COMPUTERS IN ACCOUNTING – Class Notes

What is Computer ?
“Computer is a data processor that can perform substantial computations, including numerous
arithmetic and logical operations, without intervention of human operator during the run”. In simple
words, Computer is an electronic digital machine that act as per the set of instructions called program
or software, and is used for processing raw data into meaningful information.

BASIC ELEMENT OF COMPUTER

1. Hardware (which has physical existence)
2. Software (Can not see or touch)
3. Humanware (People who interact with computer)

Basic Components of the Computer Hardware - Followings collectively form a system. These parts
are necessary for a computer to perform the basic functions.
1. Motherboard: The motherboard is the main circuit board of your computer and is also known as
the mainboard or logic board. It is a printed circuit board and is responsible for housing all the
important components of your computer system.
2. Processor: A 'Processor', or 'Microprocessor' or 'Central Processing Unit' (CPU) is what makes
everything in your computer work together. like the hard drive, DVD drive, keyboard, and mouse.
Basically, the motherboard is a small chip that generally resides in motherboard. CPU is the brain of
the computer and provides ability to computer for executing any given instruction and also tells the
computer how to control the flow of instructions. Basic parts of a processor: A CPU has the following
main parts:
(i) ALU (Arithmetic and Logical Unit): This unit of the CPU is capable of performing arithmetic and
logical operations like addition, multiplication, subtraction, division, comparison of two numbers, etc.
(ii) Memory Unit: A processor has its own memory inside it in the shape of small cells. Each memory
cell is called a "Register". ALU gets data from registers and stores it in registers to perform arithmetic
and logical operations. Data comes in registers from primary memory (RAM) of the computer.
(iii) Control Unit: This unit of the processor controls all the activities of the processor and also controls
the input and output devices of the computer like mouse, keyboard, printer, etc.
3. Primary Storage Memory: Primary memory is also known as volatile memory or RAM (Random
Access Memory). When a data is processed, a copy of that data is opened in RAM of the computer for
changes or calculation to be carried out and thereafter save the changes or may be left unsaved. The
main feature of RAM is a temporary or volatile memory in which data persists only for the time when
the power is switched on and is lost once the power is switched off. Another form of memory is ROM
(Read-only Memory) which holds the data permanently that cannot be changed. It is permanently
non-volatile, means it holds its memory even when power is removed. ROM contains the programme
that is required when computer is turned on. It starts the process of 'boot up' and transfer the control
to the CPU and thus, Operating System is installed in it.
4. Secondary Storage Devices – Secondary storage devices or external memory differs from primary
memory in that it is not directly accessible by the CPU. Computer uses input/output channel to access
secondary storage device. The data is stored permanently and will stay on the device until the user
erases it or the device is damaged by any means. Below are the types:-
(i) Online Storage Media: It is that part of the computer on which the operating system is stored and
is always present as an integral part of the computer for the storage of data, for example, hard disk
installed in the computer.
(ii) Near-Line Storage Device: It is the optional media, for example, magnetic tape device, that is not a
necessary part of the system. Usage of this depends on the requirement of the user.
(iii) Offline Storage Media or Distribution Media: This media is primarily used for the distribution of
data from one computer to another and so on. For example, pen drive, external hard disc, and C.D.
5. Keyboard: It is an input device that is used for input of text or numbers into the computer in the CUI
(Character User Interface).

6. Sound Card and Speakers: With the help of these, music stored as digital data in the computer is converted
into analog data of sound waves

7. Monitor and Liquid Crystal Display (LCD) Panel: It is also called 'Computer Screen' or 'Display'. The monitor
displays the computer's user interface and open programs, allowing the user to interact with the computer,
typically using keyboard and mouse

8. Printers: Printers are devices used for producing information as a hard copy, i.e., in a printed form. Printers
are broadly of two types:

(i) Impact Printers: Printers in which the head of the printer touches the paper during printing are known as
impact printers; for example, Dot Matrix Printers, Line Printers, Wheel Printers, Chain Printers and Drum
Printers.

(ii) Non-Impact Printers: These are printers in which the head of the printer does not touch the paper during
printing, for example, Laser printers and Inkjet printers.

Software: It is a general term for the various kind of programs used to operate computer and related devices.
Software is a set of instructions on the basis of which a computer operates. Unlike computer hardware,
computers cannot be seen or touched. Computer software can be divided into following three categories:

(i) Operating Software is a set of specialized programs that makes interface between the user and the
computer hardware. Operating Software is essential for a computer system as through it the computer
accepts command for operation. Example : Windows, Linux, Android etc.
(ii) Utility Software - Utility Software is a set of computer programs used to perform supporting
operations in a computer. Example : Antivirus, File Manager, Disk cleaner
(iii) Application Software - Application Software is the user-oriented program which is designed and
developed for performing certain jobs, such as accounting, word processing and designing. For
example, if an enterprise has to maintain its books of account, it will install an accounting software
such as Tally or Busy. Similarly, if a person has to design, he will install Photoshop or Core1DRAW.
Humanware : People interacting with the computer and executing the program or software are
known as Humanware. They pass on the inputs based on which the computer will carry out specified
operations in accordance with a set of instructions, i.e. software. They constitute of the following:-
(a) As System Analysts – The person who designs data processing system
(b) As Programmers – Th person who writes programs to implement the data processing
system designs.
(c) As Operators – The person who participates in operating the computer.

