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The objective of the study presented in this course work was to show an understanding of computerised accounting information systems used in small and medium sized enterprises in the UK as well as its benefits and information needs.
Over the past few decades there has been a big shift from manual to automated accounting information systems. In our work-life we may never have to make a pencil entry into a sales journal again, but it is vital to understand how double entry systems and the flow of data through a manual system work (Gelinas/Dull 1997).
It seems not long ago that large enterprises could only afford to use very expensive accounting information systems, usually such as ERP or other advanced accounting systems and benefitted from using them. In almost all small to medium sized enterprises, all accountants should not only be knowledgeable in accounting but they should also use computerised systems for accounts production.
One of the most essential changes in accounting is the recent introduction of computerised accounting systems in companies which widely spread the use and implementation of various AIS systems, (for example Sage, SAP, etc., or Final Accounts by MoneySoft - this company will be used later in my work for screen shots.) It allows companies dramatically to reduce labour input in various business processes. However, there are advantages and disadvantages, of course, in using them.
First of all, previously the cost and return on investment of some ERP and accounting programmes was very high, and unaffordable for small or medium sized enterprises, especially for those ones, starting their business activity and trading. Besides, they were also difficult enough in learning how to use them. It has since changed.
Nowadays, there is a great number of computerised accounting systems, which are more affordable to use- due to the reduction in its prices and its wide use, its simplicity and easy interface, as well as other number a number of other useful possibilities.
Using computerised accounting systems, has its own certain advantages in comparison to manual or non-computerised systems. Its flexibility in easy adjustments and the setting up of different parameters, scenarios "as if", trials, producing real time reports, financial analysis, VAT, planning and forecasting of the future activity of enterprises and producing different information for internal and external clients promptly.
Therefore the use of computers certainly do help to perform accounting activities more effectively and efficiently.
What is SME under Companies Act
According to the Companies Act, the definition of SME is a set of companies qualifying as small or medium sized enterprises (SMEs) qualify for certain exceptions and exemptions from the usual statutory obligations under the Companies Act.
The size, turnover, balance sheet total and number of employees are used to calculate whether the company qualifies as an SME.
Small companies are those that have:
an annual turnover of £5.6 million or less total fixed and current assets on its balance sheet of £2.8 million or less and 50 employees or less.
Medium sized enterprises are those that have:an annual turnover of £22.8 million or less total fixed and current assets on its balance sheet £11.4 million or less and 250 employees or less.
These are the statutory criterion since 30 January 2004. Prior to that date the criterion for the first two items in each list above was half its present value. When assessing holding companies, the balance sheet, turnover and number of employees of its subsidiaries are taken into account when determining the relevant statistics. Special rules apply to companies qualifying for exemptions, and an audit must prepared.
Public companies, companies that are subsidiaries of public companies, Also companies in certain regulated sectors are not capable of qualifying as SMEs.
Small companies may deliver abbreviated balance sheet and notes to Companies House and a special auditor's report; and medium sized enterprises must deliver an abbreviated profit and loss account, balance sheet, special auditor's report, a director's report and notes to the accounts. The special auditor's report simply states that the company qualifies for the exemption and that the accounts have been prepared in accordance with the Companies Act.
Special rules also apply to SMEs within a group. Companies qualifying as Very Small Companies may qualify for an exemption to file an audit with Companies House.
Information Needs of Small and Medium Size Businesses
It can be within an organisation which may include of various information systems such as accounting information system, knowledge management system, decision support system, executive support system, etc.
Computerised Accounting Information Systems
The purpose of an information system is to empower its users. There is a wide difference in a simple database which stores data and return it to its users upon request. A database can be created in a way that manages and retrieves information in a sorted manner. This information can help make decision at various levels within an organisation. Information system recognize that there are different levels of workers in an organization who have their specific duties and thus provides them information is different ways (Heinrich, 2002). Its purpose is to make sure that the users of the system are quickly able to access, comprehend, and react to the information provided to them. Wiseman (1985) mentions that the information system improves business functionality by automating some of the fundamental information procedures. He further mentions that the information system increases the effectiveness of the management by satisfying their information demands.
