Notebook 15

[COMPANY NAME]

Challenges of Implementing Computerized

Accounting System in Small & Medium
Enterprises in context of Ampara District

SAJIR
smsajeer1993@gmail.c
om

Challenges of Implementing Computerized Accounting

System in Small & Medium Enterprises in context of
Ampara District
1. MEANING OF COMPUTERIZED ACCOUNTING

Computerized Accounting System refers to a system where in the accounts of the enterprise
are maintained on a computer. An accounting system has a two aspects; first, it has to work
under a set of well-defined accounting concept and principles and, secondly it has to maintain
records and generate reports as defined by the user. These aspect can be full filled by
processing the transactions and events in accordance with the accounting principles and
adopting the software which is capable of generating the user- defined reports.

2. INTRODUCTION OF SMALL MEDIUM ENTERPRISES USING

THE COMPUTERIZES ACCOUNTING SYSTEM
In this new era of technological advancement, the role of computerized accounting
information systems (AISs) such as Sage, Tally, Pastel, SAP, Smart stream, Great planes is of
paramount importance in managing an organization and implementing internal control
systems. AISs allows a company to manage its business with potential benefits of improved
process flow, reduced inventories, better data analysis, better customer service, and improved
profit margins . Considering the benefits mentioned above, it is easy to see why AISs are
accepted to be one of the most significant developments in the world and also the most
accepted standard business software.
The development of SMEs has never gained so much attention before. Presently, the
challenges and difficulties of adopting information technology become the bottleneck of the
development of SMEs. This is due to the fact that most AISs available on the market are
beyond the reach of many SMEs, due to resource scarcity caused by lack of financial
assistance. further asserts that many SMEs either do not have sufficient resources or are not
willing to commit a huge fraction of their resources due to the long implementation times and
high fees associated with AISs More so, lack of organizational preparation of SMEs, caused
by the low extent of formalization of peoples roles and responsibilities that is expressed by
with their continuous re-shuffle and consequently it becomes difficult to adopt AISs . Also
most AISs vendors provide complex information systems that are beyond the needs of SMEs
coupled with the limited expertise in information technology and the opportunity to adopt a
process-oriented view of the business tends to influence, AISs adoption by SMEs .
Information Technology is changing dynamically. The technology is changed itself and
makes the others to be changed.
Small and Medium Sized Enterprises (SME) play an important role in economic development
of a country. Several theories elaborate on connection between information technology,
economic development and social change. Almost all agree on the importance of information
and communication technology adoption in SME, while the importance of SME as engines to
economic growth is well acknowledged worldwide. Information technology, particularly the

Internet is having a significant impact on the operations of SME and it is claimed to be

essential for the survival and growth of nations economies in general and SME in particular.
IT adoption is a significant subject matter of study in numerous areas comprising small and
medium enterprises (SMEs). In order to describe the process of information technology (IT)
adoption, it is essential to identify and categorize factors, drivers, enablers and barriers
entangled in IT adoption.

