COMPUTERIZED ACCOUNTING

MEANING OF COMPUTERIZED ACCOUNTING

 As its name suggests, "computerized accounting" is accounting done with the aid of a computer.
 It tends to involve dedicated accounting software and digital spreadsheets to keep track of a business or
client's financial transactions.
 •Computerized accounting is a beneficial use of current technological advances. Not only has it
revolutionized the traditional paper methods of accounting, but it has also created new types of
accounting applications for business.
 Companies now create entire accounting information systems that integrate all business operations,
including external suppliers and vendors in the value chain.
 •Computerized accounting systems (or software) have replaced manual-based accounting in virtually all
businesses and organizations, providing accountants, managers, employees and stakeholders access to
vital accounting information at the touch of a button. Computerized accounting systems automate the
accounting process--improving efficiency and cutting down costs.

COMPUTERS IN ACCOUNTING
Meaning of Computers: 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.
Elements of Computer System:
A computer system is a combination of six elements:

1. Hardware
2. Software
3. People
4. Procedure
5. Data
6. Connectivity
1. Hardware: Hardware of computers consists of physical components such as keyboard, mouse, monitor,
processor etc. These are electronic and electromechanical components.
2. Software: In order to solve a particular problem with the help of computers, a sequence of instructions
written in proper language will have to be feed into the computeksh A set of such instructions is called a
‘Program’ and the set of programs is called ‘Software’.
For example, a computer by feeding a particular software can be used to prepare pay-roll, whereas by feeding
a second software it can be used to prepare accounts, by feeding a third software it can be used for inventory
control and so on.

3. People: People are basically those individuals who use hardware and software to develop, maintain and use
the information system residing in the computer memory. They constitute the most important part of the
computer System. The main categories of people involved with the computer system are:
(a) System Analysis
(b) Operators
(c) Programmers
4. Procedures: The Procedure means a series of operations in a certain order or manner to achieve desired
results. These are of three types:
(a) Software-Oriented: Provides a set of instructions required for using the software of a computer system.
(b) Hardware-Oriented: Provides details about the components and their methods of operations.
(c) Internal Procedure: Helps to ensure smooth flow of data to computers sequencing the operations of each
sub-system of overall computer system.
5. Data: These are facts (may consist of numbers, text etc.) gathered and entered into a computer system. The
computer system in turn stores, retrieves, classifies, organises and synthesis the data to produce information
when desires.
Examples:
1. Bio-data of various applicants when the computer is used for recruitment of staff.
2. Marks obtained by various students in various subjects when the computer is used to prepare results,
6. Connectivity: the manner in which a particular computer system is connected to others (say through
telephone lines, microwave transmission- satellite link etc.) is called element of connectivity.
Capabilities or Advantage of Computer System
A Computer system posses the following advantages in comparison of human beings:
1. High Speed: Computers are known for their lightening speed of operations and requires less time in
comparison to human beings in performing a task. Most of modem computers perform millions of operations
in one second.
2. Accuracy: Computers are extremely accurate. Their operations are error free and as such the information
obtained from it is highly reliable. But sometimes errors occur due to bad programming or in accurate data
feeding. In computer terminology, it refers is called Garbage in, garbage out (GIGO).
3. Reliability: Its reliability refers to the ability with which computer remains functional to serve the user.
Unlike human beings these are immune to tiredness, boredom or fatigue, and can perform jobs of repetitive
nature any number of times.
4. Versatility: It refers to the ability of computers to perform a variety of tasks. It can switch over from one
programme to another. The same computer can be used for accounting work, stock control, sales analysis and
even for playing games by the use of different softwares.
5. Storage: Memory or Storage capacity of a computer is so large that it can store any volume of information
or data. Such data can be stored in it on magnetic discs, floppy discs, punched cards or microfilms etc. The
information stored can be recalled at any time and also correction can be done within no time.
6 Better Quality Work: The accounts prepared with the use of computerized accounting system are usually
uniform, neat, accurate, and more legible than a manual job.
7Lower Operating Costs: Computer is a reliable and time-saving device. The volume of job handled with the
help of computerized system results in economy and lower operating costs. The overall operating cost of this
system is low in comparison to the traditional system.
8Improves Efficiency: This system is more efficient in comparison to the traditional system. The computer
makes sure speed and accuracy in preparing the records and accounts and thus, increases the efficiency of
employees.
9 Facilitates Better Control: From the management point of view, there is greater control possible and more
information may be available with the use of the computer in accounting. It ensures efficient performance in
accounting records.
10. Relieve Monotony: Computerized accounting reduces the monotony of doing repetitive accounting jobs.
Which are tiresome and time-consuming.
11. Facilitates Standardization: Computerised accounting provides standardization of accounting routines
and procedures. Therefore, it ensures standardization in the accounting records.
10. Minimizes Mathematical Errors: While doing mathematical work with computers, errors are virtually
eliminated unless the data is entered improperly in the system.
12. Legibility : The data displayed on computer monitor is legible. This is because the characters (alphabets,
numerals, etc.) are type written using standard fonts. This helps in avoiding errors caused by untidy written
figures in a manual accounting system.
10. Efficiency : The computer based accounting systems ensure better use of resources and time. This brings
about efficiency in generating decisions, useful informations and reports.
11. Quality Reports : The inbuilt checks and untouchable features of data handling facilitate hygienic and
true accounting reports that are highly objective and can be relied upon.

