In a computerized accounting system, accounting software helps in recording and processing the accounting data to generate the accounting reports. Keeping in view this need and requirement, the accounting software can be classified into the following three categories. Ready-Made or Ready-to-Use Accounting Software, Customized Software, and Tailor-Made or Tailored Software.
Ready-Made or Ready-to-use Software
This type of software is readily available in the market with prescribed and standard features. This accounting software is basically used by small-scale business enterprises, where the number of transactions is not so large. The cost of its installation and maintenance is also low. It has a limited number of users. Its adaptability is very high as it is relatively easier to learn and operate. It does not have a wide scope to link it with other information systems.
Advantages of Ready-made Accounting Software
The advantages of Ready-made Accounting Software are enlisted below:
- This software is easily available in the market.
- It is less expensive, as it comes with basic and standard features.
- It involves a lesser need for training.
- It is less sophisticated.
- Its adaptability is very high as it is relatively easier to learn and operate.
- It is suitable for small-scale business enterprises.
Disadvantages of Ready-made Accounting Software
The disadvantages of Ready-made Accounting Software are enlisted below:
- It has a limited number of users.
- It is not suitable for medium and large business organizations, where the number of transactions is very large.
- It fails to cater to the specific needs of the users.
- It suffers from a low level of data secrecy.
- It does not have a wide scope to link it with other information systems.
Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.
Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.
Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.
The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.