What is Computerised Accounting

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 been 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 organization. Although manual data processing for Management Information Systems (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.

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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 organization. Conventionally, the bookkeeper used to maintain books of accounts like cash books, journals, 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, and 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 had 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 organization with the complexity of transactions attended depends upon resource optimization, 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.

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Information and Decisions of Computerised Accounting

An organization may be a collection of interdependent decision-making units that exist to pursue organizational objectives. As a system, every organization accepts inputs and transforms them into outputs. All organizational 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 organization in the pursuit of its objectives.

Therefore, information is the most important organizational resource. Every medium-sized to large organization 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 organizations, Transaction Processing Systems (TPS) have 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 authorized.

This is achieved by automating the input. A large number of devices are now available to automate the input process for a TPS.

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Transaction Processing System in Computerised Accounting

Transaction Processing Systems (TPS) are among the earliest computerized 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 computerized 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 computerized 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 out that the PIN is invalid. After validating the PIN (which is additionally a neighbourhood of processing by TPS), the quantity of withdrawal 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.

iv) Storage

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.

v) Information

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.

vi) Reporting

Finally, reports can be prepared based on the required information content according to the decision usefulness of the report.

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A simple computerized 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.