CLASS XII CBSE COMPILED BY SUDHIR SINHA

COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

USING COMPUTERIZED ACCOUNTING SYSTEM.

• Steps in installation of CAS, codification and Hierarchy of account heads, creation of accounts.
• Data: Entry, validation and verification.
• Adjusting entries, preparation of balance sheet, profit and loss account with closing entries and
opening entries.
• Need and security features of the system.

Steps in the Installation of a Computerised Accounting System:

1. Preparation of System Requirement

o Identify the hardware and software requirements.
o Ensure the system meets the necessary specifications for installation.
2. Selection of Accounting Software
o Choose the appropriate accounting software based on the organization's needs
(such as Tally, Busy, QuickBooks, etc.).
o Consider factors like budget, features, ease of use, and scalability.
3. Procurement of Software
o Purchase the selected accounting software or subscribe to a cloud-based version.
o Ensure that all legal requirements such as software licenses are met.
4. Installation of the Software
o Install the software on the system following the instructions provided.
o If it’s a cloud-based system, follow the procedure for setting up an online account.
o Ensure the software is compatible with the hardware.
5. Creation of Chart of Accounts (COA)
o Set up a chart of accounts that defines the categories for transactions, including
assets, liabilities, income, and expenses.
6. Configuration of User Rights
o Set user roles and permissions to ensure that only authorized personnel have access
to specific accounting functions.
7. Customisation of Software
o Customize the software settings to fit the needs of the organization. This may
include defining company information, fiscal year, currency, tax rates, and financial
reports.
8. Trial Run
o Conduct a trial run to ensure the system is functioning properly.
o Enter sample data and generate reports to check the accuracy and ease of use.
9. Training of Users
o Train the staff or accounting team on how to use the software.
o Ensure that everyone knows how to record transactions, generate reports, and
perform backups.
10. Implementation
o Once the system is fully tested and customized, implement it for regular use.
o Continue monitoring and updating the system as needed.
These steps provide a structured process for installing a CAS and ensuring that it meets the
operational requirements of an organization.
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

Codification and Hierarchy of Account Heads

Codification and hierarchy of account heads are essential concepts for organizing and structuring
the accounts efficiently within a Computerised Accounting System (CAS). According to Concise
Oxford Dictionary, the term code means “a system of letter or figure with arbitrary meaning for
brevity and for machine processing of information”. Thus, code is an identification mark.

1. Codification of Account Heads

Codification is the process of assigning unique codes or numbers to various account heads. It
helps in the easy identification, classification, and retrieval of data. In a CAS, codification plays a
crucial role in ensuring that each transaction is recorded under the appropriate account.

Importance of Codification:
• Simplifies the identification of accounts.
• Reduces the risk of errors during data entry.
• Facilitates faster processing and reporting.
• Makes data retrieval efficient and organized.

Methods of Codification:
The coding scheme of Account-heads should be such that it leads to grouping of accounts at
various levels so as to generate Position Statement (Balance Sheet) and Statement of Profit and
Loss (Profit-Loss Account).

(1) Sequential Codes

In Sequential Code, numbers and/or letters are assigned in consecutive order. These codes are
applied primarily to source documents such as cheques, invoices, etc. A sequential code can
facilitate document searches. This process enables in either identification of missing codes
(numbers) relating to a particular document or a relevant document can be traced on the basis of
code.
For examples:
CODES ACCOUNTS
• CL001 GCERT LTD
• CL002 XYZ LTD
• CL003 ARIL CORPORATION OF INDIA

(2) Block Codes

In a 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. In most of the uses of block codes, numbers within a
sub-range follow sequential coding scheme, i.e. the numbers increase consecutively. As an
example, dealer codes for a trading firm could be as follows:
GROUP CODE ITEMS
100-199 Biscuits 100-Good Day, 101-Parle G, 102-Marie Gold
200- 299 Chocolates 200-Perk, 201-Bar One, 202-Dairy Milk
300-399 Soft drinks 300-Pepsi, 301-Coca Cola, 302-Mirinda
400 - 499 Fruits 400-Orange, 401-Apple, 402-Pineapple
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

(3) Mnemonic Codes

A mnemonic code consists of alphabets or abbreviations as symbols to codify a piece of
information. SJ for “Sales Journals”, HQ for “Head Quarters” are examples of mnemonic codes.
Another common example is the use of alphabetic codes in Railways in identifying railway stations
such as DLH for Delhi, NDLS for New Delhi, BRC for Baroda, etc.

