(192)-INPUT TO A SALES LEDGER SYSTEM

Input To a Sales Ledger System

Bearing in mind what we expected to find in a sales ledger, we can say typical data input into sales ledger system is as follows.

Amendments

• Amendments to customer details, eg change of address, change of credit limits etc
• Insertion of new customers
• Deletion of old “non-active” customers

Transaction data relating to:

• Sales transaction, for invoicing
• Customer payments
• Credit notes
• Adjustments (debit or credit items)

Some computerized sales ledgers produce invoices, so that basic sales data is input into the system. But other business might have a specialized invoicing module, so that the sales ledger package is not expected to produce invoices. The invoice details are already available (as output from the specialized module) and are input into the sales ledger system rather than basic sales data.

(191)-ACCOUNTING FOR MODULES

Accounting for Modules

Accounting for Debtors

A computerized sales ledger will be expected to keep the sales ledger up-to-date, and also it should be able to produce certain output. The output might be produce daily, monthly, quarterly or periodically.

Example- responses to file interrogations, or customer name and address lists printed on adhesive for dispatching circulars or price lists.

What we need to do is to have a closer look at the forms that input, output and processing take within a sales ledger. We will begin by thinking about what data we would expect to see in a sales ledger.

Data held on a sales ledger file

The sales ledger file will consist of individual records for each customer account. Some of the data held on the record will be standing data. Typically items of standing data are:

• Customer account number
• Customer name
• Address
• Credit limit
• Account sales analysis code
• Account type

Each of these items is referred to as a field of information.

Other data held on a customer record will change as the sales ledger is updated. Such data is called variable data, and will include:

• Transaction data
• Transaction depreciation
• Transaction code
• Debts
• Credits
• Balance

The file which contains these customer records – the sales ledger – is sometimes called a master file. If it is updated from another file containing various transactions, then that file is called a transaction file. Developments in the way computers store information mean that you not likely to see these items much any more – people more often talk about “databases” of information.

(190)-INTEGRATED SOFTWARE

Integrated Software

Each module may be integrated with the others, so that data entered in one module will be passed automatically or by simple operators request through into any other module where the data is of some relevance. For example, if there is an input into the invoicing module authorizing the dispatch of an invoice to a customer, there might be automatic links:

• To the sales ledger, to update the file by posting the invoice to the customer’s account.
• To the stock module, to update the stock file by:
  1. Introducing the quantity and value of stock in hand
  2. Recording the stock movement
• To the nominal ledger, to update the file by posting the sale to the sales account.
• To the job costing module, to record the sales value of the job on the job cost file.
• To the report generator, to update the sales analysis and sales total which are on file and awaiting inclusion in management reports

Advantages

• It becomes to make just one entry in one of the ledgers which automatically updates the others.
• Users can specify reports, and the software will automatically extract the required data from all the relevant files.
• Both of the above simplify workload of the user, and the irritating need to constantly load unload disks is eliminated.

Disadvantages

• Usually, it requires more computer memory than separate (stand-alone) systems which means there is less space in which to store actual data.
• Because one program is expected to do everything, the user may find that an integrated package has fewer facilities than a set of specialized modules. In effect, and integrated package could be “jack of all trades but master of none”.

(189)-MODULES

Modules

A module is a program which deals with one particular part of a business accounting system.
An accounting package will consist of several modules. A simple accounting package might consist of only one module (in which case it is called a stand-alone module), but more often it will consist of several modules. The name given to a set of several modules is a suite. An accounting package, therefore, might have separate modules for:

• Invoicing
• Stock
• Sales ledger
• Purchase ledger
• Nominal ledger
• Payroll
• Cash book
• Job costing
• Fixed asset register
• Report generator

(188)-USING AN ACCOUNTING PACKAGE

Using an Accounting Package

When a user begins to work with an accounting package he will usually be asked key in a password. Separate password can be used for different parts of the system, for example for different ledgers if required. The user will then be presented with a “menu” of options such as “enter new data” or “print report” or a windows type screen with buttons and icons. By selecting the appropriate option the user will then be guided through the actions needed to enter the data or generate the report.

(187)-ADVANTAGES AND DISADVANTAGES OF ACCOUNTING PACKAGES

Advantages and Disadvantages of Accounting Packages

Advantages

Advantages of accounting packages compared with a manual system are as follows.

• The packages can be used by non-specialists.
• A large amount of data can be processed very quickly.
• Computerized systems are more accurate than manual systems.
• A computer is capable of handling and processing large volumes of data.
• Once the data has been input, computerized system can analyze of data rapidly to present useful control information for managers such as a trial balance or a debtors schedule.

Disadvantages

The advantages of computerized accounting system far outweigh the disadvantages, particularly for large business. However, the following may be identified as possible advantages.

