Introduction to Computerized Accounting
In the present day, accountants no longer record every transaction of a company or any corporate body with the help of pen and pencils using a ledger book. After the birth of computers and the emergence of digitalization in most professional sectors in India, accounting is also computerized.
For the past few decades, computerized data has been used mainly in the field of science and technology. However, as the years go by, computerized accounting systems are also becoming quite common.
Several accounting firms still perform book-keeping manually, while most firms comprise financial transactions that can be a lot for a manual accounting process.
Moreover, the complicated financial transactions of a firm are quite difficult to be recorded manually. That led to the introduction of the concept of computerized accounting systems.
Before you learn the meaning of computerized accounting, it is important to know about the various factors to consider before using such a system.
Features of Computerized Accounting Systems
The characteristic features of computerized accounting systems are as follows –
Components of computerized accounting systems are software programs which are installed on a company machine, network server or accessed remotely with the help of the Internet.
Such a system allows accounting professionals to set up income and expense accounts such as purchases and sales accounts, salary distribution account, advertising expenses account, etc.
The process of computerized accounting systems includes programs that can be used to manage and control bank accounts, prepare company budgets, etc.
Depending upon the program and how advanced it is, accountants can also construct tax documents, handle company payroll, and manage project expenses properly.
Programs in this system can be customized as per user demands. This feature helps every accounting professional to meet the requirements of their firm.
However, it is essential for the employees of a firm who are using a computerized accounting system to get proper training so that they can use the system correctly and execute the required programs accurately.
What are MIS and AIS?
MIS or Management Information System is a digitized database where all the financial information of a company is organized and input in the system. With its help, the program can execute daily reports on the management operations of a company.
AIS or Accounting Information System is nothing but means of collection, storage, and execution of accounting data of a firm. This system is a popular choice for a company before it needs to take an important decision for any purpose.
Components of AIS include data, users, i.e. people, software programs, accounting procedure, information technology, and other internal variables.
Types of Computerized Accounting Software
Multiple accounting software programs are used by professionals across the globe. They can be classified as three types, which are -
Readymade Software
This kind of software is developed for all users in general and does not possess any tweaks or elements that would help out a specific category of users substantially. Readymade software programs are suitable for a firm where the overall volume of accounting work is relatively low.
Compared to other accounting software programs, readymade software programs require minimum system requirements and are usually cheap. Moreover, such programs have an easy and dynamic learning curve.
Customized Software
Customized accounting software programs are those readymade software programs that have been altered to meet the specific requirements of any user. Such programs are usually used in large and medium scale organizations.
In the case of customized accounting software programs, not only the installation expense but also the cost of maintenance is relatively higher than other accounting programs. In most cases, to acquire its services, users need to pay the vendor a certain amount as a customization fee.
The advantages of using such an accounting program include enhanced security and secrecy of data along with easier maintenance. Moreover, users are required to undergo proper training before using this program for professional work.
Tailor-Made Software
As its name suggests, tailor-made accounting software programs are developed for particular firms. Such programs form an integral part of MIS.
These kinds of programs are usually designed for large-scale businesses only and require specialized training before users are adept in working with this software to execute programs accurately.
Advantages of Computerized Accounting Systems
The benefits of such systems are as follows –
Speed, accuracy, and reliability of accounting executions
High efficiency along with top security
Real-time user interference along with quality report preparation, which is mostly automated
Limitations of Computerized Accounting Systems
The limitations of Computerized Accounting Systems are as follows –
Failure of systems such as technical failures like virus attacks, circuit problems in the computer, etc.
The cost of training to master Computerized accounting systems is usually a bit expensive.
Disruptions are quite common
Most accounting systems suffer from an inability to check errors that are not anticipated.
At Vedantu, we hope that this discussion on Computerised Accounting Systems will help substantially in fetching you top marks in the upcoming board exams! You can visit our website or app for more such discussions on various topics from the senior secondary Commerce curriculum.
FAQs on Computerized Accounting System
1. What is a Computerised Accounting System?
A computerized Accounting System is one where the financial transactions of a company are accounted for as per the GAAP to execute accounting reports as per user requirements. Computerized Accounting Systems process financial transactions and transactions in accordance with GAAP (Generally Accepted Accounting Principles) in order to generate reports to meet the user's needs. Computerized and manual accounting systems generally have two (2) key components. In order to function properly, it must adhere to a set of guidelines referred to as accounting principles. It also provides a user-defined structure for creating reports and maintaining records.
The framework that a computerized accounting system uses, which stores and processes data, is referred to as an operating environment. The operating environment is composed of both hardware and software. Accounting systems determine what kind of environment it is. There is a direct relationship between hardware and software. What type of software is used to construct what type of hardware is used. A number of factors affect the choice of hardware, including the number and privacy of users, and the nature of multiple operational activities in an organization.
2. What do you Understand by AIS? State its Components.
AIS or Accounting Information System refers to the collection, storage and execution of financial data of a firm. The components of AIS include users, accounting programs, the procedure of data execution, information technology, and others. Financial and accounting information is collected, stored, and processed by it
Decisions are made based on that information.
People, data, and financial information comprise an accounting information system.
Information Technology, software, and internal control procedures complete it.
3. What are the Limitations of Computerised Accounting Systems?
The limitations of Computerized Accounting Systems are failure of systems, high cost of training, frequent disruptions, and inability to find out unanticipated errors.
System failure
Cost of training
Staff operation
Disruption
Inability to check unanticipated errors
(i) Installation costs are high
The hardware of a computer needs to be replaced, and software needs to be updated periodically as new versions are released.
(ii) Training costs
We need to introduce newer versions of hardware and software to ensure effective and efficient use of computerized accounting systems. The staff members must be trained in order to handle these and therefore, there is a cost associated with it.
(iii) Concern about unemployment
The introduction of computerized accounting systems has left some employees feeling nervous about losing their jobs and less interested in computer-related work.
(iv) Disruptions to work
An accounting and other process is interrupted when a computerized system is introduced. Several changes are subsequently made to the workplace.
(v) Failure of a system
Due to some hardware failure, there is a risk of a system crash, which can put workers at risk. Backing up is particularly important when there are no problems.
(vi) It takes a lot of time
An alternative arrangement should be made in case of system failure to prevent data loss. The restore of regular operations requires some time.
(vii) There are unknown unanticipated errors
Humans are not capable of judging or detecting unpredictable errors in systems. Go to Vedantu to learn more about related topic
4. Explain briefly what a software program is composed of.
The three main categories of computer software are as follows. | |
(A) OPERATIONAL SOFTWARE: |
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UTILISATION SOFTWARE |
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Application software is software used to implement a business process. |
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5. What are the main differences between manual and automated systems?
Analyzing Manual vs Automated Systems
Speed
Automated systems are faster than manual ones. A computerized accounting system processes data and generates reports much quicker compared to a manual one. By automating calculations, software maximizes efficiency, minimizes errors and decreases costs. A computerized system lets you create reports with the click of a button once data has been entered.
Cost
The cost of a manual system versus a computerized system is another difference. Paper-and-pencil accounting costs much less than a computerized accounting system, which requires a computer and software. Training and program maintenance are additional expenses associated with accounting software. Supplies and equipment costs, as well as printer and paper costs, can quickly add up.
Backup
A computerized system's ability to backup is the third difference between manual and computerized systems. If there is a fire or another mishap, all of the transactions can be backed up. Paper records can't be duplicated unless you make copies of each page -- a laborious and time-consuming process.