10 Computer In Accounting

Content

10.1 Concept of Computerized Accounting system (CAS)

10.2 Features of computerized Accounting System.
10.3 Importance of Computerized Accounting System.
10.4 Components of Computerized Accounting System.
10.5 Comparison between manual accounting process and Computerized accounting process.
10.6 Sourcing of Accounting Software
10.7 Legal Vs. Pirated Accounting Software

Competency Statements
o The students will be able to:
 Understand the computerised Accounting & its Components.
 Understand Features Importance & Limitations of Computerised accounting System.
 Learn Application of Computerised Accounting Statements.
 Learn various Accounting Packages.

10.1 Concept of Computerized Accounting System (CAS).

The usage of computers and Information Technology in accounting processes has revolutionized
the modern business concepts so that the process of decision making has become quick, accurate
timely and much easier. A computerized accounting system helps to implement accounting process
and makes it user friendly with automation. Computerized accounting systems are software programs
which help to store data / information in the accounting system. It is connected via computer, network
server or remote accessed device with Internet. The company or firm prepares various reports and
statements with the help of computerized accounting software.
The most important thing is company or firm prepares its reports as per Generally Accepted Accounting
Principles (GAAP) under this system.

10.2 Features of Computerized Accounting System

1) Integrated Date & Information : Computerized Accounting system is designed to make
it user friendly automated and integrated for all business process such as purchase, sales,
finance, inventory, payroll and manufacturing. With computerized accounting system
we can keep accurate, up-to-date business information within time limit. Computerized
accounting is mixed with Management Information System (MIS) with Multilingual and
Data organization capabilities to support the company. All the business operations are
easy and cost effective.
2) Accuracy & Speed : Computerized accounting has various customized templates and
software for users which allows fast and accurate data entry and transaction operations.
Thus, after recording the business transactions it generates the various information and
reports automatically.

381
 3) Quick Decision Making : The Computerized Accounting System generates real-time
information for quick decision. The company or firm can plan, its activities with the help
of comprehensives MIS reports and instant access to complete and critical information of
the Company.
4) Modern and Integrated : It helps to save time in recording business transactions as
compared to manual accounting system. Various financial statements such as Trial Balance.
Profit & Loss A/c, Balance Sheet can be derived at any point of time within fraction of
seconds.
5) Immediate availability of Books of Accounts : In Computerized Accounting system
Books and Registers like Cash Book, Bank Book, Purchase Register, Sales, Register and
Statement of Account like Receivables and Payables are readily available at any point of
time.
6) Security : The Computerized Accounting System is more secured. Data and information
can be kept confidential as compared to the traditional accounting system. In this security
system user can create multiple user security control for the various users.
7) Transparency : Computerized accounting system helps the business organization to keep
greater transparency in the day to day business operations.
8) Grouping of Accounts : Appropriate grouping of accounts is required to be done in
computerized accounting system. Normally ledger accounts are classified under groups
like Assets, Liabilities, Income and Expenditure. As per requirement these groups are
further divided into sub groups as per convenience of the user.

10.3 Importance of Computerized Accounting System.

Computerized accounting systems are very important to various types of business organizations,
firms, company etc.
1) Automation : All the calculations are automatically done by the accounting software with
minimum time as compared to manual accounting calculations.
2) Multi-user-Facilities : Multi-user-facility enable the business man access accounting
information online or off line with more user controls outside of the office or within office.
In big business houses this facility is useful as data entry can be done by many operators
on different computers simultaneously.
3) Accuracy : Computerized accounting software is more accurate as compared to human
being. All calculations, like additions, subtractions and statistical calculations are
automatically done by software.
4) Speed : Computerized accounting software work faster than manual accounting process. It
generates all financial statements and reports speedily as per user requirements.
5) Reduction in Cost : As the financial records are to be entered only once in the system
the accountant will save his time in maintaining the records. This will enable the business
organization to employ few accounting personnel.
6) Systematic and up to date records : Computerized accounting system ensures systematic
and up to date financial records of the business organization.
7) Huge Storage Capacity : In case of manual accounting it is required to maintain separate
Books and Registers for each financial year. In case of computerized system one computer
software can store the accounting records for many years.

382
 8) Compact : No matter how voluminous the financial data is the computer can store it in a
compact way. The financial information can be stored on the hard disk and if required back
- up can be taken on the external storage devices which requires very little space.
9) Transferability / Sharing Information : Computerized accounting system allow the
business organization to share the financial information with the interested parties. The
information can be shared with the help of printouts or can also be shared with soft copy
i.e through pen drive or Internet transfer.

10.4 The Following components form the Computerized Accounting System :

(a) Hardware
(b) Software
(c) Company Personnel
a) Hardware : Hardware is the electronic equipment that includes computers, disk drives,
monitors, printers and the network that connects with them. Most modern accounting
systems require a network, the system of electronic linkages that allow different computers
to share the information within network.
In the network system, many computers can be connected to the main computer, or server,
which stores the program and the data. With the right communication of hardware and
software, an auditor in Maharashtra can access the data of a client located in Kerala. The
result is a speedier audit for the client, often at lower cast than the cost incurred it the
auditor had to perform all the work on site in India.
b) Software : Software is the set of programs that direct the computer to perform the desired
task. Accounting software accepts, edits (alters), and stores transactions and data, generates
the reports.

c) Personnel : Personnel are critical to the success of any endeavor because people operate
the system. Modern accounting system gives non-accounting personnel access to parts of
the system.