Limitations: Inspite of so many qualities, computers suffer from the following limitations.
(1) Lack of Common sense: Since computer work according to the stored programms, they simply lack of
common sense.
(2) Zero I.Q.: Computers are dumb devices with zero Intelligence Quotient (IQ). They can’t visualize and
think what exactly to do under a particular situation unless they are programmed to tackle that situation.
(3) Lack of Feeling: Computers lack feelings like human beings because they are machines. No computer
passes the equivalent of a human heart and soul.
(4) Lack of Decision-making: Decision making is a complex process involving information, knowledge,
intelligence, wisdom & ability to judge, Computers cannot make decisions of their own.
(5) High Cost of Training: Besides the high cost of computer system, huge money is required to get the
trained specialised staff to ensure efficient and effective use of computerised systems.
(6) Danger of System Failure: The danger of system crashing due to hardware failure and the subsequent loss
of word is a serious limitation of this system.
(6) Staff Opposition: Whenever the Accounting System is computerised, there is a significant degree of
resistance from the existing staff because of the fear that they shall be less important to the organisation.
(7) Disruption: The accounting process suffer a significant loss of work and time when an organisation
switches over to this system. This is due to the changes in the working environment that requires accounting
staff to adapt to new system and procedures.
COMPONENTS OF COMPUTERS
The functional components consists of Input Unit, Central Processing Unit (CPU)and the out Unit relation as
follows:

(1) Input Unit: It is for entering the data into the computer system. Keyboard and Mouse are the most
commonly used input devices. Other such devices are magnetic tapes, disc, light pen, optical scanner, smart
card reader etc. Besides there are some devices which respond to voice and physical touch.
(2) Central Processing Unit (CPU): It is the main part of computer hardware that actually processes the date
according to the instructions it receives. It has three units:
Monitor Printer

(a)Arithmetic and Logic Unit (ALU): Responsible for performing all the arithmetic calculations such as
addition, subtraction etc. and logical operations involving comparison among variables.
(b) Memory Unit: For storing the date.
(c) Control Unit: Responsible for controlling and coordinating the activities of all other units of the computer
system.
(3) Output Unit: After processing the data, the information produced is. required in human readable and
understandable form. Output devices perform this function. The commonly used devices are monitor, printer,
graphic plotter (external) and magnetic stage devices (internal). A new device which is capable of producing
verbal output that sound in human speech is also developed.
Operating Software
Operating Software is a set of programmes that is used by computers for various purposes. Operating Software
is essential part of computer system in absence of operating software computer cannot operate. There are
many operating soft- wares like Windows, Excel etc.

Utility Software
Utility Software is a set of computer programmes used to perform supporting operations in a computer. Utility
Software are highly specialised and designed to perform only a single task or a small range of tasks.

Application Software
Application Software is the set of programmes which is designed and developed for performing certain task
like accounting, word processing etc. for example Tally is the application software.

Accounting Information System (A1S)

Accounting Information System is a system of collecting, processing, summarising and reporting information
about a business organisation in monetary terms. It maintains a detailed financial record of the business
operations and transfer the data into valuable information.

So, Accounting Information System (AIS) is a sub-system of MIS. AIS is a struc- ture that allow its users to
collect and use business data.

Application of Computers in Accounting

1. Recording of transactions: Record the all business transactions properly and timely.
2. Draw all ledger accounts: Computers prepares all ledger accounts by given transactions, like cash, bank,
debtors, sales a/c etc.
3. Preparation of Trial Balance: It prepares the Trial Balance according to ledger accounts.
4. Preparation of Final A/c: It has utility to prepare Trading A/c, P&L A/c and Balance Sheet.
Features of Computerized Accounting System
Computerized accounting system is based on the concept of database. This system offers the following
features:

(1) Online input and storage of accounting data.

