for selecting
a group or range of cells are as follows:
Task Method
To select a block of cells Drag diagonally from top left
corner of the block of cells down to
the lower right corner
To select an entire row of cells Click on the number (the row
(horizontally from left to right) label) on the left hand side
of the spreadsheet
To select an entire column of cells Click in the letter(s) of the alphabet
(vertically, from top to bottom) (the column label) at the top of the
column
To select several rows or columns Drag across the row or column
headings

2.3 ENTERING DATA

Entering data into a spreadsheet is just like typing in a word processing program,
but one has to first click the cell in which he wants the data to be placed before
typing the data. All words describing the values (numbers) are called labels. The
numbers, which can later be used in formulas, are called values. It should be noticed
that the labels (composed of letters) are all left justified and the values (composed
of numbers) are all right justified in their cells.

To enter data in Excel, user has to select a cell and begin typing. The user can see
the text appear both in the cell and in the formula bar above. To tell Excel to accept
the data he has typed, he needs to press enter. The information will be entered
30
immediately, and the cursor will move down one cell. The user can also press the
tab key instead of the enter key. If he presses tab, the cursor will move one cell to
the right once the information has been entered. At any time while one is typing he
can press the escape key to cancel. This brings Excel back to the state it was in
before the user started typing. When the user wants to delete information that has
already been entered, he just needs to select the cells, and press the delete key.

2.4 FORMULAE

Operators specify the type of calculation that you want to perform on the elements
of a formula, like addition, subtraction, multiplication or division.

2.4.1 Arithmetic operators

To perform basic mathematical operations such as addition, subtraction, or
multiplication; combine numbers; and produce numeric results, use the following
arithmetic operators.

Arithmetic operator Meaning Example

+ (plus sign) Addition 3+3

– (minus sign) Subtraction 3–1

Negation –1

* (asterisk) Multiplication 3*3

/ (forward slash) Division 3/3

% (percent sign) Percent 20%

^ (caret) Exponentiation 3^2

2.4.2 Comparison Operators

One can compare two values with the following operators. When two values are
compared by using these operators, the result is a logical value either TRUE or
FALSE.

Comparison operator Meaning Example

= (equal sign) Equal to A1=B1

> (greater than sign) Greater than A1>B1

< (less than sign) Less than A1<B1

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 >= (greater than or equal to sign) Greater than or equal to A1>=B1

<= (less than or equal to sign) Less than or equal to A1<=B1

<> (not equal to sign) Not equal to A1<>B1

2.4.3 Reference Operators

Referenc Meaning Example
e
operator

: (colon) Range operator, which produces one reference B5:B15

to all the cells between two references,
including the two references
, Union operator, which combines multiple SUM(B5:B15,D
(comma) references into one reference 5:D15)
(space) Intersection operator, which produces on B7:D7 C6:C8 reference to cells
common to the two
references
Combine ranges of cells for calculations with the following operators.

2.5 USE OF FUNCTIONS TO DO CALCULATIONS

There are various types of function such as sum, subtract, multiplication, division,
average, max, min etc. Some of them are narrated here with suitable example.

2.5.1 Sum Function

Addition in Excel can be carried out easily through the SUM function. SUM is a
standard built-in function in Excel that performs the basic mathematical operation
of addition. You can use it to add as many numbers in your worksheet as you like,
provided they be all located in the same row or column.

The SUM function requires you to select an array of cells the values of which you
want to add. After selection, proceed to the toolbar and click on the ‗Formulas‘ tab.
Under this tab, you‘ll see the ‗Function Library‘, which has an ‗AutoSum‘
command. From the drop-down menu of the ‗AutoSum‘command, select the
‗SUM‘ option. Excel will add the values from the cells and display the sum just
adjacent to, or below the last cell of your selected array. There‘s another way to use
the SUM function for addition – manually typing the SUM formula in the
appropriate cell. For this, type ―=SUM‖ in the cell and then select the range of
cells, the values of which you want to add.
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Example: Consider the sales data from client 1 – Acme Paper Company.
Goal: To calculate the subtotal of all items ordered. Solution: You can
calculate the sum in any of the following ways:
1. In cell E10, type =SUM (E4: E9) and press enter. It will show your total in cell
E10.
2. In cell E10, type =SUM and then use your mouse to manually select the cells
from E4 to E9. Press Enter upon selection.
3. Alternatively, begin by manually selecting the cells and then, use the toolbar to
find the ‗SUM‘ option, as discussed above.

2.5.2 Subtract Function

Unlike addition, subtraction does not have a dedicated formula inbuilt in Excel. One
can, however use the SUM function for subtraction of two or more numbers in an
array. The minus operator (-) is used in the SUM function to obtain the result of the
subtraction, in this case. Use of the minus sign before the numbers one wants to
subtract turns them into negative numbers. Since the addition of any negative
number to a positive number is the same as its subtraction from the positive number,
one get the desired results.

Example: Consider the sales data from client 1 – Acme Paper Company Goal: To
subtract the unit prices of Blue Pens and Red Pens from the unit price of Letter
Sized Paper.
Solution: You can do so in any of the following ways:
1. Type =SUM( -D8, -D9, D5) in cell D11 and hit enter. The subtracted result
(33.66) will appear in D11.
2. In cell D11, type =SUM( to begin the formula. Next, type the minus operator
in the bracket and click on cell D8. Similarly, enter the minus sign again and click
on cell D9 using the mouse. Repeat till all cells have been selected individually.
Press Enter to view the result.

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2.5.3 Multiplication
Multiplication in Excel can be carried out easily by the PRODUCT formula.
PRODUCT is a standard built-in function in Excel that performs the mathematical
operation of multiplication. The formula can be used to multiply two or more
numbers from a range of cells, with each other. It can also be used to multiply the
numbers contained in different cells with a standalone constant.
Just like the SUM function, PRODUCT requires user to provide a range of cells
from your worksheet. One can choose the cells using the mouse, refer to cells using
their location, or, enter the values directly. The PRODUCT function multiplies the
values in the parenthesis and returns the result of the multiplication upon hitting
Enter.

2.5.4 Average Function

The average function and details is given below:
Formula Details

= AVERAGE(A1,B1,C1) The average of cells A1, B1 and C2

= AVERAGE(A1:C1) The average of cells in the range of cells

from A1 to C1

2.6 FORMATTING THE WORK SHEET

The worksheet can be formatted. Some of the important formatting are discussed
below.
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2.6.1 Formatting a Range of Cells with Decimal Places
When divisions of numbers are performed, different numbers of decimal places are
made. In such instances it is necessary to format the number to a fixed number of
decimal places.

The user needs to following steps in Microsoft Office Excel 2010

1. Select the range of cells
2. Open the ‗format cells dialog‘ box
3. Click the ‗Number‘ tab
4. Select the ‗Number‘
5. Change the decimal places as required
6. Click ‗OK‘
2.6.2 Formatting a Range of Cells as Percentage
When a number is divided, a quotient can be represented as percentage by
formatting. The monthly profit earned by a school book shop in the first term is
given below in table.

