Important
In this module, we will focus on how to set up and operate computerised accounting systems using MYOB and Xero software. Both MYOB and Xero will be thoroughly explained through detailed videos and instructions on their setup and operation. Each subtopic will first cover MYOB, followed by Xero.
Assessments 2, 3 and 4 will require you to choose one of these systems to complete the tasks. If you select MYOB for Assessment 2, you must continue using it for Assessments 3 and 4. The same rule applies if you choose Xero.
An accounting system is a structured set of processes and tools used to record, track, and manage financial transactions for a business or organisation. This system serves as the backbone for creating financial statements, managing budgets, and ensuring compliance with legal and tax requirements.
Key Features
Computerised accounting systems offer numerous features that enhance the efficiency, accuracy, and accessibility of financial data management for businesses. Here are some key features commonly found in these systems:
Automated data entry for recurring transactions reduces manual input, minimising errors and saving time. This includes automated invoicing, billing, and payment processing.
Immediate updating of accounts and financial statements as transactions occur, providing up-to-date financial information at any moment, which is crucial for timely decision-making.
Ability to integrate with other business systems such as payroll, inventory management, and customer relationship management (CRM) systems. This integration ensures that all data across the organisation is synchronised and consistent.
Provides access to multiple users with various levels of permissions, ensuring that employees can work simultaneously while maintaining data integrity and security.
Generation of a wide range of financial reports such as profit and loss statements, balance sheets, and cash flow statements. Customisable reporting capabilities allow users to create reports that meet specific management or financial analysis needs.
Records detailed information about every financial transaction, including the date, time, and user who made the transaction. This feature is critical for tracking changes, ensuring accountability, and facilitating audits.
Systems can be scaled to accommodate the growth of a business, from small operations to large enterprises, without needing to switch to a different platform.
Automated tax calculations and compliance features that adapt to regional tax regulations and rates, simplifying the process of preparing returns and reducing the likelihood of errors.
Robust security measures such as data encryption, secure login protocols, and access controls to protect sensitive financial information from unauthorised access or breaches.
These features make computerised accounting systems indispensable tools for businesses seeking to streamline their financial operations, enhance data accuracy, and improve overall financial management.
Popular Accounting Systems
There are several accounting systems widely used by businesses of all sizes today. These systems are chosen based on their features, ease of use, scalability, and integration capabilities. Here are the main accounting systems commonly used:
Xero is very popular in Australia, particularly among small to medium-sized enterprises. It's known for its user-friendly interface, cloud-based operation, and robust integration with a wide range of third-party applications.
MYOB (Mind Your Own Business) offers a variety of products for different business sizes, from small startups to larger enterprises. It provides tools for accounting, payroll, taxation, and more and is well-integrated within the Australian business ecosystem.
QuickBooks, by Intuit, is another major player that provides comprehensive accounting features, including invoicing, payroll, and expense tracking. It's particularly favoured for its simplicity and efficiency.
An Australian company that offers solutions similar to MYOB and Xero, tailored for both small businesses and larger corporate environments. Reckon is known for its local support and comprehensive features that cater to Australian tax and accounting requirements.
Sage provides accounting solutions for small to mid-sized businesses, with a focus on more complex business operations and industries. It offers a range of products that support advanced accounting needs.
Geared primarily towards small businesses and freelancers, FreshBooks is known for its ease of use and excellent customer service. It's a cloud-based system that handles invoicing, time tracking, expense management, and reporting.
These systems are integrated into different business practices, and many of them offer customisation to adhere to Australian tax laws and financial reporting standards.
Watch
Watch the video below from NetSuite about the benefits of using accounting software:
Methods to establish and maintain computerised accounting systems
Establishing and maintaining a computerised accounting system is critical for accurate financial reporting, compliance, and efficient financial management.
Let’s explore five methods to establish and maintain these systems effectively:
| Method | Explanation |
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| System Selection and Customisation |
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| Implementation and Data Migration |
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| Training and User Adoption |
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| Regular Updates and Compliance |
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| Security Measures and Backup Procedures |
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These methods form a comprehensive approach to setting up a computerised accounting system and ensuring its effective use and maintenance over time.
Reporting is a function of an accounting system that consolidates and translates financial data into actionable insights, enabling stakeholders to make informed decisions. Through accurate and timely reports, businesses can evaluate their financial health, track cash flow, assess profitability, and plan strategically.
Reports such as the balance sheet, income statement, and cash flow statement provide a snapshot of the business’s financial standing at any given time. These reports help identify trends, manage budgets, and forecast future performance.
Additionally, compliance reports ensure adherence to legal and financial regulations, reducing the risk of penalties or financial discrepancies.
In operating accounting systems, features like automatic generation of reports, custom report capabilities, real-time data updating, and easy sharing and exporting options enhance the utility and accessibility of financial information, making reporting not just a function but a strategic tool in business management.
