Introduction to Computerized Accounting
In the present day, accountants no longer record every transaction of a company or any corporate body with the help of pen and pencils using a ledger book. After the birth of computers and the emergence of digitalization in most professional sectors in India, accounting is also computerized.
For the past few decades, computerized data has been used mainly in the field of science and technology. However, as the years go by, computerized accounting systems are also becoming quite common.
Several accounting firms still perform book-keeping manually, while most firms comprise financial transactions that can be a lot for a manual accounting process.
Moreover, the complicated financial transactions of a firm are quite difficult to be recorded manually. That led to the introduction of the concept of computerized accounting systems.
Before you learn the meaning of computerized accounting, it is important to know about the various factors to consider before using such a system.
Features of Computerized Accounting Systems
The characteristic features of computerized accounting systems are as follows –
Components of computerized accounting systems are software programs which are installed on a company machine, network server or accessed remotely with the help of the Internet.
Such a system allows accounting professionals to set up income and expense accounts such as purchases and sales accounts, salary distribution account, advertising expenses account, etc.
The process of computerized accounting systems includes programs that can be used to manage and control bank accounts, prepare company budgets, etc.
Depending upon the program and how advanced it is, accountants can also construct tax documents, handle company payroll, and manage project expenses properly.
Programs in this system can be customized as per user demands. This feature helps every accounting professional to meet the requirements of their firm.
However, it is essential for the employees of a firm who are using a computerized accounting system to get proper training so that they can use the system correctly and execute the required programs accurately.
What are MIS and AIS?
MIS or Management Information System is a digitized database where all the financial information of a company is organized and input in the system. With its help, the program can execute daily reports on the management operations of a company.
AIS or Accounting Information System is nothing but means of collection, storage, and execution of accounting data of a firm. This system is a popular choice for a company before it needs to take an important decision for any purpose.
Components of AIS include data, users, i.e. people, software programs, accounting procedure, information technology, and other internal variables.
Types of Computerized Accounting Software
Multiple accounting software programs are used by professionals across the globe. They can be classified as three types, which are -
Readymade Software
This kind of software is developed for all users in general and does not possess any tweaks or elements that would help out a specific category of users substantially. Readymade software programs are suitable for a firm where the overall volume of accounting work is relatively low.
Compared to other accounting software programs, readymade software programs require minimum system requirements and are usually cheap. Moreover, such programs have an easy and dynamic learning curve.
Customized Software
Customized accounting software programs are those readymade software programs that have been altered to meet the specific requirements of any user. Such programs are usually used in large and medium scale organizations.
In the case of customized accounting software programs, not only the installation expense but also the cost of maintenance is relatively higher than other accounting programs. In most cases, to acquire its services, users need to pay the vendor a certain amount as a customization fee.
The advantages of using such an accounting program include enhanced security and secrecy of data along with easier maintenance. Moreover, users are required to undergo proper training before using this program for professional work.
Tailor-Made Software
As its name suggests, tailor-made accounting software programs are developed for particular firms. Such programs form an integral part of MIS.
These kinds of programs are usually designed for large-scale businesses only and require specialized training before users are adept in working with this software to execute programs accurately.
Advantages of Computerized Accounting Systems
The benefits of such systems are as follows –
Speed, accuracy, and reliability of accounting executions
High efficiency along with top security
Real-time user interference along with quality report preparation, which is mostly automated
Limitations of Computerized Accounting Systems
The limitations of Computerized Accounting Systems are as follows –
Failure of systems such as technical failures like virus attacks, circuit problems in the computer, etc.
The cost of training to master Computerized accounting systems is usually a bit expensive.
Disruptions are quite common
Most accounting systems suffer from an inability to check errors that are not anticipated.
At Vedantu, we hope that this discussion on Computerised Accounting Systems will help substantially in fetching you top marks in the upcoming board exams! You can visit our website or app for more such discussions on various topics from the senior secondary Commerce curriculum.
FAQs on Computerized Accounting Systems: Features and Benefits
1. What is a Computerised Accounting System (CAS) as per the CBSE syllabus?
A Computerised Accounting System (CAS) is an application software that processes a company's financial transactions and events according to Generally Accepted Accounting Principles (GAAP). It automates the work of recording, classifying, and summarising data to generate accurate and timely financial reports, such as the Trial Balance, Profit & Loss Account, and Balance Sheet, directly from the entered transaction data.
2. What are the key features of a Computerised Accounting System?
The essential features of a modern Computerised Accounting System include:
Automation: It automatically posts journal entries to relevant ledgers and updates financial statements.
Speed: It can process a large volume of transactions much faster than any manual method, enabling quick report generation.
Accuracy: By eliminating manual calculations, it significantly reduces the chances of arithmetic errors.
Scalability: The system can be adapted to handle the increasing volume of data as a business grows.
Real-time Reporting: It provides up-to-date financial information instantly, which helps in timely decision-making.
3. What are the main benefits of using a Computerised Accounting System in a business?
The primary benefits of implementing a CAS are improved efficiency and control. It leads to faster preparation of accounts, reduces clerical work, and ensures that reports are legible and standardised. Management gets access to timely information for better decision-making, and the system provides enhanced security for confidential financial data through features like password protection and access controls.
4. What are the different types of accounting software a business can use?
Accounting software can be broadly classified into three categories based on its availability and adaptability:
Ready-to-Use Software: Designed for small businesses with standard accounting needs. It is economical and easy to implement but offers limited customisation.
Customised Software: This involves modifying existing ready-to-use software to meet the specific requirements of a business.
Tailor-made Software: Developed specifically for a particular organisation, especially large ones with unique processes. It offers maximum flexibility but is also the most expensive option.
5. How does a Computerised Accounting System ensure greater accuracy compared to manual accounting?
A CAS ensures accuracy by design through the principle of 'enter once, use many times'. Once a transaction is correctly recorded, the software automatically performs all subsequent tasks like posting to ledgers, balancing accounts, and preparing the trial balance and final accounts. This automation eliminates the human errors common in manual systems, such as errors of calculation, posting to the wrong account, or incorrect balancing.
6. What are the most significant limitations or disadvantages of a Computerised Accounting System?
Despite its advantages, a CAS has several limitations to consider:
High Costs: The initial investment in hardware, software, and staff training can be substantial.
System Failure: There is always a risk of data loss or work disruption due to hardware failure, software corruption, or virus attacks if proper backups are not maintained.
Security Risks: Storing data on computers makes it vulnerable to unauthorised access or hacking if robust security measures are not in place.
Resistance to Change: Employees familiar with manual processes may resist adopting the new technology, leading to a temporary dip in productivity.
7. How does the process of creating a Trial Balance differ between manual and computerised accounting?
In a manual system, preparing a Trial Balance is a distinct, periodic, and time-consuming task where an accountant manually lists all ledger balances to check arithmetic accuracy. In a computerised system, the Trial Balance is not prepared; it is generated automatically and can be viewed instantly at any time. The software maintains perfect debit-credit equality for every transaction, ensuring the Trial Balance is always tallied by default, making it an integrated and real-time report rather than a separate procedural step.
8. Beyond basic bookkeeping, how does a CAS help in strategic business decision-making?
A CAS transforms accounting from just a record-keeping function into a powerful tool for management. It does this by generating instant Management Information System (MIS) reports that are difficult and slow to create manually. Examples include aged receivables analysis for credit control, inventory reports for managing stock levels, and budget variance reports for cost control. Access to this detailed, real-time data allows managers to make informed strategic decisions to improve profitability and operational efficiency.
