computerised accounting notes

NOTES    

Overview of Computerised Accounting System (CAS)

Computers are widely used in all business today. They normally used in business 

houses to record business transactions, prepare wage sheet, inventory control, 

prepare final accounts etc. Computers perform all the accounting operations at high

speed and with a high degree of accuracy.

Computerised accounting is the process of recording business transactions and 

generating financial statements and reports with the help of computers and various 

accounting softwares.It is used to simplify the accounting procedures and to increase 

the efficiency of the business. In simple words, accounting with the help of 

computers is called computerised accounting.

 Features/ Advantages of computerized accounting system

1.Simplicity: Computerized Accounting System (CAS) is an easy way to 

process the accounting transactions. In CAS, the job of an accountant is only 

to enter accounting transactions through appropriate vouchers. All other 

functions will do by the computer itself. 

2.Comprehensive nature: Most of the accounting packages are complete 

and comprehensive. They can handle various types of vouchers, day books, 

different registers, final accounts etc.

3. Accuracy: The reports that are generated by computerized accounting 

system are free from mistakes. This is because computers can carry out even 

complex calculations at high rate of accuracy.

4. Speed: Computers can process data millions of times faster than human 

beings.

5.Live updation and generation of reports: Accounts will be updated and 

reports will be generated at the same time as each transaction is entered. 

6. No difficulty in alterations: Alterations and additions in transactions can 

be effected easily in computerized accounting. This helps to provide changed 

results instantly.

 7. Storage and retrieval of data is very easy:Under computerized 

 accounting, a large volume of data can be stored in a very small space; 

 further quick retrieval of data from the system is easily possible.

8. Preparation of bank reconciliation statement:Preparation of bank 

reconciliation statement is possible in CAS. Hence an organization can 

reconcile its cash book balance with bank balance.

9. Voucher and cheque printing:CAS helps in printing cheques, debit note, 

credit note, invoices etc.

 Disadvantages of computerized accounting system

 1. Costly

 Computerised accounting system software is expensive.

 2. Lack of reliability

 Computer viruses and hackers may destroy all data stored in the computer 

system. So we can’t be trusted completely on computerized accounting 

 system.

 3. Human Error

 Speedy recording of data in accounting software may result serious errors.

 4. Lack of knowledge 

 Lack of experienced staff is one of the limitations of computerized accounting. 

 Proper training to staff is compulsory . It is costlier.

 Components of computerized accounting system (Five Pillars of

 Computerised accounting system)

 The computerized accounting system have five components, namely 

 procedure, data, people, hardware and software. They are regarded as five 

 pillars of computerized accounting system.

1. Procedure: A logical sequence of actions to perform a task.

Example for Procedure in Accounting: (Identifying business transaction-----

collect its source documents-------journalizing-----posting-----trial balance-----

consider adjustments------prepare final accounts)

2. Data: Data refers to raw facts. Data is a collection of facts, such as numbers, 

words, measurements, observations or just descriptions of things. When data 

are processed, organized, structured or presented in a given context so as to 

make them useful, they are called Information. Processed data is called 

information.

3. People (Human ware): Human ware are persons who operate the computer. 

They include users like owners, managers, system analyst, data entry 

operator, etc.

4. Hardware: All physical components associated with a computerized 

accounting system are referred to as hardware. It includes CPU, monitor, 

mouse, printer, scanner, modem etc.5. Software: Software is a set of instructions that tell a computer what to do.It 

comprises the entire set of programs, procedures, and routines associated 

with the operation of a computer system. Software includes system software 

like Windows, Linux etc. and application software like Tally, Dac Easy etc.

CAS takes accounting transactions as inputs that are processed through accounting software to 

generate reports like Day book, Ledger, Trial balance, Profit and loss account and Balance sheet. 

Data and Information

Data: Data are raw facts that are stored in a computer. In accounting data comprises 

of one or more elements relating to a transaction. It is unorganized facts so it needs 

to be processed. 

Eg:11-09-2020 Sold goods to Bimal Rs.20,000.When we record this transaction to 

the computerised accounting system, we provides lot of data to the system like date,

debtor details, debit item, credit item, amount etc.

Note: A transaction consists of four data elements such as name of accounts, date 

of transaction and amount.

ÿ Name of the account (Debtor)

ÿ Date of transaction (11-09-2020)

ÿ Amount (Rs.20,000)

Information: Processed data is known as information. 

Eg.In a business there are numerous transactions. When we record these 

transactions into the computerised accounting system, actually we provide lot of data 

to the system. CAS processed these data and provide information in the form of 

gross profit, net profit, ledger account balance etc.

Grouping of accounts

 The process of arranging accounts of similar nature at one place is called 

grouping of accounts. In accounting there are different types of accounts. An account 

is a formal record of all transactions relating to a particular item. On the basis of its 

nature, we can classify accounts as assets, liabilities, income, expense and capital

The expenditure and income are further classified into direct and indirect. In addition 

to the basic groups, there are other accounting groups and sub groups.

An account gives information about a particular item, say, salary A/C displays 

amount paid for salary during the year. Cash A/c displays details about cash 

transactions. 

Accounts of similar nature must be created under one group. Salary, rent paid, 

interest paid, advertisement etc. are accounts of similar nature, i.e, ‘Indirect 

Expense’. In CAS, they must be created under the group ‘Indirect expense’.Thus we 

can display summary of all indirect expenses of an organisation under the group 

’Indirect Expense’.

In manual accounting grouping takes place only after the preparation of trial balance. 

In the case of computerized accounting hierarchy of group is fixed at the time of 

creation of ledger accounts.In CAS grouping of accounts is based on Accounting 

Equation.

Accounting Equation

Assets= Liabilities + Capital

OR

Assets = Equities 

Assets: The properties owned by the business are called assets.

Equities: Total clam against the business are called equities. Equities can be sub-

divided into two as owners claim i.e capital and outsiders claim i.e liability.

Assets – Liabilities = Capital

Assets – Capital = Liabilities

Assets- Capital- Liabilities = Zero

Every business transaction will affects assets, liabilities or capital. For example, a 

transaction, say, purchased goods from A Ltd on credit; it will increase the value of 

stock (Asset) and also will increase the amount of creditor (Liability).

The claims of owner’s keep on changing due to profit or loss of the firm. Taking into 

account the above facts, the accounting equation can be re-written as follows:

Assets = Liabilities + (Capital +Income - Expenditure)

Each component of the above equation can be classified into groups of accounts as 

follows:

Note: In Computerised Accounting grouping of accounts is based on Accounting 

Equation. Grouping is the process of classifying accounts of similar nature under one 

head. 

ASSETS

Fixed Assets

v Land and Building

v Plant and Machinery

v Furniture and Fittings

v Vehicles

v Others

Current Assets

v Cash

v Bank

v Debtors

v Stock

v Bills Receivables

v Loans and Advances (Assets)

LIABILITIES

Long term Liabilities

v Debentures

v Loans from Financial Institutions

Short term Liabilities

v Short term Loans

v Creditors

v Bills Payable

v Provisions

CAPITAL

v Share Capital

Reserves and Surplus

v Capital reserve

v General Reserve

v Balance of Profit and Loss Account

Income (Revenue)

v Sales

v Other Income

Expenses

v Raw materials consumed

v Manufacturing Expenses

v Wages

v Salaries

v Depreciation