INTRODUCTION OF COMPUTER ACCOUNTING

Computer is a device that accepts data, stores data, processes data as desired, retrieves the
stored data as and when required and prints the result in desired format.

Characteristics of Computer
1) Speed: It can access and process data millions times faster than humans can.
2) Storage: Computers have very large storage capacity.
3) Accuracy: The accuracy of computer is very high and every calculation is performed
with the same accuracy.
4) Diligence: A computer is free from tiredness and lack of concentration.
5) Versatility: Computer can perform wide range of jobs with speed, accuracy and
diligence.
6) Communication: Computers are being used as powerful communication tools.
7) Processing Power: Computer has come a long way today.

LIMITATIONS OF A COMPUTER AND COMPURISED ACCOUNTING

1) Cost of Installation: Computer hardware and software needs to be updated from time
to time with availability of new versions. As a result heavy cost is incurred to purchase
a new hardware and software from time to time.
2) Cost of Training: To ensure efficient use of computer in accounting, new versions of
hardware and software are introduced. This requires training and cost is incurred to
train the staff personnel.
3) Self Decision Making: The computer cannot make a decision like human beings. It is
to be guided by the user.
4) Maintenance: Computer requires to be maintained properly to help maintain its
efficiency. It requires a neat, clean and controlled temperature to work efficiently.
5) Dangers for Health: Extensive use of computer may lead to many health problems
such as muscular pain, eyestrain, and backache, etc. This affects adversely the
working efficiency and increasing medical expenditure.

ROLE OF COMPUTERS IN ACCOUNTING

1) Preparation of Accounting Documents: Computer helps in preparing accounting
documents like Cash Memo, Bills and invoices etc., and preparing accounting
vouchers.
2) Recording of Transactions: Every day business transactions are recorded with the
help of computer software. Logical scheme is implied for codification of account and
transaction.
3) Preparation of Trial Balance and Financial Statements: After recording of
transaction, the data is transferred into Ledger account automatically by the computer.
Trial Balance is prepared by the computer to check accuracy of the records. With the
help of trial balance the computer can be programmed to prepare Trading, Profit and
Loss Account and Balance Sheet.

SALIENT FEATURES OF COMPUTERS ACCOUNTING SYSTEM

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 1) Simple and Integrated: CAS is designed to automate and integrate all the business
operations, such as sales, finance, purchase, inventory and manufacturing.
2) Transparency and Control: CAS provides sufficient time to plan, increases data
accessibility and enhances user satisfaction. With computerised accounting, the
organisation will have greater transparency for day-to-day business operations and
access to the vital information.
3) Accuracy and Speed: CAS provides user-definable templates (data entry screens or
forms) for fast, accurate data entry of the transactions. It also helps in generalizing
desired documents and reports.
4) Scalability : CAS enables in changing the volume of data processing in tune with the
change in the size of the business. The software can be used for any size of the
business and type of the organisation.
5) Reliability : CAS makes sure that the generalised critical financial information is
accurate, controlled and secured.
6) Performing various Functions with Accuracy:
a) Online Input and Storage of Accounting Data;
b) On Screen or Physical Output Generation;
c) Printout of Vouchers and Invoices;
d) Printout of Ledgers and other books of accounts;
e) Updating of customer accounts in Sales Ledger and supplier accounts in Purchase
Ledgers;
f) Recording of Suppliers Invoices;
g) Recording of Bank Receipts;
h) Making payments to supplier and for the expenses;
i) Writing Day Books and General Ledger;
j) Maintenance of Stock Accounts;
k) Aged Debtor Summary (who owes what and since when);
l) Preparation of Trial Balance, Profit and Loss Accounts and Balance Sheet;
m) Stock Valuations;
n) Payroll Analysis; and
o) Statutory Returns, such as VAT and Service Tax.

ADVANTAGES OF COMPUTERISED ACCOUNTING SYSTEM

1) Volume of Transactions: The computerized accounting system can store and
process such voluminous transactions with speed and accuracy.
2) Scalability: A computerised accounting system is scalable to handle the growing
transactions.
3) Security: The accounting data under the computerised environment is safer than the
accounting data under the manual system. The data can be kept secure by using a
password, i.e., allowing only authorised users to access the data.
4) Timely Reporting: Availability of reports on time enables the management to take
quick decisions, which is an important element for the success of an enterprise. A
computerised accounting system makes these reports available as and when required.
5) Lower Cost: The cost of maintaining books of accounts under the computerized
process is lower than in comparison to the manual process.

