Unit 1.

Introduction of Computerized Accounting

Over the years, accountants have used many tools such as adding
machines and calculators to speed the task of keeping business records
while still maintaining accuracy. In the 1950s, businesses found that the
computer was ideal for accounting applications. However, only the largest
organisations could afford the very expensive computer equipment which
was available at that time. Since then the price of computer equipment
has dropped dramatically. Today, even the smallest business can afford a
computer capable of keeping detailed accounting records.

At the same time the computers have become more affordable they have
also become much simpler to use. In the 1950s, a staff of trained
operators was needed to run a computer. Today, computers powerful
enough to keep a business’s accounting records can be operated by one
person with little or no computer experience. This increasing ease of use,
coupled with the decline in price of computers has meant that even small
businesses are able to switch from their manual accounting systems to
computerized accounting systems.
Computerized accounting system implies any set of organized procedures
used to collect and record accounting data with the use of a computer.

As you see, computers can greatly facilitate the accounting process. You
might think such a powerful tool would require a great deal of expertise
to use. On the contrary, it takes very little computer knowledge to use a
computerized methods should not be difficult to learn. The computer is
only a tool to aid you in performing the same bookkeeping operations you
have learned to do manually.

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Basically, the computer is used to do the mechanical work of accounting
such as posting. You still must do all the analysis work such as deciding
when a transaction has occurred and which accounts should be debited
and credited.

Little computer expertise is required because accounting procedures are

basically the same whether they are performed manually or on the
computer. Let’s review the steps of the accounting cycle as you’ve
learned them for a manual system and compare them to the steps of the
accounting cycle as they are performed in a computerized system.
Accounting Cycle in Computerized Accounting
The primary objectives of the accounting function in an organization are
to process financial information and to prepare financial statements at the
end of the accounting period. Companies must systematically process
financial information and must have staff who prepare financial
statements on a monthly, quarterly, and/or annual basis.
To meet these primary objectives, a series of steps is required.
Collectively these steps are known as the accounting cycle. The steps,
applicable to a manual accounting system, are described below. Later,
there will be a brief discussion of a computerized processing system.
The Steps of the Cycle.
1. Collect and analyze data from transactions and events: As transactions
and events related to financial resources occur, they are analyzed with
respect to their effect on the financial position of the company. As an
example, consider the sales for a day in a retail
establishment that are collected on a cash register tape. These sales
become inputs into

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the accounting system. Every organization establishes a chart of accounts
that identifies
the categories for recording transactions and events. The chart of
accounts for the retail
establishment mentioned earlier in this paragraph will include Cash and
Sales.
2. Journalize transactions: After collecting and analyzing the
information obtained in the first step, the information is entered in the
general journal, which is called the book of original entry. Journalizing
transactions may be done continually, but this step can be done in a
batch at the end of the day if data from similar transactions are being
sorted and collected, on a cash register tape, for example. At the end of
the day, the sales of $4,000 for cash would be recorded in the general
journal in this form: Cash 4000 Sales 4000
3. Post to general ledger: The general journal entries are posted to the
general ledger which is organized by account. All transactions for the
same account are collected and summarized; for
example, the account entitled "Sales" will accumulate the total value of
the sales for the period. If posting were done daily, the "Sales" account in
the would show the total sales for each day as well as the sales for the
period to date. Posting to ledger accounts may be less frequent, perhaps
at the end of each day, at the end of the week, or possibly even at the
end of the month.
4. Prepare an unadjusted trial balance: At the end of the period,
double-entry accounting requires that debits and credits recorded in the
general ledger be equal. Debit and credit merely balances (e.g., assets
and expenses) and other accounts have credit balances (e.g., liabilities,
owners' equity and revenues). As transactions are recorded in the general

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journal and subsequently posted to the ledger, all amounts recorded on
the debit side of accounts (i.e., recorded on the left side) must equal all
amounts recorded on the credit side of accounts (i.e., recorded on the
right side). Preparing an tests the equality of debits and credits as
recorded in the general ledger. If unequal amounts of debits and credits
are found in this step, the reason for the is investigated and corrected
before proceeding to the next step. Additionally, this trial balance
provides the balances of all the accounts that may require adjustment in
the next step.
5. Prepare adjustments: Period-end adjustments are required to bring
accounts to their proper balances after considering transactions and/or
events not yet recorded. Under accrual accounting, revenue is recorded
when earned and expenses when incurred. Thus, an entry may be
required at the end of the period to record revenue that has been earned
but not yet recorded on the books. Similarly, an adjustment may be
required to record an expense that may have been incurred but not yet
recorded.
6. Prepare an adjusted trial balance: As with an unadjusted trial
balance, this step tests the equality of debits and credits. However,
assets, liabilities, owners' equity, revenues, and expenses will now reflect
the adjustments that have been made in the previous step. If there
should be amounts of debits and credits or if an account appears to be
incorrect, or error is investigated and corrected.
7. Prepare financial statements: Financial statements are prepared
using the corrected balances from the adjusted trial balance. These are
one of the primary outputs of the financial accounting system.
8. Close the accounts: Revenues and expenses are accumulated and
reported by period, either a monthly, quarterly, or yearly. To prevent
they’re not being added to or comingled with revenues and expenses of
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another period, they need to be closed out—that is, given zero balances—
at the end of each period. Their net balances, which represent the income
or loss for the period, are transferred into owners' equity. Once revenue
and expense accounts are closed, the only accounts that have balances
are the asset, liability, and owners' equity accounts. Their balances are
carried forward to the next period.
9. Prepare a post-closing trial balance: The purpose of this final step
is two-fold: to determine that all revenue and expense accounts have
been closed properly and to test the equality of debit and credit balances
of all the balance sheet accounts, that is, assets, liabilities and owners'
equity.
1.2 Comparison of the Accounting Cycle in a Manual versus a
Computerized System

Accounting Cycle in A Manual Accounting Cycle In A

Accounting System Computerized Accounting
System
1 Business transactions occur 1 Same
2 Any necessary documentation 2 The transaction is analyzed
such as invoices, purchase and entered into the
order. Or checks are created; computer which creates any
the transaction is analysed and necessary documents and
recorded in a journal journalizes the transaction
into the appropriate journal.
3 Transactions are posted from 3 The computer posts
the journals to the ledgers transactions from the journals
to the ledgers.
4 A trial balance is prepared 4 The computer prints a trial
balance.

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5 Adjusting entries are entered on 5 Adjusting entries are recorded
a worksheet and the worksheet and the computer journalises
is completed. and posts them. (No
worksheet is necessary.)
6 Financial statements are 6 The computer generates and
prepared and typed. prints financial statements
requested by user.
7 Adjusting entries are 7 The computer completes the
journalized and posted. closing process
8 Closing entries are journalized 8 The computer can be used to
and posted print a post-closing trial
balance or balance sheet.
9 A post closing trial balance is
prepared.

As you can see, a computerized accounting system is very similar to a

manual system. The reason for this is that the same type of transactions
occurs whether your system is computerized or not. Also, the same types
of reports are required. Because of this, most computerized accounting
systems have been designed to emulate the manual accounting process.

Even though a computerized accounting system is very similar to a

manual system there are several reasons for the accountant/organisation
to choose to convert to computerized accounting methods.

1.3 Advantages Offered By a Computerized System

Computerized systems offer many advantages over manual systems.
Some of these are listed below;

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 Speed
Since the computer can perform many time-consuming manual tasks
almost instantaneously, a computerized system can provide information
much more quickly than a manual system. Due to this speed, a much
larger volume of accounting personnel to do more of the analytical work
important to management. Also, the heavy workload of closing accounts
and creating financial statements at the end of each accounting period is
greatly reduced since the computer performs these tasks automatically
and quickly.
 Error protection
Using a computer greatly reduces the occurrence of errors. A computer
will not make careless errors when performing repetitious work as
humans tend to do. In addition, a good computerized accounting system
will have many built-in-error-protection features. For instance, in most
systems, the computer will not accept any journal entry that does not
balance.
 Inventory controls
For retail businesses, good control over inventory is one of the most vital
elements of profitability. Typing up cash by overstocking inventory items
can be as disastrous as being understocked on items that sell quickly. In
order to keep track of inventory levels, many businesses use an
inventory. In business which carries a large number of inventory items
and has a large volume of sales, keeping these inventory records is
almost impossible without a computer. With a computer, changes in
inventory levels can be entered at the same time that sales, purchases,
and return transactions are recorded and inventory records will
automatically be update. Computerized accounting systems can generate
reports listing inventory levels and other important information about
inventory quickly and accurately.
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 Creation of an Audit Trail
With a good computerized accounting system, you will find that your
accounting records will be well organized with reports documenting each
transaction. This provides a clear audit trail by which every transaction
can be traced. In a system with a good audit trail you should also be able
to trace each change in account balances back to the transaction which
caused the change. Although a complete audit should be part of any
accounting system, in a computerized system, the audit trail should be
built into the system and it should be very difficult to enter transactions
or account balance changes without leaving an adequate record of the
transaction.
 Automatic posting
In a computerized system, posting is performed automatically by the
computer. This feature alone is an enormous time-saver. Not only in the
repetitive task of posting extremely time consuming. It is also the source
of many errors in a manual accounting system due to mistakes such as
double posting. Posting to the wrong account, or posting the wrong
amount. Using a computerized system ensures that each entry is posted
accurately.
 Current balances available immediately
A big advantage to management is that up-to-date account balances are
available at any time to aid in management decisions. Because the
computer posts immediately, account balances are always accurate and
up-to-date.
 Automatic report preparation
Reports can be generated automatically by a computerized accounting
system. All computerized accounting systems will provide printouts of
journals and ledgers as well as preparing the balance sheet and Income
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statement. In addition, some systems provide many more detailed
reports to aid management in the decision-making process. These reports
include up-to-date information about budgets, accounts receivable,
accounts payable and inventory levels.
 Automatic document printing
In addition to printing reports, a computerized system can also provide
many of the documents used in a business. Using preprinted forms sold in
supply stores, the computer can print documents such as monthly
statements for accounts receivable customers, checks to pay bills, and
payroll checks, with year-to-date information on the stubs. As theses
documents are entered into the system, Journal entries are created. This
not only speeds up document preparation but also ensures that journal
entries agree with invoice, checks and other records of transactions.
Disadvantages of computerized accounting systems
 Cost of computerized system is very high
 High cost for maintenance
 The system can be infected by viruses
 Member of workers have to be reduced as they are no longer needed
 Needs heavy investment
 Problem of security
 Loss of data
 An artificial device
 Possibility of manipulations
 Not suitable for small firms
 Requires training on part of accountants

Review Questions

1. What is meant by the term computerized accounting systems?

2. What are the advantages of computerized accounting systems over
manual accounting systems
3. Outline the disadvantages of using computers in accounting.

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 4. Explain how the accounting cycle in computerized accounting differ
from that of the manual accounting system.

Unit 2. Basics of Accounting Software

There are two major categories of software. The category, systems
software, includes programs called operating systems. These programs
tell the various system components and other software how to operate
together. Operating systems are generally supplied by the dealer who
sells you your hardware.
The operating systems program is used whenever you use your
computer, no matter what specialized task you are going to perform.
Many larger businesses using personal computers, use operating systems
which allow them to network their computers together so that they can
share programs, data and storage space.

Another category of software is application software. These programs

are designed to tell the computer how to perform a specific task such as
accounting, game playing, word processing, and so on.

2.3 Horizontal and Vertical Accounting Packages

The applications software for accounting functions is designed to follow
manual accounting procedures as closely as possible. Obviously not all
businesses are alike and they do not all need the same accounting
system. For this reason, many types of packages have been created. The
most popular packages have been designed to meet the needs of
business with fairly standards accounting needs. These are reefed to as
horizontal accounting packages.
However, some companies find that due to the unusual nature of their
business, standard accounting packages do not fill their needs. For this
reason, programs have been written for specific businesses, for instance,
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there are programs designed to be used only in a dentist’s office and
packages designed to fit the accounting done in a law office. Programs
have been written to meet the needs of various types of manufacturers.
These specialized packages are called vertical accounting packages.

Vertical accounting packages follow the same accounting rules that you
have already learned (debits still must equal credits, for example).
However, these packages include special accounts and even special
journals which fit the type of business in which they are used. In addition,
they also may include a number of special reports designed to give
feedback to management.
Although we will concentrate on the more common horizontal accounting
packages in this course, the principles we cover will also be true of
vertical accounting packages.
There are a lot of top accounting software available in every category. So,
it is not easy to select the best ones. Below are top five accounting
software in every category.
A. Small business/personal accounting software:
1.ePeachtree (Best Software)
2.MYOB Plus for Windows (MYOB Software)
3.Peachtree Complete Accounting (Best Software)
4.QuickBooks Online (Intuit)
5.Small Business Manager (Microsoft)
B. Low-End Accounting Software:
1.BusinessVision 32 (Best Software)
2.MAS 90 & MAS 200 (Best Software)
3.QuickBooks Pro 2003 (Intuit)
4.ACCPAC Pro Series (ACCPAC International)
5.Vision Point 2000 (Best Software)
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C. Middle-Market Accounting Software:
1.ACCPAC Advantage Series Corporate Edition (Best Software)
2.Great Plains (Microsoft) MAS 90 & MAS 200 (Best Software)
3.Navision (Microsoft)
4.SouthWare Excellence Series (SouthWare)
5.SYSPRO (SysproUSA)
D. High-end accounting ERP Market:
1.Axapta (Microsoft Software)
2.e-Business Suite (Oracle)
3.MAS 500 (Best Software).
4. Solomon (Microsoft)
5.ACCPAC Advantage Series Enterprise Edition (Best Software)
Factors to consider when selecting an accounting soft ware

Modules
(What is a module)
Even business which use standard accounting procedures and reports
often have differing needs. For instance, some small businesses may not
carry any accounts receivables accounts because all of their sales or
services are for cash only. One business may be so small that the
accountant has very few employees on the payroll, whereas another
business may have a hundred. In order to be flexible enough to meet the
needs of many sizes and types of businesses, accounting packages are
usually organized into modules. A module is an individual accounting
program written to handle a particular area of the accounting records.
The most common modules are designed to handle the general ledger,
accounts receivable, accounts payable, inventory, and payroll work of a
business. In addition to these modules many others are available to help

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with specific functions such as billing, forecasting, fixed asset
management, budgeting and job costing.

