The design of computerized accounting system

An organisation should consider the following factors when designing and managing computerised accounting systems:

1. Cost: Cost is the first factor to be considered when designing a computerised accounting system. Complex accounting system with a lot of features may be very expensive compared to simple accounting packages used by small businesses.
2. Compatibility with other management systems used by the organisation: The company must consider the possibility of integrating the computerised accounting system developed with other existing management information systems, if any.
3. Organisation structure of the company: The development of computerised accounting system should consider the setup of divisions or departments within an organisation. A computerised accounting system used by a company with branches have additional features necessary to control the branches.
4. Accounting basis: The design of a computerised accounting system must also consider the accounting basis used by an organisation. A computerised accounting system using cash basis is considered to be simple and consume less time to develop compared to the system that uses accrual basis which is more complex and time consuming for the accountant.

Below are the limitations of computerised accounting systems:

1. Training cost: Computerised accounting packages requires users to have special skills in order to operate the system. As a result, a company incurs many costs to ensure that staff are well trained so as to achieve efficient and effective use of computerised accounting systems.
2. System failure: Computerised accounting system may crash due to hardware or computer operating systems failures. Software damage and failure may be caused by viruses. Thus, it is important to have back-up arrangements in place to eliminate this limitation.
3. Breaches of security: In computerised accounting system, information can be changed without being noticed. Fraud are usually committed on a computerised accounting system by alteration of data or programmes. Programmers may change users' passwords and alter the accounting records.
4. Health issues: Computerised accounting systems involve the use of computers in processing the financial information. Extensive use of computers may attract health problems to users such as bad backs, eyestrain and muscular pains which adversely affect the efficiency of staff.

Software is considered to be the fundamental component of a computerised accounting system. Such software is called accounting packaging software or accounting packages. Accounting package can be defined as software that a business uses to record its financial information. Accounting packages offer useful tools like invoicing, bill payment, payroll, and financial reporting. Most of them automatically enter, store and analyze data. This is especially useful for saving time on tasks like bank reconciliation.

The accounting packages are classified into mainly three categories: ready to use accounting packages; customised accounting packages; and tailored accounting packages. The three classes perform same tasks and produce the same results but each of these categories offers distinctive features.

Ready-to-use accounting packages

These are accounting software that are developed to meet the requirements of small-sized enterprises like shops, groceries, medical stores and stationeries. They are ready made software that an organisation can buy and immediately start using. Users of ready-to-use accounting packages are limited in number and neither do they require expertise or intensive training to operate the software. Mostly, ready-to-use accounting packages are used by small businesses where the volume of transactions is very low. Usually integration with other software is limited and the software is prone to data frauds as they are less costly. A good example of a ready-to-use accounting package is Tally. This is an accounting software specifically designed for small sized business units. It is mainly used for recording the daily business data of a firm. Its name is derived from the word "tally", which means to count and keep the record. Other examples of ready-to-use accounting packages include Pastel, Xero, Freshbooks and Sage One.

Main features of ready-to-use accounting packages

• They are mainly used by small business enterprises;
• The cost of installation is very low;
• The expected level of secrecy for the data is very low;
• Can be easily adapted by any business organisation; and
• Requirement for training before use is very low.

Customized accounting packages

An accounting package is considered to be customized if it is purchased with an option for modification to meet the special requirement and expectations of the user. These software are not developed by the user from the beginning, but purchased from the owners on certain licence agreements. The customisation may relate to addition of the software contents and addition for the specified number of users and their authentication. These software offer more modules or accounting functions more than ready to use accounting packages, as a result the cost of installation and maintenance is relatively high. Most are used by large and medium businesses and can be linked to other management information systems. Customised accounting packages are capable of managing large number of financial transactions and data is more secured in the customised software.

Main features of customized accounting packages

1. Used by large and medium business enterprises;
2. Cost of installation and maintenance is relatively higher;
3. Expected level of secrecy for the data is relatively higher;
4. Number of users and their interface can be increased based on the requirement of the organization;
5. Allows linkage of information on the basis of the organisation's requirements; and
6. Higher training requirement for its use.

