A Report on Accounting Information System of Excel Real Estate And Development Limited

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A Report on Accounting Information System of Excel Real Estate And Development Limited


An accounting information system is system that keeps record for a business to maintain its accounting system. Accounting information systems combine the study and practice of accounting with the design, implementation and monitoring of information systems. The use of such systems uses modern information technology resources together with traditional accounting methods to provide the users with the necessary information to manage their Organization.

Accounting information systems has its strengths and weaknesses also, but strengths more so than weaknesses in some cases. Basic accounting information systems include entering customers’ records, billing customers, collecting customer payments, keeping track of inventory, purchasing new stock and materials, paying employees’ etc. users of this accounting information can include internal and external parties. Internal users of accounting information include managers and owners. They would use special purpose reports which are prepared weekly, monthly, quarterly and are prepared for their specific needs, and what they need to know about business.

External users include investors, customers, clients, government agencies and employees. They would use general purpose reports which are prepared half-yearly or annually. It provides general information for general users. Accounting records – Records other than reports that are kept for accounting systems include purchases, sales and nominal ledgers, and cash books of the business. Whilst all these records would have previously recorded using a paper based process, now information technology has made it more efficient for businesses to prepare all the reports using computerized accounting systems.

Real sector is the growth centre for the development of an economy. Bangladesh, being one of the densely populated nations in the world has been experiencing severe inadequacy of housing shortage for its citizens. Although majority of the population are segmented into the middle and low income groups, still the housing for all has been a fallacy in Bangladesh. The private sector housing real estate developers have contributed a small proportion in the national housing demand and supply gap for the last more than twenty years. Despite inadequate policy preparations, these real estate developers have been successfully making business although the middle and low income households are still untapped. With the larger proportion of people living in this income group, the private housing real estate sector has a huge scope to grow in this country. The positive notion is supported by many key indicators such as increasing house rent, inadequate and costly land, easier financing availability and more. To pave the way for the organic development of the industry, the problem of long existent inadequate financing availability at flexible terms and costs must have to be removed immediately.

Chapter 1 provides a review and analysis of the study background & expression of the study. Define what is the objective of the study is & the methodology used to conduct the survey to prepare the report. Define the limitation hindrances to make the report are.

Chapter 2 provides a complete literature review of the study on the Theoretical Aspects of AIS, that covered the following topics- AIS Technology, development of AIS, Traditional & Computerized Accounting Information System, Functions of Accounting & Information System, Role of AIS in the Value Chain, The AIS and Corporate Strategy, Designing an Accounting System & Accounting System for an Organization.

Chapter 3 provides Background of EXCEL Real Estate & Development Limited. This chapter expresses the following topics Company Profile, Mission & Vision, Functional Departments of EXCEL, and Business Conduct Ethics of EXCE & Real Estate Trends in Bangladesh.

Chapter 4 provide Evaluation of Accounting Information System that covered by Significance of Information Technology in Business, The Technology for Accounting Information System, The Impact of Information Technology on Accounting, The Emergence of Accounting Information Systems Programs & Using Electronic Data Interchange (EDI) To Improve The Efficiency Of Accounting Transactions, Financial Accounting Information, Corporate Governance Transparency, Accounting Information Systems Security Issues & Internal Controls of an Accounting Information System

Chapters 5 express the application of Accounting Systems of Excel Real Estate & Development Limited.

Chapters 6 this chapter provides finding of the study that is found from the analysis covered various essential issues & recommend the action should take to establish the application of report for “The Accounting Information Systems of Excel Real Estate & Development Limited”.

The basic focus of the report is to explain the accounting system of EXCEL Real Estate & Development Limited and the different problem of this system and some recommendation for those problems

General Objectives

Ø To gain practical job experiences and view the application of theoretical knowledge in the real life.

Ø To further expand my knowledge, improve my skills and build on my work experiences.

Ø To ultimately develop and advance my career.

Report Topics Objectives

Ø To know the accounting system of EXCEL Real Estate & Development Limited.

Ø To know all the sub-division of accounting division of EXCEL Real Estate & Development Limited.

Ø To identify the problems of its accounting system.

Ø To suggest ways of improving the present procedures of accounting systems.

Scope of the Study

This report will cover all the accounting systems of Excel Real Estate & Development Limited. Over the years, the activities of Excel Real Estate & Development Limited have expanded to a great extent. To manage these activities, EXCEL Real Estate & Development Limited performs specific operations. Accounts & Finance section of Excel Real Estate & Development Limited is divided into 6 sub-sections. They are

ü Management accounting section

ü Fund accounts section

ü Operations & IT section

ü Payroll section

ü Bill Section

ü General section.

This study will explain how those sub-sections are Maintaining their accounts and how general section accounts is merging all the activities of others sub-sections. This report is written from practical work experiences and consulting with the related division officers.

