Comprehensive theory, key formulas, diagrams, and memory aids for Computerised Accounting System.
A computerised accounting system (CAS) is a system of recording, processing, and presenting accounting information using computer hardware and software. It is based on the same principles, concepts, and conventions of accounting as the manual system, but the data processing is automated. The main components of a computerised accounting system are hardware, software, data, procedures, and people.
The computerised system replaces the traditional manual recording in journals, ledgers, and registers with data entry screens and automated posting. Once the transactions are entered, the system automatically posts them to the relevant accounts, balances the books, and generates reports such as the trial balance, the Profit and Loss Account, the Balance Sheet, and the cash flow statement. This reduces clerical effort, improves accuracy, and speeds up the production of financial reports.
Computerised accounting systems may be based on the Transaction Processing System (TPS) approach or the Management Information System (MIS) approach. While both help in recording transactions, the MIS approach also produces information for managerial decision-making. The chapter discusses the features, advantages, limitations, and the accounting process in a computerised environment.
The components of a CAS are:
Data are raw facts and figures, such as a list of purchases or sales, that have no meaning by themselves. When data is processed and organised, it becomes information, which is meaningful and useful for decision-making. In a CAS, transactions are the data and the reports produced are the information.
In a database, an entity is a real-world object about which data is stored, such as a customer or an item of stock. An attribute is a characteristic of the entity, such as the customer's name or the stock quantity.
In a CAS, accounts are organised in a hierarchical structure known as groups. For example, the group "Current Assets" may contain the subgroups "Inventories", "Trade Receivables", and "Cash and Cash Equivalents". This grouping enables the automatic preparation of classified financial statements.
The accounting process in a CAS involves the following stages:
The TPS is concerned primarily with the recording of the day-to-day transactions and generating reports for external reporting. The MIS goes a step further and processes the data to generate information for planning and control, such as reports on cash flow, receivables ageing, and profitability analysis.
$$\text{TPS: Transaction Recording} \rightarrow \text{Reports}$$
$$\text{MIS: Data Processing} \rightarrow \text{Information for Decision-making}$$
Data backup is the process of copying data so that it can be restored in the event of loss or corruption. Backups may be full, incremental, or differential. Security measures include password protection, user access controls, encryption, and anti-virus software. The concept of data security ensures that only authorised persons can access, modify, or delete data.
| Component | Description |
|---|---|
| Hardware | Computer, printer, storage devices |
| Software | Accounting programs such as Tally |
| Data | Transactions and master data |
| Procedures | Rules and guidelines for operation |
| People | Users and operators |
| Advantages | Limitations |
|---|---|
| High speed and accuracy | High initial cost |
| Automatic posting | Need for trained staff |
| Instant reports | Risk of data loss |
| Easy storage and backup | Garbage in, garbage out |
| Handles large volumes | Dependence on power supply |
| Basis | TPS | MIS |
|---|---|---|
| Focus | Recording transactions | Decision-making information |
| Output | Routine reports | Analytical reports |
| Users | Operational staff | Management |
graph TD
A["Computerised Accounting System"] --> B["Components"]
A --> C["Accounting Process"]
A --> D["TPS vs MIS"]
A --> E["Advantages & Limitations"]
A --> F["Data Backup & Security"]
B --> G["Hardware, Software, Data, Procedures, People"]
C --> H["Capture -> Validate -> Process -> Output -> Store"]
F --> I["Full, Incremental, Differential backup"]
A --> J["Grouping of Accounts"]
The computerised accounting system has transformed the way accounting records are maintained and reports are produced. While it retains the fundamental principles of accounting, it replaces manual effort with automated processing, bringing speed, accuracy, and the ability to handle large volumes of transactions. The five components of hardware, software, data, procedures, and people work together in a process of capture, validation, processing, output, and storage. The advantages of computerisation are balanced by limitations such as cost, the need for trained staff, and the risk of data loss, which makes backup and security essential. A sound understanding of the computerised accounting system is indispensable for the modern accountant.