jayalakshmi engg mba
TRANSCRIPT
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K.S.R
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geofEng
ineering ACCCOUNTING FOR
MANAGEMENT
ContemporaryAccountingPractices
Facilitator
Dr.S.M. Uvaneswaran
M.B.A.,M.com.,M.phil(EDP).,M.Phil(com)., PGDCA., Ph.D
Professor and Head
Dept. of Business Administration
K.S.R College of Engineering
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Preface of Lecture Topics
Inflation Accounting
Human Resources
Accounting
Computerized
Accounting System andEnvironment
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Inflation Accounting
accounting systems designed tocorrect problems arising from
historical costaccounting (HCA)
used in high inflation orhyperinflationcountries
For example, IASB requires corporate
financial statements to be adjusted forchanges in purchasing powerusing a
price index.
Tuesday, September 10,2013 3
http://localhost/var/www/apps/conversion/tmp/scratch_8/What%20is%20inflation.docxhttp://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Price_indexhttp://en.wikipedia.org/wiki/Price_indexhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Historical_costhttp://localhost/var/www/apps/conversion/tmp/scratch_8/What%20is%20inflation.docx -
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Historical costs basis in
Inflation Accounting Fair value accounting (also called
replacement cost accounting or currentcost accounting)
Used in the 19th and early 20thcenturies, but historical cost accountingbecame more widespread after valuesoverstated during the 1920s were
reversed during the Great Depression ofthe 1930s.
principles ofhistorical cost accountingwere developed after the Wall Street
Crash of 1929,Tuesday, September 10,2013 5
http://en.wikipedia.org/wiki/Fair_valuehttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929http://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Fair_value -
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Measuring unit principle
Inflation leads two basic problems under
HCA
1. irrelevant numbers on financial
statements
2. numbers on financial statementsrepresent dollars expended at different
points of time different amounts in
Purchasing power.
Rs.10,000 held on December 31, 2002, with
Rs.10,000 representing the cost of land
acquired in 1955 is a dubious operation -
different amount of purchasing powerTuesday, September 10,2013 6
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Contd..
Likewise subtracting dollar amountsthat represent different amounts of
purchasing power may result in an
apparent capital gain which is actuallya capital loss.
If a building purchased in 1970 for
Rs.20,000 is sold in 2006 forRs.200,000 when its replacement cost
is Rs.300,000, the apparent gain of
Rs.180,000 is illusory.Tuesday, September 10,2013 7
http://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Capital_gain -
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History of inflation accounting
Early 1900s, Accountants in the UK and the US have discussed theeffect of inflation on financial statements with index numbertheory
and purchasing power.
Irving Fisher's 1911 book The Purchasing Power of Money was used
as a source by Henry W. Sweeney in his 1936 book Stabilized
Accounting, which was about Constant Purchasing Power
Accounting.
This model by Sweeney was used by TheAmerican Institute of
Certified Public Accountants for their 1963 research study (ARS6)
Reporting the Financial Effects of Price-Level Changes, and later
used by theAccounting Principles Board (USA), the Financial
Standards Board (USA), and the Accounting Standards SteeringCommittee (UK).
Sweeney advocated using a price index that covers everything in the
gross national product. In March 1979, the Financial Accounting
Standards Board (FASB) wrote Constant Dollar Accounting, which
advocated using the Consumer Price Index for All Urban Consumers
(CPI-U) to adjust accounts because it is calculated every monthTuesday, September 10,2013 8
http://en.wikipedia.org/wiki/Index_numberhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Irving_Fisherhttp://en.wikipedia.org/wiki/Constant_Purchasing_Power_Accountinghttp://en.wikipedia.org/wiki/Constant_Purchasing_Power_Accountinghttp://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountantshttp://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountantshttp://en.wikipedia.org/wiki/Accounting_Principles_Boardhttp://en.wikipedia.org/wiki/Gross_national_producthttp://en.wikipedia.org/wiki/Financial_Accounting_Standards_Boardhttp://en.wikipedia.org/wiki/Financial_Accounting_Standards_Boardhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Financial_Accounting_Standards_Boardhttp://en.wikipedia.org/wiki/Financial_Accounting_Standards_Boardhttp://en.wikipedia.org/wiki/Gross_national_producthttp://en.wikipedia.org/wiki/Accounting_Principles_Boardhttp://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountantshttp://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountantshttp://en.wikipedia.org/wiki/Constant_Purchasing_Power_Accountinghttp://en.wikipedia.org/wiki/Constant_Purchasing_Power_Accountinghttp://en.wikipedia.org/wiki/Irving_Fisherhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Index_number -
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Contd.. During the Great Depression, some corporations
restated their financial statements to reflectinflation.
