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Question-1

State the four basic requirements of a database applications.

Solution:
The four basic requirements of database applications are Front-end interface
  Back-end database
  Data processing
  Reporting System

 

Question-2

Name the various categories of accounting package.

Solution:
The various categories of accounting packages are Ready to use
  Customized
  Tailored

 

Question-3

Give examples of two types of operating systems.

Solution:
Unix and Linux are examples of multi-user operating systems used to handle voluminous data and complex reporting requirements.

Question-4

List the various advantages of computerised accounting systems.

Solution:
Large Volume of Transactions: In the present-day business environment, the transactions of a business are normally large in volume. The computerized accounting system can store and process such voluminous transactions with speed and accuracy.
  Scalability: A computerized accounting system is scalable to handle the growing transactions.
  Security: The accounting data under the computerized environment is safer than the accounting data under the manual system. The data can be kept secure by using a password, i.e., allowing only authorized users to access the data.
  Timely Reporting: Availability of reports on time enables the management to take quick decisions, which is an important element for the success of an enterprise. A computerized accounting system makes these reports available as and when required.
  Lower Cost: The cost of maintaining books of accounts under the computerized process is lower than in the manual process.
  Less Paper Work: Under the computerized process, there is less paper work as compared to the paper work in the manual process.
  Flexible Reporting: Reporting under the computerized process is flexible in comparison to the manual process. The database can be processed further to obtain the desired report. For example, data relating to debtors can be analyzed to ascertain the list of customers to whom sales above Rs. 1,00,000 has been made in an accounting year or of the regular customers of the enterprises and so on.
  Queries: Replies to queries based on external factors can be obtained easily under a computerized process. For example, list of debtors who have not paid on time can be taken out by processing the database.
  Accurate: Computer statements are far more accurate in comparison to manual statements.
  Updating: Updating and treatment of wrong transactions are easily done.
  Financial Statements: From the day book, the Voucher Posting software can manage the General Ledger, Trial Balance and Balance Sheet.

 

Question-5

Give two examples each of the organisations where ‘ready-to-use’, ‘customised’, and ‘tailored’ accounting packages respectively suitable to perform the accounting activity.

Solution:
The term ‘ Customised Software’ means making changes in the readymade software to suit the specific requirements of the user, i.e., making it user – specific. The software available off-the-shelf is modified to suit the requirements of the user. For example, the design of the invoice is changed to the specifications of the user. The developer, to meet specific user requirements, can modify all the readymade softwares.

 

The term ‘Tailor – made software’ refers to designing and developing user – specific software. These softwares, being user – specific, are not available off – the shelf but are developed to meet the requirement of the user on the basis of discussion between the users and the developers.

Readymade softwares are the softwares that are developed not for any specific user but for the users in general. Since, the readymade softwares are for general user, it is not necessary that all the modules of such softwares are of use for every user. It is likely that a particular module says ‘Payroll’ may ndot be used because the enterprise has very few employees.

Question-6

Distinguish between a ‘ready-to-use’ and ‘tailored’ accounting software.

Solution:

S. No.

Basis

Ready to Use

Tailored

1.

Nature of business

Small, conventional business

Large, typical business

2.

Cost of installation and maintenance

Low

High

3.

Expected level of secrecy

Low

Relatively high

4.

Number of users and their interface

Limited

Unlimited

5.

Linkage to other information system

Restricted

Yes

6.

Adaptability

High

Specific

7.

Training requirements

Low

High

 

Question-7

Define a computerised accounting system. Distinguish between a manual and computerised accounting system.

Solution:
Computerised Accounting System refers to a system wherein the accounts of the enterprise are maintained on a computer. An accounting system has two aspects; first, it has to work under a set of well-defined accounting concepts and principles and, secondly, it has to maintain records and generate reports as defined by the user. These aspects can be fulfilled by processing the transactions and events in accordance with the accounting principles and adopting the software which is capable of generating the user-defined reports.

