ACCOUNTING IN COMPUTERISED ENVIRONMENT
1) Write short notes on a) Computerized Accounting System,
b) Computer Software,
c) Accounting Software.
Computerized Accounting System is the system of accounting for transactions
and recording of financial information in a Computerized Information Systems (CIS)
Environment, i.e. using Computers and Computer Software. CIS Accounting has the
following salient features –
a) Processing of financial information is by one or more Computers.
b) Processing is done using Computer Software (either Pre-packaged or acquired or
customized / developed).
c) Computer(s) may be operated either by the Entity itself or by a Third Party (i.e.
Service Bureau ).
Computer Software includes any program or routine that performs a desired
function(s), and the documentation required to describe and maintain that program or
routine.
Accounting Software is a Computer Software used for the accounting functions,
i.e. recording of transactions, reporting of financial information, generating analytical
reports, e.g. Ageing Analysis of Debtors, etc.
2) Outline the advantages and disadvantages of a Computerized Accounting
System over a Manual Accounting System. List the benefits of a
Computerized Accounting System.
a. Advantages / Benefits:
 Single Point Entry: Single Point Entry of a transaction will automatically
update all the related ledgers and records.
 Speed: CIS Accounting System can support heavy volumes of transactions,
with speed and quick recording.
 Accuracy: Tallying of Trial Balance, correct posting into the General Ledger
and Subsidiary Ledger, etc. do not create difficulties in a CIS Accounting System.
Arithmetical accuracy can be easily assured.
 Analytical Review: Detailed analytical review of financial data is possible,
e.g. product-wise and area-wise sales analysis, percentage of each expense to
total, Ratio Analysis, etc.
 Financial Analysis: Financial Statements can be prepared quickly. For every
transaction, the effect on the B/S and P&L can be ascertained immediately. Dayto- day Cash Flow and Fund Flow Analysis can also be handled easily.
 Budget Comparison: GS Accounting helps in comparison with budget figures,
through preparation of Variance Reports and Performance Reports.
 Eco-friendly: Voluminous paper use can be avoided. Only exception and
summary reports can be printed.
 Voucher Generation: OS Accounting can be effectively used to generate
vouchers and documents online, and to print them on need basis. For example,
Sales Invoices generated by the system can be printed and delivered to
customers, while other internally used documents need not be printed, since
the system "records" the data and voucher automatically.
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b. Disadvantages:
 Data Security: Data Security is a cause of concern, since data is not
stored in hard copy format, but only in soft copy (i.e. data files).
 Unauthorized Access: Unauthorized access and copying of confidential
financial information can happen without any trails or loss of data to the
Owner. Unauthorized access can be had through LAN or through the internet
by hacking into the Company Server. Risk of Unauthorised Access increases
in case of outsourcing accounting to a Service Bureau (Third Party).
 Data Integrity: Loss of data due to software snags or corruption of data
files is a serious threat in CIS accounting. These can happen unintentionally
or inadvertently, while updating a new module or repairing an existing
system.
3. What do you mean by “Codification of Accounts"? What are its benefits?
Give an example of “Codified Accounts”.
 Codification: Codification of Accounts is a system whereby different ledger
accounts are assigned Codes (i.e. Numbers) which would communicate their
nature (Income, Expense, Asset, Liability, etc.)
 Benefits:
 It reduces the possibility of duplication, i.e. same account existing in
several names due to spelling mistakes or abbreviations used.
 Codes can be used in both Manual and CIS Accounting Systems. It is
beneficial where there are numerous account heads and the complexity is
high.
 Systematic Grouping:
o Meaning: Grouping refers to categorizing of different Ledger
Accounts under different heads / groups e.g. Fixed Assets, Current
Assets, Receivables, Term Liabilities, Suppliers, Operating Income,
Non-Operating Income, etc.
o Significance: Systematic Grouping is a pre-condition for proper
codification, since each Ledger under a Group will have similar coding
pattern.
 Basis for Grouping: Grouping and Codification is dependent upon the type
of Enterprise and the extent of subdivision required for reporting on the
basis of Profit Centers or Product Lines.
