Summary For Four Chapters

Summary For Four Chapters

Please write a two-pages summary for each chapter.

Double-spaced, due in two days.

Chapter 1: Introduction

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Learning Objectives

After studying this chapter you should be able to:

• discuss the impact of the information revolution on the accounting function • explain the purpose of accounting and the role of the accounting professional

in organizations • describe the information customers served by accounting • describe the traditional accounting model and the manual accounting process

and the drawbacks of this traditional view • indicate the process of computerized bookkeeping and its advantages and

limitations • explain in general terms the database approach to satisfying accounting

information and the advantages of the database approach • discuss concepts of events orientation and the enterprise repository • describe the roles that the future accounting professional can play

The business world and society in general are undergoing phenomenal and sometimes turbulent change. The “new economy” driven by the Internet has seen the rise of entirely new businesses like, Yahoo, eBay, and of course Google. Most traditional “bricks and mortar” businesses have been forced to transform themselves into some form of an “e-business” simply to survive in this new era. The old cliché, that the only constant in business is change, is still true except that changes occur at “Internet speed.” Information technology is at the core of these radical Internet-driven changes. What implications does the “new economy” have for accounting? Whether in an “old economy” business or a “new economy” business, accounting information is intrinsic in most business processes. All businesses must still capture, process, store, and report accounting and other information about business processes to assess performance.

Beginning in the mid-1950’s, the developed countries moved from being primarily industrial oriented societies to information oriented societies. Currently, a significant percentage of the jobs in many of the developed countries focus on some aspect of the management of information rather than the production of goods. We are indeed in an “information age.” Advances in information technology lie at the heart of these colossal changes. The information superhighway, once merely a buzzword, is now very much a
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reality as is evident in the delivery of this “textbook.” As a future accounting professional you stand at the threshold of a potential revolution in accounting. The forces of information technology continue to produce dramatic changes. However, to fully harness the power of information technology, we must cast away our centuries-old notion of what accounting and accountants are all about. If we do not, we stand the risk of being cast aside as impediments to progress in the new information age. The fundamental question is this: will the accounting professional in the 21st century be the main “information provider” in an organization? Or will that role be fulfilled by some other professional, perhaps an “information systems” professional?

In this introduction, we will first discuss the why organizations exist and the role of accounting in organizations. We will then briefly review the traditional accounting model. Although this traditional view is probably still held by many, there are growing signs that its demise is imminent. We then present a more modern view of accounting—as a system for capturing all relevant information about business processes and storing it in one integrated repository. This organizational repository stores a multitude of financial and non-financial information about the significant events occurring within the business. The role of the accounting professional is in deciding:

• which events to capture data about, • what data relating to each event should be captured, • how that data is to be captured while preventing input errors, • how the data should be stored to optimize its usability while maintaining its

integrity, and • how meaningful reports can be generated on demand in real-time.

The traditional “bookkeeping” view of accounting is thrown by the wayside. In the new view, the accountant’s focus is on the design, control, and use of the enterprise-wide repository of data. The ultimate goal is for the accounting professional to serve as the provider of information within the organization. A little later, and in the chapters to come, we will discuss details about exactly what the design, control, and use of the enterprise repository entails.

Organizations and the role accounting Why do organizations exist? Think about the organizations you have been and are currently associated with—the university you attend, student organizations you belong to, the business you work for. Every organization, including for-profit businesses and not-for-profit organizations, was started with the objective of adding value for those who belong to it and/or interact with it. Organizations that do not add value cannot survive in the long term. A university providing education in exchange for tuition provides value. A business providing needed goods and services provides value. Virtually all organizations that survive in the long term have clearly stated goals and objectives that in some way speak to “value adding activities” involving the organization.

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Organizational leaders and managers need information about its value adding activities as a basis for determining whether the organization is achieving its goals. Given that even non-profit organizations incur costs, an essential aspect of running an organization and ensuring its long term survival involves recording, tracking, and reporting information about both value adding activities and cost incurring activities. As you undoubtedly have guessed, this information about organizational value adding and cost incurring activities is the domain of the accounting function in the organization.

