Miscellaneous Questions

Q. Narrate the role of computers in accounting. (June 03)

Computers are probably the only tool available that can help us in storage and organization of data and information. Today computer industry is the biggest industry worldwide and has a great impact on the society. The computers became popular because of the following features:

  • Speed
  • Reliability
  • Diligence
  • Versatility
  • Large memory.

 Role of computers in accounting & Business organizations

Help in Operations: Computers help in various accounting operations like invoicing, calculation of wages, maintaining ledger, etc.

Help in Controlling: With the help of computers, a business concern can have better control over its operation. They help in budgetary control, sales analysis, credit control, etc.

A computer can process almost any type of information required by a business. Some areas where computers are most popular are listed below:

  • Inventory control
  • System analysis
  • Inventory control
  • Sales accounting
  • Market research
  • Purchase accounting
  • Planning & control
  • Quality control
  • Management accounting

Q. Examine the utility of available software for performing accounting and finance functions. Put forth your suggestions for an ideal computerized system of accounting & finance. (June 03)

The modern age is called the "Computer Age" or "Information Age" because computers are becoming very popular. People use computers in a wide variety of ways. In business, computers track inventories with bar codes and scanners, check the credit status of customers, and transfer funds electronically. In homes, tiny computers embedded in the electronic circuitry of most appliances control the indoor temperature, operate home security systems, tell the time, and turn videocassette recorders on and off. Computers in automobiles regulate the flow of fuel, thereby increasing gas mileage. Computers also entertain, creating digitized sound on stereo systems or computer-animated features from a digitally encoded laser disc. Computer programs, or applications, exist to aid every level of education, from programs that teach simple addition or sentence construction to programs that teach advanced calculus. Educators use computers to track grades and prepare notes; with computer-controlled projection units, they can add graphics, sound, and animation to their lectures. Computers are used extensively in scientific research to solve mathematical problems, display complicated data, or model systems that are too costly or impractical to build, such as testing the air flow around the next generation of space shuttles. The military employs computers in sophisticated communications to encode and unscramble messages, and to keep track of personnel and supplies.

 The computers have become popular because of:

  • Speed
  • Reliability
  • Diligence
  • Versatility
  • Large memory.

There are many softwares available in the market for the purpose of maintaining accounts such as TALLY, BUSSY, Account Manager, etc. The most widely accepted is the TALLY. TALLY provides the following functions for accounting procedure:

  • Maintaining ledger & journals
  • Preparing balance sheet, profit & loss a/c.
  • Ratio Analysis
  • Maintaining funds & cash flow statement
  • Preparing reports

 Ideal computerized system of accounting & finance must be able to perform following functions:

  • Generating reports
  • Fast access of accounts
  • Comparison of records
  • Easy maintenance
  • Flexible
  • Cheap
  • Should have some artificial intelligence
  • Secure
  • Forecasting should be allowed
  • Record processing should be easy

Q. Explain the latest and other important sources of long-term and short-term financing. (June 02)

Following are some long-term & short-term sources of financing for a business:

 Long-term sources

Shares: It is the most important source for raising permanent or long-term capital. Section 86 of Companies Act, 1956 provides that share capital of a company formed after April 1, 1956 or the share capital issued after that date, shall be of only two kinds, viz. Preference share capital and equity share capital.

Preference shares: According to Section 85 of The Companies Act, 1956, a preference share is one, which fulfills the following conditions:

  1. A preference share has a preferential right to dividend to be paid either as a fixed amount or an amount calculated by a fixed rate which may be either free of or subject to income tax.
  2. A preference share has the right to the repayment of capital before any thing is paid to equity shareholders on the winding up of the company.

Equity Shares: According to Section 85 of The Companies Act, 1956, an equity share is a share which is not a preference share.

Equity shares entitle to whole of the profits earned by the company, after a fixed dividend on preference shares that has been paid by it, are equity shares. Equity shares have no right to either a fixed dividend or repayment of a pre-determined amount of capital in the event of winding of the company.

Debentures: When a company desires to borrow a considerable sum of money for its expansion, it invites the general public to subscribe to its debentures. A debenture is a certificate issued by the company acknowledging the debt due by it to its holders and is issued by means of a prospectus in the same manner as shares. The following are the various types of debentures issued by a company: Simple or naked Debentures, Secured and Mortgage Debentures, Redeemable Debentures, Perpetual or Irredeemable Debentures, Convertible Debentures, Non-Convertible Debentures.

Public Deposits: Public deposits are the fixed deposits accepted by a business enterprise directly from the public. This source of raising short-term & medium finance was very popular in absence of banking facilities. Public deposits have several advantages such as simple & convenient source of finance taxation benefits, trading on equity, no need of securities and an inexpensive source of finance.

Ploughing back of profits: It means reinvestment by concern of its surplus earnings in the business. It is an internal source of finance & is suitable for an established firm for its expansion, replacement, etc.

Loans from Financial Institutions: Several financial institutions like LIC, State Finance Corporation, Industrial Development bank, etc. also provide loans. This source is more suitable for medium term demands of working capital. Interest is charged at fixed rate on these loans.

 Short-term Sources

Trade Credit: It is the credit extended by the suppliers of goods in the normal course of business. It is an important source of short-term finance. The credit-worthiness of the firm and the confidence of its suppliers are the main basis of securing trade-credit.

Advance payment: Some business houses get advances from their customers and agents. It is a cheap source of finance.

Installment Credit: In this method assets are purchased and the possession of goods is taken immediately but the payment is made in installments. Generally, interest is charged on the unpaid amount.

Commercial Paper: It represents unsecured promissory notes issued by firms to raise short-term funds. In India only large companies enjoy high credit rating & can issue commercial paper to raise short-term funds.

Deferred Income: These are incomes received in advance before supplying goods or providing services.

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