CH 9 COMPUTERIZED ACCOUNTING

1. CH 9 COMPUTERIZED ACCOUNTING

2. COMPUTERIZED ACCOUNTING A computerized accounting system is an accounting information system that processes the financial transactions and events as per Generally Accepted Accounting Principles (GAAP) to produce reports as per user requirements. Every accounting system, manual or computerized, has two aspects. First, it has to work under a set of well-defined concepts called accounting principles. Another, that there is a user -defined framework for maintenance of records and generation of reports

3. meaning and features 1. It leads to quick preparation of accounts and makes available the accounting statements and records on time. 2. It ensures control over accounting work and records. 3. Errors and mistakes would be at minimum in computerized accounting. 4. Maintenance of uniform accounting statements and records is possible. 5. Easy access and reference of accounting information is possible. 6. Flexibility in maintaining accounts is possible. 7. It involves less clerical work and is very neat and more accurate. 8. It adapts to the current and future needs of the business. 9. It generates real-time comprehensive MIS reports and ensures access to complete and critical information instantly.

4. Codification of accounts • Numerical Codification SystemIn numerical codification, each item is allotted a number, The numbering may be straight or in groups or blocks. This method is very suitable for those companies where the number of items are very large. • Alphabetical Codification SystemIn alphabetical codification, each item is denoted by a combination of the alphabets, for example, A for nut, B for screw and so on. This system is not suitable if there are large number of store items.Alpha-numeric Codification SystemIn alpha-numeric codification, alphabets along with numbers are used for coding.Decimal Codification SystemThe decimal codification system is more commonly used. The number of digits in the code will depend upon the extent of classification required.

5. Advantages of Computerized Accounting 1. Better Quality Work: The accounts prepared with the use of computers are usually uniform, neat, accurate, and more legible than manual job. 2. Lower Operating Costs: Computer is a labor and time saving devise. Hence, the volume of job handled with the help of computers results in economy and lower operating costs. 3. Improved Efficiency: Computer brings speed and accuracy in preparing the records and accounts and thus, increases the efficiency of employees. 4. Facilitates Better Control: From the management point of view, greater control is possible and more information may be available with the use of computer in accounting. It ensures efficient performance in accounting work.

6. 5. Greater Accuracy: Computerized accounting ensures accuracy in accounting records and statements. It prevents clerical errors and omissions. 6. Relieve Monotony: Computerized accounting reduces the monotony of doing repetitive accounting jobs, which are tiresome and time consuming. 7. Facilitates Standardization: Computerized accounting facilitates standardization of accounting routines and procedures. Therefore, standardization in accounting is ensured. 8. Minimizing Mathematical Errors: While doing mathematics with computers, errors are virtually eliminated unless the data is entered improperly in the first instance.

7. Disadvantages of Computerized Accounting 1. Reduction of Manpower: The introduction of computers in accounting work reduces the number of employees in an organization. Thus, it leads to greater amount of unemployment. 2. High Cost: A small firm cannot install a computer accounting system because of its high installation and maintenance cost. To be more economical there should be large volume of work. If the system is not used to its full capacity, then it would be highly uneconomical. 3. Require Special Skills: Computer system calls for highly specialized operators. The availability of such skilled personnel is very scarce and very costly. 4. Other Problems: Frequent repair and power failure may affect the accounting work very much. Computers are prone to viruses. Often time’s people will assume the computer is doing things correctly and problems will go unchecked for long period of time.

8. Difference between computerized accounting and manual accounting system • Manual Accounting refers to the accounting method in which physical registers for journal and ledger, vouchers and account books are used to keep a record of the financial transactions. On the other hand, computerized accounting implies the method of accounting, which uses an accounting software or package, to record the monetary transactions, which happen to an organization. • In manual accounting, recording of the transaction can be done through the book of original entry, i.e. journal day book. Conversely, in computerized accounting, the transactions are recorded in the form of data, in the customized database. • In manual accounting, all the calculations, i.e. addition, subtraction, etc. with respect to the transactions are performed manually. In contrast, in computerized accounting, there is no need to perform calculations, as the calculations are performed by the computer automatically. • One of the merits of computerized accounting which manual accounting lacks is that in manual accounting there is no way to back up all the entries and financial statements, but in computerized accounting, the accounting records can be saved and backed up.

9. In manual accounting, a person remains involved all the time, with the accounts, to enter and update transactions, which is tedious and time-consuming too. As against, in computerized accounting, once the transaction is entered, it is automatically updated in all the accounts to which it relates and thus, the process is comparatively faster. • In manual accounting method, if there occurs an error while entering and posting the transaction in the books of accounts, then adjustment entries can be passed, for getting accurate results.  • In manual accounting, the trial balance is prepared only when it is required, whereas, in computerized accounting, instant trial balance is provided on a daily basis. • In a manual accounting system, the financial statement is prepared at the end of the period, i.e. financial year.