In business organizations, the role of accounting has always been to provide information useful for decision making. In business organizations, the information provided by the accounting function is typically used to make economic decisions as they relate to the “value adding” activities for the organization. Information about sales revenues, purchases of materials, wages and salaries paid to employees are all examples of accounting information useful for making economic decisions about what to buy and sell, etc. Accounting involves processing raw data in some manner to convert it into information that must then be communicated to interested parties. In essence, accounting can be viewed as a system of communicating information. In its most general sense, a system accepts inputs, performs some processing, and generates meaningful outputs. Accounting takes business transactions as data inputs and ultimately generates a variety of financial reports as information outputs.

This view of accounting, as a system that converts transaction data into useful financial reports, says nothing about the methodology of accounting. Your exposure to accounting through the courses you have taken to date have probably led you to think about debits and credits and the double-entry accounting model when you think about “accounting.” Although the double-entry accounting system developed by the Franciscan monk Luca Pacioli in 1494 has stood the test of time, its utility is increasingly being questioned. The double-entry accounting model focuses exclusively on the financial and most easily measurable aspect of transactions, that is, the monetary amount involved. However, given the broader definition of accounting—as a system to provide information useful for decision making—it is easy to see that the double-entry model can fall short of completely meeting the needs of users. We will discuss the limitations of the traditional accounting model a little later in this chapter. The users of accounting information can be considered “information customers.” To understand the various kinds of information output that can be generated by the accounting system let us first examine the many information customers served by accounting.

Information Customers Information customers are either internal or external. Internal information customers, within the organization, would include employees at all levels from top management to the lowest level worker who has a legitimate need for information. The overriding criterion in deciding whether to satisfy an internal request for information is cost-benefit. If the benefits of producing information outweigh the costs of producing that information, then it would be advantageous to make that information available to the user. Meeting internal information needs has been the domain of management accounting or
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managerial accounting. Activities such as budgeting, cost-volume-profit analysis, variance analysis, and product costing are some examples of management accounting activities designed to meet internal information needs. The Institute of Management Accountants IMA has a web site that provides additional information about management accounting.

External information customers comprise investors, stockholders, creditors, customers, government and regulatory agencies, and financial institutions. For the most part, especially for publicly held companies, providing audited information in the form of financial statements to external users is mandatory. Furthermore, generally accepted accounting principles (GAAP) dictate the standards and practices to be followed in external financial reporting. Although the task of external financial reporting is important, it is also necessary to recognize that the annual financial statements are only one source of information about a company’s financial condition. Analysts on Wall Street and other industry experts constantly track the performance of major corporations. In fact, research has found that the release of annual financial statements has very little impact on stock prices, especially of larger companies. The finance site at Yahoo provides a wealth of information including earnings reports, stock quotes, analyst research, and earnings news.

The paper annual report is slowly becoming obsolete, with almost all publicly traded companies making their annual report available on their web site. Additionally, most companies provide additional financial information, such as quarterly reports, on their corporate web sites in the “investor relations” section. In January 2000, the Financial Accounting Standards Board published a 94 page report detailing practices in Internet reporting of financial information. Over the last several years, a technology called XBRL has been developed to facilitate the “tagging” of financial statement line items with the goal of enabling Internet reporting and electronic exchange of such information. After initially encouraging companies to report their financial results using XBRL technology on a voluntary basis, the Securities and Exchange Commission now requires publicly held companies to report financial statement information in the XBRL format. You will learn about XBRL technology in Chapter 4.

Whether information customers are internal or external to an organization, they are increasingly demanding instantaneous user-friendly access to relevant and reliable information. No longer are these customers satisfied with periodic reports that are cumbersome to obtain, frequently irrelevant, and often plagued by errors. Users are now sophisticated enough to realize the power and capabilities of present day information technology. In fact some of these users often create their own personal information systems to supplant the organization’s systems.

Accounting: The Traditional View As discussed above, the purpose of accounting is to provide information for economic decision making. Economic activity in an organization manifests itself in a variety of events traditionally referred to as transactions. For long, the role of accounting has been
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to record, classify, and report the results of these transactions. The traditional methodology for recording and classifying transactions is the double-entry system of bookkeeping devised by Luca Pacioli in 1494. This five-hundred-year-old methodology which you undoubtedly are very familiar with is still in use today, which some may see as a testament to its durability. However, the traditional model of accounting has several shortcomings given the demands of today’s business environment. Let us now take a brief look at the manual accounting process which has most likely been the predominant focus in your accounting courses to date.

