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Chapter 13 Computerised Accounting System

A computerised accounting system (CAS) refers to use of computers in performing accounting function with the help of application softwares i.e. accounting softwares. Need of computerised accounting varies with numerous transactions, instant reporting, flexible reporting reduction is paperwork, on-line facility, accuracy and security etc.

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Exercise 1

  • Q1

    State the four basic requirements of a database applications.

    Ans:

    1) Front- end interface : It is the link between the user and the database oriented software, through which the user communicates to the back-end database.
    2) Back-end Database : It stores data which can be retrieved by the user only to the extent he is authorised to access.
    3) Data Processing : It is the process of transforming the data into information useful for making decisions.
    4) Reporting System : It is the system which helps in composing all the information in some integrated form known as a report.

    Thus, the computerised accounting system is a system wherein the difference data is collected, processed and interpreted using suitable software to render useful reports.


    Q2

    Name the various categories of accounting package.

    Ans:

    1) Ready to use Software : A variety of readymade softwares is available in the market. These softwares are for users at large and are not developed according to the requirements of any specific user. Most popular readymade softwares available in the market are Tally, Ex. Busy etc.

    2) Customised Software : The term ‘Customised Software’ means making changes in the ready to use Software so as to suit the specific requirements of the user. Any readymade software can be changed according to the needs and specifications of the user. However, the cost of installation of Customised softwares are high because the cost of change is to be paid by the user.

    3) Tailor-made Software : The term ‘tailor-made software’ means developing a software according to the needs and specifications of the user. These softwares are not available off-the-shelf.


    Q3

    Give examples of two types of operating systems.

    Ans:

    1) Unix Operating System : Unix was initially written in assembly language. Later on, it was replaced by C, and Unix, rewritten in C and was developed into a large, complex family of inter-related operating systems. The major categories include BSD, and Linux.

    2) Linux : Linux is a Unix-like operating system and was developed without any Unix code. Linux is an open license model and code is available for study and modification. It has superseded Unix on many platforms. Linux is commonly used in smartphones and smartwatches.


    Q4

    List the various advantages of computerised accounting systems.

    Ans:

    1) High Speed
    2) High Reliability
    3) Accuracy
    4) Updating of Information
    5) Efficiency
    6) Legibility
    7) Lower Cost
    8) Timely Reporting
    9) Flexible Reporting
    10) Storage and Retrieval
    11) Security of Data
    12) Queries


    Q5

    Give two examples each of the organisations where ‘ready-to-use’, ‘customised’, and ‘tailored’ accounting packages respectively suitable to perform the accounting activity.

    Ans:

    Ready to use accounting packages is best suitable for small and conventional businesses.

    (i) Customised accounting packages are best suitable for large and medium businesses.
    (ii) Tailored accounting packages are best suitable for large and typical businesses.


    Q6

    Distinguish between a ‘ready-to-use’ and ‘tailored’ accounting software.

    Ans:
    On the Basis Ready-to-Use
    Software
    Customised
    Software
    Tailored-made
    Software
    1. Cost of Installation and Maintenance The cost of installation and maintenance of it is very low as compared to other softwares. The cost of installation of it is high than ready to use but lower than tailor made software. The cost of installation of it is very high as compared to other softwares.
    2. Training Needs It is not required intensive training. It requires higher training as compared to ready to use Software. It requires too much higher training than other softwares.
    3. Size of Organization These softwares are suitable to small organizations. These softwares are suitable for large and medium business. These softwares
    are suitable for
    large business.
    4. Level of
    Secrecy
    The level of Secrecy is very low which tends to high frauds. The level of Secrecy is higher than ready to use Software. The level of Secrecy of Data is too much higher than two of these softwares.

     


Exercise 2

  • Q1

    Define a computerised accounting system. Distinguish between a manual and computerised accounting system.

    Ans:

    A Computerised Accounting System is that accounting information system that helps in processing the financial transactions and events as per the Generally Accepted Accounting Principles (GAAP) and leads to the generation of reports as per the requirements of the users.

    An accounting system whether manual or computerised has two parameters, namely,
    1) It has to follow the well defined concepts known as the accounting principles
    2) It has to maintain the user-defined structure for maintained of records and generation of reports.

    Basis of Distinction Manual
    Accounting
    Computerised
    Accounting
    1. Identifying Financial Transactions In this system, identification of financial transactions is done manually by applying the principles of accounting. In this system also identification of financial transactions is done manually by applying the principles of accounting.
    2. Recording In this system, the recording of transactions in the books of original entry and related calculations such as adding, subtraction and totalling are done manually. In this system, the recording of transactions i.e., storing of data in database is done manually and all other calculations are done by computers.
    3. Classification

    In this system, classification i.e., posting to ledger accounts is done manually.

    In this, the stored data are processed automatically by the software to give us ledger accounts.
    4. Summarising In this system, summarising i.e., balancing of ledger accounts and the preparation of trial balance is done manually. In this, transactions once recorded are stored in the database which will produce trial balance automatically.
    5. Adjustment Entries The identification, recording and posting of adjustment entries is done manually. In this, identification and recording of adjustment entries is done manually and their posting etc. is done by software.
    6. Financial Statements In the manual process, preparation of trial balance is essential to produce the financial statements. In this, financial statements are generated from the software itself and therefore there is no need to prepare a trial balance.

