Computerised Accounting — Notes

A computerised accounting system records transactions through accounting software into a database and produces ledgers, the trial balance, final accounts and other reports from the stored records whenever they are needed. The double-entry rules do not change; the tools and the order of work do.

Components (five): procedure, data, people, hardware, software.

Structure: input (source documents keyed in as vouchers with codes) → processing (validation, storage, updating of accounts) → output (ledgers, trial balance, final accounts, management reports), all around one database.

Manual versus computerised: identification of transactions is the same; recording becomes voucher entry; there is no separate posting or balancing; the trial balance and final accounts are generated; closing is year-end processing.

Features and advantages: speed and up-to-date (real-time) information; accuracy, since totals are computed and unbalanced vouchers refused; consistency and reliability; many reports from one set of records (management information); compact storage and quick retrieval; scalability; legible records; security through passwords and backups.

Limitations: cost of hardware, software, maintenance and training; staff resistance and disruption during changeover; dependence on the system (failure, power cuts, viruses); errors of principle and omission are not caught by validation; risk of unauthorised access or alteration; health effects of long screen work.

• Ready-to-use: a standard package bought off the shelf; low cost, quick installation, little training; low secrecy and limited flexibility; suits small businesses with standard needs.
• Customised: a standard package modified to meet a user’s extra needs (branches, export invoices, special reports); moderate cost; suits medium businesses.
• Tailor-made: developed specially for one organisation; high cost and long development; extensive training; high secrecy and exact fit; suits large organisations with unique processes.

Factors in choosing: flexibility; cost of installation and maintenance; size of the organisation; ease of adaptation and training; utility (reports available); level of secrecy expected for programs and records; ability to export data.

A spreadsheet is a grid of cells named by column letter and row number (B4). A cell holds a label, a number or a formula, which begins with = and recalculates whenever a figure it uses changes.

References: a relative reference (B4) moves when the formula is copied; an absolute reference is locked with a dollar sign before the column letter and before the row number, and does not move; a name given to a cell (Rate) also always points to that cell. Use a lock or a name for a single rate or constant.

Functions used: SUM, IF, ROUND (half away from zero), PMT (instalment; negative for a positive loan, so enter the loan as a negative figure), SLN, DDB (twice the straight-line rate on the opening value, never below salvage), VLOOKUP (with FALSE for an exact match on the first column).

Bank reconciliation statement. Start from one balance; add the items that make the other book higher and deduct those that make it lower; with an overdraft every item moves the other way. In a sheet, totals are SUM ranges and the result is one formula such as =B3+B8-B13; an IF can label the balance.

Depreciation (asset accounting). Straight line: =SLN(cost, salvage, life), equal every year, ending at salvage. Written-down value: charge = ROUND(opening value × rate, 0), opening value = previous closing value. DDB charges twice the straight-line rate on the opening value and stops at salvage.

Loan repayment schedule. Instalment = ROUND(PMT(yearly rate ÷ 12, months, −loan), 0); each row: interest = ROUND(opening × rate per period, 0), principal = instalment − interest, closing = opening − principal. Check interest + principal = instalment in every row and a closing balance of zero (or a rupee or two of rounding, adjusted in the last instalment).

Ratio analysis. Each ratio is a rounded division of cells, for example =ROUND(B1/B3,2); IF adds a comment against a benchmark.

A chart is drawn from a range of cells and changes when the figures change.

• Column or bar chart: compare amounts across items, branches or years.
• Line chart: show a trend over time (monthly sales, cash balance).
• Pie chart: show the parts of one whole (share of each expense in total cost).
• Stacked column: parts of a whole across several periods.
• Scatter chart: the relation between two measures.

Give every chart a title, axis titles with units and a legend when there is more than one series.

Steps: create the company (name, financial year, password) → create groups and ledgers with codes and opening balances → enter vouchers → enter adjustments (closing stock, outstanding and prepaid items) → generate ledgers, trial balance and final accounts → year-end processing.

Codification gives each account a unique code. Methods: sequential, block (a block of numbers per group, with gaps for new accounts) and mnemonic (letters). Hierarchy: primary head → group → ledger → party accounts. In this chapter: four digits, first = head (1 assets, 2 liabilities, 3 capital, 4 income, 5 expenses), second = group, last two = ledger.

Vouchers: receipt, payment, contra (cash ↔ bank only), journal (non-cash and adjustments), sales, purchase.

Validation refuses a voucher whose debits and credits differ, that uses an unknown code, that is dated outside the open period, or whose type does not suit its accounts. A generated trial balance always agrees, but it does not prove the right ledgers were used.

Security: passwords, user rights, audit trail, backup and restore, locking of closed periods, encryption.