The user needs to following steps in Microsoft Office Excel 2010

1. Select the cell range.
2. Open the ‗format cells dialog‘ box
3. Click the ‗Number‘ tab
4. Change the decimal places required
5. Click ‗OK‘

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2.6.3 Formatting Alignment of a Cell Range
The labels and values can be aligned to the left, center or right of a cell range. The
user needs to following steps in Microsoft Office Excel 2010
1. Select the cell range
2. Open the ‗format cells dialog‘ box
3. Click the ‗Alignment‘ tab
4. Select left, right or center
5. Click ‗Ok‘

2.7 TYPES OF CELL REFERENCE

A ―cell reference‖ means the cell to whi ch another cell refers. For example, if in
cell A1 you have =A2. Then A1 refers to A2.

Cells in the spreadsheet are referred to by rows and columns. Columns are vertical
and labeled with letters. Rows are horizontal and labeled with numbers. The first
cell in the spreadsheet is A1, which means column A, row 1, B3 refers to the cell
located on the second column, third row, and so on.
A cell address (reference) consists of a column letter and a row number. In a formula
such a cell address is always called as a relative reference. The dollar sign ($) when
sign is placed before a row number absolute row is obtained, when ($) mark is
placed before a column name an absolute column is obtained, when ($) is placed
before column name and row number absolute column and row absolute can be
obtained.
Example
H2 - Relative cell reference
H$2 - Row absolute cell reference
$H2 - Column absolute cell reference
$H$2 - Row and column absolute cell reference

Absolute Cell Reference

This means the cell reference stays the same if you copy or move the cell to any
other cell. This is done by anchoring the row and column, so it does not change
when copied or moved. If the row number of the cells remain unchanged when a
formulae is dragged sideways along a row, it is called row absolute cell reference.
Example
When the formula= A$1+ B$1 entered in C1, and is dragged down along column C
and dragged sideways along row 1, only the column letters change relatively while

36
the row numbers remain unchanged. Hence the cell reference A$1 and B$1 can be
called row absolute cell reference.
Column letters change

Row
Numbers
remain
same

Relative Cell Reference

Relative referencing means that the cell address changes as you copy or move it; i.e.
the cell reference is relative to its location. If the row number and the column letter
of the adjacent cells change accordingly when a formula is copied, such cell
addresses are called relative cell reference.
Example
When the formula A1+B1 entered in C1 is dragged down along column C and
dragged sideways along row 1, the cell references change accordingly as shown in
image. Hence the cell references A1 and B1 could be considered relative cell
reference.
Column letters change
Row
Numbers
change

Column absolute cell reference

If the column letter of the cells remains unchanged when a formula is dragged down
along a column, it is called column absolute cell reference.
Example
When the formula = $A1+$B1 entered in C1 is dragged down along column C and
dragged sideways along row 1, only the row numbers change relatively while the
column letters remain unchanged. Hence the cell reference $A1 and $B1 can be
called column absolute cell reference.

37
 Column letters Remain

Row
Numbers
change

Row and column absolute cell reference

If the row numbers and column letters of the cells remain unchanged when a formula
is dragged sideways along a row, such cell addresses are known as row and column
absolute cell reference.

Example
When the formula =A$1+$B$1 in C1 is copied along column A and row 1, the cell
references do not change as shown in worksheet figure.

Column letters Remain Unchanged Row

Numbers
remain
unchanged

2.8 CREATION OF CHARTS USING SPREADSHEETS

It is not easy to comprehend, compare, analyze or present data when they are
represented as numbers. But when data are presented in the form of charts they
become an effective tool to communicate. Let us learn how spreadsheet applications
are used for this purpose.
Given below are the various types of charts.

2.8.1 Column Chart

Column charts are used to compare values across categories by using vertical bars.
To create a column chart, execute the following steps.

38
1. Select the range A1:A7, hold down CTRL, and select the range C1:D7.

2. On the Insert tab, in the Charts group, click the Column symbol.

3. Click Clustered Column.

Result:

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2.8.2 Bar Chart
A bar chart is a graph that shows horizontal bars with the axis values for the bars
displayed on the bottom of the graph. It is a graphical object used to represent the
data in Excel spreadsheet.
User can use a bar chart when:
• He wants to compare values across categories.
• The category text is long and difficult to display in a column chart.
• He wants to show duration in a graph.
If you want to follow along with this tutorial, download the example spreadsheet.

Steps to Create a Bar Chart

To create a bar chart in Excel 2016, User will need to do the following steps:
1. Highlight the data that he would like to use for the bar chart. In this example,
we have selected the range A1:C5.

40
2. Select the Insert tab in the toolbar at the top of the screen. Click on the
Bar Chart button in the Charts group and then select a chart from the
drop down menu. In this example, we have selected the first bar chart (called
Clustered Bar) in the 2-D Column section.
TIP: As user hovers over each choice in the drop down menu, it will show
user a preview of his data in the highlighted chart format.

41
 3. Now user will see the bar chart appear in his spreadsheet with horizontal
bars to represent both the shelf life and restock time for each product. The
shelf life (in days) is displayed as orange horizontal bars and the restock
time (in days) is displayed as blue horizontal bars. User can see the axis
values on the bottom of the graph for these horizontal bars.

4. Finally, update the title for the bar chart.

To change the title, click on "Chart Title" at the top of the graph object. User should
see the title become editable. Enter the text that User would like to see as the title.

42
2.8.3 Line Chart
Line charts are used to display trends over time. Use a line chart if you have text
labels, dates or a few numeric labels on the horizontal axis. Use a scatter chart (XY
chart) to show scientific XY data.
To create a line chart, execute the following steps.
1. Select the range A1:D7.

2. On the Insert tab, in the Charts group, click the Line symbol.

43
3. Click Line with Markers.

Result:

2.8.4 Pie Chart

A pie chart is a way to display percentages of a whole. The entire ―pie‖ represents
44
100 percent of a whole, while the pie ―slices‖ represent portions of the whole. The
size of each slice is proportional to that category‘s percentage of the pie. Pie charts
can be tricky to draw by hand, especially with tricky percentages; the whole of the
pie is 360 degrees, so drawing 13.9 percent or 56 percent presents a challenge.
However, Microsoft Excel can help user create a pie chart in a minute or two.
Sample question: Make a pie chart in Excel that represents what percentage of
people in a certain town own certain types of pets: dogs (1110 people), cats (987
people), rodents (312 people), reptiles (97 people), fish (398 people).
Step 1: Type your data into a Microsoft Excel worksheet. Type your categories
in one column and your numbers into a second column. For this sample problem,
the categories would be the type of pets, so type those into column A. Type the
numbers associated with each category into column B. Do not leave blank rows or
columns when typing in the data.

Step 2: Select the data you entered. To select the data, click the top left of your
data and then drag the cursor to the bottom right.
Step 3: Click “Insert,” then click “Pie,” then click the type of pie chart you need.
In most cases with simple pie charts like the one in this sample problem, the first
selection (2D) will work fine. Once you have clicked the chart icon, Excel will insert
the pie chart into your worksheet.

