The ICT Lounge
 
Section 7.11:
Applications in Finance
 
In this section we will discuss how ICT is used to help businesses keep track of finances.

ICT systems are used within financial departments to keep track of money coming in and money going out of the business. We are going to discuss the following:
Key Concepts of this section:
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Understand the differences between each type of ICT system (billing, payroll, stock control).
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Know the different ways in which ICT is used within each system.
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Be able to discuss the effects that each ICT system can have upon a business.
  • Billing Systems
  • Payroll Systems
  • Stock Control Systems

Examples of ICT uses in Finance
Key Words:
Billing, Payroll, Stock Control

The following examples explain how ICT is used within finance:

Billing Systems
What is a billing system?
Examples:
Some bills are sent out to customers
as hard copies (printed)
Bills can also be sent to customers (and paid)
over the Internet
 
Bill payment can be made by hand-written cheque .
 
Online payment can be made with credit
and debit cards
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Billing systems are used by businesses to send out bills/invoices to customers. Examples of companies that send bills to customers include water, gas, electricity and phone bills.

These companies produce huge amounts of bills.

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These bills/invoices can be sent out to customers in the following ways:
  • As a printed bill in the post
  • Online through the company website
    (customers get email alerts when a new bill arrives)
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Customers would pay the bill in one of two ways:
  • Send a cheque through the post
  • Pay online using a credit card or a bank debit card.
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Billing systems are usually automated. This means that bills are calculated automatically without much human input.

The role of computers in a billing system:
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As mentioned above, billing systems are often automated which means that computers do most of the work when generating the customer bills. Remember that ICT systems work with Inputs, Processing and Outputs.

Consider the following example of an electricity bill:

Inputs
  • Customer details (name, address etc)
  • Electricity usage reading (read from electricity meter in customer's home)
  • Charge per unit of power used
  • Bank / Credit Card details (if customer pays their bill online)
Processing
  • Calculate electricty usage (new usage reading minus old usage reading)
  • Calculate electricity costs (electricty usage multiplied by charge per unit)
Outputs
  • Printed bill showing customer details and total amounts owed (if customer does not pay online)
  • Online bill showing total amounts owed (if customer pays online)
  • Email requesting online payment (if customer pays online)

Effects of billing systems on companies:
Effects:
Increased productivity -
Computerised billing systems are automated. This means that human employees do not need to spend a lot of time manually creating and calculating bills.

Human employees will then have more time to handle other tasks.
Lower employee costs -
Because the automated computer system does most of the work in terms of billing, less employees are required. This saves in wages etc.
Reduced paper wastage -
Many companies now use electronic online billing. This means that there are less paper-based bills being produced which is good for the environment.
 
Payroll Systems
What is a payroll system?
Examples:
Payroll systems calculate all aspects of
employee pay
 
Manually calculating employee pay is
very time consuming
 
A computerised payroll system makes the job of calculating employee pay much easier
(click image to zoom)
 
NOTE:
Payroll systems are not completely automated. Humans are still needed to input details such as hours worked, hourly rate etc.

The computer quickly handles all of the complicated calculations which would take people a long time to get right.

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Payroll systems are used to ensure that company employees are paid the correct wages. They break down employee wage information and prints this data onto a payslip.

In the past, employee wages were calculated manually with calculators, pens and some paper. This was very time consuming.

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Employee wages are usually calculated and paid either every week or every month.

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Payroll systems are quite complex with lots of calculations to take into account. Many variables are part of the process including the following:
  • Gross pay (pay before any deductions like tax)
  • Net pay (pay after deductions)
  • Rate of pay (how much the employee is paid per hour)
  • Number of hours worked
  • Tax codes (used to work out how much tax the employee should pay)
  • Pension (deducted from employee pay)
  • Overtime (extra money paid for working more hours than contracted)
  • Bonuses (extra money paid for excellent performance)
  • etc....
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After employee pay has been calculated, the system will print the information onto what is known as a 'pay-slip'. The pay-slip fully breaks down the wage to show all rates, bonuses, deductions etc.

2 copies of the pay-slip are printed - one for the employee and one for the company.

The role of computers in a payroll system:
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The inputs, processes and outputs of a payroll system are as follows:

Inputs
  • Bank details (so wages can be paid into employee's bank account)
  • Rate of pay (needed to calculate gross pay)
  • Number of hours worked
  • Overtime worked (usually paid at a higher hourly rate)
  • Tax code (needed to calculate tax dedcutions)
Processing
  • Gross pay (hours worked mutiplied by hourly rate of pay, overtime etc)
  • Caculation of deductions (tax owed, insurance owed, pension contributions)
  • Net pay (gross pay minus deductions)
Outputs
  • Printed pay slips
  • Wages paid into employee's bank account


Effects of payroll systems on companies:
Effects:
Accuracy -
If the payroll system has been programmed with accurate calculations, employees will be paid the correct wages.

Humans manually calculating wages with calculators can often make mistakes and employees could be paid too much / too little.
Quicker -
Manually calculating employee pay with calculators is a time consuming process.

A computerised payroll system does most of the work for you and is much faster.
Increased productivity -
With the payroll system doing most of the work, company managers are freed up to concentrate on other tasks.
 
Stock Control Systems
Overview of Stock Control Systems:
Examples:
Stock Control Systems help to monitor the
stock levels of products
A stock control system showing Product Details, Minimum Stock Levels, Re-Order Amount and Supplier Details. (click image to zoom)
 
If numbers of coca cola on shelves falls too low
the stock control system will re-order more.
 
Product information is stored on a barcode
 
Product information is scanned into the stock
control system using the product barcode
and a barcode reader
 
Each time an item is scanned through an EPOS terminal, the stock control system will reduce the number of the item's stock level by 1
 
The stock control system will automatically re-order products that are running low. These are then delivered by the supplier
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Stock control systems keep track of the items that a business manufactures or sells.

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Businesses do not want levels of stock to be too high or too low.

For Example:
  • Too much stock costs the business money for storage (warehouses etc)
  • Too little stock means that the business may run out of products to sell

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A stock control system can help monitor stock levels and automatically re-order products whenever their numbers fall too low.

What is a stock control system?
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A stock control system is really just a database that stores details of the products sold by the business.

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The database stores details of the products. For example:
  • Item code (a unique code which identifies each type of stock individually)
  • Description of stock items (brown bread, large eggs, coca cola etc)
  • Price of item
  • Item stock level
  • Minimum stock level (lowest amount of the item before we need to order more)
  • Number of stock to re-order (how many items should be re-orderd from supplier)
Item Code
Item Description
Price
Stock Level
Minimum Stock Level
Re-Order Amount
EG120
Large Eggs
£0.95
12
10
50
BB209
Brown Bread
£1.10
25
15
35
CC190
Coca Cola Can
£0.65
17
20
80
A simple stock control database. In this example the system would need to re-order 80 cans of
Coca Cola as the stock levels have dipped below the minimum levels.


How does the stock control system know how many product
items we have?
When items are delivered to the business they are scanned into the system. This is how it works:

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Items come with a barcode. Barcodes contain all of the information about the product:
  • Item code
  • Description of item
  • Price of item
  • etc....
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The item's barcode is scanned with an input device called a barcode reader.

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The barcode reader inputs the product's information into the stock database.

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Each time the same type of product is scanned by the barcode reader, the stock level of that item is increased by 1.

How does the stock control system know when a product has
been sold?
When products are sold their barcodes are scanned again at the checkout. Information from the barcode is sent to the stock control database which then updates it's records. This is how it works:

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Product's barcode is scanned through an electronic point of sale (EPOS) terminal.

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Information from the barcode is sent to the stock control database which checks the Item Code and looks for a match with the products currectly stored in the system.

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The stock level for the matching item is reduced by 1.


Re-ordering stock automatically
As mentioned above... one of the really useful features of a stock control system is that it can automatically re-order stock that is running out. This is how it works:

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Stock control system will monitor stored records looking for items that are below the minimum stock level number.

 
For Example:
Stock Level of Coca Cola (17) < Minimum Stock Level (20)

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Any items that have a stock level lower than the minimum stock number will be re-ordered from the supplier.

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When the new products arrive they will be scanned into the system using a barcode reader and the whole process starts over.