3. SMALL AND MEDIUM SIZED ENTERPRISES IN SRI LANKA

Small and Medium Sized Enterprises (SMEs) make up a large part of Sri Lanka's economy,
accounting for 80 percent of all businesses. These are found in all sectors of the economy,
primary, secondary and tertiary and provide employment for persons of different skills,
skilled, semi-skilled and unskilled. There are SMEs in the agri-business sector engaged in
growing spices, fruits and vegetables and in the manufacturing sector engaged in numerous
industrial activities accounting for about 20 percent of industrial establishments. In the
service sector SMEs accounts for more than 90 percent of business establishments. SMEs are
an essential source of employment opportunities and are estimated to contribute about 35
percent of employment. The SMEs play an important role in promoting inclusive growth. The
focus on SMEs in policy discussions emanates also from their role in developing
entrepreneurial skills, innovation and promoting economic growth. These are also seen as
useful in promoting social cohesion. It is therefore considered essential that the environment
these SMEs operate in be improved.
Small and Medium Enterprises (SMEs) play a pivotal role in the socio economic
development and poverty reduction process in Sri Lankan economy in terms of employment
generation, contribution to the GDP, equitable distribution of income, balancing regional
development, lowering transaction cost, embarking on innovations and stimulating other
economic activities. According to estimates of the Sri Lanka Industry Survey of 2008, there
are over 18,000 companies operating in the country of which about 91 per cent are SMEs
(World Bank,2013). SMEs are critical to modernization and economic growth as the country
is emerging from 30 years of terrorism which brings new opportunities for the countrys
economic growth and development. The small and medium enterprise (SME) segment is the
key segment to fuel economic growth, create employment, improve productivity and thereby
contribute immensely to the GDP growth of the country. Small and medium enterprises
(SMEs) have been identified as an important strategic sector for promoting growth and social
development of Sri Lanka. Over the years, SMEs have gained wide recognition as a major
source of employment, income generation, poverty alleviation and regional development. The
SMEs cover broad areas of economic activity such as agriculture, mining, manufacturing,
construction and service sector industries.
As in most developing countries, Sri Lanka too, has a majority portion of population living in
rural areas which is estimated to be 84 percent (World Bank, 2012) of the countrys total
population. The small industries in the rural areas are the major source of employment and
production of food and, therefore, the Sri Lankan villagers livelihood. So, almost all the
governments that came to power since independence, seem to have understood the great need
for developing this vital sector. According to the Central Bank of Sri Lanka (1998), the
cottage and Small Scale Industries (CSSI) sector plays an important role in economic
development through creation of employment opportunities, the mobilization of domestic
savings, poverty alleviation, income distribution, regional development, training of workers
and entrepreneurs, creating an economic environment in which large firms flourish and
contribute to export earnings. A well-functioning SME sector can take the lead in generating
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jobs and economic growth while raising income levels for a large segment of Sri Lankas
population. To achieve this, an integrated strategy is needed to overcome a wide array of
issues and constraints comprising inadequacies in management, limited access to finance and
modern technology, and impediments in the regulatory and incentive framework.

4. SMALL AND MEDIUM ENTERPRISES IN AMPARA

Small and Medium scale Enterprises play an important role in the economy of a country. The
environment of an organization is significantly undergoing continuous, rapid changes that
have far reaching effects on organizations and their management strategies. The significance
of the study is especially to business organization in small and medium sector businesses.
This research focuses on two aspects: The organizational change option - Structure,
Technology, Physical setting and the people in which the innovations in technology as the
most powerful change agent that create a big challenge for SMEs and the importance of
innovations in technology in small businesses that need more and more innovative techniques
in order to expand Small and Medium scale Industry (SMI) sector.
Mainly agricultural sector such as paddy production, crop production, livestock, milk and egg
production meat production are found in this district and Fishing also is another source of
income in the coastal area of Ampara districts. 11,156 commercial places such as retail shops,
restaurants, textile and footwear, dispensary and Pharmacy, wood and iron furniture, building
material and paints jewelry liquor shops In which 48.69 % were as retail shops. 4507
businesses found in manufacturing industry in which 43% Food, beverage and tobacco, 16.7
% wood production and furniture, 15.9% textile, wearing apparel and leather. Existence and
growth in small and medium business sector is the most important thing in order to maintain
their survival in the industry. So, this research aims to study the entrepreneurs perception
towards technology change and the association of between coping with technology change
and the business growth in the small and medium business sector among a sample of 180
small and medium sized entrepreneurs in Ampara District of Sri Lanka using a simple
random sampling.
According to the findings, it is proved that there is a significant strong positive relationship
between the perception towards coping with technology change and business growth in small
and medium business sector. Accordingly, 53.4% of the variance in business growth in small
business sector after coping with technology change programs was significantly explained by
coping with change in this study, still leaves 46.6% unexplained. So, further research might
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be necessary to explain more of the variance in business growth after coping with change.
Thus, the findings might be immense value to Small & Medium Scale Enterprises (SMEs) in
developing countries, such as Sri Lanka,

