Overview Of Computerised Accounting System — NCERT Solutions

Coding is a system of letters or figures with arbitrary meaning used for brevity and machine processing of information; it is an identification mark. Codification is required in an accounting system to maintain the hierarchical relationship among account groups and sub-groups, to ensure neat classification, and to help in generating reports like the Balance Sheet and Profit and Loss Account. It also makes accounts easy to list in the desired order.

The salient features of computerised accounting software are:

• Simple and integrated: automates and integrates business operations like sales, finance, purchase, inventory and manufacturing.
• Transparency and control: provides greater transparency and access to vital information.
• Accuracy and speed: supports fast and accurate data entry through user-definable templates.
• Scalability: can handle changes in the volume of data as the business grows.
• Reliability: ensures critical financial information is accurate, controlled and secured.

The phases in the accounting cycle are:

1. Business transactions are analysed.
2. The transactions are recorded in the journal.
3. Journal entries are posted to the ledger accounts.
4. A trial balance is prepared.
5. Accounts are reviewed and necessary adjustments are made.
6. Adjustments are posted in the ledger to prepare the adjusted trial balance.
7. The adjusted trial balance is used to prepare the balance sheet and profit and loss account.
8. Final financial statements are prepared from the adjusted ledger and balancing of accounts.

Data are raw facts or inputs. Information is data that has been processed so that it becomes useful for decision-making.

Example from the chapter: days worked and rate per day are data; when they are multiplied together, the result is amount to pay, which is information.

So, data are the starting facts, while information is the meaningful output after processing.

The chapter discusses these coding methods:

1. Sequential codes: numbers and/or letters are assigned in consecutive order. Best suited for source documents such as cheques and invoices, because they help in searching documents and detecting missing numbers.
2. Block codes: a range of numbers is divided into sub-ranges, and each sub-range is allotted to a specific group. Best suited when items need to be grouped into categories, such as dealer types or product groups.
3. Mnemonic codes: alphabets or abbreviations are used as symbols. Best suited where the code should be easy to remember, such as SJ for Sales Journal or DLH for Delhi.

The best method depends on whether the need is for document tracing, group-wise classification, or easy remembrance.

A transaction is a record of inflow and outflow of resources.

In hierarchical grouping, a transaction is shown by classifying its components according to the accounting equation and the chart of accounts. For example, a transaction affecting assets will be grouped under assets; one involving a sale will be grouped under revenues; and one involving payment of wages will be grouped under expenses.

The chapter groups accounts as:

• Equity and liabilities
• Assets
• Revenues
• Expenses

These groups can be further divided into sub-groups, such as shareholder's funds, non-current liabilities, current assets, and so on.

A chart of accounts is a list or classification of accounts used in accounting. In CAS, it is arranged hierarchically so that accounts are grouped from broad heads to detailed sub-heads.

According to the chapter, the main groups are:

• Equity and Liabilities
• Assets
• Revenues
• Expenses

Each of these is further divided into sub-groups, such as shareholder’s funds, current liabilities, non-current assets, current assets, sales, other income, and various expense heads. The hierarchical arrangement helps in preparing the Balance Sheet and Profit and Loss Account.

Revenue means the inflow of resources resulting from the sale of goods or services in the normal course of business and it increases capital. Expenses mean the consumption of resources in generating revenues.

In the chapter, revenue includes sales and other income. Expenses include material consumed, salary and wages, manufacturing expenses, depreciation, administrative expenses, interest, and selling and distribution expenses.

The limitations of CAS are:

1. Faster obsolescence of technology requires investment in a shorter period of time.
2. Data may be lost or corrupted due to power interruptions.
3. Data are prone to hacking.
4. Un-programmed and un-specified reports cannot be generated.

The advantages of CAS are:

1. Timely generation of reports and information in desired format.
2. Efficient record keeping.
3. Effective control over the system.
4. Economy in processing accounting data.
5. Confidentiality of data is maintained.

Encryption means scrambling information so that its interpretation becomes extremely difficult or almost impossible. In CAS, it helps provide additional security to data. Even if the data reaches the wrong hands, the receiver cannot easily decode and interpret it, so data remains protected.

A suitable coding structure for the inventory items should follow the hierarchy given in the question:

Major Category → Sub-category → Item

Since there are 37 major categories, we need 2 digits for the major category code (00–37 or 01–37).

Each major category has 15–40 sub-categories, so 2 digits are sufficient for sub-category (01–40).

Within a sub-category, items will not exceed 1000, so 3 digits are needed for the item number (001–999), and if 1000 is to be included exactly, then 4 digits are safer. Since the question says “will never exceed 1000,” a practical structure is 4 digits to cover 0001–1000.

So a proper coding structure can be:

• Major Category: 2 digits
• Sub-category: 2 digits
• Item: 4 digits

Thus, the inventory code may be 2 + 2 + 4 = 8 digits.

Example format: CC-SS-IIII

This structure is suitable because it preserves hierarchy, allows grouping, and can accommodate all the given inventory items.