Edexcel A-Level Accounting: Information and communication technology (ICT) in accounting (YAC11) – Revision Notes

These notes condense topic 2.9, Information and communication technology (ICT) in accounting, from the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018. Outcomes 2.9.1 and 2.9.2 are both here. Topic 2.9 appears in Unit 2 (Corporate and Management Accounting) and is therefore Unit 2 (A2) only. Names and numbers are fictional; money is in dollars.

For full explanations and four worked examples, read the ICT in accounting study guide. Then try the practice questions. Course hub: /boards/edexcel/a-level/accounting/. Checklist: /checklists/edexcel/a-level/accounting/. Find your gaps with a free diagnostic.

Topic 2.9 at a glance

Spec ref	In one line
2.9.1	ICT for costing products or services and for management information: spreadsheets (e.g. budgeting), software packages (invoices, debtors list, payroll, tax returns), EPOS for stock control
2.9.2	Advantages and disadvantages of ICT in accounting: audit trail, financial, technical and human aspects

The specification states that candidates will not be examined on specific applications or software packages. Describe what a type of software does; never name a brand.

Unit 1 outcome 1.1.7 (ICT in recording transactions, reconciliations and financial statements) sits in the principles and double entry guide. Topic 2.9 is the management accounting side.

Key definitions

• ICT in accounting: using computers, software and networks to record, process, store and communicate accounting information.
• Management information: information that helps managers plan, make decisions and control the business.
• Spreadsheet: a grid of cells holding labels, inputs and formulas; formulas recalculate when an input changes.
• What-if analysis: changing one assumption in a model to see its effect on the results.
• Accounting package: software that carries out standard accounting tasks and posts entries to the ledgers automatically.
• Debtors list (aged): trade receivables listed by customer and by how long amounts have been owed.
• EPOS (Electronic Point of Sale): a till system that records each sale, usually by barcode scan, and updates the inventory record at the same time.
• Reorder level: the inventory level at which a new order is placed; EPOS can flag it or order automatically.
• Audit trail: the ability to trace a transaction from its source document through the records to the financial statements, and back.

2.9.1 Uses of ICT: summary table

Tool	What it does	Management information it gives
Spreadsheet	Budgets, cost cards, budget-against-actual comparisons, charts	Forecasts; product costs and prices; effect of changed assumptions
Invoicing package	Prices, discounts and sales tax applied; invoice numbered and sent; entries posted	Sales by customer or product; up-to-date receivables
Debtors list	Receivables aged by customer	Whom to chase; credit to stop; basis for the allowance for irrecoverable debts
Payroll package	Gross pay, deductions, net pay, payslips	Labour cost by department or product
Tax return software	Totals tax recorded in the period; prepares the return	Amount due and when
EPOS	Records sales and updates inventory per scan; reorder flags	Inventory levels; fast and slow sellers; margin by product

Link the use to costing where you can: labour cost from payroll feeds a product’s direct labour cost; EPOS gives cost of sales per line; a spreadsheet cost card turns these into a unit cost and a price.

Method in steps: a spreadsheet what-if

1. Put every assumption in its own input cell (price, cost per unit, percentage).
2. Make every other figure a formula that refers to those cells, never a typed number.
3. Change one input only.
4. Read off the new totals and compare them with the original.
5. State what the change means for the business (profit, cash, need for finance).

Small worked reminder: cash budget cell

Sorrel Bay Laundry’s spreadsheet has opening bank balance in B5 (2,400), receipts in B6 (11,350) and payments in B7 (12,980). The closing balance formula in B8 is =B5+B6-B7:

2,400 + 11,350 − 12,980 = 770

What-if: a large customer pays late and receipts fall to 10,600. Change B6 only; B8 becomes 2,400 + 10,600 − 12,980 = 20. The business is close to an overdraft, so the owner may arrange one in advance.

Small worked reminder: tax return figure

During a quarter the package records sales tax charged to customers of 4,830 and sales tax paid to suppliers of 2,915.

Amount payable = 4,830 − 2,915 = 1,915

The package draws both totals from the entries already posted, so nothing has to be added up again by hand.

Small worked reminder: EPOS inventory

Brightlowe Opticians starts a week with 120 lens-cleaning sprays. EPOS records sales of 47 and a delivery of 60 is booked in.