2.4 Stand-alone system vs Integrated systems

(What is stand-alone)
Sometimes each module is written on a separate disk so that one module
can be bought to be used alone or, if needed, several modules can be
bought to be used together. Many small business start out using only one
module on a stand-alone basis. For instance, payroll procedures are often
the first accounting function to be converted from a manual system to a
computerized system. Some businesses find that their other transactions
are not frequent enough to require computerization, but payroll with its
large number of calculations and repetitive nature is ideally suited to
conversion to a computerized method. The accountant for the business,
therefore, could save a great deal of time by putting a large payroll on
the computer but still maintains the rest of the business’s records on a
manual basis.

Businesses with a large number of transactions in many areas ( such as

Accounts Receivable, Accounts Payable , and Payroll) can produce
accounting records more efficiently if they computerized several
accounting functions. Several modules bought to be used in conjunction
with one another are called an integrated system. In an integrated
system, each module handles a separate function but also communities
with the other modules. For instances, in order to record a receipt of
payment on accounts receivable you would enter the transaction in the
Account Receivable module. This entry would be added to the transaction
in the Cash Receipts Journal, and also the customer’s individual account
in the Accounts Receivable module would be posted to reflect the
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payment. In an integrated system, this information would also be posted
to the general ledger accounts in the General ledger Module as a debit to
cash and a credit to accounts Receivable.

The general Ledger module is the heart of an integrated system. Just as

in a manual system, each transaction entered must be posted to update
the general ledger in order to reflect the change in the balance of the
accounts. In an integrated system, no matter in which module a
transaction is entered, the transaction information will be used to update
the general ledger accounts. When the period is over and it is time to
prepare the financial statements, the balances in the general ledger
accounts are used to create a trial balance, income statement , and
Balance sheet. to reflect the payment. In

A system that operates independently of, or is not connected to, an

electric transmission and distribution network. This is in contrast to a
grid-connected system.

Powering homes or small businesses using small renewable energy

systems that can function separately from the electricity grid can have
both economic and environmental advantages. In addition to purchasing
photovoltaic panels (also known as solar panels or solar modules), a wind
turbine, or a small hydropower system, you will need to invest in some
additional equipment called balance-of-system to condition and safely
transmit the electricity to the load that will use it.

The amount of equipment you will need to buy depends on what you want
your system to do. In the simplest systems, the current generated by, for
example, your wind turbine is connected directly to the load. However, if
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you want to store power for use when your turbine isn't producing
electricity, you will want to purchase batteries and a charge controller.
Depending on your needs, balance-of-system equipment could account
for half of your total system costs. Your system supplier will be able to
tell you exactly what equipment you will need for your situation.
Major balance-of-system equipment for a stand-alone system includes:
 Batteries
 Charge controller
 Power conditioning equipment
 Safety equipment
 Meters and instrumentation

Review Questions

1. 1. Computerized accounting system is better off than a manual

accounting system. Discuss
2. Name four advantages of a computerized accounting system
over a manual system.
3. explain the steps of the accounting cycle differ in a computerized
system and a manual system

Unit 3
General Ledger Module in an Integrated System.

3.1 Introduction

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The general ledger Module is the heart of the computerized accounting
system. It is coordinated with all of the other modules. The General
ledger, itself, is maintained in this module.

The General Ledger

In a manual accounting system, the general ledger contains the record of
each account in the business and its current balance. In both, general
ledger keeps track of the account name, current balance, and increases
and decreases in the balance due to transactions for each account. In
both manual and computerized systems these account balances are
updated by postings from the various journals whenever a transaction
occurs. Theses updated balances are then used as the basis for all
accounting reports.

A computerized general ledger, however, may offer advantages over a

manual general ledger. One advantage is that in a computerized system
the transactions that are recorded in the different journals can usually be
posted immediately rather than at the end of the month. This means that
current balances are available at all times to create financial statements.

Also, a computerized general ledger may keep more detailed information

than a manual general ledger. For instance, the computerized system
might keep a record of month-by-month totals for revenues an expenses.
This makes the job of preparing a monthly income statement for the
current month or a past month, creating a monthly budget or analyzing
monthly company performance much easier.

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This ability to store historical data on each account greatly improves the
business manager’s ability to analyze the business’s condition and
performance.

General functions of the general ledge module

Keeping a record of the general ledger accounts is only one of the general
ledger modules. This module contains programs allowing you to enter
general journal entries, post these entries, and prepare financial
statements. The general ledger module also allows you to print journals
created in other modules and post the transactions from these journals to
the general ledger accounts.

A feature of the general ledger module found in books and some other
accounting programs is an option which aids in keeping track of the
checking account balance and reconciling this balance to the bank
balance.
Before we can use the general ledger module or any of the modules to
record accounting transactions, we first must set up the records for each
account in the general ledger. Establishing these records is a three step
process;
Step 1: designing the chart of accounts.
Step 2: entering the chart of accounts
Step 3: entering current year account balances

Many businesses also choose to include budget figures for each account

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3.2 Designing the Chart of Accounts

The chart of accounts is the list of each account to be included in the

general ledger and the identifying number assigned to that account. The
chart of accounts is entered by creating a separate record for each
account. In each record, you will enter the name and identifying number
of the account and the account type.

Requirements for the format of the chart of accounts vary widely from
one software package to another. Before a business transfers their chart
of accounts from a manual system to the computer they should first
thoroughly read the section on setting up the chart of accounts in their
software manual to determine the requirements of their particular
accounting software package.

3.2.1 Requirements for the chart of accounts with Books

A business will need to include basically the same accounts in the
computerized chart of accounts as they had in the manual system. One
additional account which will be needed, however, is the suspense
account.

3.3 The Suspense Account

For many types of transactions, the computer will automatically record
parts of the entry for you and post it to the appropriate accounts. In rare
circumstances, however, you may have forgotten to give the computer all
of the information it needs to post the transaction. The suspense account
is the account where a transaction amount will be posted if an error is
made and the computer cannot find one of the accounts included in
transaction.

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This prevents the books from being out of balance because only half of an
entry was posted. For instance, if the program needs to post to the
amount to the suspense account. At that time, you would set up the
salary expense account and use a general journal entry to transfer the
balance from the suspense account to the new account. In this way, the
books are kept in balance from the suspense account to the new account.
In this way, the books are kept in balance and you can easily correct the
error.

Since any entry in the suspense account represents an error or

uncompleted transaction posting, any amount in this account should be
transferred to the correct account immediately. Therefore, the suspense
account should never have a balance at the time financial statements are
prepared.