The manual accounting process

The accounting equation states that assets must equal the sum of liabilities and owners’ equity. Income and expenses result in changes in owners’ equity. At the end of each accounting period, the net result of that period’s operations—either a net income or a net loss—results in owners’ equity being either increased (net income) or decreased (net loss). Other than the net result of operations, owners’ equity can increase upon additional investments of capital or decrease upon payment of dividends. The guiding principle for the recording of transactions is the double-entry bookkeeping model. In essence, the double-entry model and its insistence that “debits equal credits” ensures that assets will always equal the sum of liabilities and owners’ equity. The starting point for the accounting process is the transaction. Transactions can either involve some sort of economic exchange with an external entity or an internal event of economic significance. In either case, evidence of the transaction or event is prepared in the form of a source document. This source document, for example a sales invoice, is recorded in a journal. The time lag between occurrence of a transaction and its recording in a journal can vary from one organization to the next. Some organizations may record transactions in journals soon after they occur. Others may record transactions at the end of every business day.

Another point worthy of note is that transactions can be recorded either in special journals or in the general journal. Special journals simplify the task of recording routine, repetitive transactions such as sales, purchases, cash receipts, and cash disbursements. The general journal is used for occasional, exceptional transactions like recording depreciation on an asset. Transactions must be classified appropriately as they are entered in a journal. Classification occurs by choosing the correct journal in which to record a transaction and by correctly specifying accounts to be debited and credited.

Journals are temporary stores of transaction information. Periodically, entries from journals are posted to ledgers which are permanent stores of information. As with journals, there are both special purpose and general purpose ledgers. For example, the accounts receivable subsidiary ledger is a special purpose ledger designed to store information about what customers owe the organization. The general ledger holds all other accounts including summary accounts called “control accounts” for each subsidiary ledger.

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While journals are “closed out” at the end of each accounting period, ledgers are not. As alluded to earlier, special journals simplify the accounting process since only summary amounts for certain accounts need be posted to the ledger. In contrast, every single entry from a general journal must be individually posted to the ledger. The act of posting entries from journals to ledgers serves to update the balances in the ledger. Balances from the ledger are periodically summarized to produce a trial balance. One reason to periodically prepare a trial balance is to ensure that total debits equal total credits. The trial balance only reflects transactions already recorded. Before useful financial reports can be prepared, consideration must be given to any additional information suggesting the need for adjusting entries to reflect any unrecorded but valid transactions. Using the trial balance and any adjusting entries as inputs, financial reports, including the income statement and the balance sheet, are then prepared.

The accounting cycle can thus be summarized as follows: (1) capture transaction data on source documents, (2) soon after transactions occur, they are recorded either in special journals or the general journal, (3) the entries are periodically posted from journals to both subsidiary ledgers and the general ledger, (4) the trial balance is prepared periodically using the balances from the general ledger, (5) journalize and post “adjusting entries” that take into consideration additional information not impounded into the trial balance (e.g., to write off an uncollectible account, to accrue unpaid expenses, etc.), (6) prepare the adjusted trial balance that incorporates the adjusting entries, (7) prepare financial statements, specifically the income statement, the balance sheet and the statement of cash flows, (8) journalize and post closing entries that “close out” the temporary income statement accounts (with the net effect reflected in the retained earnings account), and (9) prepare the post-closing trial balance in preparation for the next accounting period. The manual accounting process is depicted in the following figure.

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Problems with the traditional view of accounting

There are a number of problems that limit the usefulness of the traditional accounting model given the complexities of the global marketplace and the demands of present day information customers. Briefly, the shortcomings are as follows:

• “transactions” orientation as opposed to an “events” orientation, • narrow focus on financial data, • reporting is periodic and not real-time, • limited accessibility of information, • too high a level of aggregation, and • limited flexibility which prevents answering queries that cross functional


Let us discuss each of these drawbacks in some detail.

Transactions orientation

Historically, accounting has focused on “transactions” as the starting point of the accounting process. Transactions are classified as either exchange transactions involving external entities or internal transactions such as those involving the use of a depreciable asset. A typical transaction results in debits and credits to accounts such that the total of debits equals the total of credits for that transaction. The manual accounting process required the creation of a “source document” as evidence for each transaction. Source documents, such as a sales invoice for a sales transaction, contained all the data necessary to record the necessary information about the transaction. Source documents also provided evidence that the transaction was approved and authorized.

