NCERT Class 11 Accountancy Applications of Computers in Accounting

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Applications of Computers in Accounting

Computer technology and its usage have registered a significant development during the last three decades. Historically, computers have been used effectively in science and technology to solve the complex computational and logical problems. They have also been used for carrying out economic planning and forecasting processes. Recently, modern day computers have made their presence felt in business and industry. The mostimportant impact of computers has been on the manner in which data is stored and processed within an organisation. Although manual dataprocessing for Management Information System (MIS) has been quite common in the past, modern MIS would be nearly impossible without the use of computer systems. In this chapter we shall discussthe need for the use of computers in accounting, the nature of accounting information system and the types of accounting related MIS reports.

12.1 Meaning and Elements of Computer System

A computer is an electronic device, which is capable of performing a variety of operations as directed by a set of instructions. This set of instructions is called a computer programme. A computer system is a combination of six elements:

12.1.1 Hardware

Hardware of computer consists of physical components such as keyboard, mouse, monitor and processor. 

12.1.2 Software

A set(s) of programmes, which is used to work with such hardware is called its software. A coded set of instructions stored in the form of circuits is called firmware. There are six types of software as follows:

(a) Operating System : An integrated set of specialised programmes that are meant to manage the resources of a computer and also facilitate its operation is called operating system. It creates a necessary interface that is an interactive link, between the user and the computer hardware.

(b) Utility Programmes : These are a set of computer programmes, which are designed to perform certain supporting operations: such as programme to format a disk, duplicate a disk, physically reorganise stored data and programmes.

(c) Application Software : These are user oriented programmes designed and developed for performing certain specified tasks: such as payroll accounting, inventory accounting, financial accounting, etc.

(d) Language Processors : These are the software, which check for language syntax and eventually translate (or interpret) the source programme (that is a programme written in a computer language) into machine language (that is the language which the computer understands). 

(e) System Software : These are a set of programmes which control such internal functions 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 : These are a set of programmes which create and control a connection between a computer and a server so that the computer is able to communicate and share the resources of server and other connected computers.

12.1.3 People

People interacting with the computers are also called live-ware of the computer system. They constitute the most important part of the computer system :

• System Analysts are the people who design data processing systems.

• Programmers are the people who write programmes to implement the data processing system design.

• Operators are the people who participate in operating the computers. People who respond to the procedures instituted for executing the computer programmes are also a part of live-ware.

12.1.4 Procedures

The procedure means a series of operations in a certain order or manner to achieve desired results. There are three types of procedures which constitute Summary with Reference to Learning Objectives

1 Meaning of a Computer : Computer is an electronic device capable of performing variety of operations as desired by a set of instructions.

2 Elements of a Computer System :

   • Hardware

   • Software

   • People

   • Procedure

   • Data

   • Connectivity

3 Capabilities of Computer :

   • Speed

   • Accuracy

   • Reliability

   • Versatility

   • Storage

4 Need of Computers in Accounting : The advent of globalisation has resulted in the rise in business operations. Consequently, every medium and large sized organisations require well-established information system in order to generate  information required for decision-making and achieving the organisationalobjectives. This made information technology to play vital role in supporting business operations.

5 MIS and Accounting Information System : A management information system provides information necessary to take decisions and manage an organisation effectively. Accounting information system on the other hand identifies, collects,processes and communicates economic information about an entity to a wide variety of users.

6 Accounting Reports : Information supplied to meet a particular need is called report. An accounting report must fulfil the following conditions :

   • Relevance

   • Timeliness

   • Accuracy

   • Completeness

   • Summarisation

Questions for Practice

Short Answers

1. State the different elements of a computer system.

2. List the distinctive advantages of a computer system over a manual system.

3. Draw block diagram showing the main components of a computer.

4. Give three examples of a transaction processing system.

5. State the relationship between information and decision.

6. What is Accounting Information System?

7. State the various essential features of an accounting report.

8. Name three components of a Transaction Processing System.

9. Give example of the relationship between a Human Resource Information System and MIS.

Long Answers

1. ‘An organisation is a collection of interdependent decision-making units that exists to pursue organisational objectives’. In the light of this statement,explain the relationship between information and decisions. Also explain the role of Transaction Processing System in facilitating the decision-making process in business organisations.

2. Explain, using examples, the relationship between the organisational MIS and the other functional information system in an organisation. Describe  how AIS receives and provides information to other functional MIS.

3. ‘An accounting report is essential a report which must be able to fulfil certain basic criteria ‘ Explain? List the various types of accounting reports.

4. Describe the various elements of a computer system and explain the distinctive features of a computer system and manual system.

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