What is Computer Accounting

financial accounting

Concept of Computerised Accounting System

A computerised accounting system is an information system that processes the financial transactions to produce reports. The framework of storage of data is called operating environment that consists of hardware and software in which the accounting system will function.   

 For a large business companies, more powerful computer systems are required supported by LAN and WAN networks   to handle  data and  reporting. Modern computerised accounting systems are based on  database. A database is implemented using a database management system, which is called as  computer Accounting software like:- Tally ERP,  

Comparison between Computerised and Manual Accounting system

Accounting, by definition, is the process of identifying, recording, classifying and summarising entreis to produce the financial reports like Profit & Loss, Balance Sheet, Cash Flow and many more…for management. Let us compare the accounting system under manual and using computer software

Identifying of Transaction

The identification of transactions, is an accounting principles and common for manual and computerised accounting .

Recording of Financial Transaction

The recording accounting entry, in manual accounting requires books of original entries using day book, cash book, journal and ledger as principal books of accounts.  while in computer accounting data of such entries is stored in a database management system.

Classification of Transaction

In a manual accounting entries are recorded in the books   entries are   classified by posting into different ledger accounts. This often results in duplicity and high level of errors.

In computerised accounting,   data duplication is zero,   the stored transaction data is automatically  processed to appear classified so that it can be presented as a report.  

Summarising of Accounting entries

In manual system entries  are summarised to produce trial balance and then Profit & Loss / Balance Sheet.  Preparation of ledger accounts becomes a important for trial balance.

In   computerised accounting,   stored   data is processed to create list of balances of various accounts to and finally linked with trial balance and financial statements.  

Adjusting Entries  

In a manual accounting system entries are recorded to match principle of cost and revenue.  Entries are recorded to match  expenses   with the revenues of accounting period.  Some other adjusting entries are may be made as part of  rectification.

In computerised accounting, Journal entries and stored to do the same  but there is nothing like passing adjusting entries for errors  ,  Rectification can be done by correcting the  wrong voucher entered in the system.

Financial Statements Profit & Loss/ Balance Sheet :

 In a manual system of accounting, the preparation of financial statements depends upon trial balance.

However, in computerised accounting The generation of financial statements can be prepared by direct processing of   stored data.

Closing the Books of Accounts:

 Accountant Pass closing entries   for the next accounting period. This is achieved by posting of closing   entries.

 In computerised accounting, store opening balances of accounts is picked up from database.

Advantages of Computerised Accounting System

Computerised accounting offers several advantages which are explained below:-

•Advantage 1) Speed :

Data processing speed is higher  in  computerised accounting system than compared to  manual system.   Computer software require few seconds to record and process the data, entries are punched in few minutes and processed in short time.

•Advantage 2) Accuracy :

In computerised accounting system posting casting errors cannot be done, because   data is entered once   and process starts for preparing the   reports, because there is concept of zero repetition. Normally,  in manual accounting error occur because of repeated posting of same set of original data by several times while preparing different types of accounting reports.

•Advantage 3) Reliability :

The computer accounting system is designed to perform repetitive tasks.  As a result, computers are highly reliable compared to humans. Since computerised accounting system relies heavily on computers systems, they are   more reliable than manual accounting systems, where human feel tired, overburdened.

•Up-to-Date Information :

 In computerised accounting records are updated automatically   when  entries are entered  . Therefore, latest information   get reflected when   reports are produced before the management .   When accounting data pertaining  to  a  transaction regarding cash purchase of goods is entered and stored, the cash account, purchase account and also the financial statements (trading and profit and loss account) is effected immediately.

•Real Time User Interface :

Computer accounting systems are linked through a network of computers like LAN WAN. This helps information to travel tovarious users at the same time, since data travels through these network with greater speed and after internet and other network.

•Scalability when your business grows :

The cost of processing of additional transactions is negligible. Hence the computerised accounting systems are   scalable.

•Legibility :

The data displayed  monitor is legible. Since  system use standard fonts. It helps in avoiding errors caused in a manual accounting system.

•Efficiency :

The computer based very efficient and save resources and time. This brings about efficiency in taking decisions based on instant reports.

•MIS Reports :

The computerised accounting system facilitates the real time  MIS (Management information System)    For example, if the company wants to restrict credit sales   to a given customer, such information is available on the system immediately after entering the transactions.

 •Storage and Retrieval :

The computerised accounting system allows the users to store data in hard disk or pendrive.  and system permits fast and accurate retrieval of data and information.

•  Employees Motivation :

Specialised training of staff, makes employee feel more valued. Sometime employee resist to switch over from a manual   to   computer accounting.bStudents Can Do Computer Accounting Course from IPA for bright future.