2. Hierarchy of Account Heads

The hierarchy of account heads refers to the structured arrangement of various accounts in a
hierarchical manner, based on their type and nature. It ensures that accounts are organized
systematically under broad categories, making reporting easier.
Levels of Hierarchy:
• Primary Account Heads: These are the broad categories under which all other accounts are
classified. They generally include:
o Assets
o Liabilities
o Income
o Expenses
o Equity (Owner’s capital)
• Sub-Account Heads: These are the accounts that fall under primary heads. For example:
o Under Assets, you may have Fixed Assets, Current Assets, etc.
o Under Liabilities, you may have Long-term Liabilities, Current Liabilities, etc.
• Detailed Account Heads: These are the specific accounts that come under sub-account
heads. For instance:
o Under Current Assets, you can have Bank, Cash, Debtors, Inventory, etc.
o Under Expenses, you can have Rent, Salaries, Electricity, etc.
Example of a Hierarchical Structure:
1. Assets (100)
o 101 Fixed Assets
▪ 101.1 Land
▪ 101.2 Building
o 102 Current Assets
▪ 102.1 Cash
▪ 102.2 Bank
2. Liabilities (200)
o 201 Long-term Liabilities
o 202 Current Liabilities
3. Income (300)
o 301 Sales
o 302 Interest Income
4. Expenses (400)
o 401 Salaries
o 402 Rent
This hierarchical structure ensures that the accounting data is organized logically, making it easier
to generate reports, perform audits, and analyze financial information.
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

The creation of accounts is a fundamental step in setting up a Computerised Accounting System

(CAS). Accounts must be created in the system to record financial transactions and generate
reports.
Steps for the Creation of Accounts in CAS:
1. Access the Accounting Software:
o Open the chosen accounting software (e.g., Tally, Busy, etc.).
o Navigate to the section where accounts or ledgers can be created (typically under
"Accounts" or "Ledger").
2. Define Company Information:
o If setting up for the first time, the company information must be defined. This
includes:
▪ Name of the company
▪ Address
▪ Fiscal year
▪ Currency, etc.
3. Selection of Account Types:
o Identify and choose the type of account to be created. Accounts generally fall into
these categories:
▪ Assets
▪ Liabilities
▪ Income
▪ Expenses
▪ Equity
4. Assign a Code to the Account (Codification):
o Assign a unique code or number to the account for easier identification and
classification. Codification ensures uniformity and consistency in the recording
process.
o The coding method can be numeric (e.g., 101 for Cash, 201 for Creditors) or
alphanumeric (e.g., A001 for Cash).
5. Set the Parent Group (Account Hierarchy):
o Assign the account under the appropriate group or hierarchy. For example:
▪ Cash will fall under Current Assets.
▪ Salaries will fall under Expenses.
▪ Debtors will fall under Current Liabilities.
6. Input Account Details:
o Provide the necessary information for the account being created, including:
▪ Account Name: Enter the name of the account, such as Cash, Bank, Debtors,
etc.
▪ Opening Balance: If the account already has an opening balance at the time
of creation, it should be entered (e.g., Cash balance of ₹10,000).
7. Enter Other Specifications (if any):
o Depending on the software, additional fields like cost centers, tax rates, and default
currency may need to be specified.
o Define whether the account is a sub-account or belongs to a higher-level group.
8. Save the Account:
o Once all the details are entered, save the account information.
o The account is now ready to be used for recording transactions.
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

Example: Creation of a "Cash" Account

1. Type of Account: Asset
2. Account Name: Cash
3. Group: Current Assets
4. Account Code: 101 (if using a numeric code system)
5. Opening Balance: ₹10,000 (if applicable)
6. Save: The account is saved in the system.
Hierarchical Organization:
Accounts can be structured under the following levels:
• Main Group: Assets, Liabilities, Income, Expenses
• Subgroup: Fixed Assets, Current Assets, Long-term Liabilities, Current Liabilities, Direct
Income, Indirect Income, etc.
• Account: Individual accounts like Bank, Debtors, Cash, etc.
Types of Accounts to Be Created:
• Assets Accounts: Cash, Bank, Debtors, Inventory
• Liabilities Accounts: Creditors, Loans
• Income Accounts: Sales, Service Income
• Expense Accounts: Salaries, Rent, Electricity, etc.
The proper creation of accounts ensures that financial transactions are recorded accurately and
systematically, allowing easy access to financial information, report generation, and analysis.

