Computerised Accounting System – Class 11 Accountancy Chapter 13

What is a Computerised Accounting System?

A Computerised Accounting System (CAS) is an accounting information system that records, classifies, summarises and reports financial transactions using computer hardware and accounting software instead of manual books of account. The basic accounting concepts — journal, ledger, trial balance, and financial statements — remain exactly the same; only the mode of recording and processing changes from pen-and-paper to electronic data entry.

CAS works on the principle that once a transaction (called a voucher in accounting software) is entered just once, the software automatically posts it to all the relevant ledger accounts, updates stock/inventory records if linked, and instantly generates reports like trial balance, profit and loss account, and balance sheet. This eliminates the repetitive manual posting that a bookkeeper had to do separately in the journal, ledger, and subsidiary books.

Key features of CAS include: (i) it is based on the same accounting principles (double entry system, accrual concept) as manual accounting, (ii) instant and accurate generation of reports, (iii) scalability — it can handle small firms as well as large data volumes of big companies, (iv) speed of processing is very high, and (v) it uses grouping and coding of accounts so that the software can classify each ledger head correctly under the right head (asset, liability, income, expense) automatically.

Key Terms You Must Know

Computerised Accounting System (CAS)

An accounting system that uses computer hardware and software to record, process, and report financial transactions, replacing manual books while following the same accounting principles.

Front-end (User Interface)

The part of the accounting software that the user directly interacts with — screens for entering vouchers, viewing reports, and giving commands. It is designed to be simple and menu-driven.

Back-end (Database)

The hidden part of the software that actually stores all the data entered by the user in an organised database, and retrieves it when reports are requested.

Grouping of Accounts

The process of classifying various ledger accounts under fixed heads such as Capital, Current Assets, Current Liabilities, Sales, Purchases, etc., so the software can prepare correct financial statements automatically.

Coding of Accounts

Assigning a unique numeric or alphanumeric code to each ledger account/group so that the computer can identify, sort, and process accounts quickly and without confusion, even when there are thousands of accounts.

Voucher

The basic document/entry point in computerised accounting through which a transaction (like a purchase, sale, payment, or receipt) is entered into the system; it is the electronic equivalent of a source document.

Types of Accounting Software

Readymade Software

Pre-packaged software developed for general use by many businesses (e.g., small shops). It is low cost, easy to install, needs little training, but offers limited scope for modification and is suitable only where the accounting needs are simple and standard, such as a small trader with limited transaction volume.

Customised Software

Software modified/customised as per the specific needs of a particular business by adding or altering features of an existing readymade package (e.g., adding a special report format or a specific tax calculation). It costs more than readymade software, needs some special training, and requires more time to implement, but suits medium and large enterprises with unique requirements.

Tailored Software

Software designed and developed from scratch exclusively for one particular organisation's unique and complex requirements (e.g., a large multi-branch company with special reporting needs). It is the costliest, needs specialised training, involves high maintenance, but gives maximum flexibility and is used by large business houses.

Manual Accounting vs Computerised Accounting System

How a Computerised Accounting System is Set Up and Used

1. Step 1: Create the Company / Chart of Accounts — The user creates the company profile in the software and sets up a chart of accounts, i.e., a complete list of all ledger heads the business needs (Cash, Capital, Sales, Purchases, Rent, etc.).
2. Step 2: Grouping of Accounts — Every ledger account is placed under a proper group — for example 'Cash' under Current Assets, 'Capital' under Capital Account — so financial statements are automatically classified correctly.
3. Step 3: Coding of Accounts — Each account/group is given a unique code (numeric or alphanumeric) so that the software's back-end database can locate and process it instantly without ambiguity, even with thousands of ledgers.
4. Step 4: Voucher Entry — Day-to-day transactions are entered as vouchers (payment voucher, receipt voucher, sales voucher, purchase voucher, journal voucher) — this is the only manual input required from the user.
5. Step 5: Automatic Posting and Processing — The software automatically posts each voucher to the debited and credited ledger accounts in the back-end database, maintaining the double entry principle without further user effort.
6. Step 6: Generation of Reports — On demand, the system instantly generates Trial Balance, Trading and Profit & Loss Account, Balance Sheet, and other MIS reports directly from the stored data.
7. Step 7: Backup and Data Security — Regular backup of the database is taken and access is protected using passwords/user rights to prevent loss, tampering, or unauthorised access to financial data.