2.9 PRINTING OF SHEET

There are two types of orientation while printing a sheet (i) Portrait and (ii)
Landscape Orientation.
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 If gradesheet is too wide to fit on the 8.5 inch width of standard paper, user can print
the gradesheet sideways (Landscape orientation).

In the Page Setup dialog box user can also tell Excel to print or not to print gridlines,
row and column headings and so forth. User can thus still make changes to the
appearance of spreadsheet on the printed page. He just need to click on the Sheet tab
in the Page Setup dialog box, then check to see if there is a checkmark in the box
next to Row and Column Headings (remove the check mark if necessary). This is to
tell Excel that he does not want those headings in the printout. Now click on the Print
button to bring up the Print dialog box

46
In the print dialog box, choose the number of copies user would like. As a rule, it is
best to have the computer print only one copy, since it easier to make multiple
copies by using a photocopier. Also, if user has the option, select draft quality the
first time or two, so he doesn't waste ink (this is an option on dot matrix, daisy
wheel, or ink jet printers, though not on laser printers).

2.10 LET’S SUM-UP

A worksheet is composed of vertical columns and horizontal rows in two

dimensional planes. Columns in a worksheet are named with English letters or
combination of English letters. Rows in a worksheet are named with numbers. Cells
are named firstly by column letter and secondly by row number. Cell content is
either a label, value or a fomulae.A formulae is initiated with equals sign (=).There
is a presedence of operators. Formulas are made with cell addresses, operators and
functions. Formatting tools are used to format labels and values. The soft copy can
also be taken as hard copy by using the print option. The most important thing
regarding the electronic spreadsheet is that the data can be analyzed through various
charts.

2.11 KEY TERMS

• Electronic Spreadsheet
• User Interface
• Worksheet
47
 • Active Cell
• Range of Cell
• Reference Operators
• Cell Reference

2.12 SELF-ASSESSMENT QUESTIONS

(i) What do you mean by Worksheet? What is the procedure of scrolling

worksheet?
Ans :

(ii) What do you mean by sum function? Elaborate sum function in excel with an
suitable example.
Ans :

2.13 FURTHER READINGS

(i) Accounting for Managers, Ruchi Bhatia, Himalaya Publishing House, 2011
(ii) Accounting for Business Managers, Sakshi Vasudeva, Himalaya Publishing
House, 2009

2.14 MODEL QUESTIONS

(i) What do you mean by cell reference? Briefly elaborate the different types of
cell reference.
(ii) What do you mean by Charts? Elucidate the different charts which can be
prepared in excel

48
UNIT-III USE OF ELECTRONIC SPREADSHEET IN BUSINESS
APPLICATION

Learning Objectives
After reading this chapter, the students should be able to know:
• Understand the Importance of Electronic Spreadsheet in Business
• Discuss the Categorization of Electronic Spreadsheet as per the Use of
Corporate World
• Elaborate the application of Electronic Spreadsheet in performing various
Management Function

Structure
3.1 Introduction to different Functions of Business Organization
3.2 Importance of Electronic Spreadsheet for Business
3.3 Categorization of Electronic Spreadsheet as per the Business Requirement
3.4 Use of Electronic Spreadsheet in Accounting
3.5 Use of Electronic Spreadsheet in Human Resource Management
3.6 Use of Electronic Spreadsheet in Financial Management
3.7 Use of Electronic Spreadsheet in Marketing
3.8 Use of Electronic Spread in Production
3.9 Let‘s sum-up
3.10 Key terms
3.11 Self-Assessment Questions
3.12 Further Readings
3.13 Model Questions

3.1 INTRODUCTION TO DIFFERENT FUNCTIONS OF BUSINESS

ORGANIZATION

A typical business organization may consist functions such as Production,

Marketing (including the selling function), Human Resource Management and
Accounting and Finance.

Finance is the life-blood and back bone of any business. The availability of factors
of production depends upon the availability of finance. So every business needs
finance for its success. Therefore, under this function of business required capital is
estimated, accumulated and properly utilized. A proper capital structure according
to the size and nature of the business is essential for the success of the business.

Production function is another important function of business. Converting raw

materials into finished products to satisfy human wants by creating utility is known
49
as production. Under this function raw materials and semi-finished products are
processed and assembled to create utility. Hence the next important function of
business is to create utility for satisfaction of the consumers by production of goods.

The function of business is not complete with the production of goods and services
only. The main goal of production is to satisfy human wants through the
consumption of goods and services. Therefore, marketing function helps to transfer
goods and services from the producer to the ultimate consumer. Marketing functions
can be divided into concentrating and dispersing which include buying, selling,
transportation, storage, risk taking, market information, etc.

Human resource management is all about increasing employee performance to their

highest level corresponding to their role in the organization. Since every
organization is made of people, HRM is all about acquiring services of people,
developing their skills, motivating them to the foremost level and making sure that
they continue to maintain their commitment towards the organization. In short,
HRM is concerned with the management of employees from recruitment to
retirement.

3.2 IMPORTANCE OF ELECTRONIC SPREADSHEET FOR BUSINESS

Spreadsheets are used in varied ways within business contexts. In general,

spreadsheets store data sets, but they also provide a range of utilities to manage and
process the data sets. This makes them particularly useful to businesses. Through
preset and user-defined formulas, spreadsheets can perform mathematical,
statistical, financial and organizational transformations on sets of data. Spreadsheets
help to present data in organized ways and to inform future planning decisions.
Businesses use spreadsheets in ways that are suited to their own services, but these
uses tend to fall into a few general categories.

(i) Storing Data

The primary purpose of a spreadsheet is to store data in a structured way. Data
values are entered into cells in a worksheet. These data values can be formatted
using various categories of data types, including numerical and textual types. The
cells in a worksheet can refer to other cells, using the location of a cell within the
rows and columns in the sheet. Individual parts of a worksheet can be contained
within tables, with a single worksheet potentially holding a range of information
sets. Spreadsheet programs such as Excel provide templates for common business
tasks, such as expenses recording.

(ii) Analyzing Data

Once a spreadsheet has some data values in it, one can perform various analytical
tasks on this data. This includes mathematical functions, such as adding or counting
50
values. By entering a formula or choosing from one of many preset functions, one
can analyze his data sets. This allows business users to sort data, filter it and process
it. For financial data, user can calculate profits and losses. In a general sense,
spreadsheet formulas and functions allow user to carry out performance
measurements for many aspects of his business.

(iii) Presentation
Spreadsheet applications such as Excel include tools for data visualization. User can
take an existing data set within a spreadsheet and present it within a chart, with
various types of graph and chart options to choose from. The resulting charts let
business managers gain insight into the data by presenting it in graphical ways.
These charts can also be used in corporate contexts, such as within presentations.
User can manually control all aspects of a chart display, including chart type,
labeling and colors. User can also print spreadsheet tables and charts for use within
reports and other publications. These charts can be used within management teams
to gain an insight into the data, as well as to communicate this data as part of
presentation activities in corporate contexts.