In most organizations, several events transpire that do not fit the typical “transactions” mold. The breakdown of a machine, a call from a customer offering a suggestion, or an inquiry from a potential customer are all examples of significant events that do not necessitate debits and credits to any ledger account. Thus, such events are not viewed as transactions and are therefore typically not “accounted for” within the accounting system. It is easy to see how the traditional “transactions orientation” can result in valuable information being omitted from the accounting information system.

Narrow view—financial data only

A problem related to the transactions orientation is that the accounting information system has historically restricted itself to financial information. A possible reason for this narrow view is that financial data is very easily measurable. Non-financial measures such as machine downtime, product weights and colors, employee skills, and product quality attributes are somewhat harder to measure than say the dollar amount of sales.

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Further, these measures are typically not associated with routine (or non-routine) transactions and are therefore never recorded in the accounting information system. That is not to say that organizations did not keep track of those measures. Separate information systems were usually devised for recording and reporting non-financial measures as needed. For an example, a manufacturing information system would likely record information about machine availability and downtime. In fact, this tendency to create a new information system to meet a new set of needs often resulted in the proliferation of systems. What was typically missing, however, was an integration of these disparate systems into one well-organized data repository.

Periodic, not real-time

Accounting has traditionally had a historical focus in terms of reporting about what occurred during the year or quarter or week. Financial reports were generated at predetermined intervals and reflected the results of operations for some elapsed period of time. A major reason for this periodic reporting was that in a manual accounting environment the compilation of financial statements took a significant amount of time. It was not possible for users to generate an income statement on demand. As indicated previously, the accounting cycle involved the preparation of the trial balance, the consideration of adjusting entries as needed, and finally the creation of the income statement and the balance sheet. Any discrepancy in the trial balance would have to be resolved before the financial statements could be produced. Thus, in a manual accounting environment, there was little option but to generate financial statements at periodic intervals, given the lengthy and error-prone process of compiling these statements.

In contrast, an automated accounting system facilitates the generation of financial statements “on the fly.” If the computer-based accounting system has been set up correctly, and if the programs that generate financial reports are functioning properly, then the generation of financial statements in real-time is well within reach. Internal users would no longer be restricted to periodic reports of financial performance. Thus, a manager could execute a program that would display the current status of revenues and/or expenses updated to that very minute. In effect, the accounting system can provide perpetual rather than periodic reports.

Of course, a number of accounting mechanisms such as depreciation, amortization, and allowances would have to be considered in generating real-time financial reports. If reasonably accurate approximations of these items cannot be generated, then appropriate caveats would have to be included in real-time reports. The validity of numbers in real-time reports is another issue. Later in the chapter we will briefly discuss auditing of financial statements—both from a traditional as well as a futuristic perspective. Perhaps for these reasons, external users would continue to receive periodic reports, although technology exists to provide even external users with close to real-time financial reports on the World Wide Web.

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Limited accessibility

In a manual accounting system, accessibility of accounting data was restricted to a select few individuals in the Accounting department. The Accounts Receivable Clerk who maintained the Accounts Receivable subsidiary ledger would have to be contacted to obtain information on the current status of a customer’s account. Computerization of transaction processing systems alleviated the problem considerably since any authorized user could access the desired information electronically. However, the first wave of computerization of accounting systems did not completely solve the problem of accessibility. Only recently have technological advances made it possible for users to obtain instantaneous access to information on demand.

Too high a level of aggregation

The traditional accounting model focused heavily on the summarization of accounting information. Ledger balances represented a summarization of transaction activity, and the detailed ledger balances were summarized even further to prepare the financial statements. This level of summarization was a necessary by-product of the structure imposed by the accounting cycle to simplify the accounting process. Recall that the accounting cycle involves posting journal entries to the ledger, posting ledger balances to the trial balance, and eventually generating financial statements. The end user of accounting information could only view the summarized numbers in the financial statements; the details underlying the summarized financial statement numbers were hidden from the end user.

Once the accounting process was automated, it became feasible to provide end users with access not only to the eventual financial reports but also to the detailed transactions that made up the summarized numbers in those reports. Users could in effect “drill down” to view the make up of summarized numbers in reports.

