The information has been presented in the most simplest and intelligible way possible. It highlights the advantages and disadvantages of computerized accounting. It also includes a detailed explanation regarding the topic, ' automation of accounting process.'

1. COMPUTERS IN ACCOUNTING
Project by : Muhammed Raashid
Class: 11th – A
Subject : Accounts
School: SIMS

2. Automation Of Accounting Process
What exactly do you mean by ‘Automation
of accounting process’?
 In simple terms it means to carry out the
accounting function ( for example, recording
of business transactions, calculating
accurate accounting information) by means
of an accounting software where human
intervention is minimum.

3. How far is the human intervention
restricted in this process?
Human intervention cannot be eliminated
completely.
Accounting involves accounting procedures
and principles which the computer simply
can’t implement by itself. That is to say a
computer can not take decisions by itself
other than operating on a set of pre-defined
instructions. For example, to decide which
account in a particular business transaction
is to be credited/debited.

4. Stages of Automation
Automation of accounting process
depends on a number of criteria
such as requirement, size, number
of transactions of the organization
and cost of automation. The
automation process can be divided
into the following stages.

5. 1) Planning
 An accurate planning and estimation is the
first stage of automation of accounting
process.
 You have to first assess the size of your
business, what your objectives and
requirements are from the automation of
accounting process, volume of transactions
etc.
 It is because of planning we are able to
establish an effective automated
accounting process.

6. 2) Selecting appropriate accounting
software
 It is the second stage of automation.
 It depends upon the first stage of the
automation, that is, planning. Depending
upon the plans formulated and information
gathered about the entity, the most suitable
accounting software is purchased. The
accounting software purchased must meet
the requirements and plans of the business
entity purchasing it.

7. 3) Selecting appropriate computer hardware
 It is the third stage in automation
 After formulating the plans and purchasing
the accounting software, you have to buy
computer hardware that is compatible with
the accounting software and must meet the
requirements.
 For example, if you have inadequate space
that is required for the accounting software to
be installed, or have smaller Ram size
operating it will become impossible. Thus,
computer hardware should be selected after
evaluating the requirements of the accounting
software.

8. 4) Chart of accounts
 The term ‘Chart of Accounts’ simply means
the listing of the head of accounts to which
various transactions are to be debited or
credited and also where these will be reflected
in the final accounts after which, it’ll posted
into them.
 How is each transaction posted to it’s
respective account?
 Each account is given an accounting code
based on which the transaction recorded in
the accounting software is transferred to the
designated account head in the ledger.

9. Important points to be noted-
 Since the entire accounting process under
automated accounting is carried out as
instructed in the accounting software, it’s
necessary that the chart of accounts be
prepared beforehand deciding the heads of
accounts for capital and revenue items and
where it’s classification in the final accounts.
 Also, the chart of accounts should be not be
permitted to change except with the
approval of the management.

10. 5) Grouping of Accounts
It means to group accounts that is shown in
trial balance which are similar in nature, which
is then transferred to the final accounts under
that sub-group with totaled amount ( of all the
accounts).
For example, salaries, wages and similar
accounts can be grouped under Establishment
expenses.
It’s carried out along with the preparation of
chart of accounts since the stages are inter-
related.

11. 6) Generation of Reports
A report is the information that is
summarized to meet a specific need.
This the final stage of the automated
accounting process.
Generating reports from the system which
includes ledger, cash book, profit and loss
account etc.
In addition to the above reports there also
can be a debtors report or creditors report.

12. Account Groups
Why do we need Account groups?
For a credible accounting financial statement to
be prepared, the accounting concepts and
principles have to be followed. That is, it’s
necessary to have capital expenditure/income
be transferred to Balance Sheet while revenue
expenditure/incomes be transferred to Trading
and P&L account. This can only be achieved
with the help of account groups/heads.

13. How is it done?
These account groups/heads are defined in
a manner that capital expenditures and
capital incomes form part of the Balance
Sheet under appropriate main head.
Similarly, revenue expenditures and revenue
incomes form part of trading and profit and
loss account.
• The process by which this objective is
achieved is known as Grouping of accounts.