Advantages and Limitations of CAS

• Advantage — Speed: Processing and report generation is many times faster than manual accounting.
• Advantage — Accuracy: Once data is entered correctly, calculation and posting errors are eliminated.
• Advantage — Reliability and up-to-date information: Reports can be generated any time, reflecting the latest position of accounts.
• Advantage — Scalability: The same software can handle a growing volume of transactions as the business expands.
• Limitation — Cost of installation and training: Hardware, software licences, and staff training involve significant initial investment.
• Limitation — Risk of data loss/corruption: A system crash, virus, or lack of backup can lead to loss of vital financial data.
• Limitation — Non-detection of certain errors: Errors of principle or errors due to wrong account selection by the user (a data-entry mistake) are not automatically caught by the software.

Common Mistakes & Board Exam Tips

Many students confuse readymade, customised, and tailored software — remember the cost and flexibility order: Readymade (cheapest, least flexible) < Customised (moderate) < Tailored (costliest, most flexible, made for one specific organisation). Do not say 'computerised accounting changes accounting principles' — it only changes the method of recording, not the underlying rules (double entry, accrual basis remain the same). In comparison questions, always write points in pairs (one manual point immediately followed by its computerised counterpart) rather than listing all manual points first — examiners award marks for clear comparison. Also remember: grouping and coding are two separate but related concepts — grouping classifies accounts under heads, coding assigns identification numbers; do not merge them into one definition.

Practice Questions with Solutions

• Q: Define a Computerised Accounting System and state any three of its features. A: Step 1: A Computerised Accounting System (CAS) is an accounting system in which financial transactions are recorded, classified, and summarised using computer hardware and accounting software, based on the same accounting principles as manual accounting. Step 2: List features — (i) it follows the double entry and accrual concepts just like manual accounting, (ii) reports such as trial balance and financial statements are generated instantly, (iii) it is scalable and can handle both small and very large volumes of data efficiently. Final answer: CAS is a computer-based method of recording and reporting accounting data; its features include following standard accounting principles, instant reporting, and scalability.
• Q: Distinguish between readymade software and tailored software (any three points). A: Step 1: Cost — Readymade software is low cost since it is mass-produced; tailored software is very costly since it is custom-built for one organisation. Step 2: Flexibility — Readymade software offers little scope for modification; tailored software is fully flexible and designed to match the exact needs of the business. Step 3: Suitability — Readymade software suits small businesses with simple, standard needs; tailored software suits large organisations with complex and unique requirements. Final answer: Readymade software is cheap, rigid, and suits small firms; tailored software is expensive, fully flexible, and suits large firms with unique needs.
• Q: Explain the concepts of 'grouping of accounts' and 'coding of accounts' with an example. A: Step 1: Grouping of accounts means classifying individual ledger accounts under standard heads like Current Assets, Current Liabilities, Capital, Income, and Expenses so the software can correctly prepare financial statements. Example: 'Debtors' and 'Cash' are grouped under Current Assets. Step 2: Coding of accounts means assigning a unique code (number/alphanumeric) to each account or group so the computer can locate and process it quickly. Example: Cash account may be coded '101', Debtors '102'. Final answer: Grouping classifies accounts under proper heads while coding assigns unique identification numbers to each account/group for fast computer processing.
• Q: State any four points of difference between manual accounting and computerised accounting. A: Step 1: Speed — manual accounting is slow (each step done by hand); computerised accounting is very fast (automatic posting and instant reports). Step 2: Accuracy — manual accounting is prone to clerical/arithmetic errors; computerised accounting eliminates such calculation errors. Step 3: Storage — manual accounting needs physical registers and large storage space; computerised accounting stores data electronically in compact form. Step 4: Cost — manual accounting has low initial cost but high recurring labour cost; computerised accounting has high initial investment but lower recurring cost per transaction. Final answer: Computerised accounting is faster, more accurate, needs less physical storage, and has a different cost structure (high initial, low recurring) compared to manual accounting.
• Q: What are the components of a Computerised Accounting System? Explain front-end and back-end. A: Step 1: The two main technical components of CAS are the front-end (user interface) and the back-end (database), supported by hardware and trained users. Step 2: The front-end is the part visible to the user — menus, screens, and forms used to enter vouchers and view reports; it is designed to be simple and user-friendly. Step 3: The back-end is the database engine that actually stores all the entered data in an organised structure and retrieves it whenever a report is requested by the front-end. Final answer: CAS mainly comprises a front-end (user interface for data entry/viewing reports) and a back-end (database that stores and retrieves data), along with hardware and trained personnel.

Frequently Asked Questions