Accounting Environment

Chapter 2
Use of Technology in Accounting
Introduction to Technology in Accounting
• Computers are very widely used to operate accounting system
• Sophisticated technology is now available at a reasonable cost
• Large to medium-sized businesses used specially written IT software
• Most large companies have IT departments who monitor their financial systems 24
hours a day, 7 days a week
• Small businesses use computerized systems with the off-the-shelf packages (Sage,
QuickBooks, Xero, FreshBooks, Wave)
• These packages carry out the same double entry functions of data processing and
recording financial information as manual system and also offer features such as
management information
Usefulness of Internet Access
• Enables online banking, the payment of suppliers and employees
• Advertise its product and services, and offer online ordering system on
their own websites
• Sources of information and data that organizations may need to access
• Allow customers to deal directly with business, with more and more
transactions carried on line
• Some businesses have become internet only (Amazon, Alibaba and
eBay)
• Accounting information is sent via the internet
• Transactions are processed online that business without IT facilities
may struggle to succeed
• Accurate inputting of data ensures reliable output
Computer Hardware and Software
• Hardware is the physical aspects of the computer; monitor, keyboard,
mouse, data storage area (hard drive), graphics card, soundcard, and
mother board. It is driven by software. These can be password
protected to stop access.
• Software is the data and instructions that are sent to the hardware
that allow the computer to act in the way you want it to; operating
system and computer programmes. These can be password protected
to restrict access to only certain members of staff.
 Functions of Accounting Software
• Offers similar functions as manual system
• Provides useful reports and management information
• The system is integrated
• Automatically update the nominal/general ledger and the inventory records
• Automatic reordering system
• Quickly produces financial statements than manual system
• Financial data only needs to be entered once
• Make various use of this information and store in different ways
• Complete all aspects of transactions such as gathering documentations, and providing
reporting functions
 Functions of Accounting Software
• Revenue (Sales)
• Involves preparation and printing of revenue invoices, credit notes, month end
statement
• Data from these documents is entered, processed and recorded
• in the customer accounts in the receivables ledger
• by automatic update of the inventory record
• Purchases
• Data from purchase invoice and credit note is entered, processed and recorded.
• In the supplier accounts in the payable ledger
• By automatic update of the inventory record
• Via a print out of remittance (an amount of money that you send to pay for
something)
 Functions of Accounting Software
• Online Bank Accounts and App
• Online banking facilities allow the organization’s bank account is always up to date
• All receipts and payments are linked to the personal accounts of the trade
receivables and trade payables (automatically update these accounts)
• Many banks offer App that can be downloaded on mobile phone so that the business
can access their account anywhere as long as internet access are available (Mobile
banking)
• Accounting systems automatically update the ledger
• Wages and Salaries
• Combined computerized accounting and wages/salary package
• Separate payroll package that performs all the necessary payroll functions
 Functions of Accounting Software
• Inventory Control
• It includes raw materials and ordinary goods purchased for resale
• Inventory records are automatically updated after each revenue invoice or purchase
invoice is entered into the system
• This ensures an accurate figure of inventory is held in the system at all times
• To make inventory check (physically counting the inventory in the business) , it is
crucial to have an up-to-date inventory list
• Computerized accounting system ensures this list is available
• Inventory lists are used in the physical inventory check and allow variances to be
identified and amended
 Functions of Accounting Software
• Management Reports
• One of the main features is the facility to provide the owners and/or managers of the business with useful
financial data and reports.
• At the end of each month or specific accounting period, certain ‘month end/year end’ functions are carried
out to provide the following information:
•day books for customers and suppliers
•general (nominal) ledger and bank account transactions
•activity reports on all ledger transactions
•an audit trail
•analysis reports for aged trade receivables and trade payables
•financial statements including the trial balance, income statement, statement of financial position
•ratio analysis
•reports (such as on staff attendance etc.) for human resources and payroll.
 Spreadsheets
• Spreadsheets are used to provide financial budgets or cash-flow budgets, and non-current asset registers.
They are also used to calculate loan interest payments, and many other sums.
• A computer software spreadsheet allows data to be presented in a tabular format. The electronic document
can be saved and updated when necessary.
• Examples of spreadsheet programs include Microsoft Excel, Apple Numbers from Apple Office Suite and
Google Sheets.
• A spreadsheet is a series of cells presented in rows and columns. Numerical data or words can be entered
into the sheet.
• When the details have been input into the spreadsheet, users can add calculations using set formulae. This
speeds up the process of inputting data as the spreadsheet can automatically total columns or rows as
needed, for example.
• It can also be used as a planning tool for different scenarios such as increases or decreases in revenue and
how this impacts profit.
• Spreadsheets have speeded up the accounting process as they allow data to be presented in a number of
different ways and can be easily adapted and changed.
Advantages of Accounting Software