Numbering the accounts

Just as in a manual chart of account, the different account types should
be grouped together by account number. For instance, Assets might be
numbered 10000-19999; liabilities, 20000-29999; and so forth. The
suspense account should be shown as the last account on the chart.
Using this numbering system, the suspense account could be numbered
99999. there is no requirement for the number of digits to be included in
account codes, however, you will want the numbers large enough so that
you can group each account by type and leave room for adding new
accounts later. It is always advisable to leave gaps between account
numbers so that new accounts can be added later if they are needed.

Books also allows you to set up account numbers as alphanumeric so that

it is also possible to set up account numbers including alphabetic
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characters, such as A1000. some businesses use a numbering system in
which all assets account numbers begin with a liabilities with L, Owner’s
Equity with O, revenues with R, and Expenses with E.

Keeping the accounting records for a business requires much more than
recording debits and credits. The accountant is responsible for providing
detailed information about all elements of the business including accounts
receivable, accounts payable, payroll and inventory. In the next several
chapters, we will discuss how these records are kept in a computerized
system. The first area we will discuss how these records are kept in a
computerizes system. The Area we will cover is inventory.

Any business that sells merchandise must select a method of recording

inventory transactions in its accounting system. There are two methods
to choose from. The first method called the periodic inventory system is
the one with which you are probably most familiar. In this method, a
physical count of the inventory on hand is taken at the end of each year
before financial statements are prepared. The dollar balance of the
merchandise inventory account is then updated. Throughout the year
however, no formal record is kept of the exact amount of merchandise
inventory on hand.

Under the other method, the perpetual inventory system, an exact record
is kept of the merchandise inventory that is in hand at all times. Although
this method provides much better information for managers about
inventory, it requires a great deal more work. Due to the speed provided
by computers however, more and more businesses are using a perpetual
inventory system.

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Review Questions

1. What is the general ledger with illustration?

2. Explain why computerized accounting was not introduced
into small businesses before the late 1970s.
3. Explain the difference between hardware and software.

Unit 4
Overview of Perpetual Inventory Procedures

4.1 Introduction

A business that uses a perpetual inventory system keeps a continuously

updated record on each item that they carry in inventory. Each item is
assigned its own inventory number and a record is set up for the item
which will include the number of units of the item on hand and their cost.
These records make up the Inventory Ledger. Anytime a purchase is
made of any item the number bought and the cost of the item’s record.
Anytime a sale of that item is made, the number sold and cost of the
items sold is subtracted from that record. In a manual system, the record
for each inventory items is usually kept on a card such as the one shown
in figure 4-1
The merchandise inventory account is the controlling account for the
inventory ledger. The merchandise inventory account in the general
ledger will be constantly updated for sales and purchase transactions so
that its balance always reflects the amount of inventory on hand. When
merchandises is purchased in a perpetual system an entry such as the
following is made.

Merchandise inventory 800

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 Account payable 800
In this way the merchandise inventory account is increased by the
amount of the purchase. The units purchased will be added to the number
of units on-hand shown on the inventory ledger card for the appropriate
item.

When a sale occurs, two entries will be made. The first one will record the
sale and the increase in accounts receivable. The second entry decreases
the merchandise inventory account by the cost ( to the seller) of the
merchandise sold and enters the cost in the expense account called cost
of goods sold. In the example below, merchandise which the business
bought for $800 was sold for $1,100.
Account Receivable 1,100
Sales revenue 1,100

Cost of goods sold 800

Merchandise inventory 800

Figure 4-1 An example of inventory ledger card used in a manual

INVENTORY LEDGER CARD

Item No……P760………… Reorder Lever…………15…….

Description…..Addison 10-key Reorder Quantity…..30……….
DATE RECEIVED SOLD QTY BALANCSES
UNIT COST TOTAL
12 42.00 504.00
12 42.00 504.00
30 44.00 /320.00
4 42.00 /68.00
30 44.00 /320.00
14 44.00 616.00
22 9 44.00 396.00 Page 22
4.2 Advantages of a Perpetual Inventory System

By using the perpetual inventory method, management can monitor at all

times which inventory items need restocking.
Also, management can use the inventory records to analyze which items
are selling well and which are not. For most retail businesses,
merchandises inventory is the largest asset owned by the business. The
need for careful control of this asset is vital.

An important reason for using a perpetual inventory system is to facilitate

the preparation of accurate interim financial statements. Since managers
usually need feedback more than once a year as to how their company is
performing, interim statements are prepared for most companies monthly
or quarterly. In order to prepare financial statements, however you must
know the balance of the merchandise inventory account and the total of
the cost of goods sold for the period.

Businesses that use the periodical inventory system do not keep a

running balance of their inventory account. They update the account
balance only once a year when they perform a physical inventory count to
determine the amount of inventory oh hand. Making a physical count on
all inventories in the business is a time-consuming and costly task.
Therefore, most businesses which use a periodic inventory account
balance for interim statements. Since the merchandise inventory account
is continuously updated using the perpetual inventory system, all of the
information for interim statements is readily available. (it is still

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necessary, however, for a business using the perpetual system to take a
physical inventory annually to double-check their figures)

Despite the significant advantages offered by a perpetual inventory

system. Few types of business kept a perpetual inventory until recent
years. The reason for this is that constantly updating the accounts in the
inventory ledger for each purchase, sale, and return was an enormous
task for any business with a large inventory.

Therefore, the only types of businesses which used a perpetual inventory

were those with a relatively small number of high priced items in their
inventory such as car, boat, or appliance dealers. With the introduction of
computers into business, many more types of businesses are able to take
advantage of the benefits of a perpetual inventory system. Most
accounting software today utilize a perpetual inventory system.

4.3 Using a Perpetual Inventory System on a Computerized

Basis
In computerized system, the inventory module is integrated with both the
accounts payable and accounts Receivable modules so that sales and
purchases of merchandise can be posted to records in the inventory
ledger immediately. Integration also makes the task of preparing sales
invoices and purchase orders easier. During preparation of sales invoices
it is not necessary to type a description and price for every item sold. All
you need to do is enter the inventory code for that item and the computer
will retrieve the item’s description and price from the inventory files.
Given a quantity, it will also calculate the total costs of the sale with tax if
applicable. Information provided in the inventory ledger allows the
computer to create the correct journal entries to record the sale.

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To make the process of recording sales even more expedient, many
businesses today utilize their cash registers as point of sale computers.
The cash registers in this type of system are hooked up to the computer.
As the sale is entered into the cash register it is also entered into the
accounting system. The journal entry will be recorded and posted to both
the general ledger and the customer’s accounts in the Accounts
Receivable ledger. Also, the inventory record will be updated to point of
sale use.

Purchase order preparation is also made easier through integration with

the inventory module. Entering the inventory code during purchase order
preparation will automatically bring up the product description. When the
purchase invoice is received, the inventory module will provide the A/P
program with the general ledger account to be debited for this purchase.
Figure 4-2 shows the flow of information between the inventory module
and the account receivable and accounts payable modules when a
perpetual inventory system is used.

4.4 Establishing Inventory Records

Before any sales transactions can be recorded, the inventory ledger must
be set up. One account will be set up for each different inventory item.

