Accounting Information System - Pressure Hydraulics - Assignment Example

ACCOUNTING INFORMATION SYSTEM: PRESSURE HYDRAULICS] (Name) (Instructor/Tutor) (Course/Subject) (Institution/ University) (City, State) (Date) Table of Contents Table of Contents 2 Executive Summary 3 Pressure Hydraulics’ Current Problems 4 Solution Objectives 8 System Implementation Constraints 10 System Development Plans 11 Potential Solutions 13 Recommendations 14 Conclusion 15 Appendix 17 Appendix a: Step by Step System Development Plan 17 Appendix b: Automated Accounting System 17 m 17 Appendix c: Websites 18 Appendix d: Accounting Software Prices for the Low End Market 18 Executive Summary The current business world requires business firms to embrace Information Technology to ensure success in the management and decision making. The use of traditional accounting and book keeping approaches, which are manual, leads to delays in updating of information and processing of sales and orders. This may lead to loss of sales and loss of revenue for a company. This has been evident in Pressure Hydraulics, a local company that has been using manual accounting systems. The significance of using Information Technology by introducing automated accounting information systems includes speed and automatic document production. It ensures quick entry of data in a computer that has stored databases of customers, stock records and supplier details, compared to manual processing (Banerjee, 2010). Additionally, the processing of invoices, purchase orders, statements, credit notes and other documents is fast and accurate. Pressure Hydraulics should install such systems to ensure that there is efficiency, accuracy and reliability. Accounting information is vital in key decision making. Therefore, there is a need for accuracy, and an automated accounting information system reduces the possibility of errors in transactions because only one entry is required. These accounting systems update accounting records automatically. They also make information available instantly to different users, in various locations (Sofat & Hiro, 2008). The use of accounting information systems in a business lead to ease management of information. This is because they produce information that helps management to monitor and control the organisation. The systems also ensure display of legible figures to avoid poor figure related errors. It should be noted that accounting information systems reduce the time spent by workers in preparing the accounts hence reducing audit expenses because the produce neat, accurate and up to date records. There is a significant reduction of stress among managers because the systems broaden what management knows. Finally, it allows easy trading in multiple currencies and updates. Pressure Hydraulics requires one such automated accounting information system to solve its current problems in financial information management. This feasibility report delves into the current issues facing Pressure Hydraulics in its accounting system. It analyses these problems and the impact that they have on the company’s financial reporting, customer requirement satisfaction and management decision making. The report then provides solution objectives for the company. It identifies and analyses the constraints towards the realisation of these objectives by Pressure Hydraulics. Using a computerised accounting system to process accountant data can be an efficient and effective way to control financial information of a business (Gilbertson & Lehman, 2011). The feasibility study outlines development plans of a computerised accounting for the company, potential solutions to overcome the constraints and suggests valid recommendations, such as suitable solution for the accounting and payroll pitfalls for the company to implementation so as to ensure success. Pressure Hydraulics’ Current Problems The current problems in Pressure Hydraulics include loss of valuable time that the manager or the owner of the company, Allan Taylor, spends each day, at each service centre to monitor its operation. This leaves little or no time for him to continue developing his business. This will be more problematic in case he opens up additional new service centres at Coffs Harbour and Gosford. Loss of valuable time that is meant for management purposes leads to negative effects on the organisation (Pohlman & Gardiner, 2000). First, the manager falls behind his work because there are different tasks and operations that the manger is required to carry out. Secondly, this leads to loss of organisation. The manager is unable to do what he should be doing at a particular time because loss of time leads to being unorganised. This trend can also lead to the manager becoming overwhelmed, and lose focus and potential income that the company could have gained if the manager had sufficient time to develop his business. Another problem that Pressure Hydraulics faces is that it three service centres, Newcastle, Toronto and Maitland operate independently. However, the service centres have an office assistant who has to take phone calls from clients, look up a hard copy of a price book called, The Price Book to give a verbal quote for requests on quotes. This leads to expensive replication of work, in terms of processes, activities, and outcomes, which may affect economies of scale negatively (Agrawal & Smith, 2008). Independence among service centres requires the overall manager to be sought frequently when critical issues arise. This leads to additional costs in terms of valuable managerial time lost. In addition, it becomes difficult to allocate work and evaluate performance for each service centre for managers. It is also difficult to gauge the productivity of cost centres and the