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MODULE-IV

IT Application in
Accountancy
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Uses of computer in accounting and

Finance
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Computer is an electronic device which calculates,
compares, modifies, stores and retrieve facts and
figures, is being widely used in the field of
accounting.
Application of computers in Accounting:
1. Recording of all business transactions.
2. Preparation of various ledger accounts.
3. Processing the payroll information.
4. Preparation of trial balance.
5. Preparation of final accounts.
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Computerised Accounting System

A computerized accounting system is that
accounting information system that help in
processing the financial transactions and events as
per the GAAP and leads to the generation of reports
as per the requirements of the users.
An accounting system whether manual or
computerized has two parameters:
a) It has to follow the well defined concepts known as
the accounting principles.
b) It has to maintain the user-defined structure for
maintenance of records and generation of reports.
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Difference between Manual and computerized accounting
system

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.
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Financial Statements

In Manual accounting systems Preparation of trial balance is

essential to produce the financial statements.. With a computerized
accounting system, financial statement are generated from the
software itself and therefore there is no need to prepare trial.

Reports

Reports are created in a 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 result in having to work with
outdated information.
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Explain what an accounting

information system (AIS) is and
describe the basic functions it
performs.
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An accounting information system is a system

of collecting, processing, summarizing and
reporting information about a business
organization in monetary terms.
It gathers data describing the organization
activities, maintain a detailed financial records
of the organization operations, transforms the
data into information and makes the
information available to users both inside and
outside the organization.
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What important functions does the

AIS perform in an organization

1 It collects and stores data about activities and transactions.

2 It processes data into information that is useful for making
decisions.
3 It provides adequate controls to safeguard the
organizations assets.
4. Provide the database that is used by other information
systems.
5.Producing standard management reports that summarizes
the firms financial condition.
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Characteristics of AIS

1.Helps in handling and manipulating accounting

and financial transactions of an organization.
2.It is responsible for meeting information needs by
generating reports. These reports are of two types:
a. Reports for outsiders.
b. Internal reports.
3. AIS is helpful in producing futuristic data in the
form of budget forecasts etc.
4. It helps in maintaining accounting information as
per the guidelines of the law.
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Describe the components of a

computerized accounting system
used to process data and produce
useful information.
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Input: The input subsystem-deals with the

collection, arrangement and making available all
types of transactional, financial and accounting
data to the system, required for its various
functions.
Process: The processing deals with the processing
of the information gathered by the input sub-
system which is possible with help of INTERNET
and Application software.
Output: The output subsystem is responsible for
producing the processed data in user
understandable format.
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Control: This Component is responsible for

keeping control over AIS in following manner:
a. Follow internal laws and rules of the
organization.
b. Follow rules laid down by govt. and statutory
bodies.
c. Ensuring quality of information by setting up
performance standards.
d. Comparing actual with standard performance.
e. Analyzing the variances and take corrective
measures.
f. Ensure safety and security of the information
managed by AIS.
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Purpose of AIS
Sales order processing
Inventory control
Accounts receivables
Accounts payables
Payroll
General ledger.
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Components of an Accounting
Information System
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Components of a Computerized
Accounting System

The sales module receives

order data from customers and
maintains accounts receivable
information.
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Exhibit 1 Components of an Accounting
Information System
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Components of a Computerized
Accounting System

The purchasing and inventory

management module provides
purchase order data to vendors.
Vendors are those who supply
specific products to a company.
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Components of a Computerized
Accounting System

The purchasing and inventory

management module maintains
accounts payable and inventory
information.
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Components of a Computerized
Accounting System
The human resources module
maintains data about
employees, including hours
worked and wage rates.
It is used for preparing payroll and
payroll tax information.
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Components of a Computerized
Accounting System

The production module tracks

the flow of costs through the
manufacturing process.
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Components of a Computerized
Accounting System

The asset management module

identifies long-term asset costs,
their expected useful lives, and
where these assets are located
in the company.
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Components of a Computerized
Accounting System

The financial management

module keeps track of debt,
repayment schedules, interest
rates, and shareholder
information.
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Components of a Computerized
Accounting System

The general ledger/financial

reporting module provides
information for use by external
stakeholders, including
shareholders and government
regulators.
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Subsidiary Accounts

Subsidiary accounts include

transactions for individual customers,
suppliers, or products. Records for all
subsidiary accounts of a particular type
are maintained in a subsidiary ledger.
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Subsidiary Accounts

A subsidiary accounts receivable

ledger would consist of all the
individual customers accounts,
with data about purchases and
payments for each customer.
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Control Accounts

Control accounts are summary accounts

that maintain totals for all subsidiary
accounts of a particular type.