At times during the past 50 years standard-setting
organizations have encouraged companies to
supplement cost-based financial statements withprice-level adjusted statements.
During a period of high inflation in the 1970s, the
FASB was reviewing a draft proposal for price-level
adjusted statements when the Securities andExchange Commission (SEC) issued ASR 190,
which required approximately 1,000 of the largest
US corporations to provide supplemental
information based on replacement cost. The FASB
withdrew the draft proposal.Tuesday, September 10,2013 9
http://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Replacement_costhttp://en.wikipedia.org/wiki/Replacement_costhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Great_Depression -
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Current Inflation
current inflation /countryinflation period monthlybasis
yearlybasis
Inflation Germany october2012 0.00 % 1.98 %
Inflation Great Britain october2012 0.57 % 2.64 %
Inflation Greece october2012 0.82 % 1.62 %
Inflation Hungary october2012 0.15 % 6.00 %
Inflation Iceland october2012 0.27 % 4.20 %
Inflation India september2012 0.47 % 9.14 %
Inflation Indonesia october2012 0.16 % 4.61 %
Inflation Ireland october2012 -0.10 % 1.23 %
Inflation Israel october2012 -0.19 % 1.83 %
Inflation Italy october2012 0.00 % 2.60 %
Inflation Japan september2012 0.20 % -0.30 %
Inflation Luxembourg october2012 0.13 % 2.90 %
Inflation Mexico october2012 0.51 % 4.60 %
Inflation Norway october2012 0.53 % 1.07 %
Inflation Poland october2012 0.41 % 3.27 %
Inflation Portugal october2012 0.31 % 2.13 %
Inflation Russia september2012 0.56 % 6.57 %
Inflation Slovakia october2012 0.37 % 3.82 %
Inflation Slovenia october2012 0.14 % 2.71 %
Inflation South Africa october2012 0.72 % 5.61 %
Inflation South Korea october2012 -0.09 % 1.39 %
Inflation Spain october2012 0.85 % 3.48 %
Inflation Sweden october2012 -0.07 % 0.37 %
Inflation Switzerland october2012 0.12 % -0.22 %
Inflation The Netherlands october2012 0.57 % 2.90 %
Inflation Turkey october2012 1.96 % 7.80 %
Inflation United States october2012 -0.04 % 2.16 %
Current inflation by country / region (CPI)
http://localhost/var/www/apps/conversion/tmp/scratch_8/Current%20inflation.docxhttp://www.inflation.eu/inflation-rates/germany/inflation-germany.aspxhttp://www.inflation.eu/inflation-rates/great-britain/inflation-great-britain.aspxhttp://www.inflation.eu/inflation-rates/great-britain/inflation-great-britain.aspxhttp://www.inflation.eu/inflation-rates/greece/inflation-greece.aspxhttp://www.inflation.eu/inflation-rates/greece/inflation-greece.aspxhttp://www.inflation.eu/inflation-rates/hungary/inflation-hungary.aspxhttp://www.inflation.eu/inflation-rates/iceland/inflation-iceland.aspxhttp://www.inflation.eu/inflation-rates/iceland/inflation-iceland.aspxhttp://www.inflation.eu/inflation-rates/india/inflation-india.aspxhttp://www.inflation.eu/inflation-rates/indonesia/inflation-indonesia.aspxhttp://www.inflation.eu/inflation-rates/indonesia/inflation-indonesia.aspxhttp://www.inflation.eu/inflation-rates/ireland/inflation-ireland.aspxhttp://www.inflation.eu/inflation-rates/ireland/inflation-ireland.aspxhttp://www.inflation.eu/inflation-rates/israel/inflation-israel.aspxhttp://www.inflation.eu/inflation-rates/italy/inflation-italy.aspxhttp://www.inflation.eu/inflation-rates/japan/inflation-japan.aspxhttp://www.inflation.eu/inflation-rates/luxembourg/inflation-luxembourg.aspxhttp://www.inflation.eu/inflation-rates/luxembourg/inflation-luxembourg.aspxhttp://www.inflation.eu/inflation-rates/mexico/inflation-mexico.aspxhttp://www.inflation.eu/inflation-rates/norway/inflation-norway.aspxhttp://www.inflation.eu/inflation-rates/poland/inflation-poland.aspxhttp://www.inflation.eu/inflation-rates/portugal/inflation-portugal.aspxhttp://www.inflation.eu/inflation-rates/russia/inflation-russia.aspxhttp://www.inflation.eu/inflation-rates/slovakia/inflation-slovakia.aspxhttp://www.inflation.eu/inflation-rates/slovenia/inflation-slovenia.aspxhttp://www.inflation.eu/inflation-rates/south-africa/inflation-south-africa.aspxhttp://www.inflation.eu/inflation-rates/south-korea/inflation-south-korea.aspxhttp://www.inflation.eu/inflation-rates/south-korea/inflation-south-korea.aspxhttp://www.inflation.eu/inflation-rates/spain/inflation-spain.aspxhttp://www.inflation.eu/inflation-rates/spain/inflation-spain.aspxhttp://www.inflation.eu/inflation-rates/sweden/inflation-sweden.aspxhttp://www.inflation.eu/inflation-rates/sweden/inflation-sweden.aspxhttp://www.inflation.eu/inflation-rates/switzerland/inflation-switzerland.aspxhttp://www.inflation.eu/inflation-rates/the-netherlands/inflation-the-netherlands.aspxhttp://www.inflation.eu/inflation-rates/turkey/inflation-turkey.aspxhttp://www.inflation.eu/inflation-rates/turkey/inflation-turkey.aspxhttp://www.inflation.eu/inflation-rates/united-states/inflation-united-states.aspxhttp://www.inflation.eu/inflation-rates/united-states/inflation-united-states.aspxhttp://www.inflation.eu/inflation-rates/united-states/inflation-united-states.aspxhttp://www.inflation.eu/inflation-rates/turkey/inflation-turkey.aspxhttp://www.inflation.eu/inflation-rates/the-netherlands/inflation-the-netherlands.aspxhttp://www.inflation.eu/inflation-rates/switzerland/inflation-switzerland.aspxhttp://www.inflation.eu/inflation-rates/sweden/inflation-sweden.aspxhttp://www.inflation.eu/inflation-rates/spain/inflation-spain.aspxhttp://www.inflation.eu/inflation-rates/south-korea/inflation-south-korea.aspxhttp://www.inflation.eu/inflation-rates/south-africa/inflation-south-africa.aspxhttp://www.inflation.eu/inflation-rates/slovenia/inflation-slovenia.aspxhttp://www.inflation.eu/inflation-rates/slovakia/inflation-slovakia.aspxhttp://www.inflation.eu/inflation-rates/russia/inflation-russia.aspxhttp://www.inflation.eu/inflation-rates/portugal/inflation-portugal.aspxhttp://www.inflation.eu/inflation-rates/poland/inflation-poland.aspxhttp://www.inflation.eu/inflation-rates/norway/inflation-norway.aspxhttp://www.inflation.eu/inflation-rates/mexico/inflation-mexico.aspxhttp://www.inflation.eu/inflation-rates/luxembourg/inflation-luxembourg.aspxhttp://www.inflation.eu/inflation-rates/japan/inflation-japan.aspxhttp://www.inflation.eu/inflation-rates/italy/inflation-italy.aspxhttp://www.inflation.eu/inflation-rates/israel/inflation-israel.aspxhttp://www.inflation.eu/inflation-rates/ireland/inflation-ireland.aspxhttp://www.inflation.eu/inflation-rates/indonesia/inflation-indonesia.aspxhttp://www.inflation.eu/inflation-rates/india/inflation-india.aspxhttp://www.inflation.eu/inflation-rates/iceland/inflation-iceland.aspxhttp://www.inflation.eu/inflation-rates/hungary/inflation-hungary.aspxhttp://www.inflation.eu/inflation-rates/greece/inflation-greece.aspxhttp://www.inflation.eu/inflation-rates/great-britain/inflation-great-britain.aspxhttp://www.inflation.eu/inflation-rates/germany/inflation-germany.aspxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/Current%20inflation.docxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/Current%20inflation.docx -
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Inflation accounting models
Inflation accounting is not fair valueaccounting.