Features and Functions of Common Reports
| Report | Features | Functions |
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| Balance Sheet |
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| Profit and Loss Statement (P&L) |
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| Cash Flow Statement |
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| Accounts Receivable and Payable Reports |
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| Budgetary Reports |
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Watch
Watch the video below from Accounting Stuff to learn all the basics about the following Financial Statements: Balance Sheet, the Income Statement and the Cash Flow Statement:
Establishing and operating a computerised accounting system involves various organisational policies and procedures to ensure efficiency, accuracy, and compliance. Here are some typical examples of these policies and their descriptions:
This policy outlines the measures and protocols to protect sensitive financial data from unauthorised access, breaches, and other security threats. It includes requirements for strong passwords, multi-factor authentication, regular security audits, and the use of secure networks. The policy also details how data breaches should be handled, including immediate actions, notification procedures, and remedial measures.
Establishes standards for accuracy and consistency in financial data entry. This policy specifies the procedures for entering transactions into the system, including validation checks to ensure data integrity. It may also detail roles and responsibilities for data entry, data review, and the correction of errors to maintain high-quality financial records.
Specifies the procedures for backing up financial data and restoring it in the event of data loss or system failure. This policy typically includes the frequency of backups, the type of backup (e.g., full, incremental), storage locations for backups (both on-site and off-site), and the steps to recover data. It ensures business continuity and the availability of financial information under all circumstances.
Outlines the protocols for updating and maintaining the accounting software. This includes scheduling regular updates to ensure the system is running the latest software versions with all necessary security patches and features. The policy covers how updates should be tested and implemented without disrupting normal business operations.
Defines who can access the computerised accounting system and what levels of access individuals have. This policy includes the creation of user profiles based on roles and responsibilities, ensuring that employees only have access to the parts of the system necessary for their job functions. It helps to prevent unauthorised access and reduces the risk of internal fraud.
Ensures that the accounting system complies with relevant financial regulations and standards, such as Australian Accounting Standards, GST compliance, and other tax obligations. This policy also dictates how and when financial reports should be generated and reviewed, including statutory financial statements and internal management reports.
Establishes requirements for maintaining a detailed log of all transactions and changes made within the accounting system. This policy is critical for traceability and accountability, enabling auditors and management to review the history of financial transactions and verify their accuracy and legitimacy.
Implementing these policies ensures that the accounting system functions effectively and securely, providing reliable financial information for decision-making and regulatory compliance.
Case Study
Background: TechGlobe Innovations, a medium-sized software development company, recently transitioned from a manual accounting system to a computerised accounting system to improve financial reporting and data management. The company handles sensitive client information, including software development contracts, billing information, and payment details.
Situation: During a routine internal review, it was discovered that several discrepancies existed between the recorded transactions in the accounting system and the actual bank statements. The discrepancies were traced back to errors in data entry by a new staff member who was unfamiliar with the system. Additionally, there was an incident where an unauthorised attempt was made to access the financial records.
Activity 1 - Multiple Choice
In Australia, various legislation and regulatory frameworks govern information privacy and data protection, particularly in the financial services industry.
When using computerised accounting systems, businesses must adhere to these regulations to ensure that personal and financial information is securely managed and protected.
Here are the key pieces of legislation relevant to information privacy in this context:
| Legislation | Explanation |
|---|---|
| Privacy Act 1988 (Cth) | This act is the primary law governing data protection in Australia. It includes the Australian Privacy Principles (APPs), which set out how personal information must be collected, used, stored, and disclosed. For financial services, this includes securing personal financial details processed through accounting systems. The Act applies to all organisations and government entities in Australia, requiring them to manage personal information responsibly. |
| Notifiable Data Breaches (NDB) scheme | Under the Privacy Act, the NDB scheme requires organisations to notify individuals and the Office of the Australian Information Commissioner (OAIC) when a data breach occurs that is likely to result in serious harm. This includes breaches involving personal financial information that could lead to identity theft or financial loss. |
| Australian Securities and Investments Commission Act 2001 (ASIC Act) | While primarily focused on market integrity and consumer protection, the ASIC Act has provisions that impact financial data management. It mandates accurate and honest dealing in financial services, including the maintenance and handling of financial records in computerised systems, ensuring they are kept securely and free from manipulation. |
| Corporations Act 2001 | This act outlines requirements for financial management and reporting that affect computerised accounting systems. It includes stipulations for maintaining financial records that correctly record and explain transactions and financial positions, which must be kept secure and private in compliance with the Privacy Act. |
| Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) | This legislation requires financial institutions to maintain records of financial transactions to prevent and detect money laundering and terrorism financing. It includes requirements for the secure management of personal and financial data used in these transactions, which must be protected in computerised accounting systems. |
Each of these pieces of legislation has a direct impact on how financial data is managed within computerised accounting systems, ensuring that data is handled securely, transparently, and with due regard for privacy.
Compliance with these laws helps prevent data breaches and builds trust with clients and stakeholders by demonstrating a commitment to data security and privacy.
A financial transaction is an agreement, communication, or movement carried out between a buyer and a seller to exchange an asset for payment. Here are the most common financial transactions:
BPAY is an electronic bill payment system in Australia that allows individuals and businesses to pay their bills using their online banking service. Users can pay from their bank accounts or credit cards directly to organisations that are registered BPAY billers using a unique biller code and customer reference number provided on the bills.
