COST ACCOUNTING WITH THE USE OF IT

COST ACCOUNTING WITH THE USE OF INFORMATION TECHNOLOGY (IT)
The information technology in a business organisation has become essential for today’s business environment. With the expansion of e-commerce and increasing competitive business environment, information technology is becoming an integral part of each activity in an organisation including cost and management accounting. Information technology has changed the cost and management accounting functions dramatically with the introduction of Enterprise Resource Planning (ERP) system. Cost accounting and management information system got automated and improved. The new industrial revolution in the form of digital innovation which is popularly known as Industry 4.0, has more emphasis on digitisation and automation of business process to have a better control over cost to maintain market competitiveness. Cost Accounting system has seen lots of savings in terms of time, money and efforts. The impact of IT in cost accounting may include the followings:

(i) After the introduction of ERPs, different functional activities get integrated and as a consequence, a single entry into the accounting system provides custom made reports for every purpose and saves an organisation from preparing different sets of documents. Reconciliation process of results of both cost and financial accounting systems become simpler and less sophisticated.

(ii) A move towards paperless environment can be seen where documents like Bill of Material, Material Requisition Note, Goods Received Note, labour utilisation report etc. are no longer required to be prepared in multiple copies, the related department can get e-copies from the system.

(iii) Information Technology with the help of internet (including intranet and extranet) helping in resource procurement and mobilisation. For example, production department can get materials from the stores without issuing material requisition note physically. Similarly, purchase orders can be initiated to the suppliers with the help of extranet. This enables an entity to shift towards Just-in-Time (JIT) approach of inventory management and production.

(iv) Cost information for a cost centre or cost object is ascertained with accuracy in timely manner. Each cost centre and cost object is codified and all related costs are assigned to the cost objects or cost centres using assigned codes. This automates the cost accumulation and ascertainment process. The cost information can be customised as per the requirement. For example, when an entity manufacture or provide services, are able to know information job-wise, batch-wise, process-wise, cost centre wise etc.

(v) Uniformity in preparation of report, budgets and standards can be achieved with the help of IT. ERP software plays an important role in bringing uniformity irrespective of location, currency, language and regulations.

(vi) Cost and revenue variance reports are generated in real time basis which enables the management to take control measures immediately.

(vii) IT enables an entity to monitor and analyse each process of manufacturing or service activity closely to eliminate non value added activities.
The above are the examples of few areas where Cost Accounting is done with the help of IT.