(iv) Future Planning

Spreadsheets facilitate future planning in two ways. First, being able to analyze and
visualize data gives user an insight into how well his business is currently
performing, highlighting areas for growth or reconsideration. Second, user can use
a spreadsheet to calculate the potential effects of changes to his business model. For
example, if user uses existing information together with a potential change, such as
a sales fluctuation in a retail context, he can determine the impact of this change.
Spreadsheets also use conditional formulas, in which user can carry out conditional
tests on data values, filtering or manipulating the values as a result of these tests.

3.3 CATEGORIZATION OF ELECTRONIC SPREADSHEET AS PER

THE BUSINESS REQUIREMENT
In the corporate world, spreadsheet use is divided in two categories: modeling and
operational. Spreadsheets created for modeling purposes act as complex calculators
and address a particular activity, such as mergers and acquisitions. On the other
hand, spreadsheets created for operational use support transactional processes, thus
becoming a core business program containing static and changing data, as well as
all the calculations applied to the data. One common application of operational
spreadsheets is maintaining business lists, such as inventories and confidential
customer information. Operational spreadsheets have more users over a longer
period of time, who have less knowledge of the spreadsheet's underlying structure.
Because of this, operational spreadsheets are a greater regulatory concern during
compliance reviews, and internal auditors should pay close attention to their use and
the accuracy of their data.

51
Differences between Modeling Spreadsheets and Operational Spreadsheets
Modeling Spreadsheets Operational Spreadsheets
User(s) Single. Built and used by Multiple. Built by an IT
the same individual most of developer for corporatewide
the time. use.
Duration Short term. Spreadsheet Long term. Spreadsheet
of Use models, often complex, are models, both simple and
built for days or weeks only complex, become part of the
to be redundant after the business' information flow and
relevant business decision persist for months or years.
is made.

Structural High. Substantial structural Low to medium. All key

and revisions are likely to occur structural elements are likely
Functional from one day to the next as to be in place. Further
Volatility major elements are added or evolution of the business
replaced. process requires spreadsheet
maintenance, with rare
structural overhauls.

Data High. As the application

Medium. Data are related matures, transactional data
Volatility
primarily to the exploration become key spreadsheet
of alternative scenarios. variables.
Use Intensive. Use is likely to Sporadic. Use depends on the
Intensity be intensive for a short nature of the business process
period of time, and the being supported. For example,
knowledge of the many spreadsheets in financial
spreadsheet's structure reports are used at the end of
among its users is retained the month. This means
throughout its life. employees may forget how to
use key spreadsheet functions.

3.4 USE OF ELECTRONIC SPREADSHEET IN ACCOUNTING

The electronic spreadsheet has been in use in all the three branches of accounting
i.e., financial accounting, cost accounting and management accounting. Microsoft
Office Excel was designed to support accounting functions such as budgeting,
preparing financial statements and creating balance sheets. It comes with basic
spreadsheet functionality and many functions for performing complex mathematical
calculations. It also supports many add-ons for activities such as modeling and
financial forecasting, and seamlessly integrates with external data to allow user to
52
import and export banking information and financial data to and from other
accounting software platforms.

3.4.1 Use of Electronic Spreadsheet in Financial Accounting

All the business houses are using spreadsheet in bookkeeping as well as for
preparing financial statements.
Some of the important examples of application of electronic spreadsheet in
financial accounting are as follows:
(i)Accounts payable is money owed by a business to its suppliers shown as a
liability on a company‘s balance sheet.

(ii) Accounts receivable is a legally enforceable claim for payment held by a

business for goods supplied and/or services rendered that customers/clients have
ordered but not paid for. These are generally in the form of invoices raised by a
business and delivered to the customer for payment within a time period.

53
(iii) Cash book is the record of cash transaction done in a company on a day to
day or regular basis. Cash book is just like a ledger account.

(iv) Invoice is a document issued by a seller to the buyer for a transaction. It

consists of details of services or goods supplied along with rates of services
provided or per unit price of goods. An Invoice is issued to the receiver of goods or
services for payment.

(v) A Petty Cash Book is a document in which all petty or small daily routine
payments made from petty cash fund are systematically recorded. In other words,
54
Petty Cash Book is a type of Cash Book which is generally maintained in large
businesses to reduce the burden of ‗Main Cash Book‘.

(vi) A purchase order (PO) is a commercial document and first official offer
issued by a buyer to a seller, indicating types, quantities, and agreed prices for
products or services. It is a buyer-generated document which states the requirements
and serves as a legal document authoring a purchase transaction.

(vii) A bill of lading is a document detailing how goods are being shipped from a
seller to a recipient. It includes details about the items being shipped, the quantity
of items included in the shipment, and the destination address.

(viii) Creating a cash flow forecast can be helpful for managing business‘ finances.
It enables user to estimate how much money his business will make and spend at
any given point, and will allow user to take the appropriate steps to ensure that cash
outflow is not more than inflow.

55
Asset Accounting
Assets are the properties of a business which are acquired for the purpose of earning
income. Assets can be classified in to Fixed Assets and current Assets. Fixed Assets
are long term and provide productive capability of the business. It includes both
tangible and intangible assets. Buildings, Land, Plant, Machinery, Furniture,
Goodwill etc are examples of Fixed Assets. Depreciation should be charged on fixed
assets so as to recoup the amount spent on fixed assets. Depreciation is charged on
fixed assets as per the policy of the organization. Normally there are two methods
for charging depreciation; they are Straight Line Method and Written Down Value
method.

SLN()
In excel there is a simple function called SLN() to calculate depreciation under
Straight Line Method. The syntax of SLN Function is
=SLN(cost,salvage,life)
Where cost = Acquisition cost of asset, Salvage = Salvage value at the end of asset‘s
life, Life = Useful life of the asset
Eg. An asset purchased for Rs.9,000 and its installation cost is Rs.1,000. The useful
life of the asset is 10 years, at the end of which it will bring salvage value of
Rs.2,000. These details can be applied in SLN Function to calculate Straight
Line Depreciation as follows:-
=SLN(10000,2000,10)
Then we will get the result as Rs.800

Illustration
Below is given the details of various assets in a concern. Calculate the Straight Line
Depreciation by using SLN() function in excel.
Name of Cost of Installati Transportati Preoperati Salvage Life
Assets Purchase on on ng Value in
s Charges Charges Expens Years
es

Machine 20000 2000 4600 1200 12000 10

ry
Furnitur 40000 3500 1500 500 3000 8
e
Land 450000 0 0 5000 15000 12
Building 300000 0 0 8000 20000 20

56
Solution
The given details arranged in a worksheet as follows. We have added only two
columns to the given details. One is to calculate the Total Acquisition Cost of Assets
and other is to calculate the depreciation.