(2) Printout of purchase and sales invoices.
(3) Every account and transaction is assigned a unique code.
(4) Grouping of accounts is done from the beginning.
(5) Instant reports for management, for example: Stock Statement, Trial Balance, Income Statement, Balance
Sheet, Payroll Reports, Tax Reports etc.
Automation of Accounting Process
When accounting functions are done by computerized accounting software that is known as automation of
accounting process under the automation of accounting process human activity is less but accounting software
is more used.

So, accounting functions like posting into ledger, Balancing, Trial Balance and

Final Accounts are prepared by computer.

Stages of Automation
There are different stages of automation as:

(i) Planning: Under this stage the assessment of size, and business transactions is done for which automation
has to be made.
(ii) Selection of Accounting Software: As there are many accounting softwares available in the market. So, in
this stage appropriate accounting software is to be selected according to company’s need.
(iii) Selection of Accounting Hardware: Under this stage of automation the computer hardware is selected.
This hardware should be such which can fullfill the accounting requirement and support the accounting
software.
(iv) Chart of Accounts: Under this stage list of required heads of accounts is prepared.
(v) Grouping of Accounts: There are various transactions for Expenses, Income, Assets, Liabilities. All these
transactions cannot be shown directly. So, these transactions are grouped as salary, wages, discount and
commission etc.
(vi) Generation of Reports: This is final stage of automation under this final reports are prepared in from of
Cash Book, Journal, Ledger, Trial Balance, P&L A/c and Balance Sheet etc.
Comparison Between Manual Accounting and Computerised Accounting
 Manual Accounting Computerized Accounting
Basis

Manual accounting is the procedure where the Computerised Accounting is software-

financial accounts are recorded manually based operations done by specific account
Meaning
using physical registers, ledgers, and software which has an automatic
subsidiary books. framework.

It is a time taking process and the records are The process of accounting is much faster,
maintained manually using paper based more reliable, and easy. All data is
Time Taken
account books, and sometimes it is not maintained systematically and accurately
accurate. using the software.

The accounting through software is

Since the accounting is done manually, so
Margin of automated and has very less chance of
there is a chance of human error in
Error error and the transactions are precisely
calculations and accuracy.
recorded.

Although it is not much easy to store physical It is very reliable to store information on
accounting books everywhere, as they can be the computer in the form of format
Reliability misplaced or get damaged easily and cannot documents like PDF, Microsoft Excel, etc.
be sent anywhere easily as compared to and can be sent digitally anywhere in a
Computerised accounting. fraction of a second.

There is a chance of cyber attacks to steal

The Books can be kept safely and cannot be
the data unless it is strongly secured using
Safety stolen easily, as it does not require any
advanced anti-hacking software, as this
internet access to get stolen by a cyber attack.
process requires the internet.
 Manual Accounting Computerized Accounting
Basis

It is much more difficult to edit the report or Any changes can be performed easily as
make changes once entered manually, a whole it’s easy to edit things in a computer
Editable
page has to be re-entered if any mistake system and doesn’t have to redo the whole
occurs. work again.

It is exempted from such maintenance as this As a computer is a machine so technical

process does not require a computer and the problems, like software freezing, system
Technology data is always available to access and use as not responding, data crash, etc., can be
every record is done physically and stored occurred once in a while if proper
safely. maintenance is not done.

The physical data is safe compared to

Every now and then, an online backup or
computerised accounting, but a backup is
external backup is highly preferred to get
Backup always important, like having a photocopy of
rid of any accidental hardware crash and
the original records to prevent any unexpected
data loss.
data loss.

In manual accounting, all the calculations of

transactions like adding, subtracting, The software does all the calculations
Additional
multiplications, etc., are done physically and automatically and accurately and doesn’t
Device
for some tough calculations, an additional need any additional calculating devices.
device, like a calculator is used.

The identification of a particular transaction is In this accounting, the tracing of reports

Automatic manually done and can take some time to or identifying transactions is fully
record it. automatic and quick.
 Manual Accounting Computerized Accounting
Basis

In this process, the balances of accounts have Since the process is based on accounting
to be entered manually in registers, which is a software, the preparation of the Trial
Accuracy
time-consuming process. So the Trial Balance Balance is produced automatically and is
is manually prepared. accurate.

The physical storage of accounting books The physical space to store the documents
requires a lot of physical space or dedicated is not required as everything is digitally
Physicality
racks or shelves to store the records, registers, stored, and a limited physical space
etc. sufficient for a computer is only needed.

It is used by small businesses and old- It is mostly used by large companies and
Used By fashioned traders as they have less number of businesses where the number of
transactions. transactions is more.

SOURCING OF ACCOUNTING SOFTWARE

India is one of software making country. So, accounting softwares are easily available in Indian Market. But it
is more important to know what is your need of accounting software.

Generally, Tally accounting software is used in India which is easily available in market.

Accounting Softwares