Computerised Accounting System - Class 11 Commerce Accountancy - Extra Questions

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The following are the limitations of computerized accounting system:
1. Heavy cost of installation: Computer hardware needs replacement and software needs to be updated from time to time with the availability of newer versions.
2. Cost of training: To ensure effective and efficient use of computerised system of accounting, newer versions of hardware and software are to be introduced. These require special training and hence, cost is incurred to train the staff personnel.
3. Fear of unemployment: On account of the introduction of computerised accounting system, the employees feel insecure that they may lose employment and show less interest in computer related work.
4. Disruption of work: When computerised system is introduced, the existing process of accounting and other works are interrupted. This results in certain changes in the working environment.
5. System failure: The danger of a system crashing due to some failure in hardware can lead to subsequent interruption of work. This is more when no back-up is made.

The accounting software is generally tailored in large business organisations with multi users and geographically scattered locations. These software requires specialised training to the users. The tailored software is designed to meet the specific requirements of the users and form an important part of the organisational MIS. The secrecy and authenticity checks are robust in such softwares and they offer high flexibility in terms of number of users.

Accounting, by definition, is the process of identifying, recording, classifying and summarising financial transactions to product the financial reports for their ultimate analysis. Let us understand these activities in the context of manual and computerised accounting system.
(i) Identifying: The identification of transactions, based on application of accounting principles is common to both, manual and computerised accounting system.
(ii) Recording: The recording of financial transactions, in manual accounting system is through books of original entries while the data content of such transactions is stored in a well-designed accounting database in computerised accounting system.
(iii) Classification: In a manual accounting system, transactions recorded in the books of original entry are further classified by posting into ledger accounts. This results in transaction data duplicity. In computerised accounting, no such data duplication is made to cause classification of transactions.
In order to produce ledger accounts, the stored transaction data is processed to appear as classified so that the same is presented in the form of a report. Different forms of the same transaction data are made available for being presented in various reports.
(iv) Summarising: The transactions are summarised to produce trial balance in manual accounting system by ascertaining the balances of various accounts.
As a result, preparation of ledger accounts becomes a prerequisite for preparing the trial balance. However, in computerised accounting, the originally stored transactions data are processed to churn out the list of balances of various accounts to be finally shown in the trail balance report. The generation of ledger accounts is not a necessary condition for producing trial balance in a computerised accounting system.
(v) Adjusting Entries: In a manual accounting system, these entries are made to adhere to the principle of cost matching revenue. These entries are recorded to match the expenses of the accounting period with the revenues generated by them.
Some other adjusting entries may be made as part of errors and rectification. However, in computerised accounting, journal vouchers are prepared and stored to follow the principle of cost matching revenue, but there is nothing like passing adjusting entries for errors and rectification, except for rectifying an error of principle by having recorded a wrong voucher such as using payment voucher for a receipt transaction.
(vi) Financial Statements: In a manual system of accounting, the preparation of financial statements pre-supposes the availability of trial balance. However, in computerised accounting, there is no such requirement.
The generation of financial statements is independent of producing the trial balance because such statements can be prepared by direct processing of originally stored transaction data.
(vii) Closing the Books: After the preparation of financial reports, the accountants make preparations for the next accounting period. This is achieved by posting of closing and reversing journal entries. In computerised accounting, there is year-end processing to create and store opening balances of accounts in database. It may be observed that conceptually, the accounting process is identical regardless of the technology used.

A computer system is a combination of six elements 
(i) Hardware Hardware of computer consists of physical components such as keyboard ,mouse monitor and processor.
(ii) Software A set of programmers which is used to work with such hardware , is called its software . A coded set of instruction stored in the from of circuits is called firmware. There are six types of software as fallows.
(a) Operating system 
(b) Utility Programmer
(c) Application Software 
(d) Language Processors 
(e) System Software
(f) Connectivity software
(iii) People People interacting with the computer are also called live - ware of the computer system . they constitute the most important part of the computer system such as System Analysts ,Programmers and Operators.
(iv) Procedures The procedure means a series of operation in certain order or manner to achieve desired results.
There are three types of procedures which constitute technical components. Parts of computer system hardware - oriented ,software -oriented system and internal procedure.
(v) Data these are facts and may consist of number ,text ,etc. These are gathered and entered into a computer system.
(vi) Connectivity The manner in which a particular computer system is connected to other says through telephone lines , microwave transmission,satellite link ,etc. is the elements of connectivity.   

The following factors are usually taken in considerations before sourcing accounting software.