• Rapid data entry and processing

• Improving accuracy and automatically updated documents
• Easily and quickly production of documents such as invoices, credit notes,
statements and remittance advices
• Updating accounting records to reflect accurately customers’ accounts
• Availability of Management information in report form, for example, aged trade
receivables and trade payables analysis reports
• Making financial transactions electronically via internet.
• Efficient use of resources, for example, fewer accounting staff
• Sharing, scanning and saving documents online to reduce filing space.
Disadvantages of Accounting Software
• High installation cost, maintenance cost and updating cost.
• Disruption when the introduction of the system, staff may also be resentful of a new
system.
• Requires staff training to use the system; training costs,
• Disruptive system downtime
• Data back-up at regular intervals is essential.
• Fraudulent access can seriously affect the business’s operation and its profitability.
• Security measures are vital. For example, passwords for staff and protection
against viruses and hacking.
• Health risks associated with the use of computer keyboards and screens; eyestrain,
back problems due to poor posture, and muscular fatigue in the arms and wrists
Case Study: Monitoring Inventory Using IT
Why Ahmed should introduce an IT
inventory system to monitor his inventory
level?
• IT inventory system can update the inventory record automatically after
each revenue invoices or purchases invoices is entered into the system.
• This ensures an accurate figure of inventory is held in the system at all
times and up-to-date inventory list is very useful for physical inventory
check for Ahmed.
• By using IT Inventory system, Ahmed can monitor his inventory levels
properly so that he can reorder as necessary and resolve the shortage
of inventory.
• He can easily locate the components when needed.
Data Loss
• Protection of data is vitally important to any business for reasons of record maintenance as
well as access and security.
• It is important that data held on a computer is saved regularly, and protected against data loss.
• Electronic data can be stored by different methods; for example, on a hard drive or a memory
stick.
• Both of these types of storage devices can be encrypted or password protected. This would
stop access to the data if the devices were lost or stolen.
• It is also vital to back up data held on the system. Most operating systems offer an option to
automatically back up material at regular intervals.
• This means that a temporary copy of your document is held, for example on the hard drive. If
you do lose material, or forget to save it, a back up means that you can recover the
information.
• Operating systems also include the option to ‘restore’ data, either to the last saved version, or
to a specified back-up version.
• If you don’t back up your data, and make sure that you have activated the ‘restore’
functionality, you risk having to start your accounts from scratch.
Security
• Financial information are sensitive thus it is crucial to remain confidential, except
when legislation demands that certain information is made available to external
bodies.
• Preventing unauthorized access to electronic accounting data is vital.
• Staff working on computerized accounting systems are allocated passwords that
restrict access to their area of work.
• Passwords should be changed regularly to help prevent the possibility of non-
authorized persons accessing the system.
• Most computer systems have packages to resist viruses and attack by hacking.
These systems must be constantly reviewed and updated.
• Most medium-sized or large organizations will use computer networks rather than
standalone computers. This calls for extra security measures, such as ensuring that
the network is not public.
Security
Case Study: Accounting Software
• Explain the benefits to Mr Lau of using an accounting software
package.
Case Study: Accounting Software
• Explain the benefits to Mr Lau of using an accounting software
package.
• He can speed up the accounting process of his business since he does not
need to visit each restaurant, hen can control and combine the financial
transactions of each restaurant from head office via online.
• More accurate in its accounting data and quick production of financial
statements this would speed up his business decisions.
• Resources can be used more efficiently (reduce travel cost and time)
• Reducing the paper-work and filing spaces
End of Chapter Questions
(1) Explain the different ways in which you can protect your financial
information on a computer.
• Setting the strong password, Installing anti-virus software/firewall/anti-spyware
(2) Explain two ways that you may be able to send financial data electronically?
• Email, Cloud, Network, Social media
(3) Give three advantages of using ICT in accounting.
• The electronic documents can be saved and shared online
• Quick and accurate calculation
• Quick production of report and necessary information for management
(4) Give three disadvantages of using ICT in accounting
• High installation and maintenance cost
• Security problems (virus, hacking)
• Health risks for users (eyestrain, back pain, muscular fatigue)
Past paper
1) State two ways to protect the security of electronic data. (2 Marks)
2) Evaluate how the introduction of accounting software will improve
the accuracy of a business’s accounts.
3) State two benefits of using technology in accounting.
4) State one benefit of computerized accounting.
5) State two methods of protecting data from unauthorized access.