Inflation accounting, also called pricelevel accounting, is similar to convertingfinancial statements into anothercurrency using an exchange rate.
Under some (not all) inflation accounting
models, historical costs are converted toprice-level adjusted costs using generalor specific price indexes.
f f
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Methods of accounting for
price level changes
Methods ofAccounting for
price level changes
Hybrid MethodCurrent Cost
Accounting
CurrentPurchasing power
method & General
purchasing
method
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Merits
Charging of less depreciation
Balance sheet are shown in current
value.
Profit and loss account reveals correctprofit
Better comparison of profit for old and
product lines It helps to take managerial decisions.
ROI is more reliable than the
historical costing.
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Demerits
Complex process
Deprecation on replacement cost was
not acceptable by income tax
authorities.Accounts prepared in acts in india on
historical cost method but inflation
accounting may be guide. Document evidence are lapsed for
purchase of any asset.
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Definition of HRA
American AccountingAssociation defines HRA as
the process of identifying andmeasuring data about human
resources and communicating
the information to interestedparties.
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Human Resources
Accounting
Resources of an
Organization
Human Resources
(Men & Women)
Non-human resources (
Money, material &
machines)
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Objectives of HRA
To assist management in acquiring,maintaining and developing humanresources.
To help management utilize thehuman resources effectively.
To calculate the return on investmentmade in human resources.
To communicate systematically themonetary worth of employees to theorganisation and to the outsiders.
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Methods for valuation of
Human Resources Historical Cost Approach
Replacement Cost Approach
Opportunity Cost Approach
Standard Cost Method
Present Value Approach
Reward Valuation Method
Total Cost Method
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Advantages
Helps management to execute HRpractices
Employee aware about the
profitability.Assess the future growth to financial
analyst and investors
Makes management to change theattitude towards to the labourers.
Efficient utilization of non-human
resources achieves the goal in an
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Disadvantages
no universally accepted method forvaluing human resources of aconcern.
HRA is not recognized by Tax laws lacks empirical evidence on efficient
management of human resources Indian Laws does not recognize
human resource as an asset. Duration of stay of employee in
organization is uncertain.
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HRA practices in India
BHEL, Cement Corporation of India ONGC, Engineers India Ltd.,
National Thermal Corporation,
Minerals and Metals Trading Corporation
Madras Refineries, Oil India Ltd.,
Associated Cement Companies,
SPIC,
Metallurgical and Engineering consultants India Limited,
Cochin Refineries Ltd. Etc. are some of the organizations,
which have started disclosing some valuable information
regarding human resources in their financial statements.
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Computerized Accounting
Environment Computer accounting system (CAS)
environment exists when one or more
computers of any type or size are
involved in the processing of financialinformation, including quantitative data
of significance to the audit, whether
those computers are operated by theentity or by a third party.
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Features
Process of financial information by one ormore computers
Computers may be operated by the entity orthird party
Process of financial information by thecomputer will be done by one or moresoftware. Ex.Tally
Computer softwareany programs or routine
that performs a desired functions Acquired software consist of spread sheet
package or accounting software
Large organizations may use ERP
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Significance of Computer
Accounting system Replace of manual form into computerized
accounts
Past difficulties are balancing of trial balance,correct posting into general ledger andsubsidiary ledger.
Computerized accounts make a cashexpense and cash payment ,ledger posting ofthe expenses
Concerns for control, security and integrity of
the computer are more or more Threat of usage is unauthorized access to the
data by internet, local area network andhacking into the company server.
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Codification and grouping of
accounts Use coding system or not all the
softwares.