     


    Q2

    Discuss the advantages of computerised accounting system over the manual accounting system.

    Ans:

    Advantages are:

    • Faster and efficient in processing of information.
    • Automatic generation of accounting documents like invoices, cheques and statement of account.
    • With the larger reductions in the cost of hardware and software and availability of user-friendly accounting software package, it is relatively cheaper like maintaining a manual accounting system.
    • More timely information can be produced.
    • No more manual processing of the data- all automatically posted to the various ledgers/accounts.
    • Many types of useful reports can be generated for management to make decisions.

    Q3

    Describe the various types of accounting software along with their advantages and limitations.

    Ans:

    1) Ready to Use Software: A variety of readymade softwares is available in the market. These softwares are for users at large and are not developed according to the requirements of any specific user. Most popular readymade softwares available in the market is Tally, Ex. Busy etc.

    Advantages Disadvantages

    1. These softwares are developed by a group of highly experienced group of professionals.

    1. These softwares use laser printers which are costly than the use of Dot Matrix Printers.
    2. Since these softwares are used by a large number of users, accounting personnel well versed with these software are easily available. 2. The lwvwl of Secrecy in these software is very low thus the siftware is highly prone to frauds.
    3. They are easy to learn and their training is sometimes offered free by the vendor. 3. These software offer very little scope of linking to other information systems.
    4. Because of their use by a large numbers of users, they have better after sales maintenance service.  
    5. Because they are available off-the-shelf , time required in developing a tailor made software is saved.  
    6. The cost of installation is low.  

    2) Customised Software: The term 'Customised Software' means making changes in the ready to use Software so as to suit thespecific requirements of the user. Any readymade software can be changed according to the needs and specifications of the user. However, the cost of installation of Customised softwares are high because the cost of change is to be paid by the user.

    Advantages Disadvantages
    1. These softwares are designed to suit the specific requirements of the users. 1. Cost of installation and maintenance is higher in comparison to ready to use Software.
    2. Level of Secrecy for the data is higher. 2. Training requirement for using these packages is higher in comparison to ready to use Software.
    3. Linkage to other information systems is available on the basis of need of the enterprise.  

    3) Tailor-made Software: The term 'tailor-made software' means developing a software according to the needs and specifications of the user. These softwares are not available off-the-shelf.

    Advantages Disadvantages
    1. It being developed sccording to the specifications of the user, takes care of the specific needs of the enterprise. 1. If the accounts are grouped in an innocent manner, the results will be misleading.
    2. The level of secrecy of data and authenticity checks are robust in such softwares. 2. The cost of development and maintenance of such software is much higher in comparison to readymade or customised software.
      3. It is difficult to lern and require specialised training.
      4. Training costs are high since they involve sophisticated applications.
      5. If someone leaves the job, it becomes very difficult for the new employee to be fully conversant with such software.

     


    Q4

    ‘Accounting software is an integral part of the computerised accounting system’ Explain. Briefly list the generic considerations before sourcing an accounting software.

    Ans:

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

    (i) Flexibility: Flexibility is the first and most important thing while selecting the accounting software. The flexibility must be there in data entry and the availability and design of various reports expected from it.

    (ii) Cost of Installation and Maintenance: The choice of the software obviously requires consideration of organisation ability to afford the hardware and software. A simple guideline to take such a decision is the cost benefit analysis of the available options and the financing opportunities available to the firm.

    (iii) Size of Organisation: The size of organisation and the volume of business transactions do affect the software choices. Small organisations, e.g., in non-profit organisations, where the number of accounting transactions is not so large, may opt for a simple, single user operated software. While, a large organisation may require sophisticated software to meet the multi-user requirements, geographically scattered and connected through complex networks.

    (iv) Ease of Adaptation and Training Needs: Some accounting software is user friendly requiring a simple training to the users. However, some other complex software packages linked to other information systems require intensive training on a continuous basis. The software must be capable of attracting users and if it requires simple training, should be able to motivate its potential users.

    (v) Utilities/MIS Reports: The MIS reports and the degree to which they are used in the organisation also determine the acquisition of software. e.g., software that requires simply producing the final accounts for cash flow/ratio analysis may be ready-to-use software. However, the software, which is expected to produce cost records, needs to be customized as per user requirements.


    Q5

    ‘Computerised Accounting Systems are best form of accounting system’. Do you agree? Comment.

    Ans:

    I do agree with the statement that computerised accounting systems are the 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 Principles (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 defined 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 an active interface that uses accounting application programs and a reporting system. Computerised accounting is also one of the database-oriented applications wherein the transaction data is stored in a well-organised database.

    The user operates on such a 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 provides us speed, accuracy, reliability and helps us in recording, summarising and analysing the accounting transactions with the best suitable method and moreover 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.


Exercise 20

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