Theoretical Aspects of AIS

2.01 Overview of Accounting Information System:-

Accounting is an information system that identifies, records, communicates, analyze, and interpret the economic events of any business entity to interested users for decision making.

Identifying economic events involves selecting the economic activities relevant to a particular organization. Once identified, economic events are recorded to provide a history of the organization’s financial activities. Recording consists of keeping a systematic chronological diary of events, measured in monetary terms.

The identifying and recording activities are of little use unless the information is communicated to interested users. Financial information is communicated through accounting reports, commonly known as financial statements. A vital element in communicating economic events is the ability to analyze the reported information. Analysis involves the use of ratios, percentages, graphs, and charts to highlight significant financial trends and relationships. Interpretation involves explaining the uses, meaning, and limitations of reported data

An Accounting information system is the system of records a business keeps maintaining its accounting system. This includes the purchase, sales, and other financial processes of the business. The purpose of AIS is to accumulate data and provide decision makers (investors, creditors, and managers) with information.

While a paper-based process, most businesses now use accounting software. In an electronic financial accounting system, the steps in the accounting cycle are dependent upon the system itself. For example, some systems allow direct journal posting to the various ledgers and others do not.

An accounting information system that produces timely and accurate financial information is a necessity for a company. Synopsis of An accounting information system process are listed below-

1. Analyze the effects of transactions on the accounting equation. Each business transaction has a dual effect on the accounting equation. For example, if an individual asset is increased, there must be a corresponding decrease in another asset, or increase in a specific liability, or increase in shareholders’ equity.

2. Define debits and credits and explain how they are used to record transactions. The terms debit and credit are synonymous with left and right. Assets, dividends, and expenses are increased by debits and decreased by credits. The normal balance of these accounts is a debit balance. Liabilities, common shares, retained earnings, and revenues are increased by credits and decreased by debits. The normal balance of these accounts is a credit balance.

3. Identify the basic steps in the recording process. The basic steps in the recording process are

a. Analyzing each transaction for its effect on the accounts,

b. Entering the transaction information in a general journal, and

c. Transferring the information in the general journal to the appropriate accounts in the general ledger.

4. Prepare a trial balance. A trial balance is a list of accounts and their balances at a specific time. The main purpose of the trial balance is to prove the mathematical equality of debits and credits after posting. A trial balance also uncovers errors in journalizing and posting and is useful in preparing financial statements.

2.01.1 Accounting Transactions: –

The system of collecting and processing transaction data and communicating financial information to decision-makers is known as the accounting information system. Accounting information systems vary widely. Some factors that shape these systems are the type of business and its transactions, the size of the company, the amount of data, and the information that management and others need. However, as the business and the number and type of transactions grew, an organized accounting information system became essential. An accounting information system begins with determining what relevant transaction data should be collected and processed. Not all events are recorded and reported as accounting transactions. An accounting transaction occurs when assets, liabilities, or shareholders’ equity items change as a result of some economic event.

Analyzing Transactions- Means analyze the effects of transactions on the accounting equation, effect on each component of the accounting equation—assets, liabilities, and shareholders’ equity.

Summary of Transactions- The cumulative effect on the basic accounting equation, the transaction number, the specific effects of the transaction, and the final balances are indicated.

  1. Each transaction must be analyzed for its effect on the three primary components of the accounting equation (assets, liabilities, and shareholders’ equity) and
  2. The two sides of the equation must always be equal.

2.01.2 The Account: –

An account is an individual accounting record of increases and decreases in a specific asset, liability, or shareholders’ equity item. Define debits and credits and explain how they are used to record transactions. In simplest form, an account consists of three parts: (1) the title of the account, (2) a left or debit side, and (3) a right or credit side.

Debits and Credits – The term debit means left, and the term credit means right. These terms are commonly abbreviated as Dr. for debit and Cr. for credit. Debits and credits are merely directional signals used in the recording process to describe where entries are made in the accounts. For example, the act of entering an amount on the left side of an account is called debiting the account, and making an entry on the right side is crediting the account. When the totals of the accounting system, in which the dual (two-sided) effect of each transaction is recorded in appropriate accounts. This system provides a logical method for recording transactions and ensuring that amounts are recorded accurately. If every transaction is recorded with equal debits and credits, then the sum of all the debits to the accounts must equal the sum of all the credits.

Expanded Accounting Equation- Expands the basic accounting equation to show the types of accounts that make up shareholders’ equity. Assets (on the left-hand side of the accounting equation) are increased by debits. Liabilities and shareholders’ equity, on the other side of the equation, are increased by credits. Increases to accounts have to be of like signs, which is a way of saying that a debit will increase a debit account and a credit will increase a credit account. Thus, the equality of the accounting equation is preserved and debits always equal credits.

