Computerised Accounting System

Computerised Accounting System, Manual v/s Computerised System, Advantages and Limitations

Objective

After going through this lesson, you shall be able to understand the following concepts:

• Computerised Accounting System

• Distinction between Computerised Accounting System and Manual Accounting System

• Advantages of Computerised Accounting System

• Disadvantages of Computerised Accounting System

Introduction
With the rapidly changing environment, machines are used in almost every sphere of human lives. From small retail businesses to big MNCs, from a hotelier to Real Estate Builders, all use computers for maintaining the record of their business transactions. Now-a-days, with the rapid advancement of technology no one prefers to manually record their business transactions. This consists of a long and cumbersome process of preparing  Journal, Ledgers, Trial Balance and Financial Statements. But with the emergence of computerised accounting system, the process of accounting has become so easy. Now, all the statements are prepared automatically with the use of a computer system.


Computerised Accounting System
An accounting information system that produces reports and information for its users by processing the financial events and transactions as per the Generally Accepted Accounting Principles (GAAP) is known as computerised accounting system. It is based on the concept of database. It is one of the database oriented application, wherein, the transactions data is stored in a well-organised database. Similar to the manual accounting system, computerised accounting system also generates reports and information by following the accounting concepts and principles. In this system, the framework where accounting data is stored and processed using hardware and software is termed as operating environment. Thus, every computerised accounting system requires the following two basic features.

i. Accounting Framework- It is a set of well-defined rules, principles, coding, grouping etc. with the help of which accounting system can produce reports as per the requirements of the users.

ii. Operating Procedure- It is a clearly-defined operating procedure which is appropriately integrated with the operating environment of the business.

 
We know that, computerised accounting system is database oriented, therefore, this system needs to fulfill the following requirements.

i. Front-end Interface- It is an interface or an interactive link between a user and data-base oriented software with the help of which a user interacts with the back-end database.

ii. Back-end Database- It is a system where the actual data is stored. It is accessed by the end user to the extent to which the user is authorised to access.

iii. Data Processing- It is a process of converting raw data into useful and valuable information.

iv. Reporting System- It involves a function of producing reports.

Distinction between Manual Accounting System and Computerised Accounting System
The following are the points of distinction between a Manual Accounting System and a Computerised Accounting System.

Basis of Difference	Manual Accounting System	Computerised Accounting System
Identifying	The identification of transactions is based on the application of accounting principles.	The identification of transactions in computerised accounting is also based on the application of accounting principles.
Recording	The recording of financial transactions is done through the book of original entry, i.e. Journal.	The data of financial transactions is stored in a well designed database.
Summarising	By ascertaining the balance of various accounts, transactions are summarised to produce Trial Balance. Consequently, the generati…