Accounting is a process of identifying, recording, classifying and summarizing financial transactions to produce financial statements. Let us discuss the processes under the two accounting processes i.e., manual process and computerized process, for the purpose of comparison.

Identifying Financial Transactions: Identifying financial Transactions and recording them in the books of accounts by applying the principle of accounting is a manual process carried out by an authorized person or on the basis of the accounting manual. This process is, thus, common under both the processes.

Recording: the process of recording transaction in the books of original entry, posting them in the ledger accounts, performing mathematical functions, i.e., adding, subtraction and totaling, are carried out manually under the manual process. In the computerized process, transactions are recorded in the books of accounts and the remaining functions are performed without any further process or command being carried out manually.

Classification: in the manual process, the transactions are recorded in the books of original entry and are posted into the ledger accounts. It means that, after recording the transaction, another process of posting is performed. In computerized accounting, the posting process is carried out by internal sorting of data, i.e., with the help of utility or application software, without any further process.

Summarizing: in the manual system of accounting, the data under each ledger is summarized and a balance of each account is ascertained to prepare a Trial Balance. As a result, preparing ledger accounts is essential to prepare a Trial Balance. In the computerized process, a transaction or event, once recorded, is stored in the database and can be processed to produce a Trial Balance directly.

Adjustments Entries: Adjustment entries are passed to rectify an error or to follow the matching concept of accounting i.e., matching the cost with revenue. The process of passing adjustment entries can be equated with the recording process. These entries are identified and recorded in the books of accounts. The remaining process is the same as discussed above.

Grouping Accounts: One of the basics of correct accounting is determining whether a transaction is capital or revenue in nature and accordingly, which account head is to be debited or credited. Once this decision is taken, the account is grouped as an asset, a liability, an income or an expense at the time of preparing the financial statements. The above process is followed when the manual system of accounting is adopted. However, in computerized accounting, whether an account head is an asset, a liability, an income or an expense, is decided at the time of the transaction takes place, as in the case of manual accounting. It is also defined whether the particular head of account shall be shown as an asset or liability, or an income or expense.

Financial Statements: In the manual process, availability of the Trial Balance is essential to prepare the financial statements. In the computerized process, financial statements are generated from the system itself and hence, there is no need to have a Trial Balance.

 

Question-8

Discuss the advantages of computerised accounting system over the manual accounting system.

Solution:
1. Large Volume of Transactions: In the present-day business environment, the transactions of a business are normally large in volume. The computerized accounting system can store and process such voluminous transactions with speed and accuracy.

2. Scalability: A computerized accounting system is scalable to handle the growing transactions.

3. Security: The accounting data under the computerized environment is safer than the accounting data under the manual system. The data can be kept secure by using a password, i.e., allowing only authorized users to access the data.

4. Timely Reporting: Availability of reports on time enables the management to take quick decisions, which is an important element for the success of an enterprise. A computerized accounting system makes these reports available as and when required.

5. Lower Cost: The cost of maintaining books of accounts under the computerized process is lower than in the manual process.

6. Less Paper Work: Under the computerized process, there is less paper work as compared to the paper work in the manual process.

7. Flexible Reporting: Reporting under the computerized process is flexible in comparison to the manual process. The database can be processed further to obtain the desired report. For example, data relating to debtors can be analyzed to ascertain the list of customers to whom sales above Rs. 1,00,000 has been made in an accounting year or of the regular customers of the enterprises and so on.

8. Queries: Replies to queries based on external factors can be obtained easily under a computerized process. For example, list of debtors who have not paid on time can be taken out by processing the database.

9. Accurate: Computer statements are far more accurate in comparison to manual statements.

10. Updating: Updating and treatment of wrong transactions are easily done.

11. Financial Statements: From the day book, the Voucher Posting software can manage the General Ledger, Trial Balance and Balance Sheet.

Question-9

Describe the various types of accounting software along with their advantages and limitations.

