Notes - Computers in Accounting and DBMS
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26.1 Computer System
A computer is an electronic device which is capable of performing a variety of operations in accordance with a set of instructions called a computer program or software. It is useful for processing raw data into meaningful information.
26.1.1 Characteristics/Capabilities or Utilities of a Computer System
A computer system possesses some characteristics, which, in comparison to human beings, turn out to be its capabilities. These are as follow
(i) Speed The amount of time, a computer takes to complete a task or an operation refers to its speed. In comparison to human beings, computers require far less time to perform a. task. Modern computers are capable of performing a 100 million calculations per second.
(ii) Accuracy Computers perform job with high degree of accuracy. It cannot make mistakes if proper instructions are given. Most of the errors in Computer Based Information System (CBIS) occur because of bad software programming, and deviation from procedures.
(iii) Reliability Unlike human beings, computer systems are immune to tiredness, boredom or fatigue and can perform jobs of repetitive nature any number of times, therefore they are more reliable.
(iv) Versatility Computer is a versatile machine which can do variety of tasks; from simple calculations to complex and logical operations. It is used in various fields for various purposes.
(v) Storage and Retrieval The computer system, have huge capacity to store data in a very small physical space. A typical mainframe computer system is capable of storing and providing one billion of characters and thousands of graphic images.
26.1.2 Limitations of a Computer System
Inspite of possessing many capabilities, computers suffer from various limitations as are discussed below
(i) A computer system does not have common sense of its own like a human being has. Therefore, they only work according to a set of instructions known as program or software.
(ii) A computer does not possess the quality of decision-making like a human being does. Computers can be programmed to take only those decisions which are procedure-oriented.
(iii) A computer system does not possess intelligence of its own. It operates on the basis of instructions given by human beings.
(iv) Computers do not have feelings like human beings because they are machines.
(v) Besides the high cost of computer system, huge money is required to get the trained specialised staff to ensure effective and efficient use of computer system.
26.1.3 Functional Components of Computer System
The functional components of a computer consist of input unit, Central Processing Unit (CPU), memory unit and output unit
(i) Input Unit It is the unit which controls the input devices used for data entry. The input devices used for entering the data into the computer system are keyboard, mouse, magnetic tape, magnetic disk, light pen, optical scanner, Magnetic Ink Character Recognition (MICR), Optical Character Recognition (OCR), bar code reader, smart card reader etc.
(ii) Output Unit The output unit is used to communicate the information, (after processing the data) to the users in a human readable and understandable form. e.g. Visual Display Unit (VDU), printer, magnetic storage devices, speech synthesiser etc.
(iii) Central Processing Unit (CPU) This is the main part of a computer system. It is also called the brain of the computer. It processes the given data according to the instructions and arranges the information in a manner which provides easier retrieval of the data when required by the user.
It has two main units as described below
(a) Arithmetic and Logic Unit (ALU) It is responsible for performing all the arithmetic calculations such as addition, subtraction, division, multiplication and exponentiation. In addition to this, it also performs logical operations involving comparisons among variables and data items.
(b) Control Unit This unit is responsible for controlling and coordinating the activities of all other units of the computer system.
(iv) Memory Unit In this unit, data is stored before being actually processed.
26.1.4 Elements of a Computer System
The six elements of a computer system are as follows
Computer hardware consists of physical components such as keyboard, mouse, monitor and processor. These components can be physically touched.
It is referred to a set of instructions or programs that enable the computer to perform its task or commands given by the user.
26.1.5 Classification of Software
Software can also be classified as follows
(i) Ready-to-use/Readymade Software These softwares are developed not for only specific user but for the users in general.
These softwares are suited for organisations running small/conventional business where the frequency or volume of transactions is very low. e.g. Tally, EX-Busy etc.
(ii) Customised Software The term ‘customised software’ means making changes in the readymade software to suit the specific requirement of the user i.e. make it user specific. These softwares are available off-the-shelf and are changed to suit the requirements of the user.
Customised software are best suited for large and medium businesses and can be linked to the other information systems.
(iii) Tailored Software The term ‘tailored software’ refers to designing and developing user specific software. These softwares, being user specific, are not available off-the-shelf but are developed to meet the requirement of the user on the basis of discussions between the user and developers.
These softwares are suited for large business organisations with multi-users and geographically scattered locations.
It constitutes the most important part of a computer system.
It basically refers to the individual or the users who interact with the computer through the use of hardware or software.
A specified series of actions or operations, which have to be executed in a certain manner, in order to always achieve the desired result in same circumstances is referred to as procedure.
Data are the facts which are gathered and entered into a computer system. Data may comprise of numbers, texts, graphics, etc. The computer system processes and organizes data to create information that is relevant and can be used for decision-making.
It refers to the manner in which a particular computer system is connected to other electronic devices, say through telephone lines, microwave transmission, satellite link etc.
26.2 Applications of Computers in Accounting
Companies use computers for the maintenance of accounting procedures and preparing their financial statements. A computer has an inbuilt accounting system, i.e. software through which transactions are recorded in the books of accounts on the basis of the accepted accounting principles and ledger accounts are maintained according to the desire of the users. Thus, there does not arise any problem in preparing cash book, bank statements, journal, ledger, day books, debtors ledger, creditors ledger, trial balance, and financial statements. The financial position of an enterprise may be assessed through a computer.