In the cell H2 enter the formula =sum (B2:E2)

In the cell I2 enter the formula =SLN (H2,F2,G2)
And copy down these formulas to the remaining rows
Then the result will be as follows:

Written Down Value (WDV) Method

Written down Value method uses the current book value as the base for calculating
depreciation for the next period. It is also called Declining Balance method or
Diminishing Balance method. In excel the DB () function is used to calculate
depreciation under Written Down Value method. The syntax of DB () function is as
follows:-
DB ( cost, salvage, life, period, [number_months] )
Where as
Cost : The original cost of the asset.
Salvage : The salvage value after the asset has been fully depreciated.
57
Life: The useful life of the asset or the number of periods that user will be
depreciating the asset.
Period: The period that user wishes to calculate the depreciation
Number months: Optional. It is the number of months in the first year of
depreciation. If this parameter is omitted, the DB function will assume that there
are 12 months in the first year.

Example-1
An asset that costs Rs.1, 00,000. The salvage value is Rs.8, 000. It has an effective
life of 10 years. The depreciation for the first year, assuming that there are 12
months in first year (i.e.; the asset was purchased on the opening day of the financial
year) is calculated by the following formula
=DB (100000, 8000, 10, 1, 12)

Example-2
An asset that costs Rs.50, 000. The salvage value is Rs.2, 000. It has an effective
life of 8 years. The depreciation for the second year, assuming that there are 12
months in first year (i.e.; the asset was purchased on the opening day of the financial
year) is calculated by the following formula
=DB (50000, 2000, 8, 2, 12)

Example-3
An asset that costs Rs.20, 000. The salvage value is Rs.1000. It has an effective life
of 5 years. The depreciation for the third year, assuming that there are 4 months in
first year (i.e.; the asset was purchased after 8 months of current year) is calculated
by the following formula
=DB (2000, 1000, 5, 3, 4)

Calculation of Number of Months and Period

In the above three examples, all the parameters are directly entered in the formula.
But we can automate the calculation of Number of months in the beginning year
and Period for which depreciation is calculated by using some additional formulas.
Consider the following table. In this only the Asset Installation date (in B1) and
Current Year ending date (in B2) are given. Let us examine how No. of months in
the beginning year and Period elapsed is calculated.

No. of months in the beginning year means the no. of months from the installation
date to the closing date of the beginning year. So first we have to calculate the
ending date of the first year. If the accounting year ends on 31st Dec each year, it
needs a simple formula to calculate the ending date of first year. In the Cell B3, we
can give the following formula in such a case
=Date(Year(B1),12,31)
In the given example, the above formula brings the result as 31/12/2008

58
But if the accounting year overlaps between two calendar years(E.g.- From 1st April
to 31st March) , it requires some more large formula to calculate the exact ending
date of first year as follows:-
=IF(AND(MONTH(B1)>0,MONTH(B1)<4),DATE(YEAR(B1),3,31),DATE(YE
AR(B1)+1,3,31))
Or
=IF(MONTH(B1)>3, DATE(YEAR(B1)+1,3,31),DATE(YEAR(B1),3,31))
After finding the year end date of first year, next step is find out the number of
months between installation Date and End date of Fist year. When a date is
subtracted from another, excel gives the result as the number of days between these
two dates.
E.g.: The formula =‖30/06/2015‖ – ―01/01/2015‖ will give the result as 180. That
means there are 180 days between these two dates.

In the given example, the year ending date of beginning year is calculated in the cell
B3 and installation date is given in the cell B1. Let us use the formula =B3-B1 to
calculate the difference between these two days. This will give result as 292 days.
Since we require number of months instead of days, we can divide the answer by
30 and the formula can be changed as follows. =(B3-B1)/30. This will give result
as 9.7333 months. Again in order to avoid the fractions, we can enclose the above
formula in a Round function and the final formula will be as follows:-
=Round((B3-B1)/30,0)

Now let us look how to calculate the period for which depreciation is calculated, i.e.
the number of years elapsed from the date of installation. It can be simply calculated
as subtracting the year of installation from the current year. E.g. If the asset is
purchased on 01/02/2008 and current year end date is 31/12/2015 the simple
formula =Year(―31/12/2015‖) – Year(―01/02/2008‖) will give the result as 7 years
i.e.; 2015 – 2008.

But as we state earlier, if the accounting year overlaps between two calendar years,
we need some more large formula. In the example given, the installation date is
given in B1 and Current year ending date is given in B2. Since the accounting year
ends on 31st march, we have to give the following formula in the cell B5 to calculate
the number of years elapsed from the date of installation
=IF(MONTH(B1)>3,YEAR(B2)-YEAR(B1),YEAR(B2)-YEAR(B1)+1)

Illustration
We are given the following details regarding the various assets of a company.

59
Calculate depreciation under Written Down Value Method by using DB Function.

Solution:
Here we have to calculate 5 things. i.e. Total Cost of Asset, Year end of First year,
Period(Years elapsed from date of installation), No. of months in the beginning
year, and Depreciation. Hence we have added 5 columns to the right side of the
table.
The following formulas are entered in different cells
G4 (Total Cost) : =sum(C4:D4) H4 (Year end of 1st
Year) :
=IF(AND(MONTH(B4)>0,MONTH(B4)<4),DATE(YEAR(B4),3,31),DATE(YE
AR(B4)+1,3,31))
I4(Period) : =IF(MONTH(B4)>4, YEAR($C$1)-YEAR(B4)+1, YEAR($C$1)
J4 (No. of months in beginning) : =ROUND((H4-B4)/30,0)
K4 (Depreciation) : =DB(G4,E4,F4,I4,J4)
Then select the cell G4:K4 and copy down to the remaining three rows. The resultant
table will look as follows:-

Schedule forming Part of the Balance sheet.

In companies the Balance sheet is accompanied by statement showing the Gross
Block and Net Block of different types of Assets. Gross Block is the total value of
all of the assets that a company owns. Value is determined by the amount of costs
to acquire these assets, and it does not decrease the depreciation. Net block is the
gross block less accumulated depreciation on assets. Net block is actually what the
assets are worth to the company. Below is given a sample of Schedule of assets
blocks.
60
Here Gross Block as on 31st Mar 2015 is calculated as: Gross
Block as on 1st Apr 2014 + Additions – Deduction
Depreciation as on 31st Mar 2015 is calculated as:
Depreciation as on 1st Apr 2014 + Additions – Deduction
Additions of depreciation means depreciation of current year
Net Block as on 1st Apr 2014 is calculated as:
Gross Block as on 1st April 2014 – Accumulated Depreciation as on 1st April
2014
Net Block as on 31st Mar 2015 is calculated as:
Gross Block as on 31st Mar 2015 – Accumulated Depreciation as on 31st March
2015

Loan Repayment Schedule

Loan is a sum borrowed for a specified period at specified rate of interest. The loan
is repaid through a number of periodic installments (normally in monthly
installments) along with interest over the loan repayment period.
Computation of repayment installments is a tedious task. But excel‘s built in PMT
function can be used to compute monthly installments of repayments of loan. This
function is already discussed in the previous chapter ‗Spreadsheet‘.