related workers, as they do not create proceeds. The current system has problems whereby there is Inefficiency in management and inaccuracy in forecasting of stock. It is difficulty to determine how much of any given component to stock in inventory is difficulty was extremely. The manual order recording over the telephone is time consuming and costly for both the company and the clients. Further problems occur when clients change their mind or want to verify the status of an order. The office assistant has to go through numerous page records of orders, looking for the relevant order. Additionally, the office assistant loses his or her valuable time checking orders, instead of processing new ones. The existing system requires manual input and maintenance, which makes it very inefficient. The manual storage and processing of customer orders slows the process substantially. This leads to errors and delays in the retrieval of information, storage of data, production and updating of financial records. The office assistant takes a lot of time to update the Price Book. This makes the office assistant extremely busy and leads to time delays, which result in lost sales, when the price goes down or lost income when the price goes up. Due to the heavy burden of work that the office assistant has, he or she is likely to make multiple errors which are costly to the organisation. This is because mistakes will always increase the company’s costs because it takes a lot of time to rework and identify any errors (See Appendix c for a Website Link). The result is negative productivity. The current accounting system fails to record variations to the Work Book. This is evidenced when customers request for a change in time or date, for their orders to be processed or their work done. The office assistant has crosses out the entries in the work Book manually. This often leads to misinterpretation of the time when the job is booked in. There is also overbooking or slack periods for the workshop staff. This is because, on arrival of the customer for work to be done, an office staff member writes a Job Card, with customer details and records the price from the Price Book, for the job. Unfortunately, the Price Book may be showing a different figure from what the customer claims it was quoted. The Job Card is then passed on to the foreman, after the technician initials it, to be returned to the office, where the office assistant writes out an invoice, and collects payment from the customer. The company uses Job Cards to prepare orders for stock replacement. This is problematic because this aspect has no focus on products. The removal of focus from the production process or equipment efficiency leads to an increase in overhead costs. This is because intense scrutiny will be embarked on labour and materials, leaving production overheads out or giving them minimum focus (Rajasekaran & Lalitha, 2011). This leads to inefficiencies, which may result into significant fluctuations of overhead costs thus increasing the overall cost of the product or service. Additionally, it may be irrelevant because a service based business like this may not usually do any product manufacturing. This results to an ineffective system for tracking costs for service activities, leading to inefficiency, within the company, in the long term. The company also faces some problems whereby its technicians have to return from the transport companies where they go to work, and then inform the Office Assistant about task completion. That is the only time when the Office assistant has to write an invoice and mail it to the transport companies. In addition, Pressure Hydraulics uses carbon copies to track such invoices. This leads to problems with the management of payment systems, especially verifying clients’ credit card information. On the other hand, there are cases of ferrying of incorrect component parts to mining industries where Maitland service centres offers servicing of machinery. This leads to loss in travel back time, leading to failure to meet the tight maintenance schedules for mining companies, given that delays are not tolerated. This leads to a significant loss in revenue for the company. There is also a significant problem in the preparation of the payroll where the owner has to contact the workshop foremen every fortnight to check the hours worked by staff at each service centre. It is after this that he prepares the payroll and writes cheques for each employee. The office assistant also has to collect cash each day, besides his or her other roles. He or she then banks the day’s takings and gives the bank receipt to Allan when he makes his daily call. This usually happens the following day after the day of the bank deposit. The owner then does a reconciliation of the money banked with the previous day’s takings, a tedious process. The manager’s efficiency in performance is impaired by this state of affairs hence reducing the company’s overall performance. This is negatively impacts the company’s documentation and record keeping, in terms of updating records. Solution Objectives The main objectives should be to achieve reduced labour costs, increased sales by handling many orders efficiently and increased customer retention. Pressure Hydraulics should have an objective of introducing a computerised accounting systems provide key advantages such as speed and accuracy of operations. This will increase the company’s ability to see the real-time state of the company’s financial position. Once the company installs and upgrades a computerised accounting information system, it will never return to its current, paper based accounting system. Therefore, the company should aim at implementing an automated accounting information system that will