Data entry is a key process for recording financial transactions into the Computerised Accounting
System (CAS). Accurate and timely data entry ensures the correct recording of all transactions,
which is crucial for generating reliable financial reports.

Steps for Data Entry in a Computerised Accounting System (CAS):

1. Access the Data Entry Module:
o Open the accounting software and navigate to the data entry module. Most software
will have options like "Voucher Entry," "Transaction Entry," or similar.
o Choose the type of voucher or transaction you want to enter (e.g., receipt, payment,
sales, purchase, etc.).
2. Select the Type of Voucher/Transaction:
o The type of transaction or voucher is selected based on the nature of the financial
transaction. Common types include:
▪ Payment Voucher (for cash or bank payments)
▪ Receipt Voucher (for cash or bank receipts)
▪ Sales Voucher (for sales transactions)
▪ Purchase Voucher (for purchase transactions)
▪ Journal Voucher (for adjustments, non-cash transactions)
3. Specify the Date:
o Enter the date of the transaction. The system allows entering past or future dates,
but it is essential to enter the correct date for accurate record-keeping.
4. Select the Accounts Involved:
o Choose the appropriate accounts from the chart of accounts for both the debit and
credit sides of the transaction. For example:
▪ In a sales transaction, the Sales Account will be credited, and the Debtors
Account will be debited.
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

▪ In a payment transaction, the Bank/Cash Account will be credited, and the

Expense Account will be debited.
5. Enter the Transaction Amount:
o Input the correct amount for the transaction. Ensure that the amount is accurately
entered for both debit and credit sides.
6. Provide Additional Details (If Required):
o Depending on the software and the type of transaction, additional fields may be
present for:
▪ Invoice number
▪ Narration (a brief description of the transaction)
▪ Tax details (GST/VAT, etc.)
▪ Cost centers or projects
▪ Party name (for sales/purchase entries)
7. Save the Transaction:
o After all necessary details are entered, save the transaction. The entry will be
recorded in the system and reflected in the relevant accounts.
8. Verify the Data Entry:
o After saving, review the entry for accuracy. Most accounting software provides
options to preview the transaction before finalizing.
Common Types of Data Entry:
1. Sales Entry (Sales Voucher):
o Date: 05/09/2024
o Account: Sales Account (Credit)
o Party: Debtors Account (Debit)
o Amount: ₹50,000
o Narration: "Sales made to XYZ Ltd."
2. Purchase Entry (Purchase Voucher):
o Date: 06/09/2024
o Account: Purchase Account (Debit)
o Party: Creditors Account (Credit)
o Amount: ₹30,000
o Narration: "Goods purchased from ABC Ltd."
3. Receipt Entry (Receipt Voucher):
o Date: 07/09/2024
o Account: Bank Account (Debit)
o Party: Debtors Account (Credit)
o Amount: ₹20,000
o Narration: "Payment received from XYZ Ltd."
4. Payment Entry (Payment Voucher):
o Date: 08/09/2024
o Account: Expense Account (Debit)
o Party: Cash/Bank Account (Credit)
o Amount: ₹10,000
o Narration: "Rent payment for September."
Importance of Data Entry:
• Ensures accurate financial records.
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

• Helps in the generation of financial reports like profit & loss statements, balance sheets,
etc.
• Facilitates audit trails by providing detailed transaction histories.
• Enables easy retrieval of financial data for analysis.
In a Computerised Accounting System, the quality and accuracy of financial reporting depend on
proper data entry, ensuring that all transactions are correctly recorded and accounted for.

Data Validation in Computerised Accounting:

Data validation refers to the process of ensuring that the data entered into a system meets the
required standards and is error-free. It helps to maintain the integrity and reliability of financial
records.
Key Aspects of Data Validation:
1. Input Validation: Ensuring that the data being entered into the accounting system is correct
and in the expected format.
o Data Type Validation: Ensures that the correct type of data (numeric, text, date) is
entered.
o Range Validation: Ensures that the data falls within a specified range (e.g., values
for discounts should not exceed 100%).
o Format Validation: Ensures data follows a specific format, such as a date in
DD/MM/YYYY format or phone numbers in the proper format.
o Unique Constraints: Ensures that specific values are unique, such as invoice
numbers or account numbers.
2. Consistency Checks: Cross-verifying data with existing records to ensure there are no
conflicts.
o For example, an account entry should match with the predefined chart of accounts.
3. Existence Validation: Ensures that the data entered is valid in relation to the database.
o For instance, when entering customer details, ensuring that the customer exists in
the master records.
4. Mandatory Fields: Validating that all required fields (e.g., date, amount, ledger account)
are filled before the transaction is recorded.
5. Error Messages and Feedback: When an incorrect value is entered, the system provides
error messages or prompts to correct the entry.
6. Automatic Validation Rules: In modern accounting software, validation rules can be pre-
configured so that the system automatically checks the data before it is processed.