Syntax
S=PMT( rate, nper, pv, [fv], [type] ) Where
as
rate = interest rate per period for the loan
Nper = number of payments for the loan. The unit must be the same as of interest
rate
Pv = Present Value ie; the loan amount
Fv = Future Value, the value of loan at the end, which is taken as zero
Type = Whether the payment is made at the beginning (Value-0) or at the end
(Value-1)

61
A bank has given an Housing Loan of Rs.5,00,000 to a customer on 1st April 2005.
The loan carries interest @ 10% p.a and the loan is to be repaid over 10 years. Here
the monthly installments are calculated by the following formula assuming that the
installments are paid at the end of each month.
=PMT (10%/12,10*12,500000,0,1) = -Rs.6553.
Here the interest rate is divided by 12 to convert to monthly rate and the year is
multiplied by 12 to get number of monthly payments. The monthly answer is shown
as minus figure since it is an outflow.

3.4.2 Use of Electronic Spreadsheet in Management Accounting

Spreadsheets can be used to great advantage in many parts of management
accounting. For example:
(i) Budgeting: budgets are always subject to estimates and changes. Because
formulae automatically update calculations, new budgets can quickly be
produced.
(ii) What-if queries: for example, what-if sales decrease by 5%. Again these
experiments can be carried out very quickly.
(iii)Variance analysis: comparison of actual and budgeted results and
highlighting of variances.
(iv) Production of graphics: all spreadsheets allow fast production of graphs and
charts.

3.5 USE OF ELECTRONIC SPREADSHEET IN HUMAN RESOURCE

MANAGEMENT

In Human resource management also electronic spreadsheets are widely used. One
of the major aspect is managing of payroll which is described below.

3.5.1 Payroll Accounting

Every employee is paid salary at the end of a period as per the agreements made
between the employer and employee and in accordance with the policy in force from
time to time in an organization. The computation of salary is based on the Rate of
Basic Pay, No. of days worked and Rate of applicable allowances and deductions.
A Payroll Accounting should have the following features
• Maintain employee related data such as Employee No, Name of employee, Basic
Pay, Applicable allowances, deductions etc
• Periodic calculation of the payments based on Basic Pay, No of days worked,
Applicable allowances, deductions etc.
• Preparation of salary statements and individual salary slips.
• Generation of advice to bank comprising of net salary to be transferred to
individual account of employees and other statutory payments such as Provident
Fund, Tax etc.

62
Payroll Component
Following are the essential components for the preparation of a Payroll.
1) Current Payroll Period (The period for which the payroll is prepared. Eg. Jan
2015)
2) Earnings:-
a. Basic Pay: It is the pay in the pay scale plus Grade Pay, but doesn‘t include
special pay.
b. Grade Pay (GP): It is the pay to be added to Basic Pay according to the
designation of the employee and applicable pay band or scale of pay.
c. Dearness Pay (DP): It is the portion of Dearness Allowance which has been
declared and deemed to have been merged with Basic Pay.
d. Dearness Allowance (DA): It is the compensation for reduction in the purchasing
power of money due to price rise. It is granted by Govt. periodically as a
percentage of Basic Pay + Dearness Pay.
e. House Rent Allowance (HRA): It is an amount paid to facilitate employee in
acquiring on lease of residential accommodation.
f. Transport Allowance (TA) : Transport allowance granted to employee for the
purpose of travelling between place of duty and residence
g. Any other Earnings: Such as Education Allowance, Medical Allowance,
Washing Allowance etc.
3) Deductions :-
a. Professional Tax (PT): It is a statutory deduction according to the legislature
of State Governments.
b. Provident Fund (PF): It is a statutory deduction as a part of social security. It
is deducted as certain percentage of Basic Pay + Dearness Pay.
c. Tax Deductions at Source (TDS): It is a statutory deduction. It is the monthly
installment of total Income Tax payable during the year.
d. Recovery of Loan Installment (LOAN): Deduction towards loan provided by
the employer to the employee.
e. Any other Deductions : Any other deductions made towards ‗Advance
against Salary‘, ‗Food Grains Advance‘, ‗Festival Advance‘ etc

Elements Used in Payroll Calculation

Basic Pay Earned (BPE) : It is the basic pay calculated with reference to the number
of Effective Days Present (NOEDP) during the month.
BPE = BP * (NOEDP/NODM)
BP = Basic Pay
NODM = No. of Days in the Month
NOEDP (No. of Effective Days Present) =
No. of Days in the Month – Leave Without Pay – Unauthorized Absents
E.g.: The basic pay of an employee is `.30,000. During the month of June 2015, he
has not attended the work for 3 days. His Basic Pay Earned (BPE) is calculated as
follows:-
BPE = 30,000 * (27/30) = 27,000
63
Dearness Allowance (DA) = BPE * Applicable Rate of DA for the Month
House Rent Allowance (HRA) = BPE * Rate of HRA for the Month
Travelling Allowance (TRA) = Fixed Amount or On a percentage basis
Total Earnings (TE) = BPE + DA + HRA + TRA
Provident Fund (PF) = BPE * Rate of PF
Tax Deduction at Source (TDS) = It is usually a Fixed Amount.
Recovery of Loan Installment (LOAN) = It is usually a Fixed Amount.
Total Deduction (TD) = PF + TDS + LOAN
Net Salary = Total Earnings (TE) – Total Deductions (TD)

Template Design
Template in Excel means a spreadsheet having a preset format, used as a base for a
particular application so that the format does not have to be recreated each time it
is used. Payroll Statements are needed in every month. So instead of designing the
payroll statement afresh in every month, a template can be created only at once and
the same can be used in the following months. While designing a template first user
has to decide, in which columns data are entered directly and in which columns
formulas should be entered to automate the calculations.

Illustration
The details of 10 employees of a concern for the month of January 2015 are given
below:-

Emp. Emp. Name Emp. Deduction Basic Pay TDS Loan

No Type Days
1001 RahulChand Senior 2 40000 500 0
1002 Nikhi Senior 1 34000 480 0
1003 Deepthi Senior 0 32000 480 2000
1004 Vishnu Senior 2 30000 500 0
1005 Abin Senior 2 28000 400 0
1006 Rugma Junior 3 24000 350 0
1007 Kathik Junior 1 22000 350 1800
1008 Athulya Junior 4 22000 350 0
1009 Ismail Asst 2 18000 280 1500
1010 Kiran Bose Asst 1 14000 250 0

In addition the following details are also given a)

Dearness allowance is 80% of Basic Pay
b) HRA : For Seniors - 40% , For Juniors – 30%, For Assistants-Nil
c) Travelling Allowance : For Seniors – `.1000 , For Juniors – `.500, For
64
Assistants- `.300
d) PF Deduction : 10% of Basic + DA
Solution

Let us now examine how a payroll can be created with the above details. Step.1:
The common factors can be arranged on the top of the payroll for easy reference
and easy manipulation, when a change is occurred.
No. of working days in the month is given in E1
DA Rate is given in E2
HRA Rate for Senior is given in E3
HRA Rate for Junior is given in E4
TRA Rate for Senior is given in E5
TRA Rate for Junior is given in E6
TRA Rate for Assistant is given in E7
PF Rate is given in E8
Now let us use these cell references for our calculations. One of the important fact
to be remembered is that while giving reference to these cells, we should make it
absolute reference by giving ‗$‘ symbols. Otherwise the references will be changed,
when the formula is copied to the remaining rows.