2.01.3 Steps in the Recording Process: –

Although it is possible to enter transaction information directly into the accounts, few businesses do so. Almost every business uses these basic steps in the recording process:

1. Analyze each transaction for its effect on the accounts.

2. Enter the transaction information in a general journal.

3. Transfer the journal information to the appropriate accounts in the general ledger

The actual sequence of events begins with the transaction. Evidence of the transaction comes from a source document, such as a sales slip, cheque, bill, or cash register tape. This evidence is analyzed to determine the effect of the transaction on specific accounts. The transaction is then entered in the general journal. Finally, the journal entry is transferred to the designated accounts in the general ledger.

The Recording Process Illustrated- A basic analysis and a debit-credit analysis are done before the journalizing and posting of each transaction. The purpose of transaction analysis is first to identify the type of account involved and then to determine whether a debit or a credit to the account is required. It is always need to perform this type of analysis before preparing a journal entry. Doing so will help to understand the journal entries.

ü Understand which events should be recorded.

ü Analyze the transactions. Determine which accounts are affected and whether the transaction increases or decreases the account.

ü Record the transactions in the general journal, which provides a chronological record of the transactions.

ü Posting involves transferring the journalized debits and credits to specific T accounts in the general ledger.

ü Ledger accounts should be arranged in statement order.

ü Determine the ending balances of each ledger account by the total debits and credits.

2.01.4 The Trial Balance:-

A trial balance is a list of general ledger accounts and their balances at a specific time. A trial balance is normally prepared monthly and at least at the end of each accounting period. The accounts are listed in the order in which they appear in the ledger, with debit balances listed in the left column and credit balances in the right column. The totals of the two columns must be equal.

The main purpose of a trial balance is to prove the mathematical equality of debits and credits after posting. Under the double-entry system, this equality will occur when the sum of the debit account balances equals the sum of the credit account balances. A trial balance also uncovers errors in journalizing and posting. A trial balance is also useful in the preparation of financial statements. The procedure for preparing a trial balance is as follows:

1. List the account titles and their balances.

2. Total the debit column and the credit column.

3. Verify the equality of the two columns.

Accounts with zero balances, such as Accounts Receivable, are normally not included in the trial balance.

Limitations of a Trial Balance- A trial balance do not prove that all transactions have been recorded or that the ledger is correct. Errors may exist even though the trial balance columns agree. For example, the trial balance may balance even when

1. A transaction is not journalized,

2. A correct journal entry is not posted,

3. A journal entry is posted twice,

4. Incorrect accounts are used in journalizing or posting, or

5. Errors that cancel each other’s effect are made in recording the amount of a transaction. In other words, as long as equal debits and credits are posted, even to the wrong account or in the wrong amount, the total debits will equal the total credits. Nevertheless, despite its limitations, the trial balance is a useful screen for finding errors.

ü Reorder the accounts as they would normally appear in the general ledger—balance sheet accounts are listed first (assets, liabilities, and equity), and then statement of earnings accounts (revenues and expenses).

ü Determine whether each account has a normal debit or credit balance

ü List the amounts in the appropriate debit or credit column

ü Total the trial balance columns. Total debits must equal total credits or a mistake has been made.

AIS Technology:-

Combine the study and practice of accounting with the design, implementation, and monitoring of information systems. Such systems use modern information technology resources together with traditional accounting controls and methods to provide users the financial information necessary to manage their organizations.

Input: – The input devices commonly associated with AIS include: standard personal computers or workstations running applications; scanning devices for standardized data entry; electronic communication devices for electronic data interchange (EDI) and e-commerce. In addition, many financial systems come “Web-enabled” to allow devices to connect to the World Wide Web.

Process: – Basic processing is achieved through computer systems ranging from individual personal computers to large-scale enterprise servers. However, conceptually, the underlying processing model is still the “double-entry” accounting system initially introduced in the fifteenth century.

Output: – Output devices used include computer displays, impact and nonimpact printers, and electronic communication devices for EDI and e-commerce. The output content may encompass almost any type of financial reports from budgets and tax reports to multinational financial statements.

Development of AIS: –

The development of AIS includes five basic phases: planning, analysis, design, implementation, and support. The time period associated with each of these phases can be as short as a few weeks or as long as several years.

Planning-project management objectives and techniques: – The first phase of systems development is the planning of the project. This entails determination of the scope and objectives of the project, the definition of project responsibilities, control requirements, project phases, project budgets, and project deliverables.

Analysis- The analysis phase is used to both determine and document the accounting and business processes used by the organization. Such processes are redesigned to take advantage of best practices or of the operating characteristics of modern system solutions.

Data analysis is a thorough review of the accounting information that is currently being collected by an organization. Current data are then compared to the data that the organization should be using for managerial purposes. This method is used primarily when designing accounting transaction processing systems.

Decision analysis is a thorough review of the decisions a manager is responsible for making. The primary decisions that managers are responsible for are identified on an individual basis. Then models are created to support the manager in gathering financial and related information to develop and design alternatives, and to make actionable choices. This method is valuable when decision support is the system’s primary objective.

Process analysis is a thorough review of the organization’s business processes. Organizational processes are identified and segmented into a series of events that either add or change data. These processes can then be modified or reengineered to improve the organization’s operations in terms of lowering cost, improving service, improving quality, or improving management information. This method is appropriate when automation or reengineering is the system’s primary objective.

Design- The design phase takes the conceptual results of the analysis phase and develops detailed, specific designs that can be implemented in subsequent phases. It involves the detailed design of all inputs, processing, storage, and outputs of the proposed accounting system. Inputs may be defined using screen layout tools and application generators. Processing can be shown through the use of flowcharts or business process maps that define the system logic, operations, and work flow. Logical data storage designs are identified by modeling the relationships among the organization’s resources, events, and agents through diagrams. Also, entity relationship diagram (ERD) modeling is used to document large-scale database relationships. Output designs are documented through the use of a variety of reporting tools such as report writers, data extraction tools, query tools, and on-line analytical processing tools.

Reporting is the driving force behind an AIS development. If the system analysis and design are successful, the reporting process provides the information that helps drive management decision making. Accounting systems make use of a variety of scheduled and on-demand reports. The reports can be tabular, showing data in a table or tables; graphic, using images to convey information in a picture format; or matrices, to show complex relationships in multiple dimensions. There are numerous characteristics to consider when defining reporting requirements. The reports must be accessible through the system’s interface. They should convey information in a proactive manner. They must be relevant. Accuracy must be maintained. Lastly, reports must meet the information processing (cognitive) style of the audience they are to inform. Reports are of three basic types: A filter report that separates select data from a database, such as a monthly check register; a responsibility report to meet the needs of a specific user, such as a weekly sales report for a regional sales manager; a comparative report to show period differences, percentage breakdowns and variances between actual and budgeted expenditures. An example would be the financial statement analytics showing the expenses from the current year and prior year as a percentage of sales.

Screen designs and system interfaces are the primary data capture devices of AISs and are developed through a variety of tools. Storage is achieved through the use of normalized databases that assure functionality and flexibility.

Business process maps and flowcharts are used to document the operations of the systems. Modern AISs use specialized databases and processing designed specifically for accounting operations. This means that much of the base processing capabilities come delivered with the accounting or enterprise software.

Implementation- The implementation phase consists of two primary parts: construction and delivery. Construction includes the selection of hardware, software and vendors for the implementation; building and testing the network communication systems; building and testing the databases; writing and testing the new program modifications; and installing and testing the total system from a technical standpoint. Delivery is the process of conducting final system and user acceptance testing; preparing the conversion plan; installing the production database; training the users; and converting all operations to the new system.

Tool sets are a variety of application development aids that are vendor-specific and used for customization of delivered systems. They allow the addition of fields and tables to the database, along with ability to create screen and other interfaces for data capture. In addition, they help set accessibility and security levels for adequate internal control within the accounting applications.

Security exists in several forms. Physical security of the system must be addressed. In typical AISs the equipment is located in a locked room with access granted only to technicians. Software access controls are set at several levels, depending on the size of the AIS. The first level of security occurs at the network level, which protects the organization’s communication systems. Next is the operating system level security, which protects the computing environment. Then, database security is enabled to protect organizational data from theft, corruption, or other forms of damage. Lastly, application security is used to keep unauthorized persons from performing operations within the AIS.

Testing is performed at four levels. Stub or unit testing is used to insure the proper operation of individual modifications. Program testing involves the interaction between the individual modification and the program it enhances. System testing is used to determine that the program modifications work within the AIS as a whole. Acceptance testing ensures that the modifications meet user expectations and that the entire AIS perform as designed.

Conversion entails the method used to change from old AIS to new AIS. There are several methods for achieving this goal. One is to run the new and old systems in parallel for a specified period. A second method is to directly cut over to the new system at a specified point. A third is to phase in the system, either by location or system function. A fourth is to pilot the new system at a specific site before converting the rest of the organization.

Support- The support phase has two objectives. The first is to update and maintain the AIS. This includes fixing problems and updating the system for business and environmental changes. For example, changes in generally accepted accounting principles (GAAP) or tax laws might necessitate changes to conversion or reference tables used for financial reporting. The second objective of support is to continue development by continuously improving the business through adjustments to the AIS caused by business and environmental changes. These changes might result in future problems, new opportunities, or management or governmental directives requiring additional system modifications.

Assurance, Audit, and Attestation: – Quality control of AISs involves many activities, including the services of both external auditors (public accountants) and internal auditors. External auditors can provide a variety of services, including providing assurance that the controls over external financial reporting are adequate and attestations that the external financial statement are “fairly presented” in accordance with GAAP. Internal auditors focus on providing assurance that AISs are effective and efficient in providing information to assist managerial decision making.

