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Question

Define a computerised accounting system. Distinguish between a manual and computerised accounting system.

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Solution

Computerised Accounting Systems is based on the concept of database. It is an accounting information system that processes the financial transactions and events in accordance to the Generally Accepted Accounting Principles (GAAP) to produce reports as per the requirements of the users.
The computerised accounting is one of the database oriented application, where in the transactions data is stored in a well-organised database.
The accounting systems are of two types namely Manual and Computerised Accounting Systems.
The following are some point of differences between Manual and Computerised Accounting Systems.

a) Identifying
Manual Accounting System: The identification of transactions is based on the application of the accounting principles.
Computerised Accounting Systems: The identification of transactions in computerised accounting is also based on the application of accounting principles.

b) Recording
Manual Accounting Systems: The recording of financial transactions is done through books of original entries, i.e. Journal.
Computerised Accounting Systems: The data of such transactions is stored in a well designed database.

c) Summarising
Manual Accounting Systems: By ascertaining the balance of various accounts, transactions are summarised to produce Trial Balance in the Manual Accounting Systems. Consequently, the generation of ledger accounts becomes a necessary condition.
Computerised Accounting Systems: The originally stored transactions data are processed to give out the list of balances of various accounts to be finally shown in the Trial Balance report. Thus, the generation of ledger accounts is not a necessary condition

d) Classification
Manual Accounting Systems: Transactions recorded in the books of original entry are further classified by posting into ledger accounts. Thus, the data can be duplicated.
Computerised Accounting Systems: In order to produce ledger accounts in Computerised Accounting Systems, the stored data is processed to appear as classified, such that no data is duplicated.

e) Adjusting Entries
Manual Accounting Systems: Adjusting entries are recorded to match the expenses and revenues generated of the accounting period. So, under Manual Accounting System, these entries are made to stick to the principles of cost matching revenue.
Computerised Accounting Systems: No such adjusting entries for errors and rectification are made. Thus, Journal and vouchers are prepared and stored to follow the principles of cost matching revenue.

f) Financial Statements
Manual Accounting Systems: The preparation of financial statements hypotheses the availability of Trial Balance under the Manual System of Accounting.
Computerised Accounting Systems: Journal vouchers are prepared and stored to follow the principles of cost matching revenue, but there is nothing like passing adjusting entries for error and rectification.

g) Closing the books
Manual Accounting Systems: After preparing financial reports, the accountants prepare books for the following accounting period, which is done by posting of closing and reversing the closing Journal entries.
Computerised Accounting Systems: To create and store the opening account balances in the database, year-end process is used.


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