Gathering information for inventory records

For a business that is already on the perpetual inventory system,
transferring inventory information to a computerized package should be
fairly simple. The business should already have a record on each
inventory item which lists the number of units on hand for that item and
the cost of those units. Also, some past sale information about individual

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inventory items may be available. This is helpful for analytical purposes,
but not necessary.
For a business that has been operating on the periodic inventory system,
setting up the inventory records will require that a physical inventory be
taken so that the number of units on hand for each item will be known. If
the conversion to the computerized system is made at the beginning of a
new year then the inventory, which taken for year-end financial
statements will provide the information needed. Otherwise, a special
inventory will be needed and will need to be taken.

A business may choose to set up their accounting records using a periodic

inventory system if it is possible with the software they are using. In this
case, no special inventory need be taken. The businesses can later decide
to implement the perpetual inventory system at the time a physical
inventory is taken. Procedures for using Books software without perpetual
inventory system are later in this chapter.
Figure 4.2 The integration between the inventory, accounts receivable, and accounts
payable modules.
INTEGRATION BETWEEN THE INVENTORY MODULE AND
ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE MODULES.
A/R MODULE INVENTORY MODULE A/P
MODULE

IC Module Providers
-product description
IC Module Provides: - Last costPURCHASE
-product description ORDER
-price A/P Module updates
- Accounts to Debit & Credit - Last P.O
- Units on P.O

INVENTORY
SALES LEDGER
INVOICES RECORDS

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 A/P Module Updates: IC Module provides
- Last sale -Asset Acct. to Debit
- Units on Hand
PURCHASE
- Units on S/O
INVOICES
- Units Sold MTD & YTD
A/P Module Updates:
- Gross sales MTD & YTD - Last Recpt.
- COGS MTD & YTD - Units on hand

4.5 Entering Inventory Records

4.5.1 The Inventory Ledger Entry Screen

The program for entering records is IC-A, Enter/chg inventory. When you
select this program from the inventory menu, the entry screen shown in
figure 4-3 will appear. One of these records must be completed for each
item in inventory.
The following is a description of each field on this screen;
 The product code is the number that you will use to identify item.
This field will hold upon to 15 alphanumeric characters. If there is no
numbering system for inventory items already set up in the business
you should set up a coding system that is fairly easy to memorise.

 The product description is the description of this inventory item as

you wish it to appear on invoices and purchases orders.

Review Questions

1. 1. Which component of the computer system performs the

processing function?

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 2. explain the difference between read only (ROM) and random
access memory (RAM)

Unit 5
An Overview of Accounts Receivable Procedures

5.1 Introduction

In any retail businesses that sell merchandise on credit, keeping track of

accounts receivable transactions is one of the most time –consuming
tasks that the accounting personnel have. Not only must sales, payments,

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and return transactions be recorded, but also a separate and exact record
must be kept of the balances owed by each customer.

Accounts Receivable in a Manual System

In manual system, invoices are handwritten or typed and then the sale is
recorded in the sales journal. The customer’s account must be updated to
reflect the sale, and a copy of the invoice will be filed. Once payment is
received from a customer it will be compared to the filed invoice and the
cash and discount, if any will be recorded in the cash receipts journal and
cash receipts journal must be posted to the general ledger statements
may be typed to send to those customers with open balances.

From a business manager’s point of view, proper control of accounts

receivable is crucial for the profitability of the business. It is essential that
the account receivable records be correct and up-to-date so that
customers will be properly billed and any overdue accounts can be
identified and an attempt at collection made. Many businesses have failed
due to uncontrolled accounts. Detailed accounts receivable reports are
very helpful in analyzing open accounts. Preparation of these reports in a
manual system, however, can be very time consuming since many
requires determining the number of days each invoice has been
outstanding at the time of report.

Accounts Receivable in a Computerized System

The time required to keep the accounts receivable records can be greatly
reduced by computerization. When a credit sale occurs, the sales invoice.
Once this invoice is entered and printed, the computer will automatically
create the appropriate sale journal entry, post to the customer’s accounts
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receivable account, and post to the general ledger. Not only does this
save a great deal of time but accuracy is also improved.

When a payment o account is received, the accountant is able to view the

invoice being paid on the computer screen to determine that the
payments are accurate. The computers will automatically computer any
cash discount that the customer is due. Once the payment is entered, the
computer will record the entry in the cash receipts journal, mark the
invoice paid. And post to both the customer’s account receivable account
and the general ledger. Up-to-date customer statements can be printed
by the computer whenever needed.

In addition to saving time on document preparation, journalize, and

posting the computer can also prepare reports for the analysis of
accounts receivable or a listing of a particular customer’s account within
moments.

5.2 Entering terms and A/R Defaults into the system

Maintenance

Before you are ready to use the accounts receivable module. There are
two programs in the system maintenance module where you should
record information which will make the creation of invoices much easier
the first of these programs allows you to set up the cash or credit terms
which could apply to either sales or purchases. The second allows you to
decide what you want to have appear as the default values for certain
fields on each invoice you create.

Setting up the list of terms

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Each invoice we need to a customer or receive from a vendor should have
terms listed on it which describe when or how payment is to be made.
Books allow you to set up a list of the various terms that you offer
customers and those that your vendors offer you. Once you have set up
the list of terms. They will be displayed to you in a pop-up form each time
you enter an invoice. To enter the terms which apply to a particular
invoice, all you need do is select the appropriate line from the list.

When you enter invoice terms into the system maintenance module, you
will provide the computer with information about each set of terms. Since
this list is entered into the system maintenance module, which integrates
with al of the other modules, it will only need to be entered on time. It
will be used on all further sales and purchases invoices. This information
will allow the computer to calculate cash discounts for you automatically
also, these terms allow you to distinguish between cash sales and credit
sales so that the computer will know how to journalize each transaction.
If this program were not available in the system maintenance module,
you would have to provide this information each time you entered an
invoice.

The program used to enter the list of terms is SY-B, Enter/Chg Terms
Info. The entry screen for this program is shown in figure 5.1
Description, this is how the term will appear when printed on invoices.
You can use up to 10 alphanumeric characters for this field.
Discount amount, many businesses offer cash discounts for customers
who pay early. An example of terms that include a cash discount is 2/10,
n/30. This means that the seller will give the buyer a 2% discount if he
pays within 10 days; otherwise the total amount is due within 30days. By
entering the amount of discount in this program (whether a dollar amount
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or percentage) you enable the computer to calculate the discount for you.
If no cash discount is included in the terms being entered, leave this field
blanks.

Review Questions

1. Name and outline the two major categories of software.

2. Explain what is meant y an integrated accounting system.

Unit 6
32 Page 32
Making the Decision to Convert To a Computerized Accounting
System

6.1 Introduction

Not all small businesses will significantly improve the accuracy or even
the speed of their bookkeeping personnel by introducing a computer. If
the volume of transactions for a business is extremely small, the
computer’s speed in recording transactions, performing posting duties,
and preparing reports may not be significant enough to justify even
today’s low computer costs coupled with the time required to learn the
new system. For these very small businesses a manual system using a
combined journal might present a better choice.

Computerized accounting, however has provided new alternatives to even

the smallest businesses. Those businesses which are still too small to
employee their own accounting personnel may choose to use a write-up
service. These services, offered by many accounting firms, take the
source documents of a business at the end of each month and using a
computer, process the transactions from journal entries through financial
statements. Thus , write-up services offer not only computer service but
also accountant and keep the books in-house on their own
microcomputer.

Choosing to use a computer to keep accounting records does not

necessary mean all of the business’ accounting records must or should be
computerized. Many businesses have found that the best solution for
them 9at least in the beginning) is to computerizes only a portion of the
records.

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As we mentioned earlier, in the text, software can be used on a stand-
alone basis as well as an integrated basis. For instance, for an accountant
who finds that calculating a large payroll, posting to the individual
earnings records, and typing out payroll; checks takes a large portion of
his time, the answer may be to buy only a payroll package. Since payroll
required such repetitive calculations and postings, many companies find it
advantageous to put payroll on the computer even if the rest of the
accounting system is still on a manual basis.

For business with a large and active accounts receivable ledger, an

accounts receivable package would be ideal for posting to the subsidiary
ledger and printing accounting system. With this in mind, the company
should consider buying a stand-alone package which can be included in
an integrated system later.
If the decision has been made to convert from a manual system to
a computerized one, the next step is to choose the software package best
suited for your business.

6.2 Selecting the Appropriate Accounting Software Package

The choice of a software package should be carefully considered. Once a
package is choose, it will become a very important ‘ employee” of the
company. Switching to a computerized method requires time, effort, and
money. Hopefully, the benefits of the computerized system will more than
outweigh theses costs. If however, the software purchased turns out to
be inadequate after a few month, these costs will have been wasted and
the process will have to begin all again.

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There is no one “best” accounting package. Rather, you will have to
decide which package best suits your company’s need. You will have to
decide which package best suits your company’s need. You may feel
overwhelmed, especially at first, since there are so many accounting
packages on the market. Accounting packages are generally classified as
high-end or low-end packages.

Following are some guidelines to use when selecting an accounting

package.

6.2.1 Analyze Your Present System

The first step in selecting a software package is to carefully examine your

present system and list the requirements you need in your accounting
system. Such requirements might include file capacity. An accounting
package which can accommodate 150 account receivable files will not be
adequate if your business has 200 accounts receivable customers.
Decides on the file capacity you need for general ledger accounts.
Account receivable and accounts payable accounts, employee records,
and inventory items. Not only should present file needs be considered.
But also those for the foreseeable future.

Make sure that the financial statements provided in the package are
appropriate or can be modified to suit your business. Similarly, make sure
that if you wish to print sales invoices and statement that the software
has this capability. If it does make sure that these forms are appropriate
for you needs.

Decide a head of time on other features that you feel your software
packages should have. For instance, decide if you need your accounts
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receivable modules to perform an aging of accounts receivable, or if the
package needs to be able to help you to analyze your financial
statements. Some packages include modules to help with budgeting,
inventory control, calculation of depreciation, record keeping for fixed
assets, and many other functions. If more than one employee will be
working with the accounting system at one time you will need a package
which supports a multi-user system called a network. In a network, two
or more microcomputers are linked together and can share the same
programs and data.

Not every business will have the same needs. You should decide ahead of
time what your requirements are so that you can select a package which
fits your business. The software must not only have the capacity to
record you accounting transactions, but should be appropriate for the flow
of paperwork in your individual business.
This is an excellent time to reevaluate the business’s accounting
system and determine if any changes ( other than computerization) are
necessary. It’s important to consider not only what the company’s
present needs are, but also what the needs will be in the future. Plan
ahead so that you don’t buy a package that the company will outgrow in
a couple of years.

6.3 Hardware Limitations

Before you purchase a package, you must make sure that it will work
with your computer hardware ( if you already own a computer system). A
program written for an apple computer may not run on an IBM or IBM
compatible computer. Next, make sure that the package you select does
not require more memory than is available on your computer. Most of the
larger packages now requires a hard disk rather than floppy disk. Your
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software dealer can help you check to see that your system meets these
requirements of the software package.

Cost
The cost of software packages varies greatly. Not all of these differences
are based on the quality of the software. Some high-quality packages
have lowered their prices in an attempt to increase their sales volume.
Some packages are priced module by module while other packages are
priced as a single unit. The cost of a package should be viewed as more
than the initial purchase price of the software. You must also consider the
cost of training employees. Installing the new system, and maintaining it.
If several packages meet your needs. Then price may be an important
factors. Otherwise, avoid making your decision solely on price. An
inexpensive program which does not run well or does not meet the needs
of the business can end up costing much more than the initial purchase
price.

Customer Support (after sales services)

Most packages offer customer support. Good customer support is a very
valuable part of a software package. Support can come from both the
company which produced the software and the dealer who sold the
package to you. Some dealers offer help in setting up the new system
and in training your employees. These services can ensure that
conversion is swift and significantly easier.

Documentation
One of the most important factors in your purchases decision should be
the quality of the documentation supplied with the software packages.
Some software packages provide excellent, easy to read manuals. others.
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However, have manuals that are poorly organized or poorly written. Since
most of your guidance in setting up and using your system will probably
come from the manual, you should take the time to examine it well
before purchasing a package to make sure that it is thorough, well-
written, and well-indexed.

Controls
Any package you consider should be examined to ensure that it has
adequate controls to help prevent errors. For instance, most accounting
packages will not allow you to enter a journal entry unless it balances
(debits equal credits). Controls should be built into some menu choice.
For instance, if you select the menu choice to delete a file, you should be
asked to verify this choice with a question such as “ Do you wish to delete
this files? (Y/N). This type of double-check can prevent many agonizing
mistakes. One of the most important differences between high-end and
low-end packages is the absence of adequate controld in low-end
packages.

Reference
Just as you would check on the references of a potential employee, so
should you carefully check the references of any accounting packages you
are considering? Ask the software dealer to provide you with the names
of customers who have been using the package. Though it is not always
possible, try to talk to several people who have used the package for at
least one fiscal year. It‘s particular helpful to talk to users who have
businesses similar to your own.

Review Questions
38 Page 38
1.

Unit 7

Procedures in Converting To an Automated System

7.1 Introduction

Before attempting the conversation, all the accounting staff should be

familiar with the package. It is vital that everyone in the accounting
department be confident about the change. Employee resistance has been
the downfall of many good computerized accounting systems.

It is natural resistance to a change in any system be it political, economic

etc. Some employees fear that if the new system is too efficient, their
jobs will be eliminated. Other employees, often older employees are
intimidated by their lack of knowledge about computers and secretly hope
that the switchover will fail. Employees should be reassured about these
issues in the beginning.

The best time to perform the conversion is at the beginning of a new

month or year. Make sure that all of the accounts are up-to-date and
correct before switching over. Much of the initial work can be done
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beforehand. For instance, the program installation procedures can be
performed and the cart of account and the accounts receivable and
accounts payable ledgers can be set up. Once the account balances are
verified for the end of the previous month they can be entered into the
computer ledger and use of the new system can begin.