Computerised accounting offers several advantages vis--vis manual accounting, there are summarised as follows.
(i) Speed : Accounting data is processed faster by using a computerised accounting system that it is achieved through manual efforts. This is because computers require far less time than human beings in performing a task.
(ii) Accuracy: The possibility of error is eliminated in a computerised accounting system because the primary accounting data is entered once for all the subsequent usage and processes in preparing the accounting reports. Normally, accounting errors in a manual accounting system occur because of repeated posting of same set of original data by several times while preparing different types of accounting reports.
(iii) Reliability: The corrupter system is well-adapted to performing repetitive operations. They are immune to tiredness, boredom or fatigue. As a result, computers are highly reliable compared to human beings. Since computerised accounting system relies heavily on computers, they are relatively more reliable than manual accounting systems.
(iv) Up-to-Date Information: The accounting records, in a computerised accounting system are updated automatically as and when accounting data is entered and stored. Therefore, latest information pertaining to accounts gets reflected when accounting reports are produced and printed. e.g., when accounting data pertaining to a transaction regarding cash purchase of goods is entered and stored, the cash account, purchase account and also the final accounts (trading and profit and loss account) reflect the impact immediately.
(v) Real Time User Interface: Most of the automated accounting systems are inter-linked through a network of computers. This facilitates the availability of information to various users at the same time on a real time basis(that is spontaneously).
(vi) Automated Document Production: Most of the computerised accounting systems have standardised, user defined format of accounting reports that are generated automatically. The accounting reports such as cash book, trial balance, statement of accounts are obtained just by click of a mouse in a computerised accounting environment.
(vii) Scalability: In a computerised accounting system, the requirement of additional manpower is confined to data entry operators for storing additional vouchers. The additional cost of processing additional transactions is almost negligible. As a result, the computerised accounting systems are highly scalable.
(viii) Legibility: The data displayed on computer monitor is legible. This is because the characters(alphabets, numerals etc.) are type written using standard fonts. This helps in avoiding errors caused by untidy written figures in a manual accounting system.
(ix) Efficiency: The computer based accounting systems ensure better use of resources and time. This brings about efficiency in generating decisions, useful information's and reports.
(x) Quality Reports: The inbuilt checks and untouchable features of data handling facilitate hygienic and true accounting reports that are highly objective and can be relied upon.
(xi) MIS Reports: The computerised accounting system facilitates the real time production of management information reports, which will help management to monitor and control the business effectively. Debtors analysis would indicate the possibilities of defaults(or bad debts) and also concentration of debt and its impact on the balance sheet. e.g., if the company has a policy of restricting the credit sales by a fixed amount to a given party, the information is available on the computer system immediately when every voucher is entered through the data entry form. However, it takes time when it comes to a manual accounting system. Besides, the results may not be accurate.
(xii) Storage and Retrieval: The computerised accounting system allows the users to store data in a manner that does not require a large amount of physical space. This is because the accounting data is stored in hard disks, CD-ROMs, floppies that occupy a fraction of physical space compared to books of accounts in the form of ledger, journal and other accounting registers. Besides, the system permits fast and accurate retrieval of data and information.
(xiii) Motivation and Employees Interest: The computer system requires a specialised training staff, which makes them feel more valued. This motivates them to develop interest in the job. However, it may also cause relationship when we switch over from a manual system to a computer system.

I do agree with the statement that computerised accounting systems are best form of accounting system. A computerised accounting system is an accounting information system that processes the financial transactions and events as per Generally Accepted Accounting Prinicples (GAAP) to produce reports as per user requirements.
As we know that every accounting system, manual or computerised, has two aspects. First, it has to work under a set of well-defined concepts called accounting principles.
Another, that there is a user-defined framework for maintenance of records and generation of reports. Here, it is worth mentioning that the modern computerised accounting systems are based on the concept of database. A database is implemented using a database management system, which is define by a set of computer programmes(or software) that manage and organise data effectively and provide access to the stored data by the application programmes.
The accounting database is well-organised with active interface that uses accounting application programs and reporting system. The computerised accounting is also one of the database-oriented applications wherein the transaction data is stored in well-organised database.
The user operates on such database using the required and desired interface and also takes the desired reports by suitable transformations of stored data into information. Therefore, the fundamentals of computerised accounting embrace all the basic requirements of any database-oriented application in computers.
A computerised accounting system provide us speed, accuracy, reliability and help us in recording, summarising and analysing the accounting transactions with the best suitable method and more over make the reporting so easy to the top level management. Hence, it can be said that the computerised accounting systems are the best accounting system.

The following are the distinctive advantage of a computer system over a manual system.
(i)  Speed
(ii) Accuracy 
(iii) Reliability
(iv) Versatility
(v) Storage

Language processor

An accounting information system that uses computers to process the financial transactions and events according to Generally Accepted Accounting Principle(GAAP) to produce reports as per user's requirements is called Computerized Accounting System. 

Computerised accounting offers several advantages vis--vis manual accounting, these are summarised as follows.
(i) Speed
(ii) Accuracy
(iii) Reliability
(iv) Up-to-Date Information
(v) Real Time User Interface
(vi) Automated Document Production
(vii) Scalability
(viii) Legibility
(ix) Efficiency
(x) Quality Reports
(xi) MIS Reports
(xii) Storage and Retrieval
(xiii) Motivation and Employees Interest.

Accounting Information System (AIS) and its various subsystems may be implemented through Computerised Accounting System. The subsystems are: