Using Information Technology in Accounting Procedures

Information Technology (IT) is the recording and use of information by electronic methods.

Most modern organisations have progressed from manual to computerised methods of processing data to ensure they remain competitive within their marketplace.

These computerised systems are known as Management Information Systems (MIS).

Functions of a business Collect, process and transmit information

quickly and easily. Decision-making becomes more effective

which in turn leads to a more efficient business.

Information must be accurate, complete, available, timely and up to date

Accounting Information Systems (AIS)

Accounting systems and procedures are now becoming computerised Most accounting information used to be historical,

allowing decisions to be made on the basis of past events

Businesses now require up-to-the-minute information to be made available immediately to allow firms to make sound planning decisions and to control their operations – to keep ahead of their competitors

Process of Information Accountants process accounting data to

produce accounting information:

OutputTransmit

Reports

Statements

InputCollect

Transactions

Amendments

The process starts with unsorted transactions

Process

Accounting System

which must be processed into information

which will enable users to see how a business is progressing

Traditional Manual Systems In traditional manual systems, data has to

be entered several times, not only by the accounting department but the same data would be recorded by other departments such as sales.

This duplication costs businesses a large amount of time and money.

Advances in computer technology Have seen:

A reduction in duplication of work A reduction in the volume of work The production of more information from the

same data in a shorter length of time Systems developing which have allowed a

reduction in routine work and data backlog This centralised data can now be shared by

all departments with users accessing the information as required

We are all familiar with the use of bar codes and scanners in large retail establishments and now even small corner shops have started using this method of recording financial transactions.

Bar Codes and Scanners

Collect

Process

Transmit

Data is collected by inputting the bar code at the cash point by means of a scanner. The scanner reads the code and sends the data to a central processing unit

The central processor processes this code into specific information about the items being scanned, such as supplier, article name, size and priceThis information is transmitted back to the cash point where the output is a price display and a till receipt

This method also allows the supermarket to control their stock levels. Now a running stock is available as each time an item is scanned the stock record is automatically updated

The information is relayed to a central warehouse – when stock reaches the minimum level a delivery for new stock would automatically be sent

This system has saved both time and money in terms of no longer having to carry out manual stock checks but also in terms of no longer having to pay for large areas of the supermarkets to be used as stock rooms.

The computerised system can also be set up to automatically pay invoices by electronic means.

Cash(Debit) Cards and Credit Cards

Collect

Process

Transmit

Cash or Credit Cards can be used to obtain instant cash or pay bills.

When the card is swiped the data obtained from the card number is sent to a central processor

The data is processed by firstly checking the card number against a list of stolen or lost cards. If the result of this search is negative, the bill amount is checked against the bank account balance

An acceptance signal is then relayed back and a transaction voucher printed for the purchaser to sign

EFTPOSElectronic Funds Transfer at Point-of-Sale

Instead of using paper, money can be transferred electronically (EFT)

EFT uses the computer networks to transfer money from the purchaser’s account directly to the shop’s account

This process is known as Electronic Funds Transfer at Point-of-Sale

Using Integrated Software in AccountingLarge national or multinational organisations

will normally have software produced specifically for them to meet their needs and to suit their working practices and procedures. This is known as customised software.

However, this is very costly and it takes time to have a specific package written.

Most small or medium-sized firms will therefore buy ready-written software over the counter which often results in them having to change their procedures to work within the software system.

Nevertheless, the savings in time and money usually outweigh the disadvantages as the software is normally user-friendly and enhances their working practices in the long term.

These software packages can vary, but products containing spreadsheet, database and word processing packages are typically used as they are very versatile and allow integration between packages.

Word ProcessingThis simplifies the creation and editing of

text. It has features such as:

deletingmoving and copying text enhancing text in terms of:

emboldeningunderliningitalicising

It also allows:

fonts and sizes to be changedspell and grammar check

Resulting in the production of professional documentation

It can also ensure that documents are consistent in terms of presentation to enhance a company’s reputation.

The word-processing package could be used to:

Send letters to clients regarding their financial position‘Mail-merge’ standardised letters to numerous clients using a database to provide the client details

Prepare templates for invoices or purchase ordersPrepare company reports or complex legal documents

SpreadsheetsThese electronic worksheets make it possible

for calculations to be carried out accurately and relatively simply.

Calculations including:totalling

averaging

ratios

‘What if’ scenarios

These ‘what if’ calculations can be used to provide figures which could result in different situations thereby aiding management with decision-making.

The spreadsheet package could be used to:Prepare Trading, Profit & Loss Accounts

Produce Balance Sheets

Produce Charts and Graphs

Prepare Budget forecasts

DatabasesDatabases are electronic filing systems which

allow specific pieces of information to be keyed into fields with all the fields for one item being known as a record.

These can be sorted as required and

Searched to find records matching specific criteria

They can also be edited and deleted as required.

The database package could be used to:Record client details

Search for specific clients, eg those who owe more than £15,000

Carry out simple calculations eg salary payments

Present information in the form of lists, reports and forms

Using IT – the AdvantagesComputers can process data far more quickly and accurately than manual procedures

Cuts down on the need for many routine tasks and information being duplicated by different departments

Files can be set up by one department and shared by all the others

Text can be recalled and edited as required instead of having to be retyped

Figures can be keyed in once then used over and over to forecast the outcome of different scenarios

Using IT – the Disadvantages Costs of buying hardware and software can be

high

Staff may be worried by the changes: Worry about not being able to work the new

technology

Worry that they might lose their job

Equipment may develop problems or servers may be brought down by viruses or technical faults

Employers can overcome these problems by: Ensure equipment is serviced regularly

Technicians are on the premises to solve problems as they arise

Involve staff in the process of change

Reassure staff about job loses

Train staff appropriately

IT – The Benefits If organisations deal with change effectively:

Staff morale will rise

Job satisfaction will increase as employees learn new skills

Productivity increases as work is completed more quickly and accurately

IT will improve working conditions, save time and money and improve decision-making and communication

Specialised Accounting Packages Large, profitable organisations can have

specialised packages written for them so that every procedure they want carried out is taken into account.

These organisations would approach a software manufacturer who would design a package specifically for them to meet their every requirement.

Specialised Accounting Packages Smaller organisations can opt for a ready-

written specialised accounting package.

These can be customised to suit many needs and are written in a user-friendly style with menus and help screens to assist the user.

Accounting Packages Packages can be obtained for a variety of

applications such as: Payroll

Purchase Ledger

Stock Control

Sales Accounting

Popular examples of Accounting Packages are Sage, Omni Accounts and Moneysoft

Factors to consider There are several factors to consider before

deciding on which package to purchase and install:

Cost of buying and installing the required hardware

Cost of buying and installing the software

Cost of training staff to use the software

What tasks have to be carried out

Whether manual procedures would have to be changed to begin using the new software