allow for inputting and printing out invoices, using a computer. It should also be capable of updating customer or client accounts in the sales ledger automatically. The system should also record suppliers’ invoices automatically. The company should have an objective of installing an accounting information system that will update the supplier’s accounts, record bank receipts, make payments for suppliers and other expenses such as employee salaries and refunds for overcharges automatically. This should be in line with general ledger automatic updating. The accounting programs carry out functions such as invoicing, dealing with payments, paying wages and providing regular accounting reports such as trading and profit and loss accounts and balance sheets. The new system should have the ability to generate an invoice by making use of data held within the system. The system should posses an improved payroll process to reduce the need to contact staff for details. The new, computerised accounting information system should have features that record the working hours of technicians automatically, on a daily basis and also be supported by staff. It should ensure that workers are paid directly, through his bank system. The company’s objectives in the development of a new accounting information system should also include automatic adjustments for stock records, integrate the business database with the accounting program and calculate the payroll and associated entries automatically. This will improve control, over stock ordering because the new system will manage this aspect of the business. It will be capable of ordering stock for the three service centres, instead of individual ordering to ensure economies of scale that the company does not realise at the moment. Pressure Hydraulics should develop a computerised accounting system with programs that can provide instantaneous reports for management such as summaries showing customer accounts with overdue amounts. The systems should produce separate information for the three service centres, as well as the integrated information representing the sum total of Pressure Hydraulics. The system should also generate a trial balance, income statement and balance sheet automatically. Other reports that this system should provide include reports on stock valuation, sales analysis, budget, variance and payroll analysis. The new system should also be able to determine, quickly, if a required component part is in stock. The company should ensure that it designs input screens for easy use of the computerized accounting system for users. This is advantageous because it will save time and costs as each transaction will only be entered only once, unlike the current manual accounting system, where two or three entries are required. The system should have timely production of price variations to arrive at all service centres on the same day. Finally, the company should ensure that the accounting information system is fully integrated to ensure repeat business from mining companies. The system should also allow tracking customers for repeat business, by contacting them at specified times with special offers. It should allow for automatic updating of the general ledger. This will imply that when a business transaction is inputted on the computer, it is recorded in a number of different accounting records, at the same time. System Implementation Constraints The constraints that are likely to affect successful implementation of a computerised accounting information system include financial constraints. These constraints are associated with the company’s budget whereby the funds allocated for the purchase of hardware and software to ensure implementation of the accounting system may not be sufficient. The cost of accounting software is expensive for most companies (Appendix d), given that Pressure Hydraulics is trying to install its system for the first time. Therefore, the company may have to sacrifice some of its other development projects to implement a computerised accounting information system. The company’s work force is currently used to the traditional manual accounting system. This aspect is common within the company because even the manger, Allan collects bank slips manually and reconciles salaries and allowance figures manually. This will crate an obstacle in implementing a computerised accounting information system because the workers are limited to computer technology. They require thorough training after the implementation of the accounting system to become acquainted with the system. Proper use of the system will require experience among the system users of Pressure Hydraulics. Therefore, training will be prerequisite, and if the company fails to train the employees properly, effective implementation and use of the system will be hindered. Finally, the current way of business operation within Pressure Hydraulics will affect effective implementation and use of the accounting system. First, there is poor classification of expenditure within the company. Therefore, the management cannot differentiate between revenue expenses and normal business expenses because they may not be geared, to furnishing meaningful information. This may be brought about by failure to reconcile expenditure with performance, and measure performance because of lack of meaningful indicators. Therefore, technological deficiencies and culture among the workforce may hinder successful implementation and use of a new computerised accounting information system. System Development Plans Pressure Hydraulics should develop an integrated accounting information system that will improve order entry time. The new accounting system should contain pertinent information about clients in a