Benefits of Data Validation:

• Prevents Errors: Ensures that incorrect or inappropriate data does not enter the system.
• Improves Data Accuracy: Keeps financial records accurate, consistent, and reliable.
• Saves Time: Reduces time spent correcting errors later in the process.
• Compliance: Ensures adherence to accounting standards and regulations.

Data Verification in Computerised Accounting:

Data verification refers to the process of checking and confirming that the data entered into the
accounting system is correct and matches the original source documents, such as invoices,
receipts, and purchase orders. It is a critical part of ensuring the reliability of financial reports.
Key Aspects of Data Verification:
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

1. Cross-Referencing: Data entered into the accounting system should be cross-referenced

with source documents.
o Example: Checking if the amounts in a sales invoice match the amount entered into
the system.
2. Reconciliation: Comparing records in the accounting system with external data, such as
bank statements or supplier records, to verify that the data is accurate.
o Bank Reconciliation Statement (BRS): A common example where the bank's financial
records are reconciled with the company's own records to ensure consistency.
3. Double-Entry System Checks: In a double-entry accounting system, each transaction must
affect at least two accounts in a balanced way (debit and credit). Verification ensures that
all entries conform to this principle.
o Example: A purchase of office supplies should debit the "Office Supplies" account
and credit the "Cash" or "Bank" account.
4. Trial Balance: Verifying that the total debits and credits of ledger accounts are equal. Any
discrepancies in the trial balance can indicate errors that need to be corrected.
5. Audit Trails: Systems maintain a record of every change made to data. Verification can
involve checking this audit trail to ensure data was entered or modified correctly, including
who made the changes and when.
6. Manual Verification: In some cases, accounting staff might manually verify the accuracy of
certain records, especially in smaller businesses. This involves checking data entries line
by line against source documents.

Types of Data Verification:

1. Manual Verification: The accountant manually checks data entries, often for critical
transactions like large payments.
2. Automated Verification: Most accounting software includes automated verification features
to check for consistency and discrepancies across various records.
o Example: Software may flag transactions that are inconsistent with previous entries
or those that exceed a set threshold for further review.
3. Proofreading: Another form of verification where accountants or auditors review the data
for obvious errors or mismatches.

Importance of Data Verification:

• Prevents Fraud and Errors: Ensures that the data recorded in the system accurately
represents actual business transactions.
• Ensures Accuracy: Provides a second layer of confirmation beyond validation.
• Improves Decision-Making: Verified data is more reliable, which is essential for accurate
financial reporting and informed decision-making.
• Compliance: Helps in adhering to accounting standards and legal regulations by providing
accurate financial information.

Difference Between Data Validation and Data Verification:

• Validation: Ensures the data is entered correctly and in the right format.
• Verification: Confirms that the entered data matches the source documents and is accurate.

Adjusting Entries in Computerised Accounting

CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

Adjusting entries are made at the end of an accounting period to update revenues and expenses
that are not recorded during the regular course of transactions. These adjustments are necessary
to follow the accrual accounting principle, ensuring that financial statements accurately reflect the
company’s financial position.

Common Types of Adjusting Entries:

Prepaid Expenses: Expenses paid in advance but not yet incurred (e.g., prepaid rent).
Entry: Debit the expense account and credit the prepaid asset account.
Accrued Expenses: Expenses that have been incurred but not yet paid (e.g., salaries payable).
Entry: Debit the expense account and credit a liability account.
Accrued Revenues: Revenues earned but not yet received (e.g., interest receivable).
Entry: Debit an asset (Receivables) and credit the revenue account.
Depreciation: Allocating the cost of a fixed asset over its useful life.
Entry: Debit Depreciation Expense and credit Accumulated Depreciation (a contra asset account).

Process in CAS:
In a computerised accounting system, adjusting entries are entered into the system by selecting
the appropriate accounts and specifying the amounts. Modern accounting software often provides
templates for common adjustments, making the process easier and more accurate.

