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Ranker’s Academy, (A Leading Institute of Accountancy, Business Studies and Economics for XI & XII), Chapter – 12, , APPLICATIONS OF COMPUTERS IN ACCOUNTING, The invention of computer has made a greater impact in the society than any other single, device. This helped to improve the efficiency of organizations in the field of science,, technology, business and industry. A computer is an electronic device which accepts data and, instructions as input, stores them, process the data according to instructions and communicate, the results as output., The physical components which make the computer are collectively called hardware and the, set of instructions which enables the computer to process data is called software., Components / Elements of computer system, 1. Hardware – All the physical units of a computer together make computer hardware. It, consists of key board, mouse, monitor, processor etc., and all circuits that make the, computer., 2. Software – Software is a set of programs that governs the operations of a computer, system. It states how to process the data and generate required information. Software, is needed for the hardware to work and vice versa., There are six types of software as follows:, a. Operating system – It is a set of programs which supervises the operation of CPU,, controls the input and output functions of the computer, translates the programming, languages into machine language and provides various support services. E.g. DOS,, Windows, Ubuntu etc., b. Utility programs – These are a set of programs designed to perform certain supporting, operations. E.g. format a disk, duplicate a disk etc., c. Application software – It is a set of program to carry out operations for a particular, application. E.g. payroll preparation, inventory control, Ms Word, Ms Excel etc., d. Language processors – Instructions are understood by the computer only when they, are written in machine language. Therefore, a program written in any other language is, to be translated into machine language. This software serves this purpose., e. System software – This set of programs controls the internal functions of the computer, such as reading data from input devices, transmitting processed data to output devices, and also checking the system to ensure that its components are functioning properly., f. Connectivity software – A set of programs to create and control connection between, computer and server is called connecting software. This facilitates communication and, sharing of resources of server and other connected computers., 3. People – People who are interacting with the computers constitute an important part of, computer system. They are called live-ware of computer system. They include:, System analysts – are the people who design the data processing system., Programmers – are the people who write program for processing data., Operators – are the people who participate in operating the computer., 4. Procedure – Procedure means a series of operation in a set pattern or order to achieve, desired results in data processing. There are three types of procedures in a computer, system – hardware oriented software oriented and internal., AJITH KANTHI @ AJITH P P_SKMJ HSS KALPETTA, , ACCOUNTING-11, , CHAPTER- 12, , Page 1

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5. Data – Facts and figures which are required for decision making are data. Data are, entered into the computer and are being stored in its memory. Data are retrieved and, processed according to predetermined instructions to get the required information. This, information forms the basis for decision making., 6. Connectivity – It implies connecting the computer system with devises like telephone, lines, microwave transmission, satellite link etc., Capabilities of computer system, 1. Speed – A computer can process data at a very high speed than human beings., Modern powerful computers are capable of performing 100 million calculations per, second., 2. Accuracy – Accuracy means the degree of exactness of computations and other, operations. Compared to human beings, computers can perform calculations at a very, high rate of accuracy., 3. Diligence (hard work) – Computers are free from monotony, tiredness and lack of, concentration. It can work for hours together without creating any error. Therefore, it is, useful for performing repetitive work at a greater speed and accuracy than human, beings., 4. Versatility – Computers are capable of performing a variety of tasks. It can be used in, any area of application in business, industry, science, technology, communication etc., 5. Storage – Computers can store large volume of data and information for a long time. It, requires only a very small physical space for such storage. It erases information from, its memory only when it is asked to do so by the user., Limitations of computer system, 1. Lack of common sense – They cannot think on their own and design programs. They, only work according to the programs designed by human beings., 2. Zero IQ – Computers have no intelligence. They cannot think and visualize things, under a particular situation. They can perform at the will and pleasure of the, programmer., 3. Lack of decision making skills – Decision making involves the selection of the best, course of action out of available alternatives. It requires knowledge, intelligence and, judgment. Computers lack all these attributes., 4. No feeling – Computers are free from emotions. They cannot judge based on feelings,, tastes and preferences like human beings., Components of a computer hardware system / structure of a computer / components of, a computer, The computer hardware means the tangible and physical devices which make a computer., Based on the functions, it is classified into input unit, central processing unit, output unit and, secondary storage unit.