Setup procedures for all the modules before you begin recording any
transactions. Many accounting software manuals provide step-by-step
checklists of the steps to be completed in the setup process. The exact
procedures vary from software so a checklist is helpful for guiding you
through the steps necessary for setting up your software.

Parallel running involves the new system in parallel with the old system
and making a comparison of the results of both.
 Direct conversion
 Phased conversion (complete sections is to run on a new
system
 Pilot conversion ( department by department)
In order to ensure that the new system is working smoothly, it is
necessary to run parallel for a period of time. This means that although
the records will now be kept on the computer, they will also continue to
be kept manually. This requires a great deal of extra work for the
accounting department, but is vital during this period while the new
system is being Sep up. The two systems should be run parallel for at
least two months. Preferably three so that all problems in the new system
can be discovered and worked out. Although some businesses are
tempted to skip this safeguard, it is indispensable in ensuring the
accuracy of the new system.

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7.2 Internal Controls in a Computerized Accounting System

In order to function smoothly, every business must set some rules.

Theses rules called internal controls provide guideline for employee
behaviour and define how duties should be performed. Internal controls
are designed to help a business:
 provide for accurate accounting data;
 protect the business’s from fraud and waste;
 promote efficient operations; and
 Insure that management policies are followed.

All businesses, no matter what their size, must establish some procedures
o meet theses goals, even if they are not in the form of formal, written
policies. When the conversion is made to a computerized accounting
system, new internal controls need to be added to existing control to
insure that the accounting system continues to run smoothly. These new
controls should provide guidelines for the handling and use of computer
hardware, software, and output. The control can be divided into two
categories; those that are used to insure the continuance of accounting
operations and those designed to reduce the chance of errors and fraud.

7.3 Controls to Insure Continuance of Accounting Operations

Controls which insure the continuance of the accounting function are

designed to make sure that no interruption will occur in which accounting
records are lost or which delays presentation of information needed by
management.

Employee desk manual

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In a small business the loss of one employee can mean a rough transition
period during the training of a replacement. Often when there is a small
number of people in the accounting department ( or even just one
employee), only the employee himself knows exactly what his job duties
are and how they are to be carried out. In the event that this employee
leaves the firm, there may be no guidelines for his replacement to follow.
The new employee is therefore, much more likely to make mistakes. In
any job, it is advisable that each employee develop a desk manual which
will help a temporary or permanent replacement take over his job duties.
This manual should detail the employee’s task, the schedule for
performing these tasks and brief instructions for their completion.

An extra benefit of this practice is that developing this manual will help
each employee more clearly organize his work. If each member of the
accounting staff was not required to complete a detailed explanation of
his job duties under the old manual accounting system, now is a good
time to begin this practice. If desk manuals were kept before, it is
important that they be updated for the changes brought about by the new
system. The software manual. Since accounting programs are organized
in a task structure , employees can outline their duties, referring to
specific sections of the software manual as a guide to performing
computer related tasks.

Maintenance of Equipment
An interruption in accounting duties in a computerized system is
inevitable if the computer equipment goes “down.” Fortunately, if a
computer, however, it can bring work in the breakdown. If there is a
problem with the computer, however, it can bring work in the accounting

42 Page 42
work can continue. Knowing the name of a reputable computer services
department is important from the beginning.

Proper Care of Disks

Since accounting data is often stored on floppy disks, it is important that
theses disks be handled carefully. Any one who handles the disks should
be sure to follow guidelines ( like those given in chapter 2) for proper
handling.

Backups of Data Disks

Despite the care given to disks, one still may become unreadable. This
would be disastrous if all of the accounting records for the company were
on this disk and no where else for this reason, it is vital that backups of
all accounting data disks be kept. A backup of a disk is simply a duplicate
of the original disk. If the first disk is destroyed or damaged, all of the
information can still be found on the second disk. Backups are fairly
simple and quick to create. Instructions for copying data onto backup
disks may differ from software to software and can be found in the
software manual or in the manual accompying your operating system
software.

Backups of Programm Disks

In order to use your accounting package, you must have a workable
program disk ( unless you have a hard disk and have loaded the program
onto you hard disk) if your program disk becomes damaged, your
accounting operations will come to grinding halt until you can replace it.
For this reason, you should always have two copies of your program disk.
Most accounting packages strongly urge you to make a backup, also
called a working copy. Of the program disk. For these packages, the
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accounting manual should include instructions explaining how to make
this copy. Other packages, however, have copy protected their disks to
prevent software piracy.

Maintenance of Printout
The computer does not eliminate printed reports instead, it makes them
easier to prepare. We still need printed reports and statements just as we
did before for reference and distribution to those who need information.
Keeping updated copies of journals, ledgers, and statement means that
we will have the information necessary to re-enter accounting data if for
some reason computer data is lost.

It is sensible to keep a copy fo financial statements and ledger balances

at the end of each month in a safe place. Usually this means someplace
off the premises or in a fireproof safe if one is available. By doing this,
the accounting records will not be totally lost in the case of a calamity
such as fire. At least the account balances and statements as of the end
of the previous month will be available to help reconstruct records and to
aid in insurance claims so that operations can continue more quickly.

Source documents should also be retained for a reasonable time just as in

a manual system. Documentation such as invoices, purchase orders, bills
and credit memos are needed not only in case accounting records must
be reconstructed but also as an important component of the audit trail.
Theses documents are usually stored in files grouped by the customer or
debtor to whom they pertain.

7.4 Controls to Prevent Error and Fraud

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There should also be controls in a computerized system which is designed
to make sure that the system operates efficiently and that errors in the
books (whether accidental or intentional) are avoided or corrected. The
larger a business is, the greater its need is for these types of internal
controls.

In a very small business the owner probably is very involved in every

aspect of the business and can see that theses goals are met without a
larger number of rules. As a business grows, however, more attention to
internal control is necessary. Some of the rules which can help ensure
adequate internal control against error and fraud within a computerized
system are given below.

7.5 Using a Software Package That Maintains a Good Audit Trail

Whether an accounting system is computerized or not, a good audit trail

is vital for maintaining adequate control over the books. In a system with
a good audit trail you should be able to trace any changes in account
balances back to the transaction that caused the change long after it is
recorded. Proper use of reference numbers and dates should also make it
possible to follow any journal entry all the way through the system. A
business must make sure that the accounting software it uses provides a
good audit trail. Controls should be built into the programs that prevent
anyone from changing account balances without entering a traceable
journal entry. It should also prevent the deletion of transactions or
accounts without an entry to document the change.

Limited Access to Disks

It has been true that accounting data is not made available to everyone
in the firm. The accounting staff has always had the responsibility of

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keeping information such as payroll data confidential. Since, in a
computerized system, all of the accounting data may be shared, it is
important that only authorised personnel have access to them. This will
protect accounting data from being read and possibly tampered with by
unauthorized individuals.

Limited Access to Printout

To keep the confidentiality of accounting records it is necessary to limit
access to printouts of accounting information. This includes not only
printouts in their financial form but also printouts which are to be thrown
away. They should be disposed of in such a way that they will not viewed
by anyone who is not authorised to see the accounting information.
Generally, these rules are used only to protect the most confidential of
data, such as payroll information.