Tailored accounting packages

These are accounting packages that are specifically developed based on userspecific requirements. Accounting software of this nature are usually used in large business organisations and geographically scattered locations, hence they are very expensive. Tailored accounting packages supports multiusers and all key personnel in the financial management systems of the organisation can be featured in. The secrecy and authenticity checks are strong and therefore are not prone to fraud compared to other categories of accounting packages. Examples of tailored accounting software include MUSE (Mfumo wa Ulipaji Serikalini) which is the Government digital payment system developed by local experts from the Ministry of Finance and Planning in collaboration with other public institutions. The system is specifically developed to be used by the Government Tanzania for all expenditure transactions in a way that it reduces costs, increase efficiency and accountability, and facilitate easy access to financial information. Other examples of tailored accounting packages in Tanzania are GePG and TaNEPS.

Main features of tailored accounting packages

• Used by large and unique business enterprises;
• Cost of installation and maintenance is very high;
• Expected level of secrecy for the data is very high;
• Number of users and their interface is unlimited;
• Allows a wide linkage of information based on the organisation's requirements; and
• Very high training requirement for its use.

Accounting information is needed for different uses, therefore, different organisations need different types of accounting software. As a result, the market offers many accounting packages in an attempt to cover the need of many organisations.

The following factors are usually taken in considerations before selecting an accounting package.

1. Cost of installation and maintenance: An organisation should consider the costs of acquiring the system, its hardware and maintenance costs. Some accounting packages may appear cheap to buy, but have heavy maintenance and alteration costs, others may initially appear expensive, but require least maintenance, free upgrading and negligible alteration costs.
2. Flexibility: An organisation should consider the ability of the accounting package to operate on variety of platforms and machines. Some of the accounting packages operate on limited number of operating systems. Therefore, the accounting package should provide a room for users to design various reports as they are used by the organisation before the adoption.
3. Size of the organisation and transaction volume: The size of the organisation and the volume of business transactions are among the major factors that an organisation should consider before selecting an accounting package. The smaller the size of the organisation, the low the volume of transactions, hence an organisation may choose a simple, single user accounting packages. If the size of an organisation is large may require a sophisticated software to meet the multi-user requirements, geographically scattered and connected through complex networks.
4. Level of security: Good accounting packages are the ones considered to have strong security features, which prevent unauthorised personnel from accessing or tempering with data already recorded. Where possible, an organisation should select an accounting package which restrict user rights to a specific department. For example, purchase vouchers should be accessed by users in the purchase department and petty cash module should be accessed by the cashier.
5. Exporting and importing data: A good accounting package is the one that should support the conversion of data from the accounting package to other systems (exporting) or from other systems to the accounting package (importing). The accounting package should allow the hygienic, untouched data transfer between databases.

An organisation is required to have a chart of accounts in place before the installation of accounting system. A chart of accounts is a financial organisational tool that provides a complete listing of every account in the general ledger of a company, broken down into subcategories. Chart of account enables users to record financial transactions in right ledger account.

Accounts in the chart of accounts are usually categorised on the basis of the elements of financial statements. Therefore, the main account types are income, expenses, assets, liabilities, and equity. All other accounts must be sub-categorised into one of the five elements and be assigned a special number called account code. The process of assigning numbers to accounts in the chart of accounts is called codification. Main accounts are assigned with numbers. Each main type of account is usually assigned a general account number to differentiate from other main accounts, while subaccounts must be assigned an account code that relates to its main account.

There is no universal chart of accounts that can be used by all organisations around the world. Therefore, number of sub-accounts in a chart of account will be different between entities and so is the responsibility of companies to prepare account codes. Companies in different sectors or industries will have different kinds of charts of accounts. This is mainly due to the differences in nature of activities between the sectors. For example, chart of account of school or college will be different from a chart of account of hospital or a pharmacy.

The following table presents an example of primary chart of accounts and their account codes of a small business:

The following are examples of assets and liabilities sub-accounts in a chart of accounts of a small business as of primary accounts presented above: