Computersie Accounting 1-3

Introduction
Learning Objectives
After studying this chapter you will be In modern business accounting transactions are
able to: processed through computers. Usage of computers
• Understand the need of
and Information Technology (IT) enables a business
Computerised A ccoun ting to quickly, accurately and timely access the
System. information that helps in decision-making. This
• Appreciate the impact of
sharpens the competitive edge and enhances
Information Technology on profitability. The computer systems (Figure 1.1)
Financial Accounting System. works with the data which is processed by the
• Describe the major
ha rdware commande d by the user th rough
functions of A ccoun ting software. The Computerised Accounting System
Information System (AIS). (CAS) has the following components:
Procedure : A logical seq uence of actions to
perform a task.
Data : The raw fact (as input) for any
business application.
People : Users.
Hardware : Computer, associated peripherals,
and their network.
Software : System software and Application
software.
These are the five pillars on which Computerised
Accounting System rests. This chapter discusses
the concept and components of CAS alongwith its
advantages and disadvantages. It is followed by
the discussion of software packages on CAS. In
this chapter we will also discuss the concept about
grouping of accounts and codification methods to
be used for CAS.
Computerised Accounting System
1.1 COMPUTERISED ACCOUNTING SYSTEM

Computerised Accounting System refers to the processing of accounting
transaction through the use of hardware and software in order to
produce accounting records and reports. CAS takes accounting
Figure 1.1 : Components of Computer
transactions as inputs that are processed through Accounting Software

to generate the following reports:
• Day books/Journals
• Ledger
• Trial Balance
• Position Statement (Balance Sheet)
• Statement of Profit and Loss (Profit and Loss Account)
Basic flow of Accounting Transaction
2
Figure 1.2 : Data to Information by Business Application Software
Overview of Computerised Accounting System
Data and Information

Various elements (items) of accounting transactions are essentially
the data items, which are processed through an accounting software
to generate different sets of information in the form of accounting reports
such as journals, ledger, etc.
A data-item (data element) is the smallest named unit of data in
the information system. In accounting, a transaction consists of four
data elements, such as name of account, accounting code, date of
transaction and amount.
The transaction is a record of inflow and outflow of resources.
We may observe (Figure 1.3) how data (days worked and rate per day)
is being (multiplied together) converted into information (amount to
pay). The information may be viewed as data at one level; and when it
is processed keeping in view the requirements of decision maker, it
becomes the information at another level.
1.2 COMPONENTS OF CAS

The ma nual system of a ccou nting is
traditionally most popular method of keeping
records of financ ia l trans actions of an
organisation. Financial statements are the end
products of the accounting process, which are
prepared in ac cord ance with G e n e r a l l y
Accepted Accounting Principles (GAAP). The
accounting cycle means the processes involved
in identifying, measuring and communicating
the information. The basic phases of the cycle
are as follows:
Figure 1.3
• Business transactions are analysed.
• The transactions are recorded in the journal.
• Journal entries are posted to the ledger accounts.
• A trial balance is prepared from balances of accounts.
• Accounts are reviewed and the necessary adjustments made.
• Adjustments are posted in the ledger to prepare adjusted trial
balance.
• Adjusted trial balance is used to prepare the balance sheet and
profit and loss account.
• Financial Statements are prepared from the finally adjusted ledger
and balancing the accounts.
The above accounting cycle can be processed through the use of 3
computers.

Computersie Accounting 1-3

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Introduction

1.1 COMPUTERISED ACCOUNTING SYSTEM

Figure 1.1 : Components of Computer

transactions as inputs that are processed through Accounting Software

Basic flow of Accounting Transaction

Data and Information

The transaction is a record of inflow and outflow of resources.

1.2 COMPONENTS OF CAS

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