Step.2: Next the HR manager has to arrange the different elements of payroll in a
meaningful way. Here the table headings are given from the cell A11 to P11.

Step.3: This is the most important part of payroll preparation. Here we have to
decide the columns to which data are entered directly and columns to which
formulas are to be entered for automatic calculations. The formulas are to be entered
in the first row of the table and then it can be copied to the remaining rows. Below
is given a table showing the data to be entered in different columns of the table:-
Sl. No Column Heading Cell Data / Formula
1 Emp. No A12 Data to be entered directly
2 Emp. Name B12 Data to be entered directly
3 Emp. Type C12 Data to be entered directly
4 Deduction Days D12 Data to be entered directly
5 Basic Pay E12 Data to be entered directly
6 No. Of Effective F12 No. of days in the month – Deduction
Days Days
Formula : =$E$1 – D12
7 Basic Pay G12 BPE = BP*(NOEDP/NODM)
Earned(BPE) Formula : =E12*(F12/$E$1)
8 DA H12 DA = BPE*Rate of DA
Enter Formula : =G12*$E$2

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 9 HRA I12 HRA = BPE*Rate of HRA applicable
for different categories
Enter Nested if formula :
= if(C12=‖Senior‖,G12*$E$3,
if(C12=‖Junior‖,G12*$E$4,0))
10 TRA J12 TRA = Rates applicable to different
categories Enter Nested if formula :
=if(C12=‖Senior‖,$E$5,
if(C12=‖Junior‖,E$6,$E$7))
11 Total Earnings K12 TE = BPE + DA + HRA + TRA
Enter formula : =Sum(G12:J12)
12 PF L12 PF = Basic Pay * Rate of PF
Enter formula : =G12*$E$8
13 TDS M12 Data to be entered directly
14 Loan Payment N12 Data to be entered directly
15 Total Deductions O12 TD = PF + TDS + LOAN
Enter formula : =Sum(L12:N12)
16 Net Salary P12 NS = TE – TD
Enter formula : K12 – O12

Step 4: Now select the cells in which formulas are entered and copy it down final
result will look as follows

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3.6 USE OF ELECTRONIC SPREADSHEET IN
FINANCIAL MANAGEMENT

In financial management three crucial decisions are taken (i) Investing Decision (ii)
Financing Decision and (iii) Dividend Decision. The application of electronic
spreadsheet is huge in all sorts of financial decisions. Some of the important
calculations are described as below

3.6.1 Net Present Value

The difference between the present value of the future cash flows from an
investment and the amount of investment. Present value of the expected cash flows
is computed by discounting them at the required rate of return.
For example, an investment of $1,000 today at 10 percent will yield $1,100 at the
end of the year; therefore, the present value of $1,100 at the desired rate of return
(10 percent) is $1,000. The amount of investment ($1,000 in this example) is
deducted from this figure to arrive at net present value which here is zero
($1,000$1,000). A zero net present value means the project repays original
investment plus the required rate of return.

A positive net present value means a better return, and a negative net present value
means a worse return, than the return from zero net present value. It is one of the
two discounted cash flow techniques (the other is internal rate of return) used in
comparative appraisal of investment proposals where the flow of income varies over
time.
Syntax
NPV(rate,value1,[value2],...)
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The NPV function syntax has the following arguments:
Rate Required. The rate of discount over the length of one period. Value1,
value2, ... Value1 is required, subsequent values are optional. 1 to 254 arguments
representing the payments and income.
(i) Value1, value2, ... must be equally spaced in time and occur at the end of each
period.
(ii)NPV uses the order of value1, value2, ... to interpret the order of cash flows. It
should be made sure that payment and income values are in the correct sequence.
(iii)Arguments that are empty cells, logical values, or text representations of
numbers, error values, or text that cannot be translated into numbers are ignored.
(iv)If an argument is an array or reference, only numbers in that array or reference
are counted. Empty cells, logical values, text, or error values in the array or
reference are ignored.

• The NPV investment begins one period before the date of the value1 cash flow
and ends with the last cash flow in the list. The NPV calculation is based on
future cash flows. If first cash flow occurs at the beginning of the first period,
the first value must be added to the NPV result, not included in the values
arguments. For more information, see the examples below.
• If n is the number of cash flows in the list of values, the formula for NPV is:

• NPV is similar to the PV function (present value). The primary difference

between PV and NPV is that PV allows cash flows to begin either at the end or
at the beginning of the period. Unlike the variable NPV cash flow values, PV
cash flows must be constant throughout the investment. For information about
annuities and financial functions, see PV.
• NPV is also related to the IRR function (internal rate of return). IRR is the rate
for which NPV equals zero: NPV(IRR(...), ...) = 0.

Example
Copy the example data in the following table, and paste it in cell A1 of a new Excel
worksheet. For formulas to show results, select them, press F2, and then press Enter.
If User needs to, he can adjust the column widths to see all the data.
Data Description

0.1 Annual discount rate

-10000 Initial cost of investment one year from

today
3000 Return from first year

4200 Return from second year

6800 Return from third year

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 Formula Description Result

=NPV(A2, A3, A4, Net present value of this investment $1,188.44

A5, A6)

Example 2
Data Description

0.08 Annual discount rate. This might represent

the rate of inflation or the interest rate of a
competing investment.

-40000 Initial cost of investment

8000 Return from first year

Data Description

9200 Return from second year

10000 Return from third year

12000 Return from fourth year

14500 Return from fifth year

Formula Description Result

=NPV(A2, Net present value of this investment $1,922.06
A4:A8)+A3
=NPV(A2,
A4:A8, -
9000)+A3

3.6.2 Internal Rate of Return

The internal rate of return (IRR) is the core component of capital budgeting and
corporate finance. Businesses use it to determine which discount rate makes the
present value of future after-tax cash flows equal the initial cost of the capital
investment. Or, to put it more simply: What discount rate would cause the net
present value (NPV) of a project to be $0? We expect that projects to grow our
business will give us some return over time, so what is the lowest level of return we
can tolerate? The lowest level is always the cost of capital to fund the project.

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If a project is expected to have an IRR greater than the rate used to discount the
cash flows, then the project adds value, while if the IRR is less than the discount
rate, it destroys value. This decision process to accept or reject a project is known
as the IRR Rule.

One advantage of using IRR, which is expressed as a percentage, is that it

normalizes returns – everyone understand what a 25% rate means, compared to the
hypothetical dollar equivalent (the way the NPV is expressed). Unfortunately, there
are also several critical disadvantages with using the IRR to value projects. In the
first place, user should always pick the project with the highest NPV, not necessarily
the highest IRR – because, at the end of the day, his financial statements are
measured in dollars, not percents. If faced with two projects, Project A with 25%
IRR and Project B with 50% IRR, but Project A has a higher
NPV, user would pick Project A. The second big issue is that mathematically, the
IRR assumes user can always continue to reinvest any incremental cash flow at the
same IRR, which is infrequently the case. A more conservative approach is the
Modified IRR (MIRR), which assumes reinvestment at the discount rate.