4. List the different ways of maintaining accounts In a CIS Environment.
1. Spreadsheets (Example: MS Excel),
2. Pre-Packaged Accounting Software (Example: Tally, Acc. Pro),
3. Customized Accounting Packages, i.e. specific for each entity,
4. ERP Software, and
5. Outsourcing of Accounting Functions.
5. Explain the merits and demerits of maintaining accounts through Spreadsheet
Software.
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Advantages
Disadvantages
1. Spreadsheets are very simple to use,
i. Spreadsheet Packages can
and easy to understand.
accommodate data only up to a specified
2. Grouping and re-grouping of accounts
limit.
can be done very easily.
ii. Huge volume of data will slow down
3. Functions like calculations,
the package, and at times, the Data
setting formula, creating macros, etc.
File may not work at all.
can be easily done.
iii. Simultaneous Access on a Network is
4. Presentation (using Bar Diagram,
not possible, since a File is
Histogram, Pie-Chart, etc.) can be
"locked for editing", and only one
adopted for analysis of financial
person will be able to have read-write
information.
access at a time.
5. Security features like restricted
iv. Double Entry is not automatically
access, locking of cells, password
completed. User has to incorporate
protection of formula cells, can be
repetitive formulas across a number of
used.
files
to implement double entry
6. Highly useful for small volume
accounting.
analytical purposes.
v. Users are required to extract data
independently by checking the settings
and fixing the data range, etc.
6.
Explain the features of Packaged Accounting Software.
What are Off-The-Shelf Accounting Packages Outline their benefits and
limitations.
A.Features: Pre-Packaged or Off-the-Shelf Accounting Software have the
following features –
 Available in the market for purchase and use.
 Pre-defined to function in a certain manner, and provide for no or low
level of customization.
 Can be Single User Version or Multiple User Version (i.e. for usage across
the LAN).
 Sold by Vendors in the form of Installation Software stored in CDs, or in
internet downloadable set-up files.
B. Functional Utilities:
i. Company Information: Creation of Company along with its details
such as Address, Phone Numbers, VAT Registration No. PAN, TAN,
Accounting Period, etc.
ii. Creation of Accounts: Ledger Accounts are created in the Master
Files under different classification / group such as Asset, Liability,
Income and Expenditure.
iii. Updating of Financial Data: Opening Balances in various asset and
liability accounts are updated in the Ledgers created as above.
iv. Updating Customers / Vendors Particulars:
Customers / Vendor's
Name, Address and other basic details are also entered in the Customer
/ Vendor's Master File.
v. Inventory: System of Valuation of stock like the FIFO, UFO, Weighted
Average, etc. are defined in the Product Master Files. Units of
measurement can also be updated.
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vi. Reports: Reports include items like - (a) Financial Statements, (b) Bank
Reconciliation, (c) Cash and Funds Flow Analysis, (d) Ageing Analysis of
Debtors, (e) Ratio Analysis, etc.
C. Advantages:
i. They are Inexpensive compared to Customized Software.
ii. They are easy to install, with installation instructions given separately in
the User Manual and also appearing on screen at different stages of
installation. The Installation Process is predominantly restricted to clicking
on "Yes" or "No" or "Ok" buttons for appropriate instructions.
iii. Packages are generally based on GUI (Graphical User Interface), and hence are
menu- driven with Help options. User Manual provides most of the
solutions to problems that the User may face while using the software.
iv. Pre-Packaged Accounting Software have inbuilt data backup facility also.
v. They provide the basic reports which are required by a business unit.
vi. These packs also provide facilities of Invoice Generation, Delivery
Challans, Receipts, etc. and are very effective for small and medium sized
businesses.
vii.There is a good facility for up gradation and continuous Vendor Support.