Limited flexibility

Traditional bookkeeping, organized around the double-entry accounting model, tended to focus on the traditional accounting “cycles.” For most organizations, accounting cycles comprise revenue (sales, billing, collections, returns), procurement (ordering, receiving, recording purchase liability, payment), production (for manufacturing firms), inventory, payroll, and general ledger. Unfortunately, the drudgery involved in a manual system meant that one or more accounting clerks was needed for each separate cycle. Thus, an accounts payable clerk would be responsible for maintaining the purchases journal and the accounts payable subsidiary ledger. Each of the other cycles would similarly have its own set of books maintained by different accounting clerks. Such separation was not only efficient but it was also desirable from a control perspective. Unfortunately, this separation of the records made it difficult to answer user queries that crossed functional areas. For example, a manager might want to know how many units of each widget type are on order for the widgets that have sold the most. Such a query

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requires data from both the purchasing and the sales cycles and was difficult to answer in a manual system with separate sets of books for each cycle.

The appendix to this chapter takes a closer look at traditional manual and automated accounting processes for the two major “accounting cycles”—sales and purchases. The appendix shows document flowcharts for manual accounting processes and computer systems flowcharts for computer-based accounting procedures. You might find it useful to study the appendix, if only to refresh your memory of the traditional accounting procedures that you have probably studied in previous accounting classes. We chose to include the discussion of manual and automated accounting procedures in an appendix because we do not feel it necessary to dwell too much on procedures that are clearly antiquated and are not the ideal to which most present day businesses are striving.

As you are well aware, purely manual accounting (“bookkeeping”) is virtually obsolete. Even the smallest of “mom and pop” operations can afford to invest in some level of computer-based accounting. For much less than $1,000, a business can acquire a basic personal computer with software such as Quickbooks (a low-end accounting software package). We next discuss computerized accounting and the drawbacks associated with the “first wave” of automated accounting approaches.

Computerized Bookkeeping: No Panacea The first wave of automation of accounting systems did little to alleviate the problems described above. Rather than “reengineering” the accounting system, computers were used simply to automate manual accounting systems. Using the computer to process accounting transactions brought the possibility of immense speed and accuracy to the bookkeeping process. In the early days of computer-based accounting (the ’60s and early ’70s), the typical approach was to develop custom transaction processing applications using COBOL (Common Business-Oriented Language). Programmers developed COBOL programs for processing the accounting transactions in each of the organization’s accounting cycles—revenue (sales, billing, collections, returns), procurement (ordering, receiving, recording purchase liability, payment), production (for manufacturing firms), inventory, payroll, and general ledger. Although COBOL is quite a powerful language, considerable programming skill is required to craft the suite of programs necessary to handle all the transaction processing needs in an organization. Modifications to these programs are typically not easy to perform. Moreover, generating reports from these COBOL driven systems was a very tedious process. Early in the process, organizations used the report generator in COBOL. Later on, third party report generators were used extensively. While standard reports were readily available, management’s ability to modify existing reports or, more importantly, to generate reports on an “as needed basis” was very difficult. Thus, developing custom transaction processing computer programs was an approach that was time-consuming and expensive, especially since skilled programmers were in short supply.

In the late ’70s and even more so in the ’80s, a popular alternative emerged—to use an off-the-shelf accounting software package. An accounting software package has a pre-
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defined user interface, chart of accounts system, transaction processing options, and report generators. While some customization and modification of package features is usually possible, the firm will likely have to adapt somewhat to the idiosyncrasies of the accounting package. For example, the package may generate sales analysis reports broken down by salesperson or by region, but not broken down by salesperson within a region. Thus, an off-the-shelf package may satisfy a firm’s bookkeeping requirements, but typically will not satisfy the need for non-standard or ad-hoc reports. The chief advantage of accounting packages is their relatively low cost and reliability. Furthermore, unlike custom developed programs that are prone to errors, reputable off- the-shelf accounting software packages are essentially free of errors. Despite the inflexibility of accounting packages relative to custom developed programs, their popularity is not surprising in light of the fact that many low-end packages can be purchased and implemented for a fraction of the cost of custom-developing an accounting system.

Let us now explore the features and structure of these “computerized bookkeeping” systems. Both custom-developed COBOL programs and off-the-shelf accounting packages are geared towards automating the processing of accounting transactions. They both provide functionality for recording accounting transactions. For example, an accounting package will typically accept the following revenue cycle accounting transactions: cash sales, credit sales, collections on account, and sales returns and allowances. In a custom-developed environment, the same transactions are typically handled by a series of COBOL programs. Thus, computerized bookkeeping retains an “accounting transactions orientation.” It also retains the focus on financial data alone. A business event such as a salesperson contact with a potential customer will find no place in a standard accounting software package. The following figure depicts the functioning of the sales and accounts receivable portion of an accounting software package or a custom developed COBOL program.

