What is Computerized Accounting System (CAS)?

The Computerized Accounting System is generally a system of maintaining accounts using computers. In this method of accounting system, the accounting transactions are processed through the use of hardware and software to generate the reports such as journals, ledgers, trial balance, trading account, P/L accounts, balance and other reports.

• This accounting system helps in maintaining accounting records using various accounting software without having to require large physical space as is required when records are maintained while doing manual accounting.
• It also helps in payroll preparation which facilitates the calculation of the due amount payable to an employee.
• It also facilitates the computation of various taxes with the help of accounting software.
• The taxes so calculated are deducted automatically using the software and the same is also deposited into the government account.

Salient Features of CAS

The features of a computerized accounting system can be discussed under the following heads:

Simple and Integrated: This method of accounting system has been designed to automate and combine all the business operations such as sales, finance, purchases etc. thereby enabling the computerized accounting system to provide updated business information crisply and efficiently. The accounting system can also be integrated with the various multi-lingual system to simplify the business information and to process it cost-effectively.

Transparency and Control: The computerized accounting system helps in enhancing data accessibility and is user friendly. The management of the organization generally experiences greater transparency of the day-to-day business operations and processing of financial transactions with the use of a computerized accounting system in contrast to manual accounting.

Accuracy and Speed: The computerized accounting system provides users with certain templates which facilitate the recording of the transactions more accurately and in a faster manner. The complex documents and reports which are prepared under traditional accounting are also generalized under this accounting system.

Scalability: This system of accounting facilitates change in the volume of data processing with regards to the size of the business. The software used in computerized accounting can vary with the size and type of the organization.

Reliability: This accounting system being user-friendly is more reliable and ensures that the financial information which is critical in nature is more secured and accurately provided.

Advantages of CAS

Cost-effectiveness: Under the traditional system of accounting, hiring a bookkeeper proved to be very costly, however in the case of computerized accounting the software program that is purchased and set only has an upfront cost and the owner does not have to buy anything beyond that. The software programs so installed become cost-effective very quickly which can run for years with an occasional inexpensive upgrade.

Ability to collaborate: This system of accounting enables the business owners to reconcile their accounts quickly by syncing the information with banks and outside bookkeepers which helps them to import the correct information that needs to be reviewed urgently with the click of a mouse. The software programs that are used help the management to set permissions for giving access of their data to outsiders, however maintaining utmost security and backup of the same.

Limitations of CAS

Cost of training: The newer versions of hardware and software are installed to make sure that the accounting system can be used more effectively and efficiently by the management. However, such a newer version requires special training for the staff personnel on which costs are incurred regularly.

Fear of unemployment: The computerized work in accounting develops a sense of insecurity amongst employees about losing their jobs, as a result, their interest in computer-related work goes down.

Disruption of work: The introduction of the computerized accounting system leads to an interruption in the traditional way of doing accounting which leads to unwanted changes in the working environment and transmission of the necessary information.

System Failure: This is also one of the limitations faced by computerized accounting. In the case where there is a system failure and there is no backup of the required data or financial transactions, this method of accounting can lead to interruption in the work which can prove to be hazardous for the management.

Time-Consuming: In the case where there is a loss of work due to system failure, alternative accounting arrangements are required to be made for resuming the work which consumes both time and effort of staff personnel.

Breaches of security: The need for security arises due to fear of unwanted hacking and installation of viruses from outside into the system. Since the computerized accounting system helps in the reconciliation of accounts by syncing them with the bank and other outsiders, so there might be a possibility wherein unknown viruses may enter into the system which requires a high level of security from performing such breaches.

Components of Computerized Accounting

Hardware: It refers to the physical component involved in computerized accounting. It consists of input and output devices that form part of the computerized system. Input devices comprise the keyboard, mouse, joystick, etc, while output devices include monitor, printer, plotter, etc.

Software: It is generally defined as a set of programs that acts as an interface between hardware and the user. The two major categories of accounting software are system software and application software.

• System software: It is a kind of accounting software that helps in controlling the internal operations of the organizations such as reading data from the input devices and giving results to output thereby ensuring smoother coordination. The system software can further be classified into the operating system, programming software.
• Application software: This accounting software consists of programs that are usually designed to perform specific functions for an end-user such as creating documents, spreadsheets, sending emails. It is generally specific to the task for which it has been designed and its working can be as simple as a calculator. Application software can be further classified into various accounting software depending on the purpose: seneral purpose software and specific purpose software. 

People: The most important component of an accounting system is its users who are also termed as the "live-ware of the computer system" and involves system analysts, programmers, and operators.

Procedure: This is another important component of the accounting system which involves step-by-step instructions following which a specific function can be performed more efficiently and diligently and desired output can be obtained.

Data: It can be defined as the facts and figures which are computerized for further processing. It is usually available in the raw form unless it is interpreted by the computer system using machine language. The interpreted data is then stored in the memory of the system and then this processed data which is classified as information is used in better decision making.

Connectivity: This component of a computerized accounting system helps in transmitting information between two or more computers when connected via wires, cables, satellites, Bluetooth, etc.

Common Mistakes

Care must be taken while using this method of accounting with regards to the theft of data, as in contrast to manual accounting in computerized accounting there is no original copy and duplicate copy. Moreover, the programs and the financial data may be manipulated. Since the transactions mostly take place online passwords are usually set at every level and can easily be hacked by intruders if not changed regularly.

Context and Applications

This topic is significant in the professional exams for both undergraduate and post-graduate courses, especially for:

• B.com (Honors)
• M.com
• Chartered Accountants (CA)
• Company Secretary (CS)
• MBA (Master of Business Administration) (Finance)
• CMA (Certified Management Accountant)

Related Concepts

• Accounting Software
• GAAP
• Customization of software