Ambiteous Commerce Classes 12th

Topic No.:4 Computer In Accounting

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.

Features of Computerized Accounting System

1. Integrated Date and 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. Ambite ous

2. Accuracy and 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.

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 comprehensive 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 and Loss Account, 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 Receivable and Payables are readily available
at any point of time.

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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.

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 offline with
more user controls outside of the office or within office. In big business houses this facility is useful
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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.

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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.

The following components form the computerized accounting system

1. Hardware
2. Software
3. Company Personnel

1. Hardware
Hardware is the electronic equipment that includes computers, disk drives, monitors, printers and
the network that connects with them. Most modern accounting system 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 cost than the cost incurred it the auditor had to perform all the work on
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site in India.

2. 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.

3. Personnel
Personnel are critical to the success of any endeavour 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.

Creation of Accounting Documents

In accounting software generally the following components are used.
1. Creation of accounting documents: Computer software helps in creating different accounting
documents like cash memos, vouchers, receipts, invoices, etc.

2. Recording of transactions: Computerized accounting software are used to record the day to day
business transactions. It reduces paper work.

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Ledger Accounts

Credit Debit

Liability Income Expenditure Asset

Profit and Loss Account

Balance sheet

3. Preparation of Trial Balance and Financial Statement: After recording the transactions the data
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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 (Data)

Processing (Accounting)

Output (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 many be like statements of debtors,
creditors, inventory, Trial Balance, income statement, balance sheet and so on.

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COMPARISON BETWEEN MANUAL ACCOUNTING PROCESS AND COMPUTERIZED ACCOUNTING

PROCESS

Manual Accounting Computerized Accounting

Meaning
Manual accounting is the system in which we In this system of computerized accounting, we use
maintain physical register of journal and ledger for computer and different accounting software for
keeping the records of each business transactions. digital record of each business transactions.
Calculation make total of
In this system, all calculations are done manually. In computerized accounting system, our duty is to
For example, to find the balance of any ledger record the business transactions manually in the
account. We will make total of the debit and credit database. All the calculations are done by
side and when we will find its difference for computer system. We need not calculate each
showing balance. account’s balance, it is calculated automatically by
computerized accounting system.
Adjustment Entries Record
Both adjustment journal entries and its posting in Only adjustment entries will be passed in the
the ledger accounts will be done manually one by computerized accounting system, posting in the
one. ledger accounts will be done automatically.
Financial statements
We have to make the financial statements We need not prepare financial statement manually,
manually by carefully transferring Trial Balance’s financial statements will be generated
figures in to Trading, Profit and Loss Account and automatically. It will also automatically change
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Balance Sheet. after each voucher entry in the system. This facility
is not available in the manual accounting system.
Closing the books
After the year end accountants prepare financial In the computerized accounting software financial
statements for the accounting period. The balances reports are auto generated for the accounting
are to be carried forward manually, to next year. period. The balances are automatically carried
forward to next year.

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:

Accounting Packages
Every computerized accounting system is implemented to perform the accounting activity (recording
and storing of accounting data and information) and generated various reports as per 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 and Open Source

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Each of these categories offers individual features. However, the choice of the accounting software
would depend upon the suitability to the organization or firm especially in terms of accounting and
financial needs.

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 lining to other information systems.

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 fulfil 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 business 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.
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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 organization MIS. The secrecy and authenticity checks are robust in such software’s and
they offer high flexibility in terms of number of users.

5. Free and 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.

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 and 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.

 Legal software: Full functional software

 Demo software: Used for demo purpose with all major features but with a very few restrictions.

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 Pirated software: Cracked software, nearly full functional, but illegal to use and risky considering
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 accounting
software manufactured as an enterprise resources planning solution for example.
Tally ERP9, Miracle, Busy, Focus & Wings

PRACTICAL ACTIVITY
Practical on application of accounting software – Creation of Company, Accounts group,
Accounting Entries and generation of reports (Balance sheet, Profit and Loss Account, 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 etc. 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 Ambite ous

Login as Remote User

Backup

Restore

Quit

Step 2: The company creation window, display on the screen as shown below in the image. Fill the detail
information in the company creation form.

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Kindly rewrite, it has no reference with the heading, or change heading.

Need to insert group creation image and its process.

1. How to create ledger account in Tally Software

Path : Gateway of Tally – Accounts Info – Ledgers – Single Ledger – Choose Create
Step 1 : From Gateway of Tally Screen, click on accounts info
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Path Gateway of Tally – Accounts Info – Ledgers - Single Ledger – Choose Create

2. How to create voucher Tally Software

For example:
a. Purchased goods on credit from Mr. Amit Sharma of Rs.25,000.

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Voucher Types in Tally

Voucher Its Uses
Types
F4  Cash deposited in bank
(Contra)  Cash withdrawn from bank
 Transfer from one Cash A/c to other Cash A/c
 Bank to Bank transfer
F5  All types of payments are entered through this voucher type. (Cash and
(Payment) Bank)
 Credit item of a payment voucher shall be either Cash or Bank Account
only
 There can be two modes, Single Entry Mode or Double Entry Mode.

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F6  This voucher is used for non – cash transactions.
(Journal)  E.g. Depreciation, provisions, transfer entries, purchase of fixed assets
on credit.
 Journal voucher should not be used for credit sales or credit purchases
F8 (Sales)  This is used for cash sales as well as credit sales.
 There can be two modes, “As Invoice” or “As Voucher”
 Party’s Account name means ledger to be debited write Cash in case of
Cash Sales.
F9  This voucher type is used for both types of purchases, Credit as well as
(Purchase) Cash
 There can be two modes, “As Invoice” or “As Voucher”
 Party’s Account Name means ledger to be credit.

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