Management of a computerized accounting system requires careful planning of data

security and grooming of the people in the organization who will have access to the data.
Security is sought by using passwords, codes that permit access to computerized records.

10.4.1 Creation of Accounting Documents :

In accounting software generally the following components are used.
a) Creation of accounting documents : Computer software helps in creating different
accounting documents like cash memos, vouchers, receipts, invoices etc.
b) Recording of Transactions : Computerized accounting software are used to record the
day to day business transactions. It reduces paper work.

383
 Ledger Accounts

Credit Debit

Liability Income Expenditure Asset

Profit & Loss Account

Balance Sheet

c) Preparation of Trial Balance and Financial Statement : After recording the transactions
the data is automatically transferred into ledger through the software. Vouchers are prepared
on the basis of data recorded into the computer. Trading and Profit and Loss Account and
Balance Sheet is automatically prepared.

Input Processing Output

(Data) (Accounting) (Reports)

Input represents data form source documents, such as sales receipts, bank deposit slips, Purchase
orders etc. Computerized accounting systems require that data inputs be arranged in specific formats.
Transactions with missing dates, account numbers or other critical information are not accepted by
the system.
Outputs are the reports generated for decision making. These may be like statements of debtors,
creditors, inventory, Trial Balance, income statement, balance sheet and so on.

10.5 Comparison between manual accounting process and Computerized accounting process.
Basis of Manual Accounting Computerized Accounting
Difference
1. Meaning Manual accounting is the system In this system of computerized
in which we maintain physical accounting, we use computer and
register of journal and ledger different accounting software for
for keeping the records of each digital record of each business
business transactions. transactions.

384
2. Calculation In this system, all calculations In computerized accounting system,
make total are done manually. For example, our duty is to record the business
of to find the balance of any ledger transactions manually in the
account. We will make total of the database. All the calculations are
debit and credit side and then we done by computer system. We need
will find its difference for showing not calculate each account’s balance,
balance. it is calculated automatically by
computerized accounting system.
3. Ledger Ledger accounts are prepared by In computerized accounting system,
Accounts posting transactions in appropriate once a voucher is entered it will
ledger manually with the help of automatically be printed. Thus there
journal. There may be mistakes is no chance of taking or transferring
while transferring the amount wrong amount.
manually.
4. Trial In this system of accounting, Computerized accounting system will
Balance we have to take the balances of produce Trial Balance automatically.
all ledger A/c, in Trial Balance
Statement.
5. Adjustment Both adjustment journal entries Only adjustment entries will be passed
Entries and its posting in the ledger in the computerized accounting
Record accounts will be done manually system, posting in the Ledger accounts
one by one. will be done automatically.
6. Financial We have to make the financial We need not prepare financial
Statements statements manually by carefully statement manually; financial
transferring Trial Balance’s figures statements will be generated
in to Trading, Profit and Loss automatically. It will also
Account and Balance Sheet. automatically change after each
voucher entry in the system. This
facility is not available in the manual
accounting system.
7. Closing the After the year end accountants In the computerized accounting
Books prepare financial statements software financial reports are auto
for the accounting period. The generated for the accounting period.
balances are to be carried forward The balances are automatically
manually, to next year. carried forward to next year.

10.6 Sourcing of accounting Software

Accounting software is an essential part of the computerized accounting system. An important
factor to be considered before acquiring accounting software is the accounting expertise of people
responsible in business for accounting work, People, not computers, are responsible for accounting.
The need for accounting software arises in two situations :
10.6.1 Accounting Packages
Every Computerized Accounting System is implemented to perform the accounting activity
(recording and storing of accounting data and information) and generate various reports as per

385
the requirements of the user. From this perspective the accounting packages are classified into the
following categories :
(a) Ready to use
(b) Customized
(c) Tailored
(d) Free & Open Source
Each of these categories offers individual features. However, the choice of the accounting
software would depend upon the suitability to the organisation or firm especially in terms of accounting
and financial needs.
10.6.2 Ready-to-Use :
This accounting software is suitable to those organizations or firm running small scale business
where the frequency or volume of accounting transactions is very less. This is because the cost of
installation is generally less and number of users is limited. Ready-to-use software is relatively easier
to learn. This also implies that level of secrecy is relatively low and the software is prone to data
frauds. The training needs are simple and sometimes the vendor (supplier or software) offers the
training on the software free. However, this software offers little scope of linking to other information
systems.
10.6.3 Customized :
This Accounting software may be customized to meet the special requirement of the user.
Standardized accounting software available in the market may not suit or fulfill the user requirements,
For example, standardized accounting software may contain the sales voucher and inventory status
as separate options. However, when the user requires that inventory status to be updated immediately
upon entry of sales voucher and report be printed, the software needs to be customized.
Customized software is suitable for large and medium businesses and can be linked to the other
information systems. The cost of installation and maintenance is relatively high because the high cost
is to be paid to the vendor for customization. The customization includes modification and addition
to the software contents, provision for the specified number of users and their authentication, etc.
Secrecy of data and software can be better maintained in customized software. Since the need to train
the software users is important, the training costs are therefore high.
10.6.4 Tailored
The accounting software is generally tailored in large business organizations with multi users
and geographically scattered locations. This software requires specialized training to the users. The
tailored software is designed to meet the specific requirements of the users and form an important
part of the organizational MIS. The secrecy and authenticity checks are robust in such software’s and
they offer high flexibility in terms of number of users.
10.6.5 Free & Open Source
The small business need an accounting software but they don’t have a big budget, then find out
accounting software available on free, open source software on the Internet. These applications you
can download and install from the websites.
For examples : GNU Khata is the open source accounting software for small business as well
as a personal finance software.

386
10.7 Legal / Licensed Vs. Pirated Accounting Software
There are different types of accounting software packages and applications available in the
market. User can select Legal and Open source software as per its business needs.
Legal Accounting Software is fully functional and safe, Pirated Accounting Software is also
full functional but its use is illegal & data can be corrupted. Always use the legal software for the
accounting transaction because they can be updated as per statutory changes like VAT, GST etc.
l Legal software - Full functional software.
l Demo Software - Used for demo purpose with all major features but with a very few
restrictions.
l Pirated software - Cracked software, nearly full functional, but illegal to use & risky con-
sidering data safety.
To select the best accounting product you will first need to decide your individual and corporate
needs. Small business accounting software functions much differently in many respects that account-
ing software manufactured as an enterprise resources planning solution for example.
Tally ERP9, Miracle, Busy, Focus, & Wings

10.8 Practical Activity :

Practical on Application of accounting software - Creation of Company, Accounts group,
Accounting Entries and generation of reports (Balance Sheet, Profit & Loss A/c, Day Book etc).
What is Accounting Software?
Accounting Software is used for recording day to day business transaction of a company.
It maintains inventory management system with computer. It is integrated with other business
applications such as Purchase. Sales, Finance, Payroll, Inventory ect. with all accounting details.
Step 1: After entering into Accounting Software Tally, double click on the option create
company under company information.
To create company in Tally, follow the following navigation path Gateway of Tally > Company
Info > Create company

Company Information
Select Company
Login as Remote User
Backup
Restore
Quit

387
2) How to create voucher Tally Software
For Example :
1) Purchased goods on credit from Mr. Anmol Sharma of Rs. 25000/-

Voucher Types in Tally

Voucher Types Its Uses
F4 (Contra) l Cash deposited in bank
l Cash withdrawn from bank
l Transfer from one Cash A/c to other Cash A/c.

l Bank to Bank transfer

F5 (Payment) l All types of payments are entered through this voucher type.
(Cash and Bank)
l Credit item of a payment voucher shall be either Cash or Bank Account
only.
l There can be two modes, Single Entry Mode or Double Entry Mode.

389
 F6 (Receipt) l There can be only two types of receipts.
l Cash Receipt and Bank Receipt.
l Both these receipts has to be entered here.
l Debit item of Receipt Voucher will always be either Bank or Cash.
l There can be two modes, Single Entry Mode or Double Entry Mode.
F7 (Journal) l This voucher is used for non - cash transactions.
l E.g. Depreciation, provisions, transfer entries, purchase of fixed assets
on credit.
l Journal voucher should not be used for credit sales or credit purchases.
F8 (Sales) l This is used for cash sales as well as credit sales.
l There can be two modes, “As Invoice” or “As Voucher”.
l Party’s A/c Name means ledger to be Debited, write Cash in case of
Cash Sales.
F9 (Purchase) l This voucher type is used for both types of purchases, Credit as well as
Cash.
l There can be two modes, “As Invoice” or “As Voucher”.
l Party’s A/c Name means ledger to be credited.
For viewing Accounting Reports in Accounting Software to click on Report option and
select the Display option.

HHHHHHHHHHHHH EXERCISE -10 HHHHHHHHHHHHH

Q.1 Objective questions :

A. Select the most appropriate alternatives from those given below and rewrite the statements.
1) The primary document for recording all financial transactions in Tally is the .............
a) Journal b) Trial sheet c) Voucher d) File
2) This displays the balance day wise for a selected voucher type.
a) Record Book b) Ledger book c) Journal book d) Day book
3) Fixed Deposit A/c comes under ............... group.
a) Investments b) Current Liability c) Bank A/c d) Current Asset
B. Give the word term or phrase which can substitute each of the following statements:
1) The details of Bills Receivable are maintained in this record.
2) Tally software is classified into this category.
3) The short key used to save or accept the information.
4) It is a damaged software, cracked, nearly fully functional.
5) The process by which all the calculations are automatically done by the accounting soft-
ware.
C. State whether the following statement are true or false with reason :
1) Alt + D are the short key for delete voucher entry.
2) In Tally F6 Functions key is for Payment Voucher.

390