Information demands of businesses vary at different organisational levels. Various business functions at strategic, tactical and operational level have different types of subsystems of information system to serve their information demands. Similarly, computerised information systems can serve business demands at various levels.
Computerised Accounting Information Systems for Day-Today Operations
With the advent of computerised accounting information systems, companies can now gather, process, store, and transfer data by using computers. In historical information systems, the data was gathered, and processed manually. However, computers have enabled on-line data collection and processing nowadays (Grabski and Marsh, 1994). Accounting information systems particularly help organisation in automating their operational information tasks. This automation serves the information needs at the operational level of organisations.
In manual accounting information systems, data is processed very slowly and can be subjected to errors. Computerised accounting systems help organizations to gather, process, and retrieve information in a much quicker way with much greater accuracy. Computerised accounting information systems can automate business functions in the following ways;
Data input function:
In manual accounting information systems, data is usually captured from a source document which is directly processed in journals or some times stored in ledger accounts.
After capturing the data into computers, it is processed. The most important of the data processing activities is the data maintenance. Maintaining data requires updating stored information when new transactions take place. For example, new data is entered into computers when sales transaction takes place. Unlike manual systems, computerised accounting information systems are able to immediately update thesales and accounts receivable data when new transactions take place.
The automation of these tasks reduces the chances of human errors. For example, computerised systems, update records by using primary keys that uniquely identify each entity and record. For example, only the related customer file will be updated when a sales transaction takes place as every customer is likely to have a unique account number which can be used as their primary keys and therefore, it would not be possible to update a wrong customer's record.
Information needs of SME. External and Internal Users
After entering the data into the computerised accounting information system and processing it, the information is retrieved to serve different information needs of an organisation. The stored and processed information can be presented in various formats such as documents, reports, or as a response to a query. The documents and reports are the record of transactions such as invoices. These records can be printed out on papers to keep physical records or stored in digital formats such as electronic images in computer databases.
Internal and external users:
Business reports are created for both internal and external users. Computerised accounting information systems can prepare business reports for external users such as creditors and financial statements. Additionally, computerised accounting information systems can be developed to present financial information automatically in various formats such as spreadsheets. The advancements in electronic communication systems allows organisations to transfer financial information and reports to various users in digital formats which eliminates paper work and reduces costs. Reports can also serve the needs of managers overseeing operational activities.
Sometimes, managers are required to search for specific information that cannot be generated through automated reports and documents. When any unexpected problem or situation arises, managers can use computerised accounting information systems to retrieve specific information very quickly by entering queries. In manual accounting information systems, transactions are usually recorded in journals later to be posted to ledger accounts. Financial statements are convenient to be prepared at the end of each month by using ending balances of ledger accounts. However, computerised accounting information systems can generate financial reports conveniently at any time by entering related commands as all the information is stored in relational databases and tables.
Information needs of SME. Additional INFO.
The Impact of Regulations on SMEs:
What do SMEs Need?
Government advice for SMEs needs to be improved:
Example of an Accounting package MoneySoft
Computerised Accounting Information Systems for Strategic Decision Making
The strategic purpose of accounting management is to provide financial and economic information that relates the daily operation of business with its strategic objectives. Accounting information enables managers to collaborate with the entire extended enterprise of comprising of its customers, suppliers, contractors, dealers in their strategic objectives (Ansari et al. 1997). This provides a long-term view of business's strategies and objectives. In this way, accounting information helps organisations to achieve their strategic goals by reporting the results of financial and nonfinancial measures (Ansari et al. 1997). A computerised accounting information system can facilitate the financial reporting in a very efficient manner in ways that manual processing cannot. The following are some of the tasks that computerised accounting information systems can perform automatically to serve the information needs at a strategic level.
The advancements in information and communication technologies have enable organisations to manage their accounting information systems in computerised manner. Computers bring much more efficiency and effectiveness in managing financial and economical data or businesses. Business share and communicate accounting information with internal and external users through either intranet, extranet or the Internet. Computerised accounting information systems help automate daily transactional activities and bring great efficiency and accuracy in it. By analysing and processing stored information in various ways, computerised accounting information systems can also serve the strategic decision making in an organisation.