Computers in Accounting

Question: What is a computer?

Answer: Computer is an electronic device which is capable of performing a variety of operations at the directions or a set of instructions. It is an electronic digital machine that acts on a set of instructions called program or software and is used for processing raw data into meaningful information.

Computer

Raw Data ------> Meaningful Information

 

Question: What are the main elements of a computer system?

Answer: A computer system is a combination of following elements:

  1. Hardware: It consists of physical components such as a keyboard, mouse, monitor and processor. These are electronic and electromechanical components.
  1. Software: It is a set of programs used to work with hardware. Eg- MS Office, Tally.
  2. People: People interacting with computers are called live wares, they can be analyst, programmer or operator etc.
  1. Processor: These are series of operations in a particular order to achieve a desired result. The processor can be hardware oriented, software oriented or internal processor.
  1. Data: These are facts and consist of numbers, text These are gathered and entered into computer system which classifies and processes the data to produce information useful for decision making.
  1. Connectivity: It implies connection of one computer to others through telephone line, micro-wave transmission, satellite links etc.

 

Question: What are the capabilities of computer system?

Answer: Computer system possesses some features in comparison to humans which make it very useful.

  1. Speed: It refers to the amount of time computer takes in completion of a task or an operation. A computer requires very less time than a human in performing a task.
  1. Accuracy: It refers to the degree of exactness with which computations are made and operations are performed. The computers rarely commit errors and perform all types of complex operations accurately.
  1. Reliability: It refers to the ability with which computers remain functional and serve the users. Computers are well adjusted to perform repetitive operations. They are free from tiredness, boredom etc. so they are more reliable than humans.

4. Versatility: It refers to the ability of computers to perform a variety of tasks- simple as well as complex. A general purpose computer can be used in any area like business, industry, scientific studies, communication, technological study etc.

    5. Storage: A computer system can store a large amount of data in a very small physical space.

 

Computers in Accounting

Question: What are the limitations of computer system?

Answer: Computer system suffers from the following limitations:

  1. Lack of common sense: Computer system lacks common sense. Whatever program is used, computers will work accordingly.
  2. Low IQ: Computer must be directed to perform each and every action as they are dumb devices with zero IQ (intelligence quotient) .
  3. Lack of decision making: Decision making is a complex process involving information, knowledge, intelligence, wisdom, judgement etc. Computers do not possess all these qualities for decision making.

 

Question: What is management information system(MIS)?

Answer: Management Information System is a system that provides information necessary to take decision and manage the business affairs.

 

Question: What are the types of accounting related MIS reports?

Answer: Following are the main accounting related MIS reports:

  1. Summary report: It summarizes all activities of the organisation and presents it in the form of summary report like Trading and Profit and Loss account, Balance Sheet.
  1. Demand report: This report is prepared only when the management makes request for them e.g. Bad debts report, Stock valuation report.
  2. Customer/Supplier report: These reports are prepared according to the specification of the management e.g. top 10 customers report for customer analysis, top 10 suppliers report for vendor analysis.
  3. Exceptional report: According to the conditions or exceptional cases, such reports are prepared e.g. inventory report in case of short supply, overstocked status report etc.
  4. Responsibility report: Management wants report for the fixation of management responsibility e.g. a report on cash position.

 

Question: What are the main steps that are taken in designing the accounting report?

Answer: Following are the main steps taken to design the accounting report:

1. To fix the objectives of report: The objective of the report must be clearly defined e.g. who are the users of the report and the decision to be taken on the basis of the report.

  1. Structure of report: It must be considered at the first stage. The information must be contained in the report and the decision of presentation is to be decided for the structure of the report.
  2. Query with the data report: The accounting information queries must be clearly defined and the methodology to be adopted while interacting with the database must be decided.
  1. Finalising the report

 

Computers in Accounting

Question: What is the accounting information system? Show the relationship of accounting information system with the other functional management systems.

Answer: Accounting information system is a sub-system of management information system which identifies, processes and communicates economic information about an entity, for the purpose of decision making by various users, internal or external like shareholders, creditors, management etc. The relationship of systems of management information system and accounting information system can be shown with the help of following diagram:

MIS

MIS

 

 

Question: What is a report?

Answer: When data is processed it becomes information and when that information is processed to make a particular form to meet a particular need it becomes a report.

Data ----> Information ------> Report

 

Question: What are the essentials of an accounting report?

or

What criteria must be fulfilled by an accounting report.

Answer: Following are the essentials of an accounting report:

  1. Relevance
  2. Timeliness
  3. Summarization
  4. Accuracy
  5. Completeness

 

Question: What is computerized accounting system (C A S)?

Answer:  Computerised accounting system is an accounting information system that mainly processes the financial transactions and events as per Generally Accepted Accounting Principles (GAAPs) to produce report as per the requirement of different users, internal as well as external like employees, management, creditors etc.

In computerised accounting system, the framework of storage and processing of data is called operating environment that includes hardware and software both of which are interdependent and important.

 

Question: What are the basic requirements of computerised accounting system?

Answer: Every computerised accounting system has two basic requirements:

  1. Accounting framework: It consists of a set of principles, coding and grouping structure of accounting.
  2. Operating processor: It is well defined operating processor with a particular operating environment of the organisation.