Continuous improvement of AISs changes the way internal controls are implemented and the types of audit trails that exist within a modern organization. The lack of traditional forensic evidence, such as paper, necessitates the involvement of accounting and auditing professionals in the design of such systems. After the implementation, the focus of attestation is the review and verification of system operation.

Enterprise resource planning (ERP): – ERP systems are large-scale information systems that impact an organization’s AIS. These systems permeate all aspects of the organization and require technologies such as client/server and relational databases. Other system types that currently impact AISs are supply chain management (SCM) and customer relationship management (CRM). Traditional AISs recorded financial information and produced financial statements on a periodic basis according to GAAP pronouncements. Modern ERP systems provide a broader view of organizational information, enabling the use of advanced accounting techniques, such as activity-based costing (ABC) and improved managerial reporting using a variety of Analytical Techniques.

2.04 Strategic Management Accounting Information Systems: –

Strategic management accounting information systems involve linking long-term or strategic goals of an organization with performance evaluation outcomes. An organization through strategic planning makes decisions on the types of business and the markets it operates in. This process also involves the financing aspects of the activities. The management accounting and control systems in turn, processes information on the various activities through the data collection, information processing and communicates such information to higher management through internal reports.

2.04.1 Cost Accounting System: – A cost accounting system includes in general two steps, the cost accumulation by classifying costs into categories and the assignment of costs to cost objects. The first one refers to the collection of costs by using classification criteria, like the relevance of costs or the cost behavior. Different decisions require the consideration of different types of costs. Hence, as a first step, it is very helpful for decision-making to categorize costs as fixed or variable, relevant or irrelevant and direct or indirect. For example, the make-or-buy decisions should focus on relevant costs in a particular decision situation.

The classification method of direct and indirect costs, in particular, is important for the cost accounting system, which becomes apparent in the latter step that deals with the assignment and allocation of costs to its cost objectives. Cost allocation deals only with indirect costs that are allocated to a cost object. On the contrary, the assignment of direct costs to a cost driver is called cost tracing. In general, two main methods of allocating indirect costs can be identified. This is wide-spread Traditional Accounting System, which is rather old, and Activity Based Costing (ABC). The first one is based on the idea of arbitrary allocation, for example direct labor hours are used as a foundation to allocate costs of materials to a cost object. Thus, the proportion of total indirect resource costs that is assigned to a cost object depends on the proportion of a volume-based cost driver. Often only one cost-driver is used, like e.g. machine hours.

It is common to treat this difference as periodic cost and to add or delete it from the profit or loss of the period. Organizations that are occupied with lots of similar activities and repetitive production steps frequently use these standard costs. The function of both allocation systems can be described by using a two-step framework as proposed by Drury.

2.04.2 Information Systems in Context: –AISs cover all business functions from backbone accounting transaction processing systems to sophisticated financial management planning and processing systems.

Financial reporting starts at the operational levels of the organization where the transaction processing systems capture important business events such as normal production, purchasing, and selling activities. These events (transactions) are classified and summarized for internal decision making and for external financial reporting.

Cost accounting systems are used in manufacturing and service environments. These allow organizations to track the costs associated with the production of goods and/or performance of services. In addition, the AIS can provide advanced analyses for improved resource allocation and performance tracking.

Management accounting systems are used to allow organizational planning, monitoring, and control for a variety of activities. This allows managerial-level employees to have access to advanced reporting and statistical analysis. The systems can be used to gather information, to develop various scenarios, and to choose an optimal answer among alternative scenarios.

2.05 Traditional & Computarized Accounting Information System:-

2.05.1 Accounting Information Systems:-

Accounting Information Systems (AIS) are systems that are used to record the financial transactions of a business or organization. The system combines the methodologies, controls and accounting techniques with the technology of the IT industry: computers, software and the user interface. The software used to track transactions provides internal reporting data, external reporting data, financial statements, and trend analysis capabilities. This information is essential to decision makers and top executives

AIS: – The ledger book and pencil have been replaced by a computer and keyboard. Since the data is entered by people, errors in the data do still occur. The software records the data into accounts that track to the proper places within the assets, liabilities and equity columns. This information can be queried, combined, sorted, and reproduced to create many different evaluative tools or reports.

Input Devises: – The input devices are computers, clone workstations, fax machines, and scanners. The secondary input tolls are the keyboard and mouse. All of these tools are available to help get the information into the storage drive of the computer system. The software that the user interfaces with can be either server or we based. Software loaded onto a company server is much more secure than information downloaded to a web based software package. It is important to remember to back up oner material twice every day.

Output Devises: – When one wants to create a statement or report one will need to extract the information from the accounting information system through an output devise. These kinds of devises include printers, electronic transfer methods or PDAs. The information entered goes through a process of being coded by the software. This way, the computer generates the financial reports, and the user does not have to spend her time creating one. As long as the data was entered properly, the data that comes out will be accurate.