Coded accounting system is more
convenient , have numerous accountheads and complexity is high
Proper codification requires a
sytematic grouping of accounts
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Groups or heads
Assets
Liabilities
revenue receipts
Capital receipts
Revenue expenditure
Capital expenditure
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Sub groups/minor heads
Cash
Receivables
Payables
Grouping and codification is depend
upon the organization
Extent of sub groups on the basis of
profit centre and product lines
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Classification of heads
Major heads - receipt heads (revenuea/c),line of business Ex. Car manufacturingimages
Minor heads
Sub heads and detailed heads (exenditurea/c) ex. Salaries, office expenses , salesmanexpenses, workshop overhead
The above are four tier arrangement of the
classification structure of accounts Major and minor will be approved by Top
management
Reviewed by the auditor before introducing
CAS
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Maintaining the hierarchy of
ledgers Account master files created by codes and
classification of accounts
Accounting software's allows ledgers andsubsidiary ledgers to create main ledgers.
Subsidiary is sub divided into sub subsidiaryledgers allow to group various profit centers.
Above ledgers used when coded is notpresent.
Coded system is easy to achieve the all the
types of heads (major, minor, sub anddetailed heads)
Apart from general and subsidiary ledger ,the other ledger is created automatically as
debtors and creditors ledger.
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Accounting packages &
consideration of their selectionAccount maintained by using spread
sheet
Users should his knowledge and skills ofspread sheet to control figures
Spread sheets should control locked orprotected by password/formuleas
Double entry is not possible
Spread sheet allows grouping ofaccounts, replication of cell contents,formulae's and macros, pivot table,calculations and functions helps in
maintenance of accounts
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Prepackaged Accounting
Software Used by small and medium sized
companies
Software are easy to use, relatively in
expensive and readily available Installation of software are very
simple
Disc or CD is provided used to installthe software and user manual alsoprovided .
Vendor updates the version based on
the changes of laws amendement
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Contd..
Provides a section for creation ofcompany
Name, address, phone numbers and
other details of the company VATregistration number, TAN numbers.
Accounting period should be set by
inserting the first and last day of the
financial year
Creation of accounts cash, bank,
debtors, creditors.stock and system like
LIFO and FIFO, Weighted averages.
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Master File
Company
Accounts
Sub ledger
Customer
Vendor
Product
division
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Entry screen
Cash receipts and payment entry Bank receipts and payment entry
Petty cash vouchers entry
Journal entry Purchase order, GRN, Bill, Purchase
return entry
Sales order, challan, invoice , sales
return entry Debit notes & credit notes
Cash sales & credit sales
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Contd..
Production & Consumption Stock transfer (each screen provided
with add,modify or delete option andspecial options like date modificationsand voucher number modifications
Reports sections cash book, bankbook, petty cash book, purchase book,
sales book cash sales book, cashpurchase book, sales return book, creditand debit note register,stock ledger,stock movement ledger, production
ledger
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Contd..
Documents printing are purchaseorder, challans , bills , sales order
challans and invoices , declaration
forms and return forms. Trial balance, profit & loss account
and balance sheet , BRS report, MIS
reports (aging of debtors, slowmoving and non-moving stocks)
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Advantages
Easy to install Relatively inexpensive
Easy to use
Backup procedure is simple
Flexibility
Very effective for small and medium
size business
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Disadvantages
Does not cover peculiarities of specificbusiness
Does not cover all functional areas
Customization may not be possible inmost such software
Reports generated is not sufficient orserve the purpose.
bugs in the software
Lack of security
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Selection of Pre-packaged
accounting software Fulfillment of business requirements Completeness of reports
Ease of use
Cost
Reputation of the vendor
Regular updates
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Softwares
Tuesday, September 10,2013 40
Quickbooks PRO
Sage Peachtree CompleteAccounting
MYOB
AccountEdge
BookKeeper
DacEasy
Simply AccountingCYMA Accounting for
Windows
Netsuite Small Business
Cougar Mountain
Small Business Manager
(Microssoft)
Accpac from Sage
Syspro 6.1Epicor Enterprise from Epicor
Great Plains
JD Edwards EnterpriseOne & JD
Edwards World from Oracle
Navision
ExactSAP Business One
SAP R/3 from SAP
Microsoft Dynamics from Microsoft
Movex from Intentia
NetERP from NetSuite Inc.
Oracle e-Business Suite from
Oracle
PeopleSoft from Oracle
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THANK YOU
Success is the sum of small efforts,
repeated day in and day out. ~ RobertCollier