The following accounting functions can be obtained from computer accounting
(a) Purchase ledger
(b) Sales ledger
It also helps in cost and managements accounting remarkably in the following areas
A computer offers excellent opportunity as a tool to control the attaining of the enterprise’s objectives. There, is an inbuilt control system to ensure conformation to the prescribed procedure which is more efficient and effective than a manual system. The following commercial softwares are used for recording the accounting matters and storing data
Word Processor: A word processing program provides tools for creating all kinds of text based documents. It helps to create, edit, view, format, store, retrieve and print documents.
Electronic Spreadsheet A spreadsheet program is a software tool for entering, calculating manipulating, and analysing sets of number. Spreadsheet have a wide range of uses—from family budget to corporate earnings statements. It helps us to prepare computerised ledger.
Database Management System (DBMS): A DBMS is a software tool that allows people to store, access and process data or facts into useful information. It not only stores data, but also allows its users to easily make use of the data.
26.3 Information System
It is an integrated set of components for collecting, storing and processing data for delivering information, knowledge and digital products.
Information system collects, processes, stores, analyses and communicates information for a specific purpose. Organisations depend on information system for various activities.
26.3.1 Management Information System (MIS)
It is an information system that provides the needed information to the managers to manage the organization effectively and in taking various decisions. It combines three resources viz technology, information and people for the efficient management of an enterprise.
Management Information System is basically concerned with processing data into information which is then communicated to various departments in an organization for appropriate decision-making.
\[Data\to Information\to Communication\to Decision\]
The purpose of Management Information System is to provide the right information, to the right person, at the right place, at the right time, in the right form and at the right cost.
Accounting Information System is an important sub system of Management Information System. Other sub-systems are
26.3.2 Accounting Information System (AIS)
The purpose of an AIS is to collect, store and process financial and accounting data and produce informational reports that managers or others, interested parties can use to make business decisions. Although an AIS can be manual system, today most AIS are computer based.
26.3.3 Data Exchange with Other Information System
Every accounting system is essentially a part of the Accounting Information System (AIS) which inturn is a part of the broader system viz. the organisation’s management information system. A part from the accounting information system, other functional management information systems are manufacturing information system, human resource information system and marketing information system. AIS receives information and provides information to the other functional management information systems.
The relationship and data interface between the various sub-components of management information systems are discussed below
It depicts the relationship among the three information systems viz manufacturing information system, accounting information system and the human resource information system. The manufacturing department receives the list of workers from the Human Resource (HR) department. It sends the details of production achieved by the workers on the basis of which, the HR department directs to the Finance and Accounts (F and A) department to pay the wages. The details of the wages paid and statutory dues are also sent by the (F and A) department to the production department and also to the HR department to monitor the performance of workers. The HR department communicates to the other departments about the good/bad performance on the basis of which, decisions on various operational matters may be taken.
Business process in the marketing and sales department will involve the following activities
(i) Inquiry
(ii) Contact creation
(iii) Entry of orders
(iv) Dispatch of goods
(v) Billing to customers
The accounting sub-system’s transaction cycle includes the processing of sales orders, credit authorisation, custody of the goods, inventory position, shipping information, receivables etc. It also keeps a track of the customer accounts e.g. aging report which should be generated by the system.
Business process in the production department may involve the following activities
(i) Preparation of plans and schedules
(ii) Issue of material requisition forms and job cards
(iii) Issue of inventory
(iv) Issue of orders for procurement of raw materials
(v) Handling of vendors invoices
(vi) Payments to vendors
The manufacturing information system would therefore include the processing of purchase orders, advance to suppliers/vendors, inventory status updating, accounts payable, etc. All of these information has to be shared with the other MIS in the organisation.
26.4 Automation of Accounting Process
It refers to the process of performing the accounting function with the help of an accounting software. The purpose of automation is to reduce human intervention to the minimum so as to reduce errors committed in manual accounting. Automation of accounting can save a great deal of time when posting debits and credits.
26.4.1 Stages of Automation
The automation process can be divided into following stages
Stage 1 Planning
Stage 2 Selection of Accounting Software
Stage 3 Selection of Accounting Hardware
Stage 4 Classification and Grouping of Accounts
Stage 5 Generating Reports
26.5 Accounting Reports
Accounting reports are the scorecard by which a business’s financial health is measured. Report is a collection of related information for a particular need and purpose and must meet the objectives of reporting. An accounting report, therefore is the physical form of accounting information.
Business owners, investors, suppliers and banks use accounting reports to understand the financial position, financial performance and cash flows of business.
Every report is prepared with a definite objective. The three main accounting reports for any business are the trial balance, the income statement (also called the profit and loss statement) and balance sheet. Every accounting report must be able to fulfil the following criterion
(i) Relevance (ii) Timeliness
(iii) Accuracy (iv) Completeness
(v) Summarisation
26.5.1 Types of Reports
Accounting reports can take the following form
(i) Summary Reports
In this report, all activities of the organisation are summarised e.g. profit and loss account and balance sheet.
