COMPUTERISED ACCOUNTING

Role of Computers in Accounting:

The manual system of recording accounting transactions requires maintaining books of accounts such
as journal, cash book, special purpose books, and ledger and so on. From these books summary of
transactions and financial statements are prepared manually.

The advanced technology involves various machines, which can perform different accounting
functions, for example a billing machine. This machine is capable of computing discount, adding net
total and posting the requisite data to the relevant accounts.

With substantial increase in the number of transactions, a new machine was developed to store and
process accounting data with greater speed and accuracy. A computer, to which it was connected,
operated this machine.

As a result, the maintenance of accounting data on a real-time basis became almost essential. Now
maintaining accounting records become more convenient with the computerized accounting.

Objects of Introduction of Computers in Accounting:

Labor Saving:

Labor saving is the main aim of introduction of computers in accounting. It refers to annual savings in
Labor cost or increase in the volume of work handled by the existing staff.

Time Saving:

Savings in time is another object of computerization. Computers should be used whenever it is

Accuracy:

Accuracy in accounting statements and books of accounts is the most important in business. This can
be done without any errors or mistakes with the help of computers. It also helps to locate the errors
and frauds very easily.

Minimization of Frauds:

Computer is mainly installed to minimize the chances of frauds committed by the employees,
especially in maintaining the books of accounts and handling cash.
Effect on Personnel:

Computer relieves the manual drudgery, reduces the hardness of work and fatigue, and to that extent
improves the morale of the employees.
Need for Computerized Accounting:

The need for computerized accounting arises from advantages of speed, accuracy and lower cost of
handling the business transactions.

Numerous Transactions:

The computerized accounting system is capable of large number of transactions with speed and
accuracy.

Instant Reporting:

It is capable of offering quick and quality reporting because of its speed and accuracy.

Reduction in Paper Work:

Manual accounting system requires large storage space to keep accounting records/books, and
vouchers/documents. The requirement of books and stationery and books of accounts along with
vouchers and documents is directly dependent on the volume of transactions beyond certain point.

There is a dire need to reduce the paper work and dispense with large volume of books of account.
This can be achieved with the help of computerized accounting system.

Flexible Reporting:

The reporting is flexible in computerized accounting system. It is capable of generating reports of any
balance as when required and for any duration which is within the accounting period.

Accounting Queries:

There are accounting queries, which are based on some external parameters. For example, a query
relating to overdue customers’ accounts can be easily answered by using the structured query
language [SQL] support of database technology in the computerized accounting system. Such an
exercise would be quite difficult and expensive in manual accounting system.

Online Facility:

Computerized accounting system offers online facility to store and process transaction data so as to
retrieve information to generate and view financial reports.
Accuracy:

The information and reports generated are accurate and quite reliable for decision-making. In manual
accounting system, as many people do the job and the volume of transactions is quite large, such
information and reports are likely to be distorted and unreliable and inaccurate.

Security:

This system is highly secured and the data and information can be kept confidential, when compared
to manual accounting system.
Scalability:

The system can cope easily with the increase in the volume of business. It requires only additional
data operators for storing additional vouchers.

Special Features of Computerized Accounting System:

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.

Requirements of the Computerized Accounting System:

Accounting Framework:

A good accounting framework in terms of accounting principles, coding and grouping structure is a
pre-condition. It is the application environment of the computerized accounting system.
Operating Procedure:

A well-conceived and designed operating procedure blended with suitable operating environment is
necessary to work with the computerized accounting system. The computer accounting is one of the
database-oriented applications, wherein the transaction data is stored in well-organized database.

The user operates on such database using the required interface. And he takes the required reports by
suitable transformations of stored data into information. Hence, it includes all the basic requirements
of any database-oriented application in computers.

Benefits/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.

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,

8. Minimizing Mathematical Errors:

While doing mathematics with computers, errors are virtually eliminated unless the data is entered
improperly in the first instance.

Disadvantages of Computerized Accounting:

1. Reduction of Manpower:

The introduction of computers in accounting work reduces the number of employees in an

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.

Challenges/Problems Faced in Computerized Accounting System:

1. User Training:

The user, for using computer accounting software, needs to understand the concepts of the software.
Hence, he should undergo proper training. A computer operator must learn the basics of computer,
concepts of software, working with the operating system software [such as Windows/DOS] and the
accounting software.
2. System Dependency:

Using a computer solution makes the user to depend fully on the computer system and necessitates the
availability of computer at all times. If the system is not available [due to hardware failure or power
cut], it would be difficult to verify the accounts.

3. Hardware Requirements:

A full-fledged computer system with a printer is required to operate the computerized accounting
system. Most small organizations may not afford to have such facility with necessary software.

4. System Failure:

When there is a system crash [hard disk crash], there is high risk of losing the data available on the
hard disk drive at any point of time. It would be highly painful, if the problem occurs at end of the
financial year, when the financial statements should be ready.

5. Backups and Prints:

Backups of the data should be done regularly so that, when the data is lost, it can be restored from
floppies [backups]. Regular print outs of the system information would be useful as manual records.

6. Voucher Management:

Accounting software allows easy alteration of data. If a voucher is wrongly placed in a wrong head,
it would be very difficult to sort out and bring back the voucher. A good voucher management is
very essential.

7. Security:
Additional security has to be provided because improper handling of the system [hardware/software]
could be dangerous. Passwords, locks, etc., have to be set so that no unauthorized person can handle
the system.