As shown in the above figure, the “Sales and Accounts Receivable Module” is designed to accept the typical set of accounting transactions—credit sales to customers, collections (cash receipts) from customers, and sales returns and allowances. Through

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proprietary file management software (the most common of which is the “Btrieve” structure for microcomputer-based packages, discussed further in Chapter 2), input transactions are recorded in computer files. However, it is important to recognize that the data in these files is accessible only through the file management software. It is not possible to obtain direct access to the data files using application software packages such as Microsoft Excel or Microsoft Access. Thus, reports that can be generated are only those that are already programmed into the software package or designed by the programmer (in the case of custom-developed software).

A number of accounting packages mirror the “posting” of transactions to ledger accounts. When accounting transactions are input using a software module, that transaction data does not necessarily update all affected accounts instantaneously. Consider the case of credit sales transactions. As credit sales are entered into the system, the sales account would typically be instantly updated. However, accounts receivable may not be updated instantly—an explicit “posting” action must be undertaken to “apply” the sales transactions to the accounts receivable and customer accounts. Recall that in manual accounting, transactions are initially recorded in journals and then ultimately posted to ledgers. A surprisingly large number of accounting software packages require an explicit “posting” operation whereby transactions stored in journal files periodically update balances in ledger files. The main drawback of periodic posting, as discussed earlier, is that “real-time” reports cannot be generated. Reports are up-to-date only after all postings have been made. Transactions that are recorded after the postings have been made are not reflected in reports until the next posting operation is performed. It is for this reason that most accounting software packages are considered to be simply “automated” versions of conventional manual bookkeeping.

All accounting software packages, and all well designed custom systems, provide a large number of canned reports that the user can generate. For example, sales analysis reports, customer statements, and a collections report are some examples of reports that can be generated from the sales and accounts receivable module of most any accounting package. However, most packages provide only limited functionality for generating custom ad hoc reports. The sales manager might want a report showing all sales in the “East” region by salesperson “John Smith” involving sales of widgets in June 2013 amounting to more than $2,500. It is highly unlikely that the standard reporting modules in accounting packages could generate such a report. The main reason for this inflexibility is that the underlying data stored in computer files within the accounting software package are accessible only using the menu structures programmed into the package. Users cannot access the accounting package’s data files directly. Thus, the inflexibility drawback of traditional manual accounting still exists in computerized bookkeeping, albeit to a lesser degree given the numerous reporting options that come standard with popular accounting software packages.

Regarding the level of aggregation in data, as alluded to above, automation in bookkeeping does provide relatively easy access to the underlying data. Unlike in a purely manual accounting system, users working with an accounting software package

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can quite easily “drill down” to see the detailed data underlying an aggregated number in a report. The degree to which the user can drill down will of course vary as a function of the specific package being used. Recall, however, that the data stored in virtually all accounting packages is restricted to standard accounting transaction processing oriented data.

As is apparent in the figure above, a key aspect of computerized bookkeeping is the maintenance of a separate set of computer files for each accounting cycle. The paper books in a manual accounting system were simply replaced by computer files. The design of the system, particularly the separate books for each cycle, was not fundamentally altered. Rather, COBOL programs were written for each accounting cycle. Of course, the speed of transaction processing was considerably faster. The same number of transactions could now be handled accurately and far more efficiently by computer-based transaction processing systems. However, it was still difficult to answer cross-functional queries since even the automated systems were separately maintained with no easy way to link data across sub-systems. For this reason, we say that computerized bookkeeping was not the panacea for the problem of providing users with the right information at the right time.

The advantages and drawbacks of computerized bookkeeping are summarized in the following table:

Advantages Drawbacks

Automation of tedious manual accounting tasks (e.g., posting to ledgers)

Accounting transactions orientation only; non-financial events not recorded

Speed and accuracy Periodic rather than “real-time” reports

Low cost (accounting packages only) Limited flexibility in generating “ad-hoc” reports

Automatic generation of standard accounting reports for common needs (e.g., sales analysis reports, customer statements, financial statements).

Data accessible only through proprietary file management systems

Redundant data storage permits efficient generation of certain standard accounting reports

Cross-functional queries difficult to answer

Chapter 1: Introduction

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