ACCOUNTING AND BUDGETS SERVICE L-IV

Set up and operate a Computerized Accounting System

This unit describes the performance outcomes, skills and knowledge required to modify and operate an
integrated computerized accounting system. This is generally under supervision and encompasses
processing transactions within the system, maintaining the system, producing reports and ensuring system
integrity.
Learning objectives
LO1:-Implement an integrated accounting system
LO2:-Process transactions within the system
LO3:-Maintain the system
LO4:-Produce reports
LO5:-Ensure system integrity
Introduction
In modern business accounting transactions are processed through computers. Usage of
computers and Information Technology (IT) enables a business to quickly, accurately and timely
access the information that helps in decision-making.
Computerized Accounting System refers to the processing of accounting transaction through the
use of hardware and software in order to produce accounting records and reports.
The Computerized Accounting System (CAS) has the following components:
Procedure: A logical sequence of actions to perform a task.
Data: The raw fact (as input) for any business application.
People: Users.
Hardware: Computer, associated peripherals, and their network.
Software: System software and Application software.

Component of computer

Soft ware
Hard ware

System soft Application

ware software

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LO1:-Implement an integrated accounting system

The general ledger, chart of accounts and subsidiary accounts are implemented in accordance with
organizational requirements, procedures and policies

An integrated accounting system is a type of software that combines major financial accounting
functions into one application. Replacing several discrete systems or programs eliminates the
need for separate books or records for ordering, costing and other management accounting
purposes. Integrating these features helps standardize procedures for recording transactions and
disseminating financial information.

Integrated accounting systems integrate information regarding the cost of each product, job or
operation as well as comprehensive information about the profit or loss of an entire organization.
These systems help management achieve and maintain control over operations by enabling
companies to determine marginal costs, variances and abnormal losses or gains. Additionally,
integrated accounting systems can be used to estimate, report and monitor a company’s job costs
as well as track and convert employee time into payroll. These systems can also handle
additional processes such as inventory purchases, assembly and sales and sending information
like statements and invoices to customers or vendors.

Most integrated accounting systems includes

Accounts receivable and accounts payable ledgers.

 Bank reconciliation.
 General ledgers.
 Purchase orders.
 Stock inventory.
 Billing and bookkeeping.

Benefits of integrated accounting systems

A key benefit of an integrated accounting system is that information is entered once and shared
with other modules, including the general ledger. One information database is used and accessed
by all applications. Not having to re-enter data from one system to another reduces the likelihood
of human error and eliminates the need to reconcile various ledgers and functions, which update
automatically and in real time.

This means the financials are always up-to-date and that sophisticated accounting operations,
such as job costing and commission calculation, are performed automatically just by processing

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the orders. Additionally, maintaining one set of accounts avoids duplication of efforts and
provides decision-makers with accurate information in a timely manner.

How to choose an integrated accounting system

Today, companies of all sizes have adopted integrated accounting systems and there are many
products and vendors from which to choose. In some cases, systems are purchased separately and
integrated later. Large firms might develop customized systems internally; although, such
systems are the most expensive and are designed to work with in-house customer service and
support.

Integrated accounting systems can also be designed for specific industries or regulatory
environments. When choosing an integrated accounting system, companies should define a clear
idea of what objectives it needs to accomplish. A few considerations could include what types of
financial reports need to be generated, what are long term financial goals, what additional
features are required and how many users need access to the system.

Chart of account
Most companies have a chart of accounts. This chart lists the accounts and the account numbers that
identify their location in the ledger. The numbering system that identifies the accounts usually starts with
the balance sheet accounts and follows with the income statement accounts.
The chart of accounts is a list of all general ledger accounts an organization uses.
Group coding is often used for these numbers, e.g.:
 The first section identifies the major account categories, such as asset, liability, revenue, etc.
 The second section identifies the primary sub-account, such as current asset or long-term investment.
 The third section identifies the specific account, such as accounts receivable or inventory.
 The fourth section identifies the subsidiary account, e.g., the specific customer code for an account
receivable.
The structure of this chart is an important AIS issue, as it must contain sufficient detail to meet the
organization’s needs.
WHAT ARE ACCOUNTING INFORMATION SYSTEMS?
Accounting information systems (AISs) stand at the crossroads of two disciplines: ‘‘accounting’’ and
‘‘information systems.’’ Thus, the study of AISs is often viewed as the study of computerized
accounting systems.
Accounting ===== Accounting ================Information
Information Systems
Systems
Accounting information systems exists at the intersection of two important disciplines:
(1) Accounting and (2) information systems

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An accounting information system is a collection of data and processing procedures that creates needed
information for its users.
Accounting: You probably have a pretty good understanding of accounting subjects because you have
already taken one or more courses in the area. Thus, you know that the accounting field includes financial
accounting, managerial accounting, and taxation
Accounting information systems are used in all these areas—for example, to perform tasks in such areas
as payroll, accounts receivable, accounts payable, inventory, and budgeting.
In addition, AISs help accountants maintain general ledger information, create spread sheets for strategic
planning, and distribute financial reports. Indeed, it is difficult to think of an accounting task that is not
integrated, in some way, with an accounting information system.
LO2:-Process transactions within the system
A. Transaction Processing System
The TPS is central to the overall function of the information system by converting economic events into
financial transactions, recording financial transactions in the accounting records (journals and ledgers),
and distributing essential financial information to operations personnel to support their daily operations.
The TPS deals with business events that occur frequently. In a given day, a firm may process thousands
of transactions. To deal efficiently with such volume, similar types of transactions are grouped together
into transaction cycles. The TPS consists of three transaction cycles: the revenue cycle, the expenditure
cycle, and the conversion cycle. Each cycle captures and processes different types of financial
transactions

Information versus Data

Data
Although the terms data and information are often used interchangeably, it is useful to distinguish
between them. Data (the plural of datum) are raw facts about events that have little organization or
meaning—for example, a set of raw scores on a class examination. To be useful or meaningful, most data
must be processed into useful information—for example, by sorting, manipulating, aggregating, or
classifying them. An example might be by taking the raw scores of a class examination and computing
the class average.
Data Sources
Data sources are financial transactions that enter the information system from both internal and external
sources.
External financial transactions are the most common source of data for most organizations. These are
economic exchanges with other business entities and individuals outside the firm. Examples include the

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sale of goods and services, the purchase of inventory, the receipt of cash, and the disbursement of cash
(including payroll).
Internal financial transactions involve the exchange or movement of resources within the organization.
Examples include the movement of raw materials into work-in-process (WIP), the application of labour
and overhead to WIP, the transfer of WIP into finished goods inventory, and the depreciation of plant and
equipment.
Appropriate technical helpmay include is used to solve any operational problems.
 computer help desk personnel
 designated technology assistance staff
 external staff employed or recommended by the software supplier to assist with difficulties
 managers and supervisors
 on-screen help
 online help
 software manuals
Basic flow of Accounting Transaction

Account
transaction

Input Application
Data Entry accessed data
Information
accounting
transaction displayed
Soft ware

Input data is collected, coded and classified before processing

A wide range of cash and credit transactions are processed in both a service and trading environment
Transactions may include
 adjustment notes
 bad debts
 bank reconciliation
 cash sales and deposits
 cheque payments
 commencing business entry
 commission
 contra entries
 credit card payments
 customer payments

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 discounts :
 financial
 sales
 funds transfers
 inventory stock take
 loans
 petty cash
 purchase and sale of stock
 purchase invoices
 purchase orders
 sales invoices
 supplier payments
 withdrawal of stock and assets by owner
The general journal is used to make any balance day adjustments for prepayments and accruals
Balance day adjustmentsmay include:
 accrued expenses
 depreciation
 doubtful debts
 prepaid expenses
 revenue received in advance
System output are regularly reviewed to verify the accuracy of data input and adjustments made for any
detected processing errors
An end of financial year rollover is performed.
Data Collection
Data collection is the first operational stage in the information system. The objective is to ensure that
event data entering the system are valid, complete, and free from material errors.
Two rules govern the design of data collection procedures: relevance and efficiency.
Efficient data collection procedures are designed to collect data only once.
Data Processing
Once collected, data usually require processing to produce information. Tasks in the data processing stage
range from simple to complex. Examples include mathematical algorithms (such as linear programming
models) used for production scheduling applications, statistical techniques for sales forecasting, and
posting and summarizing procedures used for accounting applications.
Database management tasks
Database management involves three fundamental tasks: storage, retrieval, and deletion.
The storage task assigns keys to new records and stores them in their proper location in the database.
Retrieval is the task of locating and extracting an existing record from the database for processing. After
processing is complete, the storage task restores the updated record to its place in the database. Deletion is
the task of permanently removing obsolete or redundant records from the database.
Information

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Information is different from data. Information is data that have been organized and processed to provide
meaning to a user. Usually, more information and better information translates into better decisions.
Information is often defined simply as processed data. This is an inadequate definition. Information is
determined by the effect it has on the user, not by its physical form. For example, a purchasing agent
receives a daily report listing raw material inventory items that are at low levels. This report causes the
agent to place orders for more inventories. The facts in this report have information content for the
purchasing agent. However, this same report in the hands of the personnel manager is a mere collection of
facts, or data, causing no action and having no information content.
The distinction between data and information has pervasive implications for the study of information
systems. If output from the information system fails to cause users to act, the system serves no purpose
and has failed in its primary objective.
Information System Objectives
Each organization must tailor its information system to the needs of its users. Therefore, specific
information system objectives may differ from firm to firm. Three fundamental objectives are, however,
common to all systems:
1. To support the stewardship function of management. Stewardship refers to management’s
responsibility to properly manage the resources of the firm.
2. To support management decision making. The information system supplies managers with the
information they need to carry out their decision-making responsibilities.
3. The information system provides information to operations personnel to assist them in the efficient
and effective discharge of their daily tasks
This situation is known as information overload. It is up to the accounting profession to determine the
nature and timing of the outputs created and distributed by an AIS to its end users.
Another problem with computerized data processing is that computers do not automatically catch the
simple input errors that humans make. A computer can be programmed to look for (and reject) bad input,
but it is difficult to anticipate all possible problems.