Credit card payments involve using a credit card issued by a financial institution to purchase goods or services. Transactions are processed by charging the amount to the cardholder’s credit account, which the cardholder later pays back to the card issuer, often with interest if the balance is carried over.
Direct debit is a financial transaction in which a payer gives permission to a payee to withdraw funds directly from the payer’s bank account. It is commonly used for recurring payments, such as utility bills or subscriptions, where the amount and frequency of payments are agreed upon in advance.
Invoices are documents issued by a seller to a buyer that specify the products or services provided, the amount due, and the payment terms. Invoices are used to request payment and record sales transactions in accounting records, helping businesses manage their receivables.
Petty cash is a small amount of cash on hand used for covering minor expenses in a business, such as office supplies, postage, or small repairs. Transactions from the petty cash fund are recorded to maintain accountability and control over these small expenditures.
Balance day adjustments are accounting entries made at the end of an accounting period to allocate income and expenses to the appropriate period. These adjustments ensure that financial statements reflect the true financial position and performance of the business. They include accruals, prepayments, depreciation, and inventory adjustments.
Processing Financial Transactions
Processing financial transactions efficiently and accurately is crucial. Here’s how each type of transaction is typically processed in an integrated accounting system:
| Financial Transaction | Processing Method |
|---|---|
| BPAY | When a BPAY payment is made, the integrated system records the transaction by automatically debiting the relevant expense or creditor account and crediting the bank account from which the payment is made. The transaction details typically include the BPAY biller code, reference number, and the amount paid. The system may also provide options for scheduling payments and setting up recurring BPAY transactions, ensuring timely payments. |
| Credit Card Payments | Credit card transactions are entered into the system by recording the purchase details directly against to the purchase and credits the credit card liability account. Payments made to settle the credit card balance are recorded by debiting the credit card liability account and crediting the bank account from which the payment is made, thus reducing the outstanding balance. |
| Direct Debit | For direct debit arrangements, the system needs to be set up with the details of the recurring payment, including the payee’s information, amount, and payment intervals. When a payment is due, the system automatically debits the relevant expense account and credits the bank account. This process ensures that payments are made automatically on their due dates, reducing the risk of late payments. |
| Invoices | Invoices issued to customers are entered into the system by creating a new invoice entry, which includes details such as customer name, invoice number, items or services billed, total amount, and due date. This action increases accounts receivable. Upon receipt of payment, the system records the payment by debiting the cash or bank account and crediting accounts receivable, thereby closing the invoice. |
| Petty Cash | Petty cash transactions are handled by setting up a petty cash fund in the system. Expenses paid from petty cash are recorded by debiting the appropriate expense accounts and crediting the petty cash account. When the petty cash fund is replenished, the system records a debit to the petty cash account and a credit to the bank account, reflecting the transfer of funds to replenish the petty cash. |
| Balance Day Adjustments |
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Methods to Substantiate Financial Transactions and Record Retention Requirements for Audit and Substantiation Purposes
To ensure financial integrity and compliance with regulatory standards, it's crucial for businesses to substantiate financial transactions effectively and adhere to specific record retention requirements.
| Method | Substantiation | Retention |
|---|---|---|
| Documentation | Maintain comprehensive and accurate records of all financial transactions, including invoices, receipts, contracts, and bank statements. These documents provide the necessary evidence to support each transaction’s validity and accuracy. | These documents should be retained for a minimum period as required by law, typically 5 to 7 years, to ensure they are available for review during any financial audits or legal inquiries. |
| Authorisation and Approval Processes | Implement a robust system for the authorisation of transactions, where different levels of transactions require corresponding levels of approval. This method helps prevent unauthorised transactions and ensures each financial activity is justified and verified. | Keep records of approvals and authorisations, including electronic logs or signed documents, to provide an audit trail that substantiates the legitimacy of each transaction. |
| Reconciliation | Regularly reconcile accounts to ensure the balances match supporting documentation such as bank statements and ledger entries. This practice helps identify and correct discrepancies, ensuring financial data integrity. | Retain all reconciliation reports and related corrections or adjustment documents to support the accuracy of financial statements. |
| Audit Trails | Maintain detailed logs that record the chronology of all financial activities and modifications. These logs should include the date, nature of the transaction, parties involved, and the user making the entry. | Audit trail records should be preserved for the same duration as the financial records they pertain to, providing a clear path from financial statements back to original entries. |
| Secure Storage and Access Controls | Use secure storage solutions and access controls to protect financial records from unauthorised access, alteration, or destruction. This includes both physical security for paper records and cybersecurity measures for digital data. | Implement data backup systems and disaster recovery plans to ensure the preservation and recovery of financial records. Regularly test these systems to confirm they are effective in maintaining data integrity over time. |
| Compliance with Legal and Regulatory Standards | Adhere to applicable laws and regulations governing financial transactions and reporting. Compliance helps ensure that the methods and practices used in financial management are legally sound and acceptable. | Understand and follow specific legal requirements related to the retention periods, formats, and management of records, as these can vary by jurisdiction and industry. |
By integrating these methods, organisations can uphold strong financial management practices that support audit readiness, enhance data reliability, and ensure regulatory compliance.
Activity 2 - Quiz