Solution:
Accounting Softwares can be categorized into-

 

1. Readymade Softwares

2. Customized

3. Softwares

4. Tailor – made Softwares

 

Readymade Software –

 

Readymade softwares are the softwares that are developed not for any specific user but for the users in general. Since, the readymade softwares are for general user, it is not necessary that all the modules of such softwares are of use for every user. It is likely that a particular module says ‘Payroll’ may ndot be used because the enterprise has very few employees. Similarly, a service enterprise will not require VAT module while a retail enterprise will not require Service Tax module. Some of the readymade softwares are Tally, EX, Busy and Professional Accountant. Out of these, Tally is very widely used.

 

Readymade Software has its own advantages and disadvantages.

The advantages are-

 

1. Readymade softwares are economical – Readymade softwares are prepared not for any particular user but for the user in general. It means development cost of the software is not loaded on a single software for determining the cost and thus selling price. The price of the software is determined on the basis of number of pieces expected to be sold. On the other hand, user specific softwares are expensive as the development cost is loaded on one software.

2. Readymade softwares are available off-the-shelf – It, therefore, saves time that may be required for development of tailor-made softwares or for customization. Development of a software consumes considerable time both at the user end and software development end. User will have to explain its requirements to software developer who on the basis of his understanding will develop software, test it with a dummy data, debug the software to the best of his understanding before handing it to the user. All these activities consume time. On the other hand, readymade software requires only installation and are ready for use.

3. Readymade Softwares are developed by a group of experienced professionals – it therefore, addresses the problems that may get overlooked if the user specific software is developed.

4. Softwares like any other product, requires maintenance – Readymade softwares being sold to number of users, has better and economical after sales maintenance service. After sales maintenance service, in the case of user specific softwares will not only be expensive but time consuming as well.

5. Readymade softwares are used by a number of users –Therefore, trained accounting persons are easily available. On the other hand, in the case of tailor-made softwares, every time a new person is recruited, training will have to be imported.

 

The disadvantages of Readymade Softwares are-

 

1. Readymade softwares are Window-based softwares, which support only LaserJet printers for outputs in physical form. Printing by LaserJet printers is more expensive than Dot-Matrix Printers.

2. Normally, readymade softwares do not have the facility of secondary back-up. It means, in case of data loss, the entire data may not be recovered. But, this limitation can be overcome by taking regular back –up of accounting data.

 

Customized Software – The term ‘ Customised Software’ means making changes in the readymade software to suit the specific requirements of the user, i.e., making it user – specific. The software available off-the-shelf is modified to suit the requirements of the user. For example, the design of the invoice is changed to the specifications of the user. The developer, to meet specific user requirements, can modify all the readymade softwares. However, the user has to bear the cost of such changes. The advantages and disadvantages of readymade software are also the advantages of customized software.

 

Tailor – made Software – The term ‘Tailor – made software’ refers to designing and developing user – specific software. These softwares, being user – specific, are not available off – the shelf but are developed to meet the requirement of the user on the basis of discussion between the users and the developers.

 

Advantages of Tailor – made Software are –

 

1. It, being user specific, takes care of the accounting reports and MIS that may be required by the user and the management of the enterprise.

2. The software being tailor-made, the enterprise may have to engage a software engineer to maintain it. In other words, the problems faced can be countered immediately.

3. Well – trained users use the software and therefore they can maximize software utilization.

 

Disadvantages of Tailor – made software are –

 

1. The development cost of the software is much higher than the cost of readymade or customized software.

2. In case the accounting person leaves the job, it take some time before the new person becomes fully conversant with the software.

3. Development and maintenance costs are higher than in the case of readymade or customized software.

 

Question-10

‘Accounting software is an integral part of the computerised accounting system’ Explain. Briefly list the generic considerations before sourcing an accounting software.

Solution:
It is essential to consider some factors before sourcing an accounting software, i.e.,

1. Flexibility – A computerized accounting system must be flexible in respect of data entry, retrieval of data and generating designs of report. The user should be able to run the software on a variety of computer environments and machines, that is, on any configuration of computers and available operating systems.