database. It should allow the office assistant to answer client queries and access price and service information on a computer screen. There should be also explanations of services offered. Therefore, the office assistant and clients will use an online order entry system, whereby the office assistant offers services to clients while on phone. The design, implementation and maintenance of the computerised accounting information system will undergo the following steps. The first step will involve system initiation and investigation. The investigation aspect will inform analysis of information needs and requirements for users. The next step will involve system planning. Here, reliable plans concerning system details, implementation procedures are detailed. System analysis will involve analysis of information needs such as recording of transactions and preparation of financial statements. Such requirements will be aimed at improving efficiency within the organisation, increasing capacity without necessarily having to hire additional staff and providing customers with accurate, immediate response to inquiries. System analysis will also deal with ways in which the company can reduce delivery of orders by several days. The next step will be system design and implementation (Appendix a). System design and implementation will consist of internal controls and information processing methods. Internal controls include policies that safeguard organisation assets, and ensure that business information is accurate. Processing methods will incorporate the means by which the accounting system collects, summarises and reports accounting information. The final step in system development is maintenance. This will involve frequent reviews to assess the performance of the system and correct any weaknesses that may be evident. The accounting system should be capable of automatically updating sales activity information such that it prints invoices meant for debtors to the organisation. When the company offers services on credit terms, the value of the invoice is debited on the client’s personal account and credited to the sales account automatically. These transactions should be generated automatically and appended to the accounts transaction file and the master record updated accordingly (Appendix b). When the company offers a service on cash basis, a cash bill should be prepared. The amount the bill received should be debited to the cash account of the company and credited to the sales account. The transactions should be generated and appended to the transaction file and the corresponding master record updated. An accounting information system should be able to calculate salaries and allowances so that the total values are debited to salaries and allowance account and credited to the bank account because payments are made by cheques. The accounts master file is then updated appropriately. The system should also update inventory accounts. His will involve crediting the stock account when a component is issued from the stores and debited to the corresponding account pertaining to the usage of the components. Master records should be updated automatically. The computerised system should also update purchases account such that when purchases are made, the values are debited to the stock account and credited to the supplier account. Cash purchase should be recorded by crediting the cash account and debiting the stock account, and the system should update the corresponding master records automatically. Besides, the system should be capable of keeping records about receipts and other records of payments, and expenditure from the business. It should also summarise income and expenditure records on a periodic basis, which may be daily, weekly or monthly. It should then use these summaries of income and expenditure to create financial reports that will give information about the business such as its profitability. Potential Solutions Successive introduction and introduction of an accounting system will save the manager time that he has been spending in monitoring business processes, updating financial data and having to visit a service centre before making any decision. This is because the systems will automatically record sales, update salaries and allowances, print financial statement s that are essential in decision making. Secondly, the system will be able to update inventory levels and provide indicators for reorder of additional components unlike the manual system where Job Card is used to order for additional inventory. Management of the service centres will be simplified because the system will integrate all the three centres. Information pertaining to the service centres will be printed by the system, and this will aid in decision making. Making orders will be unified whereby a single order for inventory will be made for the three service centres. This will lead to economies of scale because when companies purchase inventory in large scale they benefit from discounts. This also reduces transportation costs. Finally, efficiency will be improved because of fast and accurate production of information that will lead to timely service to clients. This will save costs, add income earnings and retain additional customers for the company. Recommendations Pressure Hydraulics should ensure that it involves all the stakeholders when development and implementation of the accounting system begins. Involvement of all staff members will ensure successful implementation of the system because every staff member’s information requirements will be taken into account. This will also motivate the workers, because when they are involved in system development and implementation, they will contribute by stating the areas where they