14. Grouping of Accounts
Grouping of accounts means giving a code to
each main head, sub-heads and thereafter
individual account heads. That is,
theoretically speaking, code of the main
head signifies whether the account is an
item belonging to Assets group, Liabilities
Group, Expenses Group, Incomes Group.
Code of the sub- head signifies the head
under which individual account head will
appear. The entire process of grouping is
explained with an example in the next slide.

15. Main Code Sub-code Account
code
Main head Sub-head Account
Head
1 Assets
1 Fixed Assets
001 Land
002 Buildings
003 Vehicles
004 Computers
005 Furniture
In the above figure, as you can see, the code for land account will be
11001. Similarly, the code for Building account will be 11002.
This is called grouping. Therefore the main head ( which can be assets,
liabilities etc) is presented in the financial statements) under which
the sub-heads will be shown. Every item can not be presented in the
financial statements, hence they’re grouped under one account group
with which it is similar to and shown. This is called grouping of
account heads.

16. • Hence, the process of ‘Grouping of
Accounts’ is the basic or fundamental
requirement for producing financial
statements. The second stage of
application of computers in accounting
is to record individual transactions
using the accounting software. But
always keep in mind that accounting
concepts shall always be followed.

17. MANUALACCOUNTING
SYSTEM
VS
COMPUTERIZED ACCOUNTING
SYSTEM

18. BASIS MANUAL ACCOUNTING
SYSTEM
COMPUTERIZED
ACCOUNTING SYSTEM
1) IDENTIFYING
FINANCIAL TRANSACTION
Identifying the financial
transaction is a manual
process carried out by an
authorized person.
It is done manually same as
in the manual accounting
system.
2) RECORDING &
CLASSIFYING
Under this the recording of
transactions in Day-book and
then the posting them in the
ledger accounts,
mathematical calculations
are all done manually.
After recording the financial
transaction with the help of
the accounting software
manually the remaining
processes are carried out
automatically.

19. 4) ADJUSTMENT ENTRIES It’s passed to rectify an error
or to follow the matching
principle. It’s identified and
then done manually in the
recording process itself.
It’s identified and then done
manually under the
recording process itself.
Remaining processes are as
mentioned above.
5) Grouping of Accounts Under manual system, at the
time of preparing financial
statements, CORRECT
ACCOUNTING process is
followed (i.e. whether a
transaction is of capital or
revenue nature and which
account is to be
credited/debited). After that
is done, it’s grouped under 1
of the main A/c. ALL DONE
MANUALLY.
Under the computerized
process, at the time of
entering the transaction
itself it is decided if it’s of
capital/revenue nature and
which A/c is to be
credited/debited, that is, it’s
done manually. Remaining
processes are done
automatically.

20. Advantages & Disadvantages of
Computerized accounting
Advantages :-
1) Large Volume of Transactions – In the
present – day business environment, the
transactions of a business are normally
large in volume. The computerized
accounting system can store and process
such voluminous transactions with speed
and accuracy

21. 2) Scalability – A computerized accounting
system is scalable to handle the growing
transactions.
3) Security – The accounting data under the
computerized environment is safer than the
accounting data under the manual system.
The data can be kept secure by using a
password, i.e., allowing only authorized
users to access the data.
4) Time Reporting – Makes available reports
whenever required without any further
delay hence helping management in taking
informed and quick decisions.

22. 5) Lower cost – Cost of maintaining books
reduces as compared to manual process.
6) Less Paper work – Lesser paper work as
compared to manual process.
7) Flexible Reporting – It’s now possible to
obtain specific and detailed reports.
8) Queries – Replies to queries based on external
factors can be obtained easily under a
computerized process.
9) Accurate – Computer statements are farm
more accurate in comparison to manual
statements.
10) Updating – Updating/Treatment of wrong
transactions are done easily.

23. 11) Financial Statements – From the
transactions recorded and the daybooks, the
posting software manages ledger, trial
balance and balance sheet.
Disadvantages :-
1) Controls - If adequate controls are not
built and where built are not followed, it
can lead to loss of data.
2) Data corruption – The data can get
corrupted through viruses that may come
in through the internet or the use of
external input devices without scanning
them for viruses.