The Effects of AIS: – Accounting information systems come in all sizes. The software that a large company uses will be very different from a small business. Large corporations have complex accounting issues like: derivatives, real estate, stocks, bonds, investments and multiple divisions, locations, and products. Smaller companies often do not have as many of these complex issues. Therefore, the software has to be much more robust as does the AIS itself. The enterprise resource planning system (ERP System) is large-scale AIS that are used for such companies. They use high end technology that is present throughout the organization. These large systems also have applications in the supply chain management and financial reporting arenas. The accounting regulation and code is built into the software.

Software: – Accounting information systems have made the job of bookkeeping and accounting much easier. The knowledge needed to be an accountant is still necessary. However, much of the time intense work can now be done with fewer employees in a shorter time period. Accounting information systems have revolutionized the industry of accounting, tax compliance and attestation.

2.05.2 Computerized Accounting: –

Accounting information systems are very popular with businesses. They are not that expensive, providing useful and timely information to management. Accounting information systems can be used to book account payables, receivables, cash transactions and all other accounting functions in a systematic manner. Accounting departments handle high volume of transactions and having an effective information system is a must. Computerized accounting is a beneficial use of current technological advances. Not only has it revolutionized the traditional paper methods of accounting, but it has also created new types of accounting applications for business. Companies now create entire accounting information systems that integrate all business operations, including external suppliers and vendors in the value chain.

Computerized: – When dealing with accounting information systems nowadays, the assumption is that we are dealing with a computerized system, not pencil and paper. The accounting system does the same processes as a manual system; the principles are the same, but a computer performs the functions. Many computerized systems take advantage of batch processing, where many similar transactions are processed together. This is the case in processing accounts payable, where many bills are paid at once, saving time.

Modules: – Accounting information systems are often made up of modules, also known as sub-systems, such as: the General Ledger module, which contains most of accounting information on a detail level; the Accounts Receivable module which contains customers or client’s information with details; Accounts Payable module which contains information on vendors and usually allows for checks to be printed out for payment; and Inventory which controls inventory transactions and usually linked with sales information.

Each module has its own functionality, such as an aging report in the accounts receivable module, showing who owes the business what and for how long. Many times all these modules are integrated, providing firms with a very efficient accounting information system.

Reports: – Ease of report is a major feature of an accounting system, which is capable of summarizing and compiling financial reports. Most systems have standard reports, such as balance sheet and income statement embedded in the system. All one need to do is to select a period for the reports and press a button. Reports can be customized as well, increasing the versatility of a system in creating reports. Because it is so easy to run reports, they can help in identifying errors, increasing accuracy and efficiency of accounting operations.

Warnings: – An accounting information system can contain errors. Numbers could be mistyped, journal entries may contain wrong accounts, and transactions could be misclassified. Because of the high volume of transactions going through an accounting department, errors can be expected.

To help to identify and correct these errors, usually reconciliations are done and should be part of the systematic way of processing transactions in accounting. Cash reconciliation is a standard process done once a month comparing numbers in bank statement and in general ledger. As these numbers are compared, issues are found and resolved. Many systems provide help in this area.

Cloud: – Cloud computing is the latest trend in the accounting information system world. Instead of dealing with servers and locally stored software and files, the place where software files reside are off-site, in the cloud. Intuit, for instance, started offering tax and accounting software on its cloud- using its own machines to process and save data. If something happens to one computer, the data and system are off-site and safe.

Enterprise Systems: – Enterprise resource systems are a relatively new type of computer management system that includes several functions of traditional accounting software. An enterprise resource system has every major business operation linked into one software system that accountants can use to retrieve pertinent financial information and input into the accounting module. This type of management software is used in large organizations to increase the speed and availability of financial information.

Value Chain: – Computerized value chains allow the traditional enterprise resource system to import and export certain types of financial information to outside suppliers and vendors. Value chains are extensively used in manufacturing operations to plan for materials purchase and finished goods transport to wholesalers and retailers. Computerized accounting software will transmit order information and purchase orders to suppliers for production materials as orders come into the system from wholesalers and retailers. This shortens the lead time between production and sales, increasing the company’s profitability.

Web-Based: – With all the information being transmitted through the enterprise resource system and external suppliers and vendors, many computerized accounting programs are Internet-based. This allows companies to use pre-existing fiber-optic communication lines for accessing accounting software information. Internet-based programs also allow companies to use instant-messaging and email communication methods to transmit purchasing information. Additionally, companies are now using online money transfers to pay for goods, cutting down on payment processing delays.

Networking: – Another important feature of computerized accounting is the ability to have several accountants access the system internally to review and process the financial information. Companies usually set up an intranet, which allows users to access information on their personal computer through a server-based system. These intranets, called local-area networks, are extremely reliable and cost-efficient for companies to install. They improve employee productivity, communication and financial integrity through the various safety controls employed by company management.

