Class 11 Accountancy Notes Chapter 5 (Accountancy Computerised Accounting System) – Accountancy-I Book

Alright class, let's turn our attention to a very relevant topic in modern accounting: Chapter 5 - Computerised Accounting System (CAS). As aspirants for government exams, understanding the fundamentals of how accounting operates in a digital environment is crucial. Manual accounting knowledge is the base, but CAS is the present and future.

Here are the detailed notes covering the key aspects of this chapter:

Chapter 5: Computerised Accounting System (CAS)

1. Meaning and Concept:

• A Computerised Accounting System (CAS) is an accounting information system that processes financial transactions and events as per Generally Accepted Accounting Principles (GAAP) to produce reports meeting user requirements.
• It involves using computers, associated hardware, and specific accounting software to record, store, classify, summarise, and report financial data.
• Essentially, it automates the accounting process, replacing manual ledgers, journals, and calculation methods with digital equivalents.

2. Basic Components of a Computerised Accounting System:

A CAS integrates five key components working together:

• (a) Hardware: The physical equipment used. This includes the computer (CPU, monitor, keyboard, mouse), printers, storage devices (hard disks, pen drives), servers (if networked), and networking equipment. The configuration depends on the organisation's size and needs.
• (b) Software: The set of programs that instruct the hardware on how to perform tasks. This is the core of CAS. It includes:
  • Operating System: Basic software managing the computer (e.g., Windows, macOS, Linux).
  • Utility Software: Programs for system maintenance (e.g., antivirus, backup software).
  • Application Software: The specific Accounting Software package designed for accounting tasks (e.g., Tally, Busy, SAP, Oracle Financials - though NCERT focuses on concepts, not specific brands).
  • Database Management System (DBMS): Often integrated within the accounting software to manage and organise the vast amount of financial data.
• (c) People (Personnel): The users who operate the system. This includes accountants, data entry operators, system administrators, and management who use the generated reports. Proper training is essential.
• (d) Procedures: Formal instructions and methods outlining how the system should be operated, data entered, processed, reports generated, and security maintained. These can be manual (user manuals) or automated (built into the software).
• (e) Data: The raw financial facts (transactions like sales, purchases, receipts, payments) that are entered into the system for processing. The quality of output depends directly on the accuracy of the input data (Garbage In, Garbage Out - GIGO principle applies).

3. Features of Computerised Accounting Systems:

• Speed: Processes data and generates reports much faster than manual systems.
• Accuracy: Reduces calculation errors common in manual accounting, provided the data input is correct.
• Reliability: Provides consistent results when used correctly. Data is less prone to physical damage compared to paper records if backups are maintained.
• Scalability: Can handle large volumes of transactions and can often be upgraded or expanded as the business grows.
• Up-to-Date Information: Provides real-time or near real-time information, allowing for timely decision-making. Ledgers and financial statements can be generated instantly.
• Efficiency: Automates repetitive tasks, freeing up accounting staff for more analytical roles.
• Reporting: Offers a wide variety of customisable reports (MIS reports, financial statements, compliance reports) quickly and easily.
• Legibility: Reports are typed and clearly formatted, unlike potentially illegible handwriting in manual systems.
• Security: Offers features like passwords, data encryption, and access controls to protect financial data.

4. Comparison: Manual Accounting vs. Computerised Accounting

5. Advantages of Computerised Accounting System:

• Timely Information: Faster processing leads to quicker availability of financial reports.
• Improved Accuracy: Minimises calculation errors.
• Enhanced Efficiency: Automates tasks, saving time and effort.
• Better Reporting: Provides a wide range of MIS and statutory reports easily.
• Improved Data Management: Stores large volumes of data systematically and allows easy retrieval.
• Cost Effectiveness: Reduces paperwork and labour costs in the long run despite higher initial investment.
• Increased Security: Password protection and access controls enhance data confidentiality.
• Scalability: Easily adapts to increasing business volume.

6. Limitations of Computerised Accounting System:

• High Cost of Installation: Requires significant investment in hardware, software, and training.
• Cost of Training: Staff needs training to operate the software effectively.
• System Failure Risk: Hardware breakdowns or software corruption can halt work and lead to data loss if backups aren't adequate.
• Security Concerns: Vulnerable to viruses, hacking, and unauthorised access if security measures are weak.
• Resistance to Change: Employees accustomed to manual systems may resist adopting the new technology.
• Potential Unemployment: Automation may reduce the need for traditional data entry roles.
• Health Concerns: Prolonged computer use can lead to health issues like eye strain and repetitive stress injuries.
• Inability to Handle Unforeseen Events: Cannot apply judgment or handle transactions outside its programmed scope without manual intervention.

7. Sourcing Accounting Software:

Businesses need to choose software that fits their specific needs. Key considerations include:

• Flexibility: Ability to adapt to the user's needs (customisable reports, data entry screens).
• Cost of Installation and Maintenance: Initial purchase price plus ongoing support/upgrade costs.
• Size of Organisation: Small businesses have different needs than large corporations.
• Ease of Adaptation and Training Needs: How intuitive is the software? How much training is required?
• Utilities/MIS Reports Needed: Does it generate the specific reports required by management?
• Expected Level of Secrecy (Software and Data): Security features offered.
• Vendor Reputation and Capability: Is the vendor reliable and likely to provide long-term support?