feel changes should be made to ensure easy and efficient use of the system. Users’ involvement in the design and implementation of information technology is a mechanism to improve it effectiveness and to improve the jobs in which it is used (Hartmann, 1986). It allows for the attainment of user goals such as job satisfaction. Secondly, Pressure hydraulics will have to train, all its staff members and technicians on how to use the new accounting information system. This is because, without proper training, none of the workers will be capable of using the system, and it will be a waste of resources implementing a system that cannot be used to reduce costs and increase efficiency. Workers should also be motivated so that they develop a positive attitude towards using the accounting system. Change agents should explain and educate employees about the new equipment and the new program’s objectives (Sisaye, 2000). They should also solicit their support and active involvement in the design and implementation processes. Conclusion Modern, computerised accounting information systems allow direct interaction with users. Several users see the same information at the same time. They provide more details on accounting records to generate many reports that can be on demand (Sofat & Hiro, 2008). Implementation of the new system by Pressure Hydraulics can increase efficiency in management of the company dramatically. There are expectations of a reduction in the order processing cycle and improved customer service. This is because when processing of client orders is efficient and fast, they are likely to come again for services in the future. Therefore, companies should implement technologies, not only to remain competitive, but also to meet organisational business needs and strategic goals (Singh & Waddell, 2004). The advantages associated with implementation of computerised accounting systems include fast and d competent processing of information, automatic production of accounting documents such as cheques, statements of account and invoices. The systems are cheap to maintain due to the recent decline in the cost of hardware and software. User-friendly accounting software package are also readily available. These systems can produce timely information in large quantities. With these systems, there is no more manual processing of the data because all data is automatically posted to the various ledgers or accounts. They can also generate many types of useful reports for management to make decisions. However, Pressure Hydraulics has to be prepared to address some of the pitfalls associated with computerised accounting systems. These include power failure, hackers and computer viruses that are inherent in using computerized systems. Office assistants should be keen to validate data for accuracy and completeness before input because once data has been input into the system, automatically the output is obtained. It should be noted that accounting system may not be properly set up to meet the requirement of the business. This may be as a result of defectively programmed or inappropriate software, hardware or personnel problems, which may cause additional devastation. Finally, there is a danger of computer fraud, when proper control levels and internal or external security are not correctly established. Appendix Appendix a: Step by Step System Development Plan Appendix b: Automated Accounting System m Appendix c: Websites Answers Corporation. 2012. What are the Disadvantages of Bookkeeping? Retrieved October 1, 2012, from http://wiki.answers.com/Q/What_are_the_disadvantages_of_bookkeeping Appendix d: Accounting Software Prices for the Low End Market Product Name Single User 5 Users 10 Users ACCPAC, Advantage Series Discovery $4,500 - - ACCPAC Advantage Series Corporate (Pervasive)  ACCPAC Advantage Series Corporate (SQL Server)  $8,500 $12,500 $10,000 $18,000 $23,500 ACCPAC Vision Point  $3,600 $3,600 $3,600 BusinessVision 32 $199 $5,495 $6,790 BusinessVision SQL - - $9,995 BusinessWorks Gold  $3,760 $4,750 $5,255 DAC Easy 11.0 $250 $500 - Microsoft Small Business Manager $1,920 $3,720 - M.Y.O.B. AccountEdge  $236 $647 $1,142 Oracle Small Business Manager  $1,200 p.a $3,600p.a $6,600p.a One Write Plus 8.0 $89 - - Peachtree 2000 6.0 $1,650 $2,530 $2,930 Peachtree Accounting 2002 $160 $525 - Peachtree Complete for Windows 2002 $270 $557 $557 QuickBooks Basic 2002  $180 - - QuickBooks Pro 2002  $250 $690 - QuickBooks Premier 2002, Accountant Edition  $416 $1,500 - Simply Accounting (ACCPAC) $169 - - Simply Accounting Pro (ACCPAC) $319 $725 - Source: The Accounting Software Adviser: http://www.accountingsoftwareadvisor.com/main/pricing.htm References Agrawal, N., & Smith, S. A. 2008. Retail Supply Chain Management: Quantitative Models and Empirical Studies. Berlin: Springer Publishers. Banerjee, B. 2010. Accountancy for Class XI. New Delhi: PHI Learning Press. Gilbertson, C. B., & Lehman, M. W. 2011. Century 21 Accounting. General Journal, 2012 Copyright Update. Mason: South-WesternCengage Learning Press. Hartmann, H. I. 1986. Technology and Women's Employment. Washington, DC: National Academic Press. Pohlman, R. A., & Gardiner, G. S. 2000. Value Driven Management: How to Create and Maximize Value over Time for Organizational Success. New York: AMACOM Publishers. Rajasekaran, V., & Lalitha, R. 2011. Cost Accounting. Delhi : Pearson Education Press. Singh, M., & Waddell, D. 2004. E-Business Innovation and Change Management. Hershey: Idea Group Publishers. Sisaye, S. 2000. Organization Change and Development in Management Control Systems: Process Innovation for Internal Auditing and Management Accounting. London : JAI Press. Sofat, R., & Hiro, P. 2008. Basic Accounting. New Delhi: Prentice Hall Press. Read More