Functionality: – The most important part of a computerized accounting system is the improved functionality it provides to internal accountants. Most accounting software can have financial information imported from external enterprise resource or value chain systems, allowing accountant to simply review and correct and problems. These programs also have internal calculation checks that look for value errors, printing an exception report for accountants to review these problems. Financial information can also be exported into financial statements for final review by accounting management

2.05.3 Computerized Accounting Systems: –

Computerized accounting systems are complex software programs developed to enhance traditional accounting methods. These systems are implemented company-wide, allowing accountants to collect and analyze data from all parts of the company.

Types: – Several different types of computerized accounting systems are available in the software market. Companies can choose low-price standard software or have a special system custom-made for a higher price.

Networking: – Computerized accounting software can be networking using the Internet, allowing a single accounting office to perform accounting functions for several locations. Some companies outsource accounting functions globally using their accounting software.

Functions: – Accounting software has the ability to complete a vast array of functions, including general ledger, fixed assets, and payroll and reconciliation tasks. Most functions calculate and present data electronically, allowing accountants the ability to review and correct the information as needed.

Storage: – Most companies utilize electronic storage options when implementing computerized accounting systems. Using data servers or other electronic storage limits the amount of paper a company needs to physically store in their files.

Careers: – Many new career options are available in the computerized accounting field. Database administrators, network managers and technical consultants are all valuable positions for maintaining a computerized accounting system.

2.06 Manual vs. Computerized Accounting Systems:-

Accounting for the financial transactions of a business is an important function of daily operations. Developing and using a proper accounting system will ensure that all transactions are recorded correctly and accurately on the company’s general ledger. Technological advances ease the accounting process for many businesses.

Manual Accounting: – Manual accounting systems utilize several paper ledgers to record financial transactions. Companies have separate ledgers for each part of the accounting system, such as accounts payable, accounts receivable and sales. Accountants then consolidate these ledgers into one general ledger, providing the balance for each ledger. The general ledger notebook assists in creating financial statements.

Manual Accounting Benefits: – While tedious and time consuming, manual accounting systems offers some benefits. The ledgers are easy to review, and accountants can make simple changes if necessary; individual accounts are easily reconciled because information is in systematic order through each ledger. Accountants also have the benefit of physically handling each ledger and creating notes in customer accounts regarding any issues that need clarification or corrections.

Computerized Accounting: – Spreadsheets and accounting information systems require accountants to enter financial data into them, and then mathematical algorithms compute the information into the necessary ledgers and financial statements. Computerized systems also allow accountants to create trending analysis and report any variances quickly and accurately. Additionally, transactions from all company divisions are accessible through computerized accounting systems, giving accountants better access to financial information.

Computerized Accounting Benefits: – Computerized accounting offers several more benefits than manual accounting; accountants process more information quicker, formulas verify calculated totals and errors are less common. Accounting systems also are customizable by industry, allowing accountants the opportunity to use preset templates for their general ledger. Accountants also can store several years of financial information with relative ease, giving them the opportunity to review previous year’s information without sorting through stacks of paper ledgers.

Best Method: – Most companies will use a computerized accounting system for recording and presenting their financial information. This system allows companies to record business transactions accurately and generate financial reports quickly for management review.

While the functions of manual accounting have changed, it will never go away completely. Accountants must review the information presented on financial reports from the accounting system and ensure that it is accurate and valid. Accountants must also ensure that all financial information follows the Generally Accepted Accounting Principles and any other guidelines from regulatory agencies.

2.07 The Advantages of a Computerized Accounting System: –

Companies often use a computerized accounting system to process and maintain accounting transactions and records. The system absorbs and stores this data by using modules such as accounts payables, accounts receivables, trial balance and payroll. A computerized accounting system is either specifically designed for a certain company or it is purchased from a third-party. A computerized accounting system is a valuable tool for many companies.

Speed: – The system processes data rapidly. Once the information is keyed into the related module such as payroll or accounts payable, the system processes and stores it instantly.

Automatic Generation: – The majority of computerized accounting systems have features such as order-entry and generation of associated invoices. The employer can create accounts for their clients, storing their names, addresses, orders and invoices for as long as necessary. A computerized system also allows the employer to make and print account statements. Further, many accounting systems have a payroll feature, which enables complete payroll processing, including the generation and printing of checks and reports.

Timeliness: – The employer is able to print and reprint customer orders, invoices, and all other accounting transactions as required. He can also easily find employees’ payroll data such as current address and pay amount without having to search through filing cabinets to locate personnel files.

Eradicates Manual Processing: – A computerized accounting system eliminates manual processing. The latter involves processing and recording the company’s incomes, expenses, profits, losses, and reconciliation by hand, creating much room for error. Payroll transactions and the business’ tax transactions are also recorded manually. With a computerized accounting system, the employer has a smoother record-keeping and balancing process.

Staff Motivation: – A computerized accounting system often requires the staff to undergo training to learn new skills, making them feel motivated. Further, the employer can outsource training to a representative from the software company, creating less pressure on staff members to administer the training themselves.

Simplifies Audits: – If the federal or state government decides to audit the company, a computerized accounting system simplifies the process. Normally, before the audit takes place, the auditor notifies the employer by mail about the specific documents required for the audit. Depending on the nature of the audit, documents may include tax statements, payroll registers and chart of accounts.

A computerized accounting system can store many years of information. If the audit requires it, the employer can access information dating from many years back. If, during the audit, the auditor spontaneously requests an accounting document, the employer can quickly retrieve it from the system instead of rummaging through storage boxes to locate hard copies.

Reduces Embezzlement: – Computerized accounting software makes it difficult for employees to steal money from the company. For example, if a payroll employee tries to pay herself more than the allowed amount, her theft will most likely be discovered because the accounting system stores all saved transactions.

2.08 Functions of Accounting & Information System: –

Collect and store data about events, resources, and agents. Transform that data into information that management can use to make decisions about events, resources, and agents. Provide adequate controls to ensure that the entity’s resources (including data) are:

Ø Available when needed

Ø Accurate and reliable

The Basic Functions of an Accounting Information System: –

An accounting information system (AIS) provides financial information about a business. This information helps managers plan and control operations and provides reports to outside parties such as stockholders, creditors and government agencies. Parts of an accounting information system might include financial reporting, cost accounting, management accounting and enterprise resource planning (ERP). Well-designed AIS gives a business a consistent way to view and analyze financial information and has three basic functions.

Collect and Store Data: – One function of an accounting information system is to efficiently and effectively collect and store data about business activities and transactions. The system must capture transaction data on source documents, record transaction data in journals to present a chronological record of transactions, and post data from journals to ledgers that sort the data by account type.

Provide Information: – The second function of an accounting information system is to provide information useful for making decisions. This information usually involves reports in the form of financial statements and managerial reports.

Provide Controls: – The third function of an accounting information system is to incorporate controls to ensure the accurate recording and processing of data. The system must make certain that the information that comes out of the system is reliable, ensure that business activities are efficient and in line with management’s objectives and keep business assets safe. Traditionally, bookkeepers and accountants did the work of accounting systems by hand on paper, but today much of the work is automated with computers. Setting up an accounting information system requires knowledge of topics such as database design and development, business process analysis, accounting applications, internal control requirements, information technology (IT) auditing and accounting requirements.

2.9 Role of AIS in the Value Chain: –

Ø The objective of most organizations is to provide value to their customers.

Ø While “adding value” is a commonly used buzzword, in its genuine sense, it means making the value of the finished component greater than the sum of its parts.

Ø It may mean:

ü Making it faster

ü Making it more reliable

ü Providing better service or advice

ü Providing something in limited supply (like O-negative blood or rare gems)

ü Providing enhanced features

ü Customizing it

Ø Value is provided by performing a series of activities referred to as the value chain. These include:

o Primary activities

o Support activities

ü Primary activities include: –

Inbound logistics- Receiving, storing, and distributing the materials that are inputs to the organization’s product or service.

For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs.

Operations- Transforming those inputs into products or services. For the pharmaceutical company, this step involves combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers.

Outbound logistics- Distributing products or services to customers. For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals.

Marketing and sales– Helping customers to buy the organization’s products or services. A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders.

Service- Post-sale support provided to customers such as repair and maintenance functions. A pharmaceutical firm will typically not be repairing its product (though the product may be periodically reformulated). The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc.

ü Support activities

Firm infrastructure- Accountants, lawyers, and administration Includes the company’s accounting information system.

Human resources- Involves recruiting and hiring new employees, training employees, paying employees, and handling employee benefits.

Technology- Activities to improve the products or services (e.g., R&D, website development). For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones.

Purchasing- Buying the resources (e.g., materials, inventory, and fixed assets) needed to carry out the entity’s primary activities. In the pharmaceutical company, the purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations.

Ø Information technology can significantly impact the efficiency and effectiveness with which the preceding activities are carried out.

Ø An organization’s value chain can be connected with the value chains of its customers, suppliers, and distributors.

Ø There is variation in the degree of structure used to make decisions:

Structured decision-

  • Repetitive and routine
  • Can be delegated to lower-level employees
  • Example: Deciding whether to write an auto insurance policy for a customer with a clean driving history.

Semi structured decision-

§ Incomplete rules

§ Require subjective assessments

§ Example: Deciding whether to sell auto insurance to a customer with a tainted driving history.

Structured decisions-

§ Non-recurring and non-routine

§ Require a great deal of subjective assessment

§ Example: Deciding whether to begin selling a new type of insurance policy

Ø There is also variation in the scope of a decision’s effect:

Occupational control decisions-


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