The IRR Formula

The IRR cannot be derived easily. The only way to calculate it by hand is through
trial and error, because user is trying to arrive at whatever rate which makes the
NPV equal to zero. For this reason, we'll start with calculating NPV:
NPV= ∑ {After-Tax Cash Flow / (1+r)^t} – Initial Investment

Broken down, each period's after-tax cash flow at time t is is discounted by some
rate, r. The sum of all these discounted cash flows is then offset by the initial
investment, which equals the current NPV. To find the IRR, user would need to
"reverse engineer" what r is required so that the NPV equaled zero.

Financial calculators and software like Microsoft Excel contain specific functions
for calculating IRR, but any calculation is only as good as the data driving it. To
determine the IRR of a given project, user needs to first reasonably estimate the
initial outlay (the cost of capital investment), and then all the subsequent future cash
flows. In almost every case, arriving at this input data is more complex than the
actual calculation performed.

Calculating IRR in Excel

There are two ways to calculate IRR in Excel:
• using one of the three built-in IRR formulas
• breaking out the component cash flows and calculating each step
individually, then using those calculations as inputs to an IRR formula. As
we detailed above, since the IRR is a derivation there is no easy way to break
it out by hand.

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The second method is preferable because financial modeling best practices require
calculations to be transparent and easy to audit. The trouble with piling all of the
calculations into a formula is that user can't easily see what numbers go where, or
what numbers are user inputs or hard-coded.

Here is a simple example. What makes it simple, among other things, is that the
timing of cash flows is both known and consistent (one year apart).
Assume a company is assessing the profitability of Project X. Project X requires
$250,000 in funding and is expected to generate $100,000 in after-tax cash flows
the first year, and then grow by $50,000 for each of the next four years.
User can break out a schedule as follows (if table is hard to read, right-click and hit
"view image"):

(Source: Investopedia Academy)

The initial investment is always negative, because it represents an outflow. User is
spending something now, and anticipating results later. Each subsequent cash flow
could be positive or negative; it depends entirely on the estimates of what the project
delivers in the future.

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In this case, we get an IRR of 56.77%. Given our assumption of a weighted average
cost of capital (WACC) of 10%, the project adds value.
Keep in mind the limitations of IRR: It will not show the actual dollar value of the
project, which is why we broke out the NPV calculation separately. Also, recall that
the IRR assumes we can constantly reinvest and receive a return of 56.77%, which
is unlikely. For this reason, we assumed incremental returns at the risk-free rate of
2%, giving us an MIRR of 33%.

3.6.3 Payback Period

The payback period is the number of years it takes to recover an initial investment
outlay, as measured in after-tax cash flows. It is an important calculation used in
capital budgeting to help evaluate capital investments. For example, if a payback
period is stated as "2.5 years," it means it will take two-anda-half years, or 30
months, to receive entire initial investment back.

Pros and Cons of Payback Period

The one main pro to evaluating a project or an asset by payback period to evaluate
a project is that it's simple and straightforward. Basically, the question which arises
is: "How many years until this investment breaks even?"
But there are a few important cons that disqualify payback period from being a
primary factor in making investment decisions. First, it ignores the time value of
money, which is a critical component of capital budgeting. Second, it doesn't assess
the riskiness of the project; projecting a break-even time in years means little if the
after-tax cash flow estimates don't actually materialize.

How to Calculate Payback Period in Excel

Financial modeling best practices require calculations to be transparent and easily
auditable. The trouble with piling all of the calculations into a formula is that user
can't easily see what numbers go where, or what numbers are user inputs or
hardcoded.

The easiest to audit and understand is to have all the data in one table, then break
out the calculations line by line.
Calculating payback period by hand is somewhat complex. Here is a brief outline
of the steps, with the exact formulas in the table below (note: if it's hard to read,
right-click and view it in a new tab to see full resolution):
1. Enter Initial Investment
2. Enter After-Tax Cash Flows (CF)
3. Calculate Cumulative Cash Flows (CCC)
4. Add a Fraction Row, which finds the percentage of remaining negative CCC
as a proportion of the first positive CCC
5. Count the number of full years the CCC was negative
6. Count the fraction year the CCC was negative

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 7. Add the last two steps to get the exact amount of time in years it will take o
break even

3.7 USE OF ELECTRONIC SPREADSHEET IN MARKETING

While marketing and product professionals look to their finance teams to do the
heavy lifting for financial analysis, using spreadsheets to list customer and sales
targets can help them to manage their sales force and plan future marketing plans
based on past results. Using a pivot table, user can quickly and easily summarize
customer and sales data by category with a quick drag-and-drop. All parts of
business can benefit from strong Excel knowledge, and marketing functions are not
exempt.

3.8 USE OF ELECTRONIC SPREAD IN PRODUCTION

Electronic Spreadsheet has been very helpful in executing production functions.

Many functions such as inventory control, production planning and scheduling,
quality control, quality charts, capacity planning, aggregate planning are now-adays
performed with the help of electronic spreadsheet.

3.9 LET’S SUM-UP

Spreadsheet software is very versatile and can be used for both very simple and very
complex tasks. Lists, such as vocabulary, parts for a project or grocery shopping,
can be easily composed in a spreadsheet. Adding or deleting items from a list like
this is also simple, so the lists can be used many times. The management of more
complex data, such as earnings, expenses, budgets and other accounting, is also
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made easier with a spreadsheet. Spreadsheet programs include features that can
calculate complicated math, including everything from basic addition and
subtraction to percentages, taxes and multi-step problems. This makes spreadsheets
essential for businesses, self-employed individuals and anyone who needs to keep
an account of expenses and income. Spreadsheet programs also include software
that creates graphs and charts from the data provided within the table. This is good
for presentations, such as business meetings and research projects, and offers a fresh
view of the data. These graphs and charts are customizable and can be specific or
general depending on the settings and options chosen

3.10 KEY TERMS

• Operational Spreadsheet
• Loan Payment Schedule
• Net Present Value
• Internal Rate of Return
• Invoice
• Payback period
• Payroll Management

3.11 SELF-ASSESSMENT QUESTIONS

(i) What are the benefits of using electronic spreadsheets for business?
Ans :

(ii) What are the uses of electronic spreadsheet in accounting? Explain with
example.
Ans :

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3.12 FURTHER READINGS

(i) Accounting for Managers, Ruchi Bhatia, Himalaya Publishing House, 2011
(ii) Accounting for Business Managers, Sakshi Vasudeva, Himalaya Publishing
House, 2009

3.13 MODEL QUESTIONS

(i) What do you mean by Net Present Value? Briefly narrate the process of
calculating NPV of a project in excel.
(ii) What do you mean by human resource management? Elaborate the uses of
electronic spreadsheet in human resource management.

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