The Revenue Cycle:PC-Based Accounting Systems

PC-Based Accounting Systems

The software market offers hundreds of PC-based accounting systems. In contrast to mainframe and client-server systems that are frequently custom-designed to meet the specific user requirements, PC applications tend to be general-purpose systems that serve a wide range of needs. This strategy allows software vendors to mass-produce low-cost and error-free standard products. Not surprisingly, PC accounting systems are popular with smaller firms, which use them to automate and replace manual sys- tems and thus become more efficient and competitive. PC systems have also made inroads with larger companies that have decentralized operations.

Most PC systems are modular in design. Typical business modules include sales order processing and accounts receivable, purchases and accounts payable, cash receipts, cash disbursements, general ledger and financial reporting, inventory control, and payroll. Their modular design provides users with some degree of flexibility in tailoring systems to their specific needs. Many vendors target their products to the unique needs of specific industries, such as health care, transportation, and food services. By doing so, these firms forgo the advantages of flexibility to achieve a market niche. The modular design technique is illustrated in Figure 4-21.

The central control program provides the user interface to the system. From this control point, the user makes menu selections to invoke application modules as needed. By selecting the sales module, for instance, the user can enter customer orders in real time. At the end of the day, in batch mode, the user can enter cash receipts, purchases, and payroll transactions.

Commercial systems usually have fully integrated modules. This means that data transfers between modules occur automatically. For example, an integrated system will ensure that all transactions captured by the various modules have been balanced and posted to subsidiary and general ledger accounts before the general ledger module produces the financial reports.

Segregation of Duties

PC systems tend to have inadequate segregation of duties. A single employee may be responsible for entering all transaction data, including sales orders, cash receipts, invoices, and disbursements. In a manual system, this degree of authority would be similar to assigning accounts receivable, accounts payable, cash receipts, and cash disbursements responsibilities to the same person. The exposure is compounded when the individual is also responsible for programming or tailoring the application he or she runs.

Often little can be done in small companies to avoid such conflicts of duties. Controlling the PC environment requires a high degree of supervision, adequate management reports (such as detailed listings of all transactions), and frequent independent verification. For example, the supervisor should reconcile daily transaction details with the affected subsidiary and control accounts.

Access Control

PC systems generally provide inadequate control over access to data files. Although some applications achieve modest security through password control to files, accessing data files directly via the operating system can often circumvent this control. Solutions for dealing with the problem include data encryption, disk locks, and physical security devices.

Accounting Records

Data losses that threaten accounting records and audit trails plague the PC environment. Computer disk failure is the primary cause of data loss. When this happens, recovery of data stored on the disk may be impossible. Formal procedures for creating backup copies of data files and programs can reduce this threat considerably. In the mainframe environment, backup is provided automatically. Backup of PC data files relies on a conscious action by the users, who too often fail to appreciate its importance.