5. CHALLENGES

FOR

IMPLEMENTING

COMPUTERIZE

ACCOUNTING SYSTEM IN SMALL MEDIUM ENTERPRISES

1. Theft of Computer Time:
Information created by one person may be easily copied by another person who can claim
that the data is his own and he is the actual creator. In computers there is nothing like original
copy and duplicate copy.
2. Manipulation of Programs:
An intruder, rival or competitor can manipulate, modify or delete one or more programs of a
company making the complete software unusable.
3. Theft of Data:
Data stored in a computer can be copied into floppies and could be delivered to competitors.
With modern communication networks available, insiders of the company may send
confidential information of a company to another. Hackers can connect to network and steal
data.
4. Stealing Software:
This is the most commonly committed crime in computers. An employee of the company
may copy the software purchased by a company and copy it in his home computer.
Precautions and controls can be employed for protecting hardware and software from
illegitimate use.

5. Controlling Access:
Controlling of hardware and software should be the first system security. The system should
be under lock and key to prevent hardware theft. Physical and electronic access control
techniques including keyboard locks, automatic logs, restricted access to systems and limited
after-hour use.
6. Passwords:
Passwords should be provided at all levels of system. They should be changed frequently or
as and when needed so that unauthorized users cannot enter into the system.
7. Backup Copies:
It is necessary to take frequent backups of all software and keep them separate from the usual
media. Backups are often taken on tapes and are used to restore data when the primary data
from the system fails. Software programs should also be taken if necessary.
8. Security for Backup:
Backups should be kept in secure place. Loss of backups means disaster for the company.
Protection of backups includes fireproof containers and away from the computer installation
site to avoid any natural disaster.
9. Network Control:
Most companies may have computers that exchange data with each other using a networking
architecture. In such cases, PC users can connect with another person/users and access files or
services from the machine.
Since outsiders [competitors] can also get connected to our network, special interest should
be shown on security of systems and data located on the internet.

10. Data Encryption:

It refers to the means of converting data into an unrecognizable form, transmitting it over a
network and decrypting it back so that the original contents can be revealed. If an
unauthorized person taps into the file, could not go through its contents.

6. REASONS OF SMALL MEDIUM ENTERPRISES LIKE USING THE

COMPUTERIZED ACCOUNTING SYSTEM
Small and medium sized businesses can now buy off the shelf accounting programs at
remarkably low cost. Larger businesses will often have customized programs made for their
business. 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 introduction of computerized accounting systems provide major advantages such as
speed and accuracy of operation, and, perhaps most importantly, the ability to see the realtime state of the companys financial position. In my experience I have never seen a business
that has upgraded to a computerized accounting system return to paper based accounting
systems. A typical computerized accounting package will offer a number of different
facilities. These include:
-On-screen input and printout of sales invoices
- Automatic updating of customer accounts in the sales ledger
- Recording of suppliers invoices
- Automatic updating of suppliers' accounts in the purchases ledger Recording of bank
receipts
- Making payments to suppliers and for expenses
- Automatic updating of the general ledger
- Automatic adjustment of stock records
- Integration of a business database with the accounting program
- Automatic calculation of payroll and associated entries

Computerized accounting programs can provide instant reports for

management, for example:
- Aged debtors summary a summary of customer accounts showing overdue amounts
- Trial balance, trading and profit and loss account and balance sheet
- Stock valuation
- Sales analysis
- Budget analysis and variance analysis
- GST/VAT returns
- Payroll analysis

When using a computerized accounting system the on computer, input screens have been
designed for ease of use. The main advantage is that each transaction needs only to be
inputted once, unlike a manual double entry system where two or three entries are required.
The computerized ledger system is fully integrated. This means that when a business
transaction is inputted on the computer it is recorded in a number of different accounting
records at the same time.