8. Types of Accounting Packages/Software:

• (a) Ready-to-Use:
  • Designed for a broad range of users, typically small businesses with standard accounting needs.
  • Relatively inexpensive and easy to implement.
  • Limited scope for customisation.
  • Suitable when the volume of transactions is low and standard reporting suffices.
  • Training needs are usually lower.
• (b) Customised:
  • These are standard software packages that are modified or configured to meet the specific requirements of a user/organisation.
  • Offers more flexibility than ready-to-use software.
  • Vendor provides support for customisation.
  • Costs are moderate, higher than ready-to-use.
• (c) Tailored (or Tailor-made):
  • Developed specifically for a particular organisation based on their unique needs and procedures.
  • Suitable for large, complex organisations with unique processes.
  • Offers maximum flexibility and integration with other systems.
  • Very high cost of development and maintenance.
  • Requires significant time for development and implementation.

9. Concept of Grouping of Accounts:

• In CAS, accounts are classified, codified (assigned unique codes), and grouped logically.
• This hierarchical grouping facilitates efficient data entry, processing, and generation of reports.
• For example, individual customer accounts might be grouped under 'Sundry Debtors,' which falls under 'Current Assets,' which is part of 'Assets' on the Balance Sheet. This structure allows reports to be generated at different levels of detail.

10. Security Features in CAS:

• Password Security: Restricting access to authorised users through unique logins and passwords. Different levels of access can be granted.
• Data Audit: Features that track who made changes to the data, when, and what changes were made. This enhances accountability.
• Data Vault/Encryption: Encrypting data makes it unreadable without the correct key, protecting it during storage or transmission.
• Backup and Recovery: Regular backups (copying data to a separate location/medium) are crucial to recover data in case of system failure, corruption, or disaster.

Multiple Choice Questions (MCQs) for Practice:

1. Which of the following is NOT a basic component of a Computerised Accounting System?
   (a) Hardware
   (b) Procedures
   (c) Generally Accepted Accounting Principles (GAAP)
   (d) People

2. The primary advantage of using Computerised Accounting Systems regarding calculations is:
   (a) Increased speed
   (b) Reduced cost
   (c) Enhanced accuracy
   (d) Better data storage

3. Software specifically developed to meet the unique requirements of a particular organisation is known as:
   (a) Ready-to-use software
   (b) Customised software
   (c) Tailored software
   (d) Utility software

4. Which of the following represents a limitation of Computerised Accounting Systems?
   (a) Ability to generate instant reports
   (b) High speed of processing
   (c) Potential risk of data loss due to system failure
   (d) Scalability for business growth

5. In CAS, the process of classifying accounts and assigning unique codes is essential for:
   (a) Ensuring data security
   (b) Facilitating efficient processing and reporting
   (c) Reducing hardware costs
   (d) Training new employees

6. The GIGO principle (Garbage In, Garbage Out) in the context of CAS emphasizes the importance of:
   (a) Using expensive hardware
   (b) Regular software updates
   (c) Accurate data input
   (d) Hiring qualified accountants

7. Compared to Manual Accounting, CAS generally involves:
   (a) Lower initial cost but higher running cost
   (b) Higher initial cost but potentially lower long-term running cost
   (c) Similar costs overall
   (d) Costs that are independent of transaction volume

8. Password protection, data encryption, and data backup are primarily features related to which aspect of CAS?
   (a) Speed
   (b) Scalability
   (c) Reporting
   (d) Security

9. Which type of accounting software is most suitable for a small business with standard accounting needs and a limited budget?
   (a) Tailored software
   (b) Customised software
   (c) Ready-to-use software
   (d) Enterprise Resource Planning (ERP) system

10. The set of formal instructions and methods outlining how a CAS should be operated and maintained is referred to as:
    (a) Hardware
    (b) Software
    (c) Procedures
    (d) Data

Answer Key for MCQs:

1. (c) GAAP are the principles followed, not a component of the system itself.
2. (c) While speed increases, the most direct advantage regarding calculations is accuracy improvement over manual methods.
3. (c) Tailored software is specifically developed from scratch or heavily modified for one user.
4. (c) System failures leading to data loss are a significant risk and limitation.
5. (b) Grouping and coding structure the data for efficient processing and report generation.
6. (c) GIGO highlights that the output quality depends entirely on the input data quality.
7. (b) CAS typically has higher setup costs (hardware, software) but can reduce long-term operational costs (labour, time).
8. (d) These are all measures to protect the system and data.
9. (c) Ready-to-use software is designed for general use, often by smaller entities, and is usually the most affordable option.
10. (c) Procedures define the 'how-to' of using the system.

Make sure you understand the concepts behind each point and MCQ answer. This chapter bridges traditional accounting with modern practices, making it essential for your preparation. Good luck!