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 6) Less Paper Work: Under the computerised process, there is less paper work as
compared to the paper work in the manual process.
7) Flexible Reporting: Reporting under the computerised process is flexible in
comparison to the manual process. The database can be processed further to obtain
the desired report. For example, data relating to debtors can be analysed to ascertain
the list of customers to whom sales above Rs. 1,00,000 has been made in an
accounting year or of the regular customers of the enterprises and so on.
8) Queries: Replies to queries based on external factors can be obtained easily under a
computerised process. For example, list of debtors who have not paid on time can be
taken out by processing the database.
9) Accurate: Computer statements are far more accurate in comparison to manual
statements.
10) Updating: Updating and treatment of wrong transactions are easily done.
11) Financial Statements: From the day book, the Voucher Posting software can
manage the General Ledger, Trial Balance and Balance Sheet.

LIMITATIONS OF COMPUTERISED ACCOUNTING SYSTEM

1) Controls: If adequate controls are not built and where build, are not followed, it can
lead to loss of data. It is important to take back-ups at regular intervals to avoid such a
situation.
2) Data Corruption: The data can get corrupted through viruses that may come in
through the internet or the use of external input devices without scanning them for
viruses.
3) Trained Computer Operators: Untrained computer operators can lead to loss of
data.
4) Limitations of Software: The software is developed on the basis of the experiences of
the team of developers. As such, it may not be able to deal with a specific problem that
may arise.

COMPARISON OF THE MANUAL AND COMPUTERISED ACCOUNTING

SYSTEMS
1) Identifying Financial Transactions: Identifying Financial Transactions and
recording them in the books of accounts by applying the principle of accounting is a
manual process carried out by an authorised person or on the basis of the accounting
manual. This process is, thus, common under both the processes.
2) Recording: The process of Recording transaction in the books of original entry,
posting them in the ledger accounts, performing mathematical functions, i.e., adding,
subtraction and totalling, are carried out manually under the manual process. In the
computerised process, transactions are recorded in the books of accounts and the
remaining functions are performed without any further process or command being
carried out manually.
3) Classification: In the manual process, the transactions are recorded in the book of
original entry and are posted into the ledger accounts. It means that, after recording the

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 transaction, another process of posting process is carried out by internal sorting of
data, i.e., with the help of utility or application software, without any further process.
4) Summarising: In the manual system of accounting, the data under each Ledger is
summarised and a balance of each account is ascertained to prepare a Trial Balance.
As a result, preparing ledger accounts is essential to prepare a Trial Balance. In the
computerised process, a transaction or event, once recorded, is stored in the database
and can be processed to produce a Trial Balance directly.
5) Adjustments Entries: Adjustment Entries are passed to rectify an error or to follow
the matching concept of accounting, i.e., matching the cost with revenue, The process
of passing adjustment entries can be equated with the recording process. These entries
are identified and recorded in the books of accounts. The remaining process is the
same as discussed above.
6) Grouping of Accounts: One of the basics of correct accounting is determining
whether a transaction is capital or revenue in nature and, accordingly, which account
head is to be debited or credited. Once this decision is taken, the account is grouped as
an asset, a liability, an income or an expense at the time of preparing the financial
statements. The above process is followed when the manual system of accounting is
adopted. However, in computerised accounting, whether an account head is an asset, a
liability, an income or an expense, is decided at the time the transaction takes place, as
in the case of manual accounting. It is also defined whether the particular head of
account shall be shown as an asset or liability, or an income or expense.
7) Financial Statements: In the manual process, availability of the Trial Balance is
essential to prepare the Financial Statements. In the computerised process, financial
statements are generated from the system itself and, hence, there is no need to have a
Trial Balance.

Difference between Manual Accounting and Computerised Accounting

Point of Computerised Accounting Manual Accounting
Difference
Recording Recording of financial transactions Data content of these transactions is
is through books of original entry. stored in well designed data base.

Classification Transactions recorded in the books No such data duplications is made.

of original entry are further In order to produce ledger accounts
classified by posting them into the stored transaction data is
ledger accounts. This results in processed to appear as classified so
transaction data duplicity. that same is presented in the form of
report.

Summarising Transactions are summarised to The generation of ledger accounts is

produce trial balance by not necessary condition for trial
ascertaining the balances of various balance.
accounts.

Adjusting Adjusting entries are made entries There is nothing like making
to adhere the principle of matching. adjusting entries for errors and
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 rectifications.

Financial The preparation of financial The preparation of financial

statements statements assumes the availability statements is independent of
of trial balance. producing the trial balance.

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