Benefits of information:
Benefits of information may include:
• Reduction of uncertainty
• Improved decisions
• Improved ability to plan and schedule activities
Cost of producing information
Costs may include time and resources spent:

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• Collecting data
• Processing data
• Storing data
• Distributing information to users
Information generation
Characteristics of Information
Regardless of physical form, useful information has the following characteristics: relevance, timeliness,
accuracy, completeness, and summarization.
 Relevance: the contents of a report or document must serve a purpose. This could be to support a
manager’s decision or a clerk’s task. F i g u r-6 the data hierarchy
 Timeliness: the age of information is a critical factor in determining its usefulness.
 Accuracy: information must be free from material errors.
 Completeness: no piece of information essential to a decision or task should be missing.
 Summarization: information should be aggregated in accordance with the user’s needs.
 Feedback: feedback is a form of output that is sent back to the system as a source of data. Feedback
may be internal or external and is used to initiate or alter a process.
– Internal feedback from this information will initiate the inventory ordering process to replenish
the inventories.
– Similarly, external feedback about the level of uncollected customer accounts can be used to
adjust the organization’s credit-granting policies.
LO3:-Maintain the system

Any new general ledger accounts, customer, supplier, inventory and fixed asset records are added as
required
An existing chart of accounts, customer, supplier, inventory and fixed asset records and subsidiary
accounts are maintained and updated
The chart of accounts is customized to meet the reporting requirements of the organization
WHAT IS A SYSTEM?
A system is a set of interrelated components that interact to achieve a goal of an organization.
For many, the term system generates mental images of computers and programming. In fact, the term has
much broader applicability. Some systems are naturally occurring, whereas others are artificial. Natural
systems range from the automatic system of electrons, protons, and neutrons—to the universe—a system
of galaxies, stars, and planets. All life forms, plant and animal, are examples of natural systems.
Artificial systems are man-made. These systems include everything from clocks to submarines and social
systems to information systems.

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Elements of a System
Regardless of their origin, all systems possess some common elements. A system is a group of two or
more interrelated components or subsystems that serve a common purpose.
It means that most systems are composed of smaller subsystems and visa versa.
Multiple components: A system must contain more than one part. For example, a chair built from a
piece of wood and attached to a string is a system. Without the nail, it is not a system.
Relatedness: A common purpose relates the multiple parts of the system. Although each part functions
independently of the others, all parts serve a common objective. If a particular component does not
contribute to the common goal, then it is not part of the system.
For instance, a pair of ice skates and volleyball net are both components; however, they lack a common
purpose, and thus do not form a system.
Management Reporting System
The MRS provides the internal financial information needed to manage a business. Managers must deal
immediately with many day-to-day business problems, as well as plan and control their operations.
Managers require different information for the various kinds of decisions they must make. Typical reports
produced by the MRS include budgets, variance reports, cost-volume-profit analyses, and reports using
current (rather than historical) cost data. This type of reporting is called discretionary reporting because
the organization can choose what information to report and how to present it. and generally more difficult
challenge than external reporting.
Data processing cycle
Once collected, data usually require processing to produce information. Tasks in the data processing stage
range from simple to complex.
An important function of the AIS is to efficiently and effectively process the data about a company’s
transactions.
– In manual systems, data is entered into paper journals and ledgers.
– In computer-based systems, the series of operations performed on data is referred to as the data
processing cycle.
The data processing cycle consists of four steps:
– Data input
– Data storage
– Data processing
– Information output
Data input

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Data input views are used to capture the relevant facts about the resources, events, and agents involved in
business process transactions. In this section, we divide input into two classes: hard-copy input and
electronic input.
A. Data storage
An efficient information system captures and stores data only once and makes this single source available
to all users who need it.
LO4:- Produce reports
Reports are used by employees to control operational activities and by managers to make decisions and
design strategies they may be produced:
– On a regular basis
– On an exception basis
– On demand
Organizations should periodically reassess whether each report is needed
Reports to indicate the financial performance and financial position of the organization and for Goods and
Services Tax purposes are generated as required or requested
Reports to ensure that subsidiary ledgers and accounts reconcile with the general ledger are generated
Subsidiary ledgers my includes:
 accounts payable
 accounts receivable
 fixed assets
 inventory
Reports, which ensure that the bank account reconciles with the bank statement, over at least two
reporting periods are generated
LO5:- Ensure system integrity.
Regular back-ups of the system are made to ensure against loss or corruption of data
Data are restored from back-ups in the event of loss or corruption of current data
A secure record of all processed transactions is maintained for audit purposes

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