D. Limitations:
i. Standard Package may not take care of individual complexities and
peculiar feature of each business.
ii. All accounting related functions may not be covered by a Pre-Packed
Accounting Software. Example: Some accounting packs do not provide for
facility to record Stock Movements within the Factory, i.e. From
Stores Department to Production Department.
iii. The Software may not be able to analyze or present reports to meet all
requirements. It generates only routine reports which may not suit
managerial decision-making.
iv. Bugs in the Software may remain for many years before it is rectified by the
Vendor.
v. It may not be possible to move the accounting data to another platform /
software.
vi. This increases the dependency of the Enterprise on the Software Vendor, for
software up gradation.
vii.The Software Vendor will be able to access all confidential data while on any
service maintenance duty. Once the Software Code is broken in one
particular Company, the perpetrator will be able to hack the software for
any other Company also. Further, many Packages do not provide for
different levels of access control.
7. Outline the considerations for selection of Pre-Packaged Accounting
Software.
 Business Requirements: The Enterprise should identify its business
requirements and try to match its requirement with functionalities offered by
different software providers.
 Reports: Software which is able to provide all the requisite reports (both
routine and exception reporting) in a format understandable to the User,
should be preferred.
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 Ease of Use: Software which is easier to use (both interface and
performance-wise), should be considered. Software which are very high on GUI
may fall short on performance (speed) while handling high volume data.
 Cost: Packages having more features cannot be opted because of the
prohibitive high costs.
 Support: Vendor Support is essential for any software. A Stable Vendor
with reputation and good track record will always be preferred.
 Regular Updates: Software which is constantly updated should be preferred
against those Software where Vendors do not update their Software regularly.
8. Explain the concept of Customized Accounting Software. What are the
advantages of using it?
a) Meaning: Customized Accounting Software refers to software developed on the
basis of requirement specifications provided by the Firm. It can be developed
in-house using internal resources or by engaging third party Software Developers.
Such Software is a preferred choice for meeting organization-specific needs in
terms of functionality, facilities and usage.
b) Process: Development of Customized Accounting Package involves activities like Feasibility Study,
 Defining User Requirements, i.e., Requirements Specification,
 System Analysis,
 System Design,
 Software Development and Design,
 Testing and Implementation of the Software Pack, and
 Documentation.
c) Benefits:
 Functional areas that are otherwise not covered in a standard package,
will now get computerized.
 Input Screens can be tailor-made to match the Input Documents for ease
of data entry.
 Input Devices like Bar Code Scanners can be used effectively for data
capture.
 User-defined Reports and Additional MIS Reports can be generated as per
Firm's own requirements.
 The system can suitably match with the Company's existing
organizational structure.
d) Limitations:
 Requirement Specifications may be incomplete or ambiguous, resulting in a
defective or incomplete system.
 Inadequate Testing may lead to software bugs, thereby affecting the
reliability of reports.
 Documentation to the Development activity may not be complete.
 Making frequent changes with inadequate Change Management Procedure,
results in System Compromise.
 Lack of Vendor Support with regard to Support Service or Sharing of
Source Code, can lead to modification problems and delays.
 Timeframe can neither be fixed nor are they adhered to, when
developing a Software. So, there is a delay in completion of the software.
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 There may be changeover problems in moving from existing system to
new customised accounting system.
e) Considerations: When Software is developed through Outside Parties, Vendor
Proposals are evaluated based on –
 Suitability,
 Completeness,
 Cost, and
 Vendor Profiles including Track Record.
9. What is an ERP Package? Outline the benefits of using an Accounting Package
as a part of an ERP Package.
What are the disadvantages of using ERP in Accounting?
a) Meaning: Enterprise Resource Planning (ERP) is a fully integrated business
management system covering the functional areas of an Enterprise like
Logistics, Production, Finance, Accounting, Human Resources, etc.
b) Purpose: ERP Packages aim at single database, single application and
single user interface for the entire Enterprise. ERP takes information from
every function, and assists Employees and Managers to plan, monitor and
control the entire business.
c) Benefits of using ERP for Accounting:
 Standardized Processes: ERP is a generalized package, which covers most
of the common functionalities of any specific module.
 Reporting: The reports in an ERP package, integrate all the financial
and non- financial particulars, to help Managers make an objective
analysis.
 Integrated: Duplication of data entry is avoided as it is an integrated
package.
 Information Use: Reliable, accurate and relevant information is available
through the ERP package.
d) Disadvantages of using ERP for Accounting:
 Lack of Flexibility: User may have to modify their business procedure at
times, to effectively use the ERP.
 Implementation Hurdles: Many Consultants implementing the ERP
Package are not able to fully appreciate the business procedure, which
affects the objective implementation of the ERP Packages.
 Expensive: ERP Packages are priced very high and are often beyond the
reach of small Firms.
 Complex Software: ERP Package has large number of options to choose
from. Further the parameter settings and configuration makes it a little
complex for the common users.
 Considerations: Choice of an ERP Package is based on factors like –
i. Business Requirements,
ii. Reports,
iii. Ease of Use,
iv. Cost, and
v. Vendor Profiles including Track Record. [Refer Q.7 for explanation]
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10. Explain the concept of outstanding of accounting function. What are its
benefits? Also, explain the perils of outsourcing the accounting function.
1. Meaning: Outsourcing refers to assigning a third party the responsibility of
managing the accounting functions of an Enterprise. The Enterprise does not
manage its accounting records. The Third Party maintains the accounting
software and the Client data, does the processing, and hands over the required
reports from time to time.
2. Benefits:
o The Enterprise can save time, and concentrate on its operations or core
area of business activity.
o Accounting is entrusted to specialists in the area. Data Storage and
Maintenance is done by professionals.
o The Firm is not affected when any person from the Accounting Department
/ Function leaves the organisation.
o Outsourcing Approach is more sensible economically.
3.
Disadvantages:
 The Firm's data is handed over to a Third Party, leading to loss of data
security and integrity. There have been instances of leakage of sensitive
information to outsiders from Third Party Processing Units.
 Sometimes, services provided by Third Party Units are not of the desired
quality. Vendors are not able to meet the quality standards set by the Firm.
 Cost may ultimately be higher than initially envisaged.
 Third Party Service Providers are catering to number of clients thereby
processing as per priority basis. This might result in delay in obtaining of
services in a timely manner.
4. Choice of Vendor: Choice of Outsourcing Vendor is made on the basis of
the proposals received from these Vendors. The proposals are to be evaluated
based on the following criteria –
a) Amount of services provided and whether the same matches
with the Firm's requirements.
b) Reputation and background of the Vendor.
c) Comparative Costs of the various proposals.
d) Quality Assurance, Data Integrity and Security.
11. Explain the criteria for selection of the method of accounting in a CIS
Environment.
Considerations in choosing the appropriate method of accounting (i.e. Spreadsheet (or)
Pre- Packaged Software (or) Customized Accounting Package (or) ERP (or) Outsourcing]
are as follows –
i. Size of Operation: For small or medium operations, a Pre-Packaged
Software is sufficient. If the size of the Firm is big, and its information
requirements are varied and specific to its nature, the Firm may choose
either a Customised Software or an ERP Package.
ii. Business Requirements: Where an organisation has several nonstandard requirements, then Customised Software is the appropriate choice.
iii. Complexity: If the operation is complex with several functional areas, which
needs to be computerized, either a Customised Software or an ERP Package
is preferable.
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iv. Budgetary Constraints: An internally developed software could be costly
initially, and cheaper to maintain in medium term. In the long run, lack of
qualified people will make its maintenance costlier, ERP Packages are costlier
to procure and maintain. Spreadsheets and Pre-Packaged Software are
cheaper, but they are short on utilities / features.
12. Write short notes on Report Generation from Accounting Software.
System
Report Generation
Spreadsheet Formats and Data Range to be defined by the User, for generating
(both view and print) various Reports. Use of Graphs is also possible.
Packages
Reports are generated from the Package, as per Standard Report
Definitions given in the Package, The User has to define the period of
Pre-Packaged report and type of report, and the details of data required, e.g.
Narration, Voucher Number, etc. Sometimes, the data may also be
Software
exported to Spreadsheets.
Customized Reports are generated from the Package, as per User Requirements
Software and specified in the earlier Stage. Report Generation is more flexible
when compared to Pre-Packaged Software.
ERP
Reports required are first specified to the Third Party Service Bureau,
Outsourcing along with their delivery times and schedules.
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