INTRODUCTION TO COMPUTERISED ACCOUNTING

As its name suggests, "computerized accounting" is

accounting done with the aid of a computer.
 It tends to involve dedicated accounting software
and digital spreadsheets to keep track of a business
or client's financial transactions.
Computerized accounting is the result of current
technological advances.
Technological advances have created new types of
accounting applications for business.
Companies now create entire accounting
information systems that integrate all business
operations, including external suppliers and vendors
in the value chain.
INTRODUCTION TO COMPUTERISED ACCOUNTING
Computerized accounting systems (or
software) have replaced manual-based
accounting in all business organizations.
Computerised accounting helps
accountants, managers, employees and
stakeholders in accessing to vital
accounting information at the touch of a
button.
computerized accounting systems
automate the accounting process by:
improving efficiency and Effectiveness
Comprised accounting system
Accounting as data processing system
• Accounting data processing is the process of
identifying, classifying, sorting, recording,
summarizing, and reporting the results of
business transactions.
• Different data processing mechanisms may be
used such as:
Manual system
Mechanical accounting system; and
Automated or electronic data processing (ADP or
EDP)
 FEATUERES OF COMPUTERISED ACCOUNTING
 Fast
 Powerful
 Simple
 more Integrated
 Accuracy
 Speed
 Improved Business Performance
 Quick Decision Making
 Completely Reliability
 Need for Computerized Accounting
The need for computerized accounting
arises from advantages of speed, accuracy
and lower cost of handling the business
transactions.
Numerous Transactions
The computerized accounting system is
capable recording and processing of large
number of transactions with speed and
accuracy.
Instant Reporting:
It is capable of offering quick and quality
reporting because of its speed and accuracy
 Need for Computerized Accounting cont…
Reduction in Paper Work
Manual accounting system requires large
storage space to keep accounting
records/books ,vouchers and documents.
Flexible Reporting
The reporting is flexible in computerized
accounting system.
 It is capable of generating reports of any
balance as when required and for any
duration which is within the accounting
period
 Need for Computerized Accounting Cont…
 Online Facility
 Computerized accounting system offers online
facility to store and process transaction data so
as to retrieve information to generate and view
financial reports.
 Accuracy:
 The information and reports generated are
accurate and quite reliable for decision-making.
 In manual accounting system, as many people
do the job and the volume of transactions is
quite large.
 such information and reports are likely to be
distorted and unreliable and inaccurate.
 Need for Computerized Accounting cont…
Security
This system is highly secured and the
data and information can be kept
confidential, when compared to manual
accounting system.
Scalability
The system can cope easily with the
increase in the volume of business.
It requires only additional data operators
for storing additional vouchers.
 Advantages of Computerized Accounting
Better Quality Work
The accounts prepared with the use of
computers are usually uniform, neat, accurate,
and more legible than manual job.
 Lower Operating Costs
Computer is a labor and time saving devise.
the volume of job handled with the help of
computers results in economy and lower
operating costs.
 Improved Efficiency
Computer brings speed and accuracy in
preparing the records and financial statements
 Advantages of Computerized Accounting
Facilitates Better Control
From the management point of view,
greater control is possible and more
information may be available with the use
of computer in accounting.
It ensures efficient performance in
accounting work.
 Greater Accuracy
Computerized accounting ensures
accuracy in accounting records and
statements.
 It prevents clerical errors and omissions.
 Advantages of Computerized Accounting
Relieve Monotony
Computerized accounting reduces the
monotony of doing repetitive accounting jobs,
which are tiresome and time consuming.
 Facilitates Standardization:
Computerized accounting facilitates
standardization of accounting routines and
procedures.
Minimizing Mathematical Errors
While doing mathematics with computers,
errors are virtually eliminated unless the data
is entered improperly in the first instance.
 Disadvantages of Computerized Accounting
Reduction of Manpower:
The introduction of computers in accounting
work reduces the number of employees in an
organization.
This leads to greater amount of unemployment.
 High Cost:
A small firm cannot install a computer
accounting system because of its high
installation and maintenance cost.
To be more economical there should be large
volume of work.
If the system is not used to its full capacity,
then it would be highly uneconomical
 Disadvantages of Computerized Accounting
Require Special Skills:
Computer system calls for highly
specialized operators.
 The availability of such skilled personnel
is very scarce and very costly.
 Other disadvantages
Frequent repair and power failure may
affect the accounting work very much.
 Computers are prone to viruses.
people will assume the computer is doing
things correctly and problems will go
unchecked for long period of time.
Other disadvantages cont…
 Needs heavy investment
 Problem of security
 Loss of data
 An artificial device
 Possibility of manipulations
 Not suitable for small firms
 Requires training on part of
accountants7
 etc
Problems Faced In Computerized Accounting System
User Training:
The user, for using computer accounting software,
needs to understand the concepts of the software.
A computer operator must learn the basics of
computer, concepts of software, working with the
operating system software such as Windows and the
accounting software.
System Dependency:
Using a computer solution makes the user to
depend fully on the com­puter system and
necessitates the availability of computer at all times.
 If the system is not available [due to hardware
failure or power cut, it would be difficult to verify
the accounts.
Problems Faced In Computerized Accounting System
Hardware Requirements:
A full-fledged computer system with a printer
is required to operate the computerized
accounting system.
Most small organizations may not afford to
have such facility with necessary software.
System Failure:
When there is a system crash (hard disk crash),
there is high risk of losing the data available on
the hard disk drive at any point of time.
It would be highly painful, if the problem
occurs at end of the financial year, when the
financial statements should be ready.
Problems Faced In Computerized Accounting System
Backups and Prints
Backups of the data should be done regularly .
when the data is lost, it can be restored from
floppies.
 Regular print outs of the system information
would be useful as manual records.
Voucher Management
Accounting software allows easy alteration of
data.
 If a voucher is wrongly placed in a wrong
head, it would be very difficult to sort out and
bring back the voucher.
 A good voucher management is very essential.
Problems Faced In Computerized Accounting System
Security:
Additional security has to be provided
because improper handling of the
system [hardware/software] could be
dangerous.
 Passwords, locks, etc., have to be set
so that no unauthor­ized person can
handle the system.
 Difference Between Manual Accounting System and
Computerised Accounting
Manual accounting requires that all journal
entries, invoices and other financial documents
be created by hand.
Computerized accounting allows users to input
information into accounting software programs.
Speed
Computerized accounting produces
information much faster than manual
accounting.
Accounting software packages, such as
QuickBooks and Peachtree allow users to input
as soon as possible.
 Accuracy
Manual accounting systems are prone to
mathematical errors and misplaced
numbers.
With a computerized accounting system,
your company data is automatically
calculated based on numbers you input.
Financial Statements
 In a manual accounting system, you have
to prepare your company's income
statement, balance sheet and statement of
owner's equity by hand.
Information from your journal entries
helps you to formulate your company's
financial statements.
 Financial statement…
Computerized accounting systems allow
financial statements to be created from
information stored in the database.
Cost
The cost of computerized accounting
systems can range from hundreds to
thousands of dollars for large businesses.
A computerized accounting system may save
cost required for creating financial
statements and other reports.
For this reason, many small and mid-sized
businesses use computerized accounting
 Reports
Reports are created on timely manner when
using a computerized accounting system.
 Reports generated from computerized
accounting software allow managers to run
the company in a more efficient manner.
 Creating reports in a manual accounting
system may lead to more staff frustration and
results in to work with outdated information.
Safety
Accounting records kept on the manual
system can be lost or damaged easily.
 Records kept by a computer are likely to be
safer because many systems are backed up
often.
 safety
In a computerized system, you simply restore
the latest backup and add a few transactions
that were not saved.
In this aspect, accounting software is
obviously superior to manual systems.
Organization
Data processed through software is
organized and easy to find.
We have to review several pages to find what
you need under manual accounting system.
Computerized organize the information in
one place, classified by type.
 Organization
For instance, if you want to find certain
data about a vendor, you can go to the
accounts payable section of the
software, usually by clicking a link or
tab, and conduct a search for the
vendor.
 If you conduct the same process on a
manual system, you may have to go
through several pages and take your
time to find what you're looking for.
Data Processing In Traditional/Manual System Of
Accounting