 

Computers in Accounting

Question: What is the difference between manual and computerized accounting system?

Answer: Manual and Computerized accounting system can be compared on the basis of following activities or processes:

  1. Identifying: In this step transactions are identified to be recorded which processes are similar in both cases.
  2. Recording: Recording of financial transactions in the manual system is through subsidiary journals whereas in computerized accounting system it is done through accounting database.
  3. Classification: In Manual system transactions recorded in journal are further classified in ledger which results in data duplication but in computerised accounting system no such data duplication is made.
  4. Summarising: In Manual accounting system preparation of ledger account is must for preparing Trial balance but in computerised accounting system Ledger is not required for preparing Trial balance.
  5. Adjusting entries: In Manual accounting many adjusting and rectification entries are required but in computerized accounting system only errors of principle are rectified.
  6. Financial statement: In Manual accounting system trial balance is necessary to prepare financial statements I.e. Profit and loss account and Balance sheet but not in case of computerised accounting system.
  7. Closing the books: In Manual accounting system entries are passed to close and open the accounting books but in computerised accounting system there is year ending processing to create and store opening balances of a come in database.

 

Question: What are the advantages of computerised accounting system?

Answer: Following are the main advantages of computerised accounting system:

  1. Speed: Accounting data is processed faster by using computerized accounting system than it is achieved through manual efforts.
  2. Accuracy: The possibility of Clerical Errors is minimised in computerised accounting system as data is entered once for all.
  3. Reliability: The computerized accounting system is adjusted to perform repetitive tasks, it is not subject to tiredness or boredom.
  4. Up to date information: Computerised accounting system helps in keeping the information automatically updated as and when accounting data is entered and stored.
  5. Real time user interface: Both computers are interlinked through a network of computers which facilitate the availability of information to various users at the same time.
  6. Automated document production: Accounting reports such as Cash book, Trial balance, Statement of affairs can be obtained just by a click of a mouse.
  7. Legibility: Data display on computer monitor is legible which helps in avoiding errors caused by untidily written figures.
  8. Efficiency: The computerised accounting system ensures better use of resources and time.
  9. Quality reports: The inbuilt check facility is available which makes accounting information more reliable in case of computerised accounting system.
  10. MIS reports: Computerised accounting system facilitates the production of MIS reports like Debtor analysis, Creditor analysis.
  11. Storage and retrieval: Computerized accounting system allows us to store data in a manner that does not require large physical space like in case of storage of data in pen drive, CD, hard disk etc.
  12. Motivation and employees interest: Computerised accounting system requires a specialised training to staff which motivates them to develop interest in the job.

 

Question: What are the limitations of computerised accounting system?

Answer: The main limitations of computerised accounting system are:

  1. Cost of training: Working with computerised accounting system requires special knowledge of hardware and software which requires huge cost.
  2. Staff opposition: When Computerised accounting system is introduced there is a significant degree of resistance from the existing accounting staff.
  3. Disruption: The accounting process suffers a significant loss of work and time due to changes in working environment.
  4. System failure: There can be hardware failure leading to loss of time but software damage and failure due to virus can lead to total destruction of data files.
  5. Inability to check unanticipated errors: Computers lack the capability to judge they cannot detect unanticipated errors as humans can.
  6. Breach of security: Fraud and embezzlement can also be committed in computerized accounting system by alteration of data or a program. Hacking of passwords of users may change the accounting record.
  7. Ill-effects on health: The excessive use of computer may lead to health problems like back ache, eye strain etc.

 

Question: When do you need accounting software?

Answer: The need for accounting software arises in two situations:

  1. When computerised accounting system is to be introduced to replace the manual system.
  2. When the current computerised accounting system is to be replaced with and new system to meet the changing needs.

 

Question: What do you mean by accounting software?

Answer: The program used for recording and storing accounting data and generating report as per requirements of the users is called accounting software. The most popular used accounting software is Tally. There are various accounting software available in the market. The basic feature of all accounting software are same on global basis.

 

Question: What are the main categories of accounting packages?

Answer: The main categories of accounting software are:

  1. Ready to use software: This software is used by the organisations running on small scale where the volume of transactions is very low. In this case, cost of installation is also very low and the number of users are limited.

Main Advantage is, it is easy to learn and simple training needs. It is economical.

Disadvantage: The level of secrecy is low as it is prone to data fraud. It does not have secondary backup facility. There is little scope of linking to other information systems.

  1. Customised software: Accounting software to meet the special needs and requirement of the users are called customised software.

Main advantage: It is very useful and offers benefit of data secrecy of the software can be better maintained.

Disadvantage: The cost of installation is high. Cost of training to staff is also very high.

  1. Tailored software: The accounting software is generally tailored for large business organisations with users geographically scattered.

Main advantage: Secrecy as well as authenticity is very high. Flexibility in terms of users is also very high.

Disadvantage: Cost of installation is very high. The cost of specialised training to staff is also very high.

This Topic has been eliminated from Class 11 but is there in Option II of Class 12 Accountancy Syllabus.

Learning Games and Activities in Accountancy – Class 11