• The initial time and costs involved in installing the system, training personnel and so on.
• The need for security checks to make sure that unauthorized personnel do not gain access to data files.
• The necessity to develop a system of coding (see below) and checking.
• Lack of ‘audit trail’ it is not always easy to see where a mistake has been made.
• Possible resistance on the part of staff to the introduction of the system

Coding

Computers are used more efficiently if vital information is expressed in the form of codes. For example nominal ledger accounts will be coded individually, perhaps by means of a two-digit code: example
• 00 - Ordinary share capital
• 01 - Share premium
• 05 - Profit and loss account
• 22 - Purchases
• 30 - Debtors ledger control account
• 40 - Creditors ledger control account
• 55 - Interest
• 56 - Dividends etc
In the same way, individual accounts must be given a unique code number in the sales ledger and purchase ledger.

(186)-ACCOUNTING PACKAGES

Accounting Packages

Computer programs are the instructions that tell the electronics how to process data. The general term used for these is software.

Some application software is devoted specifically to an accounting task, for example a payroll package, a fixed asset register or a stock control package.

Other applications have many uses in business, including their use for accounting purposes. Packages of this sort that we shall describe are databases and spreadsheets.

One of the important facts to remember about computerized accounting is that in principle, it is exactly the same as manual accounting.

Accounting functions retain the same names in computerized system as in more traditional written records. Computerized accounting still uses the familiar ideas of day books, ledger accounts, double entry, trial balance and financial statements. The principles of working with computerized sales purchase and nominal ledgers are exactly that would be expected in the manual methods they replace.

The only difference is that these various books of account have become invisible. Ledgers are now computer files which are held in a computer-sensible form, ready to call upon.

(185)-SUMMARY ABOUT RATIO ANALYSIS

Summary about Ratio Analysis

In our post number (164) to (184) has gone into quite a lot of detail about basic ratio analysis. The ratios you should be able to calculate and/or comment are as follows.

Profitability ratios

• Return on capital employed
• Net profit as a percentage of sales
• Asset turnover ratio
• Gross profit as a percentage of sales

Debt and gearing ratios

• Debt ratio
• Gearing ratio
• Interest cover
• Cash flow ratio

Liquidity and working capital ratios

• Current ratio
• Quick ratio (acid test ratio)
• Debtors days (average debt collection period)
• Average stock turnover period

Ordinary shareholders’ investment ratios

• Earnings per share
• Dividend cover
• P/E ratio
• Dividend yield
• Earnings yield

With the exception of the last three ratios, where the share’s market price is required, all of these ratios can be calculated from information in a company’s publish accounts.

Ratios provide information through comparison:

• Trends in a company’s ratios from one year to the next, indicating an improving or worsening position.
• In some cases, against a “norm” or “standard”.
• In some cases, against the ratios of other companies, although differences between one company and another should often be expected.

(184)-SHAREHOLDERS' INVESTMENT RATIOS

Shareholders’ Investment Ratios

• Dividend yield

Dividend yield is the return a shareholder is currently expecting on the shares of a company. It is calculated as follows.

Dividend yield = (Dividend on the share for the year / Current market value of the share) X 100

Shareholders look for both dividend yield and capital growth. Obviously, dividend yield is therefore an important aspect of a share’s performance.

• Earnings Yield

Earnings yield is a performance indicator that is not given the same publicity as earning per share (EPS), Price earning ratio (P/E ratio), dividend cover and dividend yield.

Earnings yield is measured as the earnings per share, grossed up, as a percentage of the current share price. It therefore, indicates what the dividend yield could be if the company paid out all its profits as dividend and retained nothing in the business.

It attempts to improve the comparison between investments in different companies by overcoming the problem that companies have differing dividend covers. Some companies retained a bigger proportion of their profits than others, and so the dividend yield between companies can vary for this reason. Earnings yield overcomes the problem of comparison by assume that all earnings are paid out as dividends.

Earnings yield = Dividend yield X Dividend cover

(183)-SHAREHOLDERS' INVESTMENT RATIOS

Shareholders’ Investment Ratios

• Earning per share (EPS)

It is possible to calculate the return on each ordinary share in the year. This is the earnings per share (EPS). Earnings are profits after tax, preference dividends and “extraordinary items” (separately disclosed, large and very unusual items), which can either be paid out as a dividend to ordinary shareholders or retained in the business.

EPS = Profits after tax and preference dividend / Number of ordinary shares

• Dividend per share (DPS)

The dividend per share in pence is self-explanatory, and clearly an item of some interest to shareholders.

DPS = Total ordinary dividends / Number of ordinary shares

• Dividend Cover

Dividend cover is calculated as follows.

Dividend cover = Earnings per share / Dividend per share

It is shows proportion of profit on ordinary activities for the year that is available for distribution to shareholders has been paid (or proposed) and what proportion will be retained in the business to finance future growth. A dividend cover of 2 times would indicate that the company had paid 50% of its distributable profits as dividends, and retained 50% in the business to help to finance future operations. Retained profits are an important source of funds for most companies, and so the dividend cover can in some cases be quite high.

• Profit earnings ratio (P/E ratio)

The P/E ratio is the ratio of a company’s current share price to the earnings per share.

Price earning ratio = Current share price / EPS

A high P/E ratio indicates strong shareholder confidence in the company and its future, profit growth, and a lower P/E ratio indicates lower confidence.

The P/E ratio of one company can be compared with the P/E ratios of:

1. Other companies in the same business sector
2. Other companies generally