Dynamics GP – Manual Accounting Procedures vs Computerized

Overview

Computerized accounting systems have replaced manual systems in many organizations-even small businesses. In discussing the three stages of data processing- input, process and output-we can observe the difference between a computerized accounting system and a manual accounting system.

Manual vs. Computerized Accounting System

The relationship among the three stages of data processing is shown in Figure 1.2.

The Three Stages of Data Processing

Inputs represent data from source documents, such as sales receipts, bank deposit slips, and fax orders and other telecommunications. Inputs are usually grouped by type. For example, a firm would enter cash-sale transactions separately from credit sales and purchase transactions.

In manual accounting system, processing includes journalizing transactions, posting to the accounts, and preparing the financial statements. A computerized system also processes but without the intermediate steps (journal, ledger, and trial balance).

Outputs are the reports used for decision-making, including the financial statements (income statement, balance sheet, and so on). Many companies make better decisions-and prospering –because of the reports produced by their accounting system. From computer’s viewpoint, a trial balance is also a report. But a manual system would treat the trial balance as a processing step leading to the statements. Figure 1.4 is an overview of computerized accounting system.

Overview of a Computerized Accounting System

Summary of the Accounting Cycle: Computerized and Manual

The following table summarizes the accounting cycle under both systems;

Computerized System Manual System
Start with the account balances in the ledger at the beginning of the period.

Analyze and classify business transactions by type. Access appropriate means for data entry.

Computer automatically posts transactions as a batch or when entered on-line.

The unadjusted balances are available immediately after each posting.

The trial balance, if needed, can be accessed as a report.

Enter and post the adjusting entries. Print the financial statements. Run automatic closing procedure after backing up the period’s accounting records.

The next period’s opening balances are created automatically as a result of closing. 

Same.

Analyze and journalize transactions as they occur.

Post journal entries to the ledger accounts.

Compute the unadjusted balance in each account at the end of the period.

Enter the trial balance on the work sheet, and complete the work sheet.

Prepare the financial statements. Journalize and post the adjusting entries. Journalize and post the closing entries.

Prepare the post closing trial balance. This trial balance becomes step 1 for the next period.

 

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Dynamics GP – Types of Accounting Information Systems

Electronic data processing (EDP) is the use of computer technology to perform an organization’s transaction-oriented data processing. EDP is a fundamental accounting information system application in every organization. As computer technology has become commonplace, the term data processing (DP) has come to have the same meaning as EDP.

Management Information Systems

Management information system (MIS) describes information which supports managers to make a decision. An MIS provides a wide variety of information beyond that which is associated with DP in organizations. MIS recognizes that managers with in an organization use and require information in decision-making, and that computer based information systems can assist in providing information to mangers. Many organizations apply the MIS concept to specific functional areas within the organization. Terms such as marketing information system, manufacturing information system, human resource information system and financial information system indicate the tailoring of MIS concept to the development of specific information system to support decision making in a particular, well- defined organization sub unit.

Decision Support Systems

In a decision support system (DSS), data are processed into a decision making format for the end user. A DSS requires the use of decision models and specialized databases, and differs significantly from DP system. A DSS is directed at serving ad hoc, specific, non-routine information requests by management.

Expert Systems

An expert system (ES) is knowledge based information system that uses its knowledge about a specific application area to act as an expert consultant to end-users.

Attributes of Good Accounting Information System

Overview

In designing and developing an efficient and effective accounting information system (or simply referred to as an accounting system), it is important that certain basic principles be followed. These principles or design features make accounting systems run efficiently. A good and an effective system whether computerized or manual-includes the following features: control, compatibility, flexibility, a favorable cost/benefit relationship, and useful output. 

Control

Managers need control over operations. Internal controls are the methods and procedures used to authorize transactions and safeguard assets.

Compatibility

A compatible is one that works smoothly with the business’s operations, personnel, and organizational structure. A compatible accounting information system conforms to the needs of the business.

Flexibility

Organizations evolve. They develop new products, sell off unprofitable operations and acquire new ones, and adjust employee pay scales. Changes in the business often call for changes in accounting system. A well-designed system is flexible if it accommodates changes without needing a complete overhaul.

Favorable Cost-Benefit Relationship

Achieving control, comparability, and flexibility costs money. These costs reduce a company’s net income, so managers often must settle for less than the perfect accounting system. They strive for a system that offers maximum benefits at a minimum cost-that is, a favorable cost/benefit relationship. As a matter of fact, a major consideration in developing an accounting system is cost. The system must be cost effective; the benefit obtain from the information must outweigh the cost of providing it. For example, the value of each accounting report should be at least equal to the cost of producing it.   

Useful output

To be successful, information must be understandable, relevant, reliable, timely, and accurate. Designers of accounting systems must consider the needs and knowledge of the various users so that the systems out put (reports and statements) will be useful. For example, sales managers may need weekly reports of sales and factory supervisors may need daily reports of production. Others with differing responsibilities (such as vice-president) may need such reports only monthly or quarterly.  

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Dynamics GP – Accounting Information Systems Overview

A system is a set of two or more interrelated components that interact to achieve a goal. Systems are almost always composed of smaller subsystems, each performing a specific function important to and supportive of the larger system of which it is a part. For example, theCollegeofBusinessis a system composed of various departments, each of which is a subsystem. Yet, at the same time, the college itself is a subsystem of the university.

What is an Accounting Information System?

An accounting information system (AIS) consists of people, procedures, and information technology. Thus, an accounting information system (or simply an accounting system) may be defined as the combination of personnel, records, and procedures that a business uses to meet AIS its need for financial data.

Function of AIS

AIS perform three important functions in any organization

  • It collects and stores data about activities and transactions so that the organization can review what has happened.
  • It processes data into information that is useful for making decision that enable management to plan, execute, and control activities.
  • It provides adequate controls to safeguard the organization’s assets, including its data. These controls ensure that the data is available when needed and that it is accurate and reliable.

Sub Systems of AIS

Most organizations engage in many similar and repetitive transactions. These transaction types can be grouped into the five basic cycles, each of which constitutes a basic subsystem in the AIS:

  1. The expenditure cycle consists of the activities involved in buying and paying for goods or services used by the organization.
  2. The production cycle consists of the activities involved in converting raw materials and labor into finished products. (Only manufacturing companies have a production cycle; retail organizations buy finished goods for resale to others.
  3. The human resources/payroll cycle consists of the activities involved in hiring and paying employees.(part  of expenditure cycle)
  4. The revenue cycle consists of the activities involved in selling goods or services and collecting payment for those sales.
  5. The financing cycle consisted of those activities involved in obtaining the necessary funds to run the organization and in repaying creditors and distributing profits to investors.

As shown in Figure 1.1, the basic activities in each of the five cycles can be described in terms of a give-to-get relation. For example, the expenditure cycle entails giving up cash in order to get goods and services. Similarly, the revenue cycle entails giving up goods and services in order to get cash. Figure 1.1 also shows how the five cycles (or subsystems) of the AIS are related to one another and how each feeds data to the general ledger and reporting system that provides information to both internal and external users.

Transaction processing system VS Enterprise Resource Planning Systems

Traditionally, the AIS have been referred to as a transaction processing system because it was concerned only with financial data and accounting transaction. For example, when a purchase is made the AIS will record a journal entry showing only the date of the purchase, a credit to either cash or account payable and a debit to stock account. But other important information about the purchase such as purchase order would be processed out side of the AIS. But the existence of multiple systems creates a number of problems, often, the same data must be captured and stored by more than one system, so it creates redundancy across systems and it can also lead to discrepancies if the data is change in one system but not in others. In addition, it is difficult to effectively integrate data from the various systems.

To resolve the above problemsEnterpriseresource planning system recently developed.Enterpriserecourse planning systems integrate all aspect of a company’s operations with its traditional AIS. Thus, when a purchase is made, the effect of transaction automatically flows to all affected parts of the company. Inventory valuation, production schedule, and to other affected area.

The Study of AIS is Fundamental to Accounting

According to statement of financial accounting concepts No. 2, the primary objective of accounting is to provide information useful to decision makers. Therefore, it is highly recommended that the accounting education change commission recommended that the accounting curriculum should emphasize that accounting is an information identification, development, measurement, and communication process. The accounting education change commission suggested that the accounting curriculum should be designed to provide students with a solid understanding of three essential concepts:

  • The use of information in decision making
  • The nature, design, use, and implementation of an AIS
  • Financial information reporting

The other accounting course that you take (financial accounting, managerial accounting, tax and audit) focus on your role as a preparer or reporter of information. In contrast AIS focuses on understanding how the accounting system works: how to collect data about an organization’s activities and transactions; how to transform that data into information that management can use to run the organization. Thus AIS course complements the other accounting courses you will take.

Data and information are among an organization’s most valuable assets. To see why, consider what would happen if an organization lost all information about what its customers owed it or if a list of its most profitable customers was obtained by a competitor.  Clearly, the AIS must include controls to ensure safety and availability of the organization’s data. Controls are also needed to ensure that the information produced from that data is both reliable and accurate. These topics usually receive little attention in other system courses. Thus the AIS course complements other system courses you may take.

Concerns about data reliability and security are relevant not only to accountants, but also to all information systems professionals. More over, since typically the AIS is one of the largest systems in most organizations, information systems professionals should have a basic understanding of how it works. Thus the AIS course is an important part of the education of information systems students.

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