CAPABILITY OF COMPUTER
- High Speed
- Accuracy
- Reliable
- Versatile
- Huge Storage

LIMITATION OF COMPUTER
- Operate on pre-defined instruction
- No self intelligence
- Can not make decision

INFORMATION SYSTEM
Data

Information

Information System

MANAGEMENT INFORMATION SYSTEM (MIS)

Management information system (MIS) is planned system of collecting, processing, storing and
disseminating(distributing) data in the form of information to carry out of function of Management.

PURPOSE OF MIS
- Right Information
- To the right person
- At the right place
- At the right time
 - In the right form
- At the right cost
MIS as tool of decision making
Since, MIS collects all the data in one place, it assists the management in decision making. Refer to
Information system above. Similarly MIS helps us in generating a number of reports which can be
further used for decision making.
ACCOUNTING INFORMATION SYSTEM (Subsystem of AIS)
- People
- Procedure
- Data
- Technology
- Control
MANAGEMENT INFORMATION SYTEM (Basic Subsystems)
- Accounting Information system
- Manufacturing information system
- Human Resource Management system
- Marketing information system

AIS LINKAGE WITH MIS OTHER SUBSYSTEM

Manufacturing Information System
- Sales Report
- Credit Report
- Quality Inspection etc.
Human Resource Management System
- Salary, other payments etc.
- Employee details, salary, wages, etc.
Marketing Information System
- Debtor outstanding payment etc.
- Purchase Orders

DESIGN OF ACCOUNTING REPORT

- Relevance
- Timeliness
- Accuracy
- Completeness
- Summarization
MIS REPORT WITH RESPECT TO ACCOUNTING DATA
- Debtors Reports
- Creditors Reports
- Routing Reports
- Exception Reports
- Financial Statements
- Other Reports

WORK DIVIDED IN COMPUTERIZED ACCOUNTING

By Us By Computer
5-10% work 90-95% work
Transaction Journal Journal Entry Computer - Cash book
Entry Software - Ledger
- Trial balance
- Final accounts
99% Hard to Learn 1% Hard to learn - Reports
- Inventory
- Taxation

MANDATORY FEATURE IN ACCOUNTING SOFTWARE

1. Creation of Accounts head
2. Voucher Entry/Data Entry
3. Display of Report/Book
4. Printing of Reports/Book
Only 1 and 2 are done by accountants.

Difference B/w Manual and Computerized Accounting (Most Imp.)

Basis of Difference Manual Accounting Computerized Accounting

Definition We keep physical register of We use computer and different
Journal & Ledger for keeping Accounting software for Digital
the records of each transaction record of each transaction
Calculation In manual accounting, all In computerized accounting,
calculation of adding and our duty is to record the
subtracting are done manually transactions manually in the
database. All the calculations
are done by computer system.
Ledger Accounts We check the journal and then Computerized accounting
we transfer figures to related system will automatically
 accounts debit or credit side process the system and will
through manual posting. make all the Accounts ledgers.
Trial Balance We have to collect the Our computerized accounting
information of the balances of system will produce trial
all accounts in our ledger, on balance automatically.
this basis, we have prepared
the trial balance manually
Adjustment Entries Record Both adjustment journal Only adjustment entries will
entries and its posting in the pass in the computerized
ledger accounts Will be done accounting system, posting in
manually one by one the ledger Accounts will be
done Automatically.
Financial We have to make the financial We need not prepare financial
Statements statement

Advantages of Computerized Accounting

1. Large Volume of Transactions: In the present-day business environment, the transactions of a

business are normally large in volume. The computerized accounting system can store and
process such voluminous transactions with speed and accuracy.
2. Security: The accounting data under the computerized environment is safer than the
accounting data under the manual system. The data can be kept secure by using a password,
i.e., allowing only authorized users to access the data.
3. Timely Reporting: Availability of reports on time enables the management to take quick
decisions, which is an important element for the success of an enterprise.
4. Lower Cost: The cost of maintaining books of account under the computerized process is
lower than in the manual process.
5. Less Paper Work: Under the computerized process, there is less paper work as compared to
the paper work in the manual process.
6. Flexible Reporting: Reporting under the computerized process is flexible in comparison to the
manual process. The database can be processed further to obtain the desired report.
7. Accurate: Computer statements are far more accurate in comparison to manual statements.
8. Updating: Updating and treatment of wrong transactions are easily done.
9. Financial Statements: From the day books, the Voucher Posting software can manage the
General Ledger, Trial Balance and Balance Sheet.

Disadvantages of Computerized Accounting

1. Controls: If adequate controls are not built and, where built, are not followed, it can lead to
loss of data. It is important to take back-ups at regular intervals to avoid such a situation.
2. Data Corruption: The data can get corrupted through viruses that may come in through the
internet or the use of external input devices without scanning them for viruses.
3. Trained Computer Operators – Untrained computer operators can lead to loss of data.
4. Limitations of Software – The software is developed on the basis of the experiences of the
team of developers. As such, it may not be able to deal with a specific problem that may arise.

ACCOUNTING PACKAGES
Basis Ready to use Customised Tailored

Nature of Business Small conventional Large, medium Large, typical business

business business
Cost of installation and Low Relatively high High
maintenance
Expected level of Low Relatively high Relatively high
secrecy (Software and
Data)
Number of users and Limited As per specifications Unlimited
their interface
Linkage to other Restricted Yes Yes
information system
Adaptability High Relatively Low Specific

Training requirements Low Medium High