COMPUTERS IN FINANCIAL ACCOUNTING
Meaning of
Financial Accounting
The
main purpose of accounting is to ascertain profit or loss during a specified
period, to show financial condition of the business on a particular date and to
have control over the firm's property. Such accounting records are required to
be maintained to measure the income of the business and communicate the
information so that it may be used by managers, owners and other interested
parties. Accounting is a discipline which records, classifies, summarizes and
interprets financial information about the activities of a concern so that
intelligent decisions can be made about the concern.
Objectives of
Financial Accounting
The following
are the main objectives of accounting:
1. To keep
systematic records: Accounting is done to keep a systematic record of financial
transactions of the school.
]2. To protect
school properties: Accounting provides protection to school properties from
unjustified and unwarranted use.
3. To ascertain
the operational profit or loss: Accounting helps in ascertaining the net profit
earned or loss suffered. This is done by keeping a proper record of revenues
and expense of a particular period.
4. To ascertain
the financial position of the school: It is essential that the school should
know about his financial position
5. To facilitate
rational decision making: Accounting these days has taken upon itself the task
of collection, analysis and reporting of information at the required points of
time to the required levels of authority in order to facilitate rational
decision-making.
6. Information
System: Accounting functions as an information system for collecting and
communicating economic information about the school enterprise.
Old Methods
and Machines Used In Accounting
The
most common method of keeping the financial records of a school was manually. A
bookkeeper kept the journals, the accounts receivable, the accounts payable and
the ledgers in his best possible penmanship. In later years, an accounting
machine, which was capable of performing normal bookkeeping functions, such as
tabulating in vertical columns, performing arithmetic functions, and typing
horizontal rows was used. The billing machine, which was designed to typewrite
names, addresses, and descriptions, to multiply and extend, to compute
discounts, and to add net total, posting the requisite data to the proper
accounts, and so to prepare a customers bill automatically once the operator
has entered the necessary information, was used. Early accounting machines were
marvels of mechanical complexity, often combining a typewriter and various
kinds of calculator elements. The refinements in speed and capacity made
possible by advances in electronics and operating complexity of these machines.
Many of the newer generations of accounting machines are operated by a computer
to which they are permanently connected.
Use of
Computers in Accounting
Because
of the minute by minute change in finances, accurate record keeping is
critical. Computerizing a school general ledger, payroll, and other accounting
tasks increases office efficiency. With a computer, you can request and receive
an in house balance sheet, an income statement, or other accounting reports at
a moments notice. While keeping your checkbook on a computer may not be
practical, computers are great for handling complex home financial records. You
can get statements on net worth and years tax deductible expenses within
minutes.
A.
Spreadsheets
Electronic
spreadsheets allow you to do anything that you would normally do with a
calculator, pencil and columnar scratch pad. Spreadsheets were primarily
designed for managers who in the process of planning must do what if
calculations. Due to their flexibility, electronic spreadsheets have found
their way into small businesses and, to a lesser extent to homes. A typical
integrated double entry accounting system will contain some or all of the
following components: accounts receivable, accounts payable, general ledger,
inventory, order entry, payroll, time, and billing.
A new generation
of computer software for business began with integrated spreadsheet programs,
which can be used to prepare spreadsheets, create graphs, and manage data. In
such programs, for example, it is easy to display spreadsheet data in the form
of a graph or to transfer data from a data base to a spreadsheet.
B. General
Ledger
General Ledger
is a labor saving device for the preparation of financial statements and for
establishing multiple income and cost entries.
C. Accounts
Receivable
Accounts
receivable, when computerized, can get your bills out the same day you have performed a service. An
accounts receivable module prepares invoices and customer accounts, adds credit
charges where appropriate, handles incoming payments, flags your attention to
customers that are delinquent, and produces dunning notices. It allows you to
have daily cash control. You get out the bills on time, yet you avoid errors
such as billing a customer twice for the same item. The further advantage is
that debits and credits are posted automatically to the general ledger, order
entry, and in some instances inventory, once they are entered in accounts
receivable.
D. Accounts
Payable
Accounts
payable, when computerized, will provide for purchase order control, invoice
processing, payment selection and handling, check writing and control,
cash-requirements, forecasting, and Form 109 preparation. It will also
double-check the accuracy of the sellers invoice, and some software systems
will cross-check it against the purchase order and the inventory module.
E. Purchasing
and Receiving
Purchasing and
receiving module can represent an invaluable addition. It can generate purchase
orders and track their fulfillment. You can find out which vendors are
delivering on time and saving you the expense of having to follow up on partial
and incomplete orders.
H. Time and
Billing Module
Time and billing
module reduces manual and clerical work, simplifies the billing process,
prompts you and your partners to bill on time, reduces unbilled work-in
progress, minimizes unreported time, reduces unbilled time, measures and
analyzes nonchargeable time and provides criteria to analyze staff performance.
Because a computerized accounting system is basically a computerized data
management system, the disposition of labor is almost the same. One staff
member must serve as a data-base manager and be in charge of setting up the
chart of accounts, establishing the interrelationships among the files and
establishing and maintaining an audit trail.
ADVANTAGES OF
USING THE COMPUTER IN ACCOUNTING
The
most important advantage of using the computer is the speed with which we can
get accounting done. In addition, we find that it is very easy to do accounting
functions. Posting to the ledger, a tedious task of double entry, when done
directly from the general ledger module, can be largely automated when done
through special purpose modules like accounts payable or accounts receivable.
With an accounts receivable module, you just need to enter the actual cash
totals of items purchased and the software distributes these amounts to the
general ledger so they become credits to corresponding revenue accounts. At the
same time, an offsetting entry is made automatically to the accounts receivable
account. With a computer, one can receive a balance sheet, income statement or
other accounting reports at a moments notice. We also find that some day to day
data entry can be turned over to relatively unskilled workers.
DISADVANTAGES
OF USING THE COMPUTER IN ACCOUNTING
When
you use a computer, it is possible that data can be lost because of hardware or
software damage. Since the computer has no judgement of its own, it does not
pick up on errors as a human being does. There can be loss of data due to
accidents like fire etc.. There can be loss of data or change of data due to
fraud or embezzlement. There can be loss or unavailability of data due to loss
of staff. Inaccurate data may be due to clerical error or mistakes in
programming. Total security is economically unachievable and some failures must
be expected. The right level of expenditure on security measures will minimize
the sum of the cost of the measures and the expected loss. There will always be
some risks that are best shared through insurance, rather than prevented or
avoided.
Fraud
and embezzlement are usually achieved on a computer system by altering data or
programs. There are numerous techniques, varying from additions and deletions
to input data, through changing the standing information files, modifying the
behavior of programs, to duplicating or suppressing output. Although most
frauds that have been reported had gone on for some time, it could be that one
shot frauds have been more frequent but more often escape detection.