Example: The balance for Accounts

Receivable control account is
the sum of the balances of all
customer accounts.
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Control Accounts

Records for each control

account are maintained in a
companys general ledger.
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Accounting Software
An accounting software is an integral part
of the computerized accounting system.
Need OF Accounting Software:
a. When computerized system is replacing
manual system.
b. When computerized system already
existing in the organization and it is to be
altered according to the recent changes.
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Types of Accounting softwares:

a. Ready to use software
b. Customized software
c. Tailor-made software.
Ready to use software: Which are available in
market for users at large and not for
specific users requirement. e.g. Tally, EX.
Busy, etc.
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Advantages
Easy to learn
Cost of installation is low
Better after sale services
Take care of problem area.
Disadvantages:
1.These software use laser printers which are costly
than Dot matrix.
2.Level of secrecy is very low.
3. Offer very little scope of linking with other
information system.
4. Suitable for small organization.
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Customized software: means making

changes in the ready to use software so as
to suit the specific requirements of the
user.
Advantages
1. Used by large and medium enterprises.
2. Level of secrecy is high.
3. Linkage to other information systems is
available on the basis of need of the
enterprise.
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Disadvantage
Cost of installation is high
Training requirement of using this packages
is high.

Tailor-made Software: means developing a

software according to the needs and
specifications of the user. These softwares
are not available off-the-shelf.
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Advantages:
Take care of the specific need of the enterprise.
Level of secrecy of data and authenticity checks
are robust in such soft wares.
They can be effectively linked to some other
information systems.
Disadvantages:
1. Costly
2. Difficult to learn and require specialized
training.
3. If the accounts are grouped in an incorrect
manner, the results will be misleading.
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Soft wares used in Business

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Spreadsheets
Widely used by finance departments to help manage cash
flow, for bank reconciliations and in credit control.
It is a type of program on a large sheet of paper. It contains
rows and columns for entering character or numeric data.
Rows are arranged horizontally, while columns are
arranged vertically. The intersection of both produces a
cell. A collection of cells is known as a range.
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Utility of Spreadsheets in
Accounting
Payroll Accounting: It is used for calculating the
salary of each employee. In the spreadsheet one row
is used for each employee and there are column for
basic pay, D.A. , HRA, other allowances, gross
salary, deductions and the net amount payable.
Recalculation if some values are changed.
Graphic representation: it is represented in the form
of graphs, charts, and diagrams.
Depreciation accounting
Budgeting and financial forecasts.
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Electronic Spreadsheets

Data is organized into columns and rows in a

meaningful way to convey relationships and
display information used for both simple and
complex number crunching.
The electronic spreadsheet is a
calculating tool.
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Electronic Spreadsheets

One of its tremendous advantages is its ability to

allow changes in data to affect the entire
spreadsheet. Changes in one place are
automatically applied to every cell dependent
upon the cell changed.
Using the manual accountants ledger, changes in
one place had to be erased and often, this
produced errors of omission.
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Spreadsheet Advantages
Time savings
Creating charts
Problem-solving
Decision making .
Real-world applicability
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Other Softwares in Business

Word Processor:-It helps the user to draft the
letters, reports and other text material on a video
screen with a facility to make changes very
conveniently and as many times as desired.
Database management.
E.g. Software in accounting: General ledger,
accounts receivables, accounts payables, Inventory
control, Payroll accounting.
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Describe how a database system

can be used to create a simple
accounting system.
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Data are the facts that can be recorded and

that have implied meaning. Data is a set of
information which forms the basis of all
important managerial decisions. All such
information are compiled to produce some
useful reports.
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A database is a set of
A database
computerized files in
management system
which company data
controls database
are stored in the
functions to ensure
form that facilitates
data are recorded
retrieval and
properly and are
updating of the data.
accessed only by
authorized users.
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Importance of DBMS in accounting

System
Data dictionary management: Any modification ,alteration,
addition, deletion made in a database structure is
automatically recorded in the data dictionary, hence there
exists no need to modify all the programs.
Data storage management: it provides the facility for the
storage of various data and other related data entry forms,
procedure, reports, etc.
Security management: Secuity rules establish who shall
access the database, which data can the user have access
to, which operations (read, add, delete or modify) the user
may perform.
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Backup and recovery management: it

ensures the data safety and integrity by
providing adequate backup and data
recovery procedures.
Rapid updating of records: as well as related
records i.e. with single entry we can
simultaneously update all the records
affected by the transactions.