Limited Access to Checks

Often checks for the computer are ordered from the company which sold
you your software, usually; they come in larger boxes just as paper does.
It is important to remember that these forms are checks and not printer
paper. Like all checks, they must be safeguarded. They should be locked
away whenever they are not being used. They should not be kept under
the computer table or desk, available to passerby. Also, just as with
manual checks a careful record should be kept of what happens to each
check. Many printer checks are wasted in the process of aligning them
correctly on the printer. Each of these wasted in the process of aligning
them correctly on the printer. Each of these wasted checks should be
clearly marked void and a record kept of each voided check.

Limited Access to Terminals

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When dealing with extremely sensitive records, such as payroll, it is often
necessary that the area where the computer terminal is closed be allowed
only to those authorised to deal with payroll information. In a high traffic
area, it would not be difficult for another employee to read information off
the computer monitor where the payroll clerk is working.

Access Codes to Data

To help ensure that no unauthorized personnel tamper with accounting
data, many software packages require that an identifying code or
password be entered before access is allowed to the program. This means
that only the accounting personnel authorized to use the program will be
able to view or enter data. In larger offices, where there are several
people on the accounting staff, theses codes can limit an employee’s
access to just the portion of the program for which he is responsible.

For instance, only employees responsible for payroll could enter the
payroll section of the program.

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Figure14-1: The entry screen at SY-C used to set up an
employee’s password access information

Business tools Enter/ch password information Books 2.0

USER code password

<Ok to use: General Ledger:
Accounts Recievable:
Accounts Payable
Inventory Control:
Payroll:
System Maintainance:
Utilities/DOS:
F1 – Help F10 – Save Esc – To main menu

Controls over Cash

A large number of the transactions in a business affect the cash account.
It is important that a business know at all times the amount of cash
available to them both at hand and in the Bank.

It is also vital that controls be maintained over the cash to ensure that
transactions are recorded correctly and that all transactions are
authorised. Errors and fraud can occur both at the bank and within a
business. Even very small businesses should have strict rules about who
is able to sign checks, about how deposits must be endorsed, and who is
responsible for handling cash and recording cash transactions. Theses
rules should be just as strictly adhered to in a computerized system as in
a manual system. A computerized system provides some tools to help
insure the accuracy of the cash account records. Since the computer
posts each deposit and check into the general ledger and calculates the
cash account balances, there is less likelihood of an error in math or in
48 Page 48
transferring numbers. Also the computer prints out a cash/cheque
register for each cashbook account in the business. This register can
provide a summary of all activity in the account any time it is needed.

Although a review of the check register is helpful in checking the accuracy

of the checking account records, a formal check should be made once a
month by reconciling the business’s checking account records to the
bank’s record of the checking account. A bank reconciliation should be
performed for each checking account held by the business. In the bank
reconciliation should performed for each checking account held by the
business. In the bank reconciliation process, the bank’s record of
transitions for the month is compared item by item to the checking
account transactions recorded in the accounting records. The accounting
records should be updated for any banking transactions that have not yet
been entered, and any discrepancies between the bank’s record and the
business records should be examined and corrected. The bank
reconciliation can be performed manually although some software
packages include programs which aid in the reconciliation process. The
reconciliation programs I different software vary but many of them follow
the same steps as you would perform manually to reconcile the bank
statement. If a business has a large volume of checking account
transactions, a computerized bank reconciliation program can speed up
the job.

Remember that those controls and all the controls we have discussed
before should be used to complement the controls that have already been
established in the accounting department, not replace them.

49 Page 49
Review Questions

1. Discuss five controls over cash in a business

2. Computerized accounting is of no use in the business worked,
because accountants still have to make the necessary
adjustments, Before entries/ transactions are posted into the
computer. Discuss

50 Page 50
 Unit 8
Practical
8.1 Introduction

Application of the excel spreadsheet with also be tested most especially

developing the payroll for an organization as the example below.
ABC LTD END OF MONTH SALARY PAYMENT

Deductions

Net salary Payable

Bank Account No
Total Deduction
Loan NSSF Other
Name of Staff

NSSF Employer contr.

Mid Month Advance

Payable Deductions

Branch
Rg.No.

Bonus
Salary

Bank
Amt.
No.

Advance/Addition
Employee Contr.
Employer Contr.

PAYE
Deduction for
Gross Salary

Total Salary

Total

Transport
B/F from

Charges
Original

C/F to
Loan

1 0 0 - 0 0 0 0 0 0 -

2 0 0 - 0 0 0 0 0 0 -

3 0 0 - 0 0 0 0 0 0 -

4 0 0 - 0 0 0 0 0 0 -

5 0 0 - 0 0 0 0 0 0 -

TO
TA
L 0 0 0 0 0 - 0 0 0 0 0 0 0 0 0 0 0 0 -

Pre
par Checked Authorized
ed By: By:
By:

51 Page 51
 ABC LTD MID MONTH SALARY PAYMENT
No.

Eligible Advance
Deductions

Total Deduction
Name of Staff

Gross Salary

Net Salary
Rg.No.

Bonus
Salary

Transport
Advance

Charges
PAYE
NSSF

Loan

1 0 0 0 0 0 -

2 0 0 0 0 0 -

3 0 0 0 0 0 -

4 0 0 0 0 0 -

5 0 0 0 0 0 -

TOTAL 0 0 0 0 0 0 0 0 0 0 0 -

Prepared Checked Authorized

By: By: By:

52 Page 52
 1
No.

Rg.No.

:
ar
Pr
Name of Staff

ed
ep

By
Salary

Bonus

0
Gross Salary

NSSF Employer contr.

Chargeable income
Total Salary

By:
Mid Month

Checked

Not exceeding shs 130,000

-
Advance

Loan Amt.

Nil
Original
B/F from

Loan

PAY AS YOU EARN RATES OF TAX

Deduction for

53
0
C/F to

Rate of tax
0
Employer
ABC LTD PAY SLIP

0
Employee NSSF
Deductions

Payable

0
Total

0
PAYE

Advance/

By:
Authorized
Charges
Other
Deductions

Transport
0

Total Deduction
-

Net salary Payable

Bank

Branch

Page 53
Bank Account No
Exceeding she 130,000 but 10% of the amount by which
Not exceeding she 235,000 chargeable income exceeds
130,000
Exceeding she 235,000 but shs. 10,500 plus 20% of the amount
Not exceeding she 410,000 by which chargeable income exceeds
235,000
Exceeding 410,000 Shs. 45,500 plus 30% of the amount by
Chargeable which income exceeds shs. 410,000

Please Note
Non resident mployees are not entitled to the threshold (shs. 130,000) so
at every amount under rates of tax, add shs. 13,000 or (10% of 130,000)

A student is expected to be the having the knowledge of in putting the

formulas (i.e. for PAYE above) in the work sheets, formatting the
worksheets etc.

An accounting package such as tally, pastel etc. may be used at a later

stage after thorough grasping of the excel spreadsheet.

Review Questions

1.

54 Page 54
Reading Materials

55 Page 55