Computerised Accounting

What is Computerised Accounting?

A computerized accounting system is an accounting information system that processes the financial transactions and events to produce reports as per user requirements. Manual or Computerised accounting has two aspects. The first one is that it has to work under a set of well-defined concepts called accounting principles. The second one is a user-defined framework for maintenance of records and generation of reports.

In Computerised Accounting system the framework of storage and processing of data is called operating environment that comprise of hardware and software in which the accounting system works. Modern computerised accounting systems are based on the concept of database. A database is defined as a set of computer programmes that manage and organize the data by the application programmes. The accounting database is well-organised with active interface that uses accounting programs and reporting system.

Computerised Accounting System has two basic requirements:

* Accounting Framework: It comprises a set of principle, coding and grouping structure of accounting.
* Operating Procedure: It is an amalgamation of well defined operating procedure with the operating environment of the organization.

Difference between Manual and Computerised Accounting

• Recording Transactions: Recording of financial transactions in manual accounting is through books of original entries. In computerised accounting system the data is stored in a well designed accounting database.
• Classification: In manual accounting transactions are recorded in the books of original entry and further classified and posted to ledger accounts whereas in computerised accounting no such data duplication is made to cause classification of transactions.
• Summarization: In manual accounting system the transactions are summarized to outturn to trail balance accounts. In computerised accounting the original stored transactions data are processed out for a list of balances of various accounts to be shown in the trial balance report.
• Adjusting Entries: The entries are made to follow the principle of cost matching revenue in manual accounting system whereas in computerised accounting Journal vouchers are prepared and stored to follow the principles of cost matching revenue.
• Financial Statements: In manual accounting the preparation of financial statements pr-supposes the availability of trail balance. In computerised accounting the generation of financial statements is independent of producing the trail balance.
• Closing the Books: After the completion of financial reports, the accountants get ready for the next accounting period by posting closing and reversing journal entries. In computerised accounting there is year-end processing to create and store opening balances of accounts in database.

Advantages of Computerised Accounting System

• Speed: Accounting data is processed faster by using computerised accounting system than through manual efforts.
• Accuracy: There is less possibility of error in computerised accounting as the primary data is entered once for all the subsequent usage and processes.
• Reliability: Computerised accounting is relatively more reliable than manual accounting systems.
• Latest Information: The accounting records are updated automatically as and when accounting data is entered and stored.
• Real Time User Interface: Automated Accounting systems are inter-linked through a network of computers facilitating the availability of information to various users on a real time basis, simultaneously.
• Automated Document Yield: Computerised accounting systems have standardized, user defined format for accounting reports that are generated automatically.
• Scalability: In Computerised accounting system the requirement of additional manpower is confined to data entry operators for storing additional vouchers.
• Legibility: The data displayed on the computer system is more legible than manual. • Efficiency: The computer-based accounting systems ensure better use of resources and time.
• Quality Reports: The inbuilt checks and untouchable features of data handling facilitate high quality accounting reports.
• Storage & Retrieval: Computerised accounting allows the users to store data in a manner that does not require large amount of space.
• MIS Reports: Computerized accounting facilitates the real time production of management information of reports that helps the management to monitor and control the business effectively.

Limitations of Computerised Accounting System

The main drawbacks that computer accounting system has are mentioned below: Cost of training, Staff Opposition, Disruption, System Failure, Inability to check unanticipated errors, Breaches of security, Adverse effects to health.