What is computerised Accounting?
What is Computerised Accounting- A computer is a device, which is capable of performing a spread of operations as directed by a group of instructions. This set of instructions has named a program.
Computer technology and its usage have registered a significant development during the last three decades. Historically, computers have been used effectively in science and technology to solve complex computational and logical problems. They have also been used for carrying out economic planning and forecasting processes. Recently, modern-day computers have made their presence felt in business and industry.
The most important impact of computers has been on how data is stored and processed within an organisation. Although manual data processing for Management Information System (MIS) has been quite common in the past, modern MIS would be nearly impossible without the utilization of computer systems. We shall discuss the need for the utilization of computers in accounting, the nature of the accounting information system and the types of accounting-related MIS reports.
Evolution of Computerised Accounting
A manual system of accounting has been traditionally the most popular method of keeping the records of financial transactions of an organisation. Conventionally, the bookkeeper used to maintain books of accounts like cash book, journal and ledger so on prepare a summary of transactions and final accounts manually. The technological innovations led to the event of varied machines capable of performing a spread of accounting functions.
For example, the popular billing machine was designed to typewrite a description of the transaction alongside the names, addresses of customers. This machine was capable of computing discounts; adding the net total and posting the requisite data to the relevant accounts. The customer’s bill was generated automatically once the operator has entered the required information. These machines combined the features of a typewriter and various kinds of calculators.
With the substantial increase in the number of transactions, the technology advanced further. With the exponential increase in speed, storage and processing capacity, newer versions of those machines evolved. A computer to which they were connected operated these machines. The success of a growing organisation with the complexity of transactions attended depend upon resource optimisation, quick decision-making and control.
As a result, the upkeep of data on a real-time (or spontaneous) basis became almost essential. Such a system of maintaining accounting records became convenient with computerised accounting.
Information and Decisions
An organisation may be a collection of interdependent decision-making units that exist to pursue organisational objectives. As a system, every organisation accepts inputs and transforms them into outputs. All organisational systems pursue certain objectives through a process of resource allocation, which is accomplished through the process of managerial decision-making. Information facilitates decisions regarding the allocation of resources and thereby assists an organisation in pursuit of its objectives.
Therefore, information is the most important organisational resource. Every medium-sized to large organisation features a well-established data system that’s meant to generate the information required for decision-making.
With the increasing use of information systems in organisations, Transaction Processing Systems (TPS) has started playing a vital role in supporting business operations. Every transaction processing system has three components: Input, Processing and Output. Since Information Technology (IT) follows the GIGO principle (Garbage in-Garbage out), input to the IT-based data system must be accurate, complete and authorised. This is achieved by automating the input. A large number of devices are now available to automate the input process for a TPS.
Transaction Processing System
Transaction Processing Systems (TPS) are among the earliest computerised systems catering to the requirements of large business enterprises. The purpose of a typical TPS is to record, process, validate and store transactions that occur in the various functional areas of a business for subsequent retrieval and usage. A transaction could be internal or external. When a department requisitions material supplies from stores, an indoor transaction is claimed to have occurred.
However, when the purchasing department purchases materials from a supplier, an external transaction takes place. The scope of financial accounting is confined to external transactions only.
The scope of financial accounting is confined to external transactions only. TPS involves the following steps in processing a transaction. To understand these steps, let us consider a case wherein a customer withdraws money using the Automated Teller Machine (ATM) facility, as described below for computerised accounting
i) Data Entry
The action data must be entered into the system before it’s processed. There are a variety of input devices to enter data: Keyboard, mouse, etc. For example, a bank customer operates an ATM facility to form a withdrawal. The actions taken by the customer constitute data, which is processed after validation by the computerised personal banking industry.
ii) Data Validation
It ensures the accuracy and reliability of the input file by comparing an equivalent with some predetermined standards or known data. This validation is performed by error detection and error correction procedures. The control mechanism, wherein actual input is compared with the quality, is supposed to detect errors while error correction procedures make suggestions for entering correct data input. The Personal number (PIN) of the customer is validated with the known data. If it’s incorrect, a suggestion is formed to point that the PIN is invalid. After validating the PIN (which is additionally a neighbourhood of processing by TPS), the quantity of withdrawal is made by the customer is additionally checked to make sure that it does not exceed a certain limit.
iii) Processing and Revalidation
The processing of knowledge, representing actions of the ATM user, occurs almost instantaneously just in the case of the web Transaction Processing (OLTP) system provided valid data representing actions of the user has been encountered. This is called check input validity. Revalidation occurs to make sure that the transaction in terms of delivery of cash by ATM has been completed. This is called check output validity.
Processed actions, as described above, culminate into financial transaction data, which describe the withdrawal of cash by a specific customer, which are stored in the transaction database of the Computerised personal banking industry. This implies that only valid transactions are stored within the database.
The stored data is processed using the query facility to supply the desired information. A database supported by DBMS is sure to have standard Structured command language (SQL) support.
Finally, reports can be prepared based on the required information content according to the decision usefulness of the report.
A simple computerised accounting accepts the entire transaction data as input; stores such data in memory media (say hard disk) and retrieves the data for processing as and when required for generating an accounting report, as output. The input-process-output diagram shown below indicates how accounting software translates data into information. This processing of knowledge is accomplished either through execution or real-time operation.
Batch Processing applies to large and voluminous data that are accumulated offline from various units: branches or departments. The entire accumulated data is processed in the round to get the specified reports consistent with the decision requirement.
Real-Time Processing provides the online outcome in the form of information and reports without time lag between the transaction and its processing. The accounting reports are generated by a command language popularly called Structured Query Language (SQL). It allows the user to retrieve report relevant information that’s capable of being laid call at pre-designed accounting report.
Accounting software could also be structured with such components as providing for storage and processing of knowledge concerning the purchase, sales, inventory, payroll and other financial transactions.
Features of Computerised Accounting System
Accounting software is employed to implement computerised accounting. Computer accounting is predicated on the concept of databases. It does away with the concept of making and maintaining journals, ledger, etc. which are essential while working with manual accounting. Typically computerised accounting offers subsequent features :
- Online input and storage of accounting data.
- Printout of purchase and sales invoices.
- Logical scheme for the codification of accounts and transactions. Every account and transaction is assigned a unique code.
- Grouping of accounts is completed from the very beginning.
- Instant reports for management, for instance – Aging Statement, Stock statement, balance, Trading and Profit and Loss Account, record, Stock Valuation, GST, Returns, Payroll Report, etc.