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Ranker’s Academy, (A Leading Institute of Accountancy, Business Studies and Economics for XI & XII), 1. Input Unit – It is a device that accepts instructions and data from the user and, communicates these to the computer. The devices are key board, mouse, floppy disk,, magnetic tape etc., 2. CPU (Central Processing Unit) – It receives data and instructions and processes data, according to the instructions. It has three sections:, a. Memory Unit – It holds the instructions and data during processing. Data is stored in, this unit before being processed., b. Arithmetic Logic Unit (ALU) – The arithmetic operations such as additions, subtraction,, multiplication, division etc. are performed in this unit. Similarly logical operations, involving comparison among variables and data are also done in this unit., c. Control Unit – This unit supervises and controls the activities of all other units of the, computer. It also controls the flow of data and information from input devices to, memory unit and from memory unit to output devices., 3. Output Unit – This unit provides results to the user. The function of output device is to, receive information from the CPU and present it to the user. Display screen (Visual, Display Unit / VDU), Printers, floppy disk, magnetic tape, memory cards etc. are the, output devices., 4. Secondary storage unit – Storage capacity of the primary memory is limited and is, expensive. Therefore, it is complemented by external storage through secondary, storage devices. The secondary storage devices are used to store data permanently., The commonly used storage devices are floppy disk, hard disk, magnetic tape, optical, disk or CD ROM, Pen drive, memory card etc., Evolution of computerized accounting, Manual accounting was the most popular method of keeping records of financial transactions., The technological innovations led to the development of various machines in this field like, billing machine, typewriters etc. The technology advanced further, with exponential increase in, speed, storage and processing capacity, as a result the maintenance of accounting data on a, real-time (on time) basis became almost essential for decision making. Such a system of, maintaining accounting records became convenient with the computerized accounting system., Information and Decisions, All organizational objectives are attained through proper decisions based on proper, information system. Therefore, information is the most important organizations resource. With, the increasing use of information system in the organizations, Transaction Processing, Systems (TPS) have started playing a vital role. Every TPS has three components: Input,, Processing and Output. Since Information Technology (IT) follows the GIGO principle, (Garbage in – Garbage out) , it is necessary that input to the IT-based information system is, accurate, complete and authorized., Transaction Processing System (TPS), 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., Steps in TPS, 1. Data entry – With the help of certain input devises like keyboard, mouse etc. necessary, data should be entered. E.g. functions of an ATM counter., Add. 14-A, Anupam Nagar, Govindpuri-Gwl., , ACCOUNTING-12, , CHAPTER- 12, , Page 3

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Ranker’s Academy, (A Leading Institute of Accountancy, Business Studies and Economics for XI & XII), 2. Data validation – It ensures the accuracy and reliability of input data by comparing the, same with some predetermined standards or known data. E.g. PIN., 3. Processing and revalidation – Processing of data represents the actions of the ATM, if, the input data are correct the system will respond by giving cash. Revalidation occurs to, ensure that the transaction in terms of delivery of money by ATM has bee completed., 4. Storage – It describes the withdrawal of money by a particular customer are stored in, transaction database of computerized personal banking system., 5. Information – The stored data is processed using query (search) facility to produce, desired information. A database supported by DBMS is bound to have standard, Structured Query Language (SQL) support., 6. Reporting – Finally a report can be prepared on the basis of the required information, which will be useful for decision making., Features of computerized accounting system, 1., 2., 3., 4., 5., , It is based on the concept of database., Online input and storage of accounting data., Printout of purchase and sales invoices., Grouping of accounts is done from the very beginning., Instant reports for management like stock statement, trial balance trading and profit and, loss account, balance sheet, stock valuation, VAT returns, payroll reports etc., , Management Information System and Accounting Information System_MIS & AIS, MIS is a system that provides the information necessary to take decisions and manage an, organization effectively. It is used at different levels such as operation, tactical and strategic., AIS identify, collects, process and communicate economic information about an entity to the, interested users. So that, AIS is a part of MIS. The following diagram shows the relationship, of the Accounting System with the other functional management information systems., , Designing of Accounting Reports, Data when processed becomes information. When the related information is summarized to, meet a particular need, it is called a report. It must be effective and efficient to the users and, should substantiate the decision-making process., , Add. 14-A, Anupam Nagar, Govindpuri-Gwl., , ACCOUNTING-12, , CHAPTER- 12, , Page 4

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Ranker’s Academy, (A Leading Institute of Accountancy, Business Studies and Economics for XI & XII), Every accounting report must be able to fulfill the following criterion:, a., Relevance, b., Timeliness, c., Accuracy, d., Completeness, e., Summarization, Types of accounting reports, 1. Summary Report – This type of report summarizes all activities of the organization and, present in the form of summary report. E.g. profit and loss account and balance sheet., 2. Demand Report – It will be prepared only when the management demands them. E.g., Bad debt report, stock valuation report etc., 3. Customer/Supplier Report – It will be prepared as and when it is required by the, management. E.g. Top 10 customers report, vendors analysis report etc., 4. Exception Report – According to the conditions or exceptions the report is prepared., E.g. stock status query of a particular item, over stocked status etc., 5. Responsibility Report – This report shows the management responsibilities. E.g., report on cash position to be submitted by the financial manager, report on production, of a product by the production manager etc., Steps in designing an accounting report, 1. Define the objectives – The objective of the report should be clearly defined by, considering the users of report and the decision to be taken., 2. Structure of the report – The information to be contained and the style of presentation., 3. Querying with the database – The accounting information queries must be clearly, defined and the methodology to be adopted while interacting with the database., 4. Finalize the report., **************, , Add. 14-A, Anupam Nagar, Govindpuri-Gwl., , ACCOUNTING-12, , CHAPTER- 12, , Page 5