(ii) Demand Reports
This report will be prepared only when the management requests them e.g. bad debts report for a given product, stock valuation report.
(iii) Customer/Supplier Reports
These reports are prepared according to the specifications of the management e.g. top 10 customers report, interest on customer account/invoices, statements of account, customer reminder letters outstanding /open delivery order, purchase analysis/vendor analysis report.
(iv) Exception Reports
These are the reports that are specially sought by the management. In other words, exception reports are reports upon matters happening as per instructions, conditions or exceptions e.g. inventory report in short supplies, stock status query, over stocked status etc.
(v) Responsibility Reports
These are the various reports prepared by the managers responsible, e.g. report on cash position, to be submitted by the head of finance and accounts department.
(vi) Debtors’ Reports
These are user specific reports but are generally obtained with respect to the age of debtors.
(vii) Other Reports
Beside the specific activities, management may seek report on any other activities of the organisation.
26.5.2 Steps Involved in Designing Accounting Reports
The various steps involved in designing accounting reports from accounting data are as follows
Step 1 Definition of Objectives
Step 2 Structure of the Report
Step 3 Querying with the Database
Step 4 Finalising the Report
26.6 Accounting and Database Management System
A Database Management System (DBMS) is a software system that allows access to data contained in a database,
The objective of DBMS is to provide a convenient and effective method of defining, storing and retrieving the information contained in the database. The DBMS makes it possible to share the data in the database among multiple applications or users.
26.61 Benefits of Database Management System
26.6.2 Disadvantages of Database Management System
26.6.3 Functions of DBMS in Context to Accounting System
A table is a collection of related data on a specific topic, such as a student’s personal details, marks, competition, participation etc. A table is organised into columns called fields and rows called records. Two or more tables can have common fields, which are used to make relations between tables. Before a table is created, it needs to be designed. Designing the table means deciding the type of data that is to be stored in the table, and based on that, deciding the fields, the type of fields and these properties.
While designing a table, the following issues need to be decided first
A table can be created using the following three methods
Forms are used to easily view, enter, and change data directly in a table. When you open a form, MS Access retrieves the data from one or more tables, and displays it on the screen, in a layout you choose. A form is made up of controls. A control is used to facilitate-the entry of information into the table(s) that the form represents.
Controls can be of various types such as text boxes, radio buttons, pull-down lists, pack lists etc.
To facilitate easier data entry, forms are often designed with several special features.
Queries select records from one or more tables in a database so that they can be viewed, analysed, and sorted on a common datasheet. The resulting collection of records, called a dynaset (short for dynamic subset), is saved as a database object and can, therefore, be easily used in the future. The query will be updated whenever the original tables are updated.
Types of the queries are select queries that extract data from tables based on specified values, find duplicate queries that display records with duplicate values for one or more of the specified fields, and find unmatched queries which display records from one table that do not have corresponding values in a second table.
A report is an effective way to present your data in a printed format. Since you have control over the size and appearance of everything on a report, you can display the information the way you want to see it. Most of the information in a report comes from an underlying table, query or SQL statement, which is the source of report’s data. Other information in the report is stored in the report’ design.
A report is printed information that like a query result, is assembled by gathering data based on user-supplied criteria. Reports can range from simple lists of records to customised formats for specific purposes.
Report can be created in the following ways
(a) Creating a report by auto report: Auto report creates a report that displays all fields and records in the underlying table or query:
(b) Creating a report by wizard.
26.7 Entity-Relationship Model
The entity-relationship model is a generalisation of commercially available DBMSs. Even though the E-R model describes the physical database model, it is more useful in the design and communication of the logical database model. E-R model is commonly used for the following purposes
In E-R model objects of similar structures are collected into an entity set. The different relationships between the entity sets are represented by a specifically named E-R relationship i.e 1:1 (one-to-one), 1: M (one-to-many), M: N (many-to-many). The entities and their relationships are depicted using the following conventions.
26.7.1 E-R Model Components
The E-R model forms the basis of E-R diagrams which represent the conceptual database as viewed by the end-user. The E-R model’s has three main components: entities, attributes and relationships.
Entities
In E-R model the term entity refers to the entity set and not to a single entity occurrence. Entity refers to a table and not to a row in the relational environment.
Attributes
Attributes are the characteristics that make up an entity, such as, an employee’s salary is an attribute of employee.
Attributes are said to take on values from domains (or value sets). The values they take will be the data used in the relational model.
Attributes in an E-R model are represented by ovals and are connected to the entity with a line. Each oval contains the name of the attribute it represents, e.g. the STUDENT entity includes the attributes STU_LNAME,
STU_FNAME, and STU_INITIAL.
STU_LNAME represents Student’s Last Name
STU_FNAME represents Student’s First Name
Relationships
A relationship is an association between entities such as employees working on several projects.
A collection of relationship of the same type is called a relationship set.
E-Rd’s (Entity-Relationship diagrams) can be drawn in many ways. It doesn’t really matter as long as you choose one and remain consistent in the meaning throughout.
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