Inventory record = 120 − 47 + 60 = 133

If the shelf count is lower, the difference is unscanned loss (theft, damage or a scanning mistake).

2.9.2 Advantages and disadvantages: the four aspects

Audit trail

• For: every entry logged with reference, date, time and user; deletions can be blocked, so corrections show; errors and fraud are easier to trace.
• Against: weak passwords, shared logins or editable records make the trail unreliable; fewer paper documents.

Financial aspects

• For: lower clerical wages; faster invoicing and credit control improve cash flow; fewer costly errors; better decisions from timely information.
• Against: hardware, software and installation; licences, maintenance, support and upgrades every year; training; transferring old records.

Technical aspects

• For: accurate arithmetic; one entry updates every linked record; reports on demand; large volumes processed quickly; backups possible.
• Against: breakdowns and power cuts; viruses, hacking, data loss; wrong input gives wrong output; packages may not fit the business or link together.

Human aspects

• For: staff freed from routine work for analysis; less tedious work; information shared easily.
• Against: training time; resistance to change; redundancies and lower morale; over-reliance on output; insiders with access may commit fraud.

Method in steps: evaluating an ICT proposal

1. Total the one-off costs (hardware, software, installation, training, data transfer).
2. Find the net annual saving: annual savings minus annual running costs.
3. Calculate payback = one-off costs ÷ net annual saving (see project appraisal).
4. Add technical and human points from the scenario.
5. Give a judgement, with a condition if needed (for example, “only if staff are trained first”).

Quick example: one-off costs 8,400 and net annual saving 5,600 give payback of 8,400 ÷ 5,600 = 1.5 years.

Must-know distinctions

• Spreadsheet vs accounting package: a spreadsheet is a flexible model the user builds; a package follows fixed accounting routines and posts double entry automatically.
• Audit trail vs audit: the trail is the record; the audit is the examination that uses it.
• EPOS inventory vs actual inventory: the record shows what should be there; a count shows what is there.
• One-off vs running costs: buying the system against keeping it going.
• Accuracy of arithmetic vs accuracy of information: ICT guarantees the first, not the second.

Quick self-test

1. State what EPOS stands for.
2. Give two items of management information an EPOS system can provide.
3. Define “audit trail”.
4. A cost card has materials 3.20, labour 1.75 and overheads 0.85 per unit. Calculate unit cost and the price at a 40% mark-up.
5. An invoice is for 80 items at 12.50, less 10% trade discount, plus sales tax at 10%. Calculate the total.
6. An employee works 37 hours at 16 an hour plus 3 hours of overtime at time and a half. Calculate gross pay.
7. Give one reason why the EPOS inventory record may be higher than the physical count.
8. Name the four aspects in 2.9.2.
9. Give one human disadvantage of introducing ICT.
10. Why should assumptions in a spreadsheet sit in their own input cells?

Answers

1. Electronic Point of Sale.
2. Any two: current inventory levels; items at reorder level; sales by item, day or hour; gross margin by product.
3. The ability to trace a transaction from its source document through the accounting records to the financial statements, and back.
4. 3.20 + 1.75 + 0.85 = 5.80; price = 5.80 × 1.4 = 8.12.
5. 80 × 12.50 = 1,000; less 100 discount = 900; plus 90 tax = 990.
6. 37 × 16 = 592; 3 × 24 = 72; gross pay = 664.
7. Theft, damage or a scanning mistake (an item sold but not scanned).
8. Audit trail, financial, technical, human.
9. Any one: training needed; resistance to change; job losses; over-reliance on output.
10. So a what-if needs only one cell changed, and every formula updates from it.

Where marks are usually lost

• Naming a brand of software instead of describing what the software does.
• Saying ICT “eliminates errors”: input and formula errors still flow through.
• Using one aspect only (often financial) when the question asks you to evaluate.
• Listing generic points with no link to the business in the scenario.
• Forgetting annual running costs when judging whether a system pays.
• Counting the reorder twice in an EPOS question when an order is already outstanding.
• Mixing up audit trail and audit.
• Giving advantages and disadvantages but no final judgement on an “Evaluate” question.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018 (first teaching September 2015), Unit 2: Corporate and Management Accounting, topic 2.9 Information and communication technology (ICT) in accounting, outcomes 2.9.1-2.9.2.