Chapter – 1

OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM

Computerised Accounting System(CAS)

A Computerised Accounting system is a system used by businesses for recording and manipulating financial data with the help of computers and various accounting softwares . It receives the transactions as its inputs and processes it as per the Accounting Rules and generates various types of reports

Features of Computerised Accounting System (CAS)
1. Simple and Integrated : Computerized accounting System is simple and integrate all the business operations, such as sales, finance, purchase, inventory etc…It helps to simplify all business operations
2. Accuracy & Speed: With the help of computerised accounting , mass data can be easily processed and reports can be generated with high speed and accuracy.
3. Scalability/Flexibility : CAS enables to process any volume of data in tune with the changes in the size of business.
4. Transparency and control : CAS provides greater transparency for day to day business operations
5. Reliability : Computerised accounting makes sure that the financial information is accurate, controlled and safe from data corruption.                                            
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Components of Computerised Accounting System (CAS)

  1. Procedure :- Logical step by step sequence of activities  to be followed to perform a task.
  2. Data :- Raw facts and figures used by a computer.
  3. People :- Humanware including users.
  4. Hardware:-  Physical parts and network of computers.
  5. Software :- All programs which puts hardware into function.

Data and Information
Data is raw, unorganized facts that need to be processed. Data can be something simple and useless until it is organized. When data is processed, organized, structured or presented in a given context so as to make it useful, it is called information

Data                -> Process       ->Information
Hourly Rate = 20Hours worked = 1220 hours X Rs.12Total wages = Rs 240

Accounting Cycle

  1. Recording transaction in journal
  2. Posting of journal entries to ledger account
  3. Preparation of Trial balance from balance of accounts
  4. Passing adjusting entries
  5. Preparation of adjusted Trial balance
  6. Passing closing entries
  7. Preparation of Financial statement

Grouping of Accounts
Grouping of accounts is the process of classifying the ledger accounts and organising them under major heads of accounts.The group of accounts determines where to place a particular ledger accounts under trading A/c ,Profit  and loss A/c or balance sheet.

There are four groups of accounts :
Assets,liabilities,Income and Expenditure.

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Codification of Accounts
Giving a numerical number or alphabet or both to a particular account for identification is known as Codification of Accounts. 

For example, the primary code ‘1’ can be given to Asset, ‘2’ to Liabilities, ‘3’ to Income and ‘4’ to Expenditure.
Again for fixed assets the code can be given as 1.1 and the current assets can be coded as 1.2. Thus Building under Fixed Assets can be coded as 1.1.1 and Furniture can be coded as 1.1.2, Cash Account can be coded as 1.2.1 and so on

Types of Codes

Sequential Codes
In sequential code,numbers and/or letters are assigned in consecutive order. 
These codes are primarily applied to source documents such as invoices, cheques etc.

Ex : N001 – ABC Ltd
N002 – PQR Ltd
N003 – XYZ Ltd

Block codes
In block code, a range of numbers is partitioned into a desired number of sub ranges and each sub range is allotted to a specific group.

Code                                Account Groups
001 – 500                      Direct Expense
501 – 1000                    Indirect Expense
1001- 1500                    Direct Income
1501- 2000                   Indirect Income

Mnemonic Codes
A mnemonic code consists of alphabets or abbreviations as symbols to codify an Account.
 E.g. Salary Account can be coded as ‘SLR’, Building Account can be coded as ‘BLD’ and so on

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Methodology to develop coding structure and coding
The coding system should be pre-planned by considering the scope and features of the piece of information.The codes should be designed to accommodate future additions.The hierarchy of data names should be strictly considered while developing codes.

Security Features of CAS Software
Every Accounting Software ensures Data Security, Safety and Confidentiality by providing the  features like Password Security, Data Audit and Data Vault 

1 – Password Security
Password is the key to allow access to the system. Computerised Accounting system protects the unauthorized persons from accessing the business data. Only authorized people who are supplied  with the password, can enter the system.

2 – Data Audit
It enables one to know as to who and what changes have been made in the original data.

3 – Data Vault
Software provides additional security through data encryption. Encryption means scrambling the data so as to make its interpretation impossible

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Advantages of CAS

  1. Timely generation of reports and information in desired format.
  2. Transparency and reliability
  3. Efficiency in record keeping
  4. Save time and money.
  5. Confidentiality of data is maintained.
  6. Accurate and updated information.

Limitations of CAS

  1. Danger of hackers and stealing of data
  2. Data may be lost or corrupted due to power interruptions.
  3. Faster obsolescence of technology which leads to scrapping of huge investment.
  4. Un programmed or unspecified reports cannot be generated.
  5. Huge training cost of employees.

Accounting Information System (AIS)
Accounting information system and its various sub systems may be implemented through computerized accounting system. The sub systems of AIS are:-

  • Cash and Bank Sub system 
  • Sales and Accounts Receivable sub system
  • Inventory subsystem 
  • Purchased and Accounts payable sub system 
  • PayRoll Accounting sub system 
  • Fixed Asset Accounting Sub system
  • Tax Accounting Sub System 
  • Final Account sub system 
  • Costing sub system
  • Budget Sub system