07. THE MAIN ADVANTAGES OF A COMPUTERIZED ACCOUNTING

SYSTEM ARE LISTED BELOW:
Speed data entry onto the computer with its formatted screens and built-in databases of
customers and supplier details and stock records can be carried out far more quickly than any
manual processing.
Automatic document production fast and accurate invoices, credit notes, purchase orders,
printing statements and payroll documents are all done automatically.
Accuracy there is less room for errors as only one accounting entry is needed for each
transaction rather than two (or three) for a manual system.
Up-to-date information the accounting records are automatically updated and so account
balances (e.g. customer accounts) will always be up-to-date.
Availability of information the data is instantly available and can be made available to
different users in different locations at the same time.
Management information reports can be produced which will help management monitor
and control the business, for example the aged debtors analysis will show which customer
accounts are overdue, trial balance, trading and profit and loss account and balance sheet.
GST/VAT return the automatic creation of figures for the regular GST/VAT returns.
Legibility the onscreen and printed data should always be legible and so will avoid errors
caused by poor figures.
Efficiency better use is made of resources and time; cash flow should improve through
better debt collection and inventory control.
Staff motivation the system will require staff to be trained to use new skills, which can
make them feel more motivated. Further to this with many off-the-shelf packages like
MYOB the training can be outsourced and thus making a particular staff member less critical
of business operations.
Cost savings computerized accounting programs reduce staff time doing accounts and
reduce audit expenses as records are neat, up-to-date and accurate.
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Reduce frustration management can be on top of their accounts and thus reduce stress
levels associated with what is not known.

The ability to deal in multiple currencies easily many computerized accounting packages
now allow a business to trade in multiple currencies with ease. Problems associated with
exchange rate changes are minimized.
Dependence on computer
If you use computer for accounting, then you will depend on computer, It will reduce you IQ
power. So after all you should some calculation on hand so that you mental level will also
update and active.

Failure of system
This is also disadvantage of computer accounting, So always make backup of your computer
accounting records. I am also suggesting you to clean the dust of your computer. This dust is
very dangerous for slowing and stopping of computer system.

8. RECOMMENDATIONS
AISs vendors should strive to provide custom made AISs packages that suit the needs and
requirements of SMEs. Also the packages should be easy to use and affordable. More so AISs
vendors should hold workshops with SMEs in order to educate them fully on the benefits of
using AISs.
Government through the ministry of information and communication technology, should
ensure that it provide easy access to computerized AISs through financing the purchasing of
computerized AISs by SMEs by providing subsidies on those SMEs that purchase AISs.
More so government through the Ministry of Small to Medium Enterprise should provide
collateral security to SMEs through providing financing of purchasing of initial assets of
SMEs so that they may in turn use the assets as collateral assets to access loans from banks.
Also SMEs should strive to employ qualified human resource personnel that are competent to
use computerized AISs. This will make it easy to use AISs.
With respect to trying to introduce non-users of entrepreneurs to a computerized accounting
system, it may be useful to consider business entrepreneurs those who are uninformed about
the benefits of using a CAS. This lack of knowledge may be a further result of the deficiency
in IT skills as reported by almost half of the nonuser entrepreneurs. Government should set
up training organizations offers a computerized accounting system specific skills
development program targeted to those involved in small businesses, to avoid reluctance
among retailers about the effectiveness in computer self-efficacy.

REFERENCES:
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Ajzen, I., & Fishbein, M. (1980). Understanding attitudes and predicting social behaviour.
Englewood Cliffs, NJ:
Prentice-Hall.
Arnold, S. F. (1990). Mathematical statistics. Englewood Cliffs, NJ: Prentice Hall.
Bandura, A. (1986). Social foundations of thought and action. Englewood Cliffs, NJ.
http://www.itseducation.asia/computerized-accounting.htm
http://www.buzzle.com/articles/advantages-and-disadvantages-of-using-computerizedaccounting.html
http://connection.ebscohost.com/c/articles/80122560/adoption-computerized-accountingsystem-small-medium-enterprises-melaka-malaysia