Input Processing Output

Data & Manual
Information
instructions processing
 DATA PROCESSING IN COMPUTERISED
ACCOUNTING SYSTEM
Input Processing Output
Data &
instructions
-Cheques/ Electronic -Profit & Loss
Receipts Processing A/c
-Debit Notes Through -Balance Sheet
-Credit Notes Computers
-Invoices
 various components of a computerised financial accounting
system
The major components of financial
accounting software are as under:
General ledger programs
Accounts payable program
Accounts receivable program
Payroll program
Fixed assets accounting program
Inventory accounting program
 Selection of Accounting Software
Should a firm develop its own accounting
software or buy it from externally supplied
software?
In-house software involves a software that is
developed by the firm internally considering the
needs of the firm.
Advantages of in-house software development
include:
It is ‘customized
Assurance of system compatibility
Less training cost
Less implementation time
 28
 Off-the-shelve accounting
Off-the-shelve accounting packages are
accounting software that are acquired
from an independent vendor.
Advantages of such off-the-shelve
accounting packages include:
Low risk
Lower cost
Shorter implementation time
Standardization
Avoidance of an in-house effort
29
 how to select off-the-shelve accounting
packages?
Different selection criterion may be used
to acquire an off-the-shelve accounting
packages; like
Reliability
Compatibility
Security
Flexibility
Extent of training required
Maintenance.
30
 Commonly used Accounting software
Commonly supplied accounting software include:
Peachtree
QuickBooks
ACCPAC
EXACT
The Sun
FAS
OMICRON
 Chapter Two And Chapter Three
• Peachtree Complete Accounting Overview And Setting Up A New Company

What is Peachtree Complete Accounting?