2. Cost of Installation and Maintenance – It is a must to consider that the cost of the accounting software, its relevant hardware and the maintenance, cost of addition of modules, training of staff, updating of versions and data recovery in case of data failure are negotiable and within the ability of the organization to afford it.

3. Size of organization – An accounting system must be according to the size of the organization, i.e., volume of business transactions, multi – user requirements.

4. Ease of Adaptation and Training Needs – some accounting softwares are user – friendly and require a simple training to the users. However, some other complex software packages, linked to other information systems, require intensive training on a continuous basis. The software must be capable of attracting users.

5. Expected Level of Secrecy (Software and Data) – Security features of an accounting system software are also important. Software should ensure that it prevents unauthorized access and manipulation of data. In tailored software, the user rights may be restricted according to the departments and their relevant accounting software functions.

6. Exporting/Importing Data Facility – The software should allow easy data transfer option for flexible reporting, such as transfer of information directly from the ledger into the spreadsheet software like Lotus or Excel.

 

Question-11

‘Computerised Accounting Systems are best form of accounting system’. Do you agree? Comment.

Solution:
Accounting refers to identifying transactions and events of financial nature, record them in the books of account and produce meaningful information for the users. Thus, the foremost function of accounting is to identify transactions and events of financial nature and record them in the books of account.

Accounting process means preparing vouchers for the transactions, writing them in the Journal, posting the recorded transactions in the Ledger Accounts, drawing Trial Balance and thereafter, preparing the Financial Statements, i.e., Trading Account, Profit and Loss Account and Balance Sheet.

The accounting process, whether carried out manually or by use of computers generates accounting records such as Cash Book, Bank Book, Journal, Purchases Book, Sales Book, Ledger and Trial Balance. Besides the accounting records certain reports such as Payroll, Stock Report, Statutory Returns (VAT, CST, etc)., Debtors Report, Creditors Report and Exception Report., etc., are also prepared under both the method.

We have in the earlier chapters, discussed the accounting process, accounting concepts and preparing the final accounts in detail. When the accounting is carried out by means of computers, the accounting process remains exactly the same except that posting of recorded transactions to the ledger accounts and also the totaling of individual accounts and drawing of trial balance is carried out by the computers with the help of softwares. The software may be Readymade Software; customized Software or Tailor-made Software. We shall discuss the softwares later in this chapter.

Let us now, discuss how the computers are applied in accounting-

We had discussed in the beginning of the chapter that computers operate on "Operating Softwares or System, which make the necessary interface between the user and the computer hardware. An example of Operating Software is "Windows", "Windows XP" and "Windows Vista" etc.

Accounting function is carried out utilizing accounting software. Accounting softwares fall in the category of "Application Softwares". The end product of accounting process is producing financial statements, i.e., Trading, Profit and Loss Account and the Balance Sheet and the accounting softwares are so designed that the financial statements are produced by the system itself.

A credible financial statement can be prepared if the accounting concepts and principles are followed. It necessarily means capital expenditure and capital income or receipts be transferred to Balance Sheet while revenue expenditure and revenue incomes be transferred to Trading, Profit and Loss Account. This objective of accounting can be achieved when the account heads are defined in a manner that capital expenditures and capital incomes form part of the Balance Sheet under appropriate main head. Similarly, revenue expenditure and revenue incomes form part of the Trading, Profit and Loss Account. The process by which this objective is achieved is known as "Grouping of Accounts".

The process of "Grouping of Accounts" is carried out by giving a code to each main head, sub- heads and thereafter individual account heads. Code of the main head signifies whether the account is an item belonging to assets, liabilities, expenses or incomes. Code of the sub-head signifies the head under which individual account head will appear.

Account if wrongly coded, will lead to errors of principle whereby an item of liability may be treated as income and vice versa. Similarly, an item of asset may be treated as expense and vice versa. The financial statements prepared without rectifying such errors will reveal incorrect financial results and position. Therefore, extreme caution needs to be exercised when grouping of accounts is done and also when the transaction is recorded using computers.





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