Preparation of Balance Sheet

The Balance Sheet is a financial statement that shows the company’s financial position at a specific
point in time. It lists the assets, liabilities, and equity of the business.

Key Components:
Assets: Current Assets (cash, inventory, receivables) and Non-Current Assets (property, equipment,
intangible assets).
Liabilities: Current Liabilities (accounts payable, short-term loans) and Long-Term Liabilities (long-
term debt).
Equity: Owner's equity or shareholders' equity, retained earnings, and reserves.

Preparation in CAS:
In a computerised accounting system, the balance sheet is usually prepared automatically once
all transactions, including adjusting entries, are recorded. The system generates the report by
pulling information from the ledger accounts, ensuring accuracy.

Preparation of Profit and Loss Account

The Profit and Loss (P&L) Account, also known as the Income Statement, shows the company’s
revenues and expenses over a specific period, usually a quarter or a year. The goal is to calculate
the net profit or loss.

Key Components:
Revenue (Income): Sales, services rendered, interest income, etc.
Expenses: Operating expenses, cost of goods sold, administrative expenses, interest expenses,
etc.
Preparation in CAS:
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

Once the revenue and expense entries are made (including any adjustments), the CAS
automatically compiles this data into a P&L statement. The net profit or loss is calculated as:

Net Profit/Loss = Total Revenue - Total Expenses

Net Profit/Loss=Total Revenue−Total Expenses

Closing Entries Related to P&L:

At the end of the period, closing entries are made to transfer the balances of temporary accounts
(like revenues, expenses, and drawings) to the Capital Account or Retained Earnings account.

Revenue and expense accounts are closed by transferring their balances to the Profit & Loss
account.
The balance of the P&L account (Net Profit or Net Loss) is then transferred to the Capital Account
or Retained Earnings.

Closing Entries
Closing entries are made at the end of the accounting period to close temporary accounts
(revenue, expenses, dividends) and transfer their balances to permanent accounts like capital or
retained earnings.

Steps for Closing Entries:

Close Revenue Accounts: Debit each revenue account and credit the Income Summary account.
Close Expense Accounts: Credit each expense account and debit the Income Summary account.
Close Income Summary: Transfer the balance (Net Profit or Net Loss) from the Income Summary
to the Capital Account (or Retained Earnings).
Close Drawings/Dividends: Debit Capital or Retained Earnings and credit the Drawings/Dividends
account.

Closing Entries in CAS:

In computerised accounting systems, closing entries are often automated. Once the year-end is
selected, the system can generate the required closing entries and transfer balances to the
appropriate permanent accounts.

Opening Entries
Opening entries are the entries made at the beginning of the accounting period to bring forward
the balances of assets, liabilities, and equity from the previous period.

Steps for Opening Entries:

Assets: Debit individual asset accounts.
Liabilities: Credit individual liability accounts.
Capital/Retained Earnings: Credit the opening balance.

Opening Entries in CAS:

In CAS, opening entries are generated automatically when the new accounting period is started.
The system brings forward the closing balances from the previous year and populates them as
the opening balances for the current year.
CLASS XII CBSE COMPILED BY SUDHIR SINHA
COMPUTERISED ACCOUNTING KV NEW CANTT (SS) PRAYAGRAJ

Conclusion:
In a computerised accounting system (CAS), the tasks of creating adjusting entries, preparing
financial statements (Balance Sheet and Profit & Loss Account), and handling closing and opening
entries are largely automated once the correct data is entered. This reduces the chances of human
error and ensures that financial records are accurate and up-to-date.

Security Features of Computerised Accounting System (CAS)

Security is the one of the prime concerns of a CAS. Security is critical in a computerised accounting
system to protect sensitive financial data from unauthorized access, tampering, and fraud. Data
security means protecting data from the unwanted actions of unauthorized users. Important
security features of CAS are:

[Link] Security
Password is the key word used by an authorized person to get access to the system. It is the
secret word or code created by the user, which enables the user to access the system including
data. Without password it is impossible to access the system.

[Link] Audit
It is a mechanism which provides the capability to the administrator to track the changes in the
accounts. Through this system an administrator or auditor can easily traced out matters like who
have made changes to the original data, when and how the changes have been made etc.

[Link] Vault
Data Vault features ensure the security of data even if the data falls into the wrong hand.
Encryption means converting normally readable information into an unrecognizable format which
can be decrypted to original format only by authorized persons. This feature will help the business
to maintain confidentiality of information by encrypting the data