 Peachtree Complete Accounting is one of the many types
of off-the-shelve accounting software used in common.
It enables:
 To journalize and post transactions;
 To produce common accounting reports and financial
statements;
 To set budgets and analyze actual accomplishments or
variances;
 Features of Peachtree Accounting
•Peachtree accounting has the following
characteristics:
•More than one company can be created that can
be operated simultaneously;
•Peachtree accounting program is divided into two
components:
– Peachtree Complete accounting;
 How to begin Peachtree accounting?
•If Peachtree accounting is already installed into the computer,
it may be opened into ways:
•Using Peachtree Accounting shortcut key;
•Double-clicking into this short-cut icon would open Peachtree
accounting program.

•(ii) Peachtree accounting program may also be opened from

the task bar (depending when where the program is exactly
located):
•Start  Program Peachtree Complete Accounting
Getting Started for Peachtree Accounting System
• Peachtree accounting may be used in two cases:
 To start an accounting system afresh for newly established firm; or

 In case of converting a manual accounting system to computerized one.

• To start the use of Peachtree accounting system, the first step should be
to gather the necessary information required to start the system.
• These include information such as:

• Company data such as address;

• The type of accounting system to be used: cash basis or accrual basis;

• Beginning balances for balance sheet accounts;

• Creating a Company (Step 1)
• In order to process accounting data, a company should be
created and the necessary information should be entered.
• The following items are usually requested while creating a
company:
 Company name, address, business type;
 How to develop chart of accounts: whether to adapt a chart of
account built-in within the program or to develop own;
 Accounting method to be adopted: cash basis or accrual basis
accounting methods
 Posting method: Batch Vs Real-time posting
 In batch posting, the transactions entered will be saved to a temporary
holding area without being posted to ledger accounts immediately.
 This allows reviewing and verifying the transactions

• Journalized before posting the batch to the general ledger accounts;

• In real-time posting, the transactions entered or journalized will be
posted immediately to general ledger accounts when the command
‘save’ is given.
• Length of accounting period to be adopted, starting period of the fiscal
period, when the first of data entering is, and when first year of
entering payroll is.
• Practice – Creating a Company

• Opening Peachtree accounting program

displays the following startup screen
• with various alternatives of “what we want to
perform’.
• This option is to be used to open up an already
existing company.
 CHAPTER FOUR
» GENERAL LEDGER

• Topics to be covered:
 Maintaining the chart of accounts;
 Entering beginning balances;
 Recording general journal entries;
 Printing/ viewing the chart of accounts and the beginning trial balance

• 4.1. Overview
• In order to maintain general ledger records, first chart of accounting
should be maintained for the new company created along with the
respective beginning balances of accounts (if any)
• 4.2. Maintaining Chart of Accounts
 Entering Beginning Balances

• Beginning balances of accounts can be entered into two ways:

 To enter beginning balances for each account when an account
is maintained in the chart of account; or
 By writing a general journal entry to enter the beginning
balances of all the accounts
Entering beginning balances from ‘Maintain Chart of Accounts’
screen
After entering general information of an account, beginning
balances may also be entered by using the button: ‘beginning
balances
 » Entering Budget

To insert budget amounts in accounts, the

‘budget’ folder tab should be opened.
If each month’s budget is different, budget
amounts may be filled to each month separately.
Otherwise, if budget amount per month is
constant, the annual budget may be filled here
and can be allocated equally over the months in
the fiscal year.
• How to complete maintaining an account, entering a budget,
and inserting beginning balances?
• After entering all the required information properly, click the
‘save’ button in the toolbar button to complete the process.
Setting General Ledger Defaults
• Setting general ledger defaults refers to selecting an account
from the chart of account into which approximation of
decimals are to be accumulated.
• This is usually selected to be the ‘retained earnings’ account.
• It can be performed from the ‘maintain’ menu as:
 CHAPTER FIVE, SIX, AND SEVEN
PART II – RECORDING EVENTS (TRANSACTIONS) (A)

Entries to be recorded in Peachtree Accounting

 Different types of events or transactions can be recorded in Peachtree accounting. These include:

i. Sales quotes;

ii. Sales orders;

iii. Sales invoices;

iv. Cash receipts;

v. Credit memos;

vi. Purchase orders;

vii. Purchase or inventory receipts;

viii. Cash payments;

ix. Payroll entries;

x. General journal entries;

xi. Inventory adjustments;

xii. Account reconciliation;

 CHAPTER EIGHT
Account Reconciliation
Bank Reconciliation - Overview
 This is an attempt to trace reasons for differences between the depositor’s
cash account balance in the GL and the bank’s balance.” What factors caused
the depositor’s balance to be different from the bank’s balance?”
 In Peachtree accounting, bank reconciliation is usually a two-step procedure
that involves simultaneous activities of:
 Preparation of a bank reconciliation; and Adjusting the bank account only for
the bank’s debit memo, credit memo, and the depositor's error identified.
Other reconciling factors identified may not require adjusting the cash account
 Steps in bank reconciliation:
 Steps to be undertaken in bank reconciliation
include:
(i) Comparing checks and credits listed or
displayed against the debit side of the bank
statement;
 If a given payment is shown onto both the
depositor’s record and the bank statement,
place a check mark () to indicate that the
payment is cleared. i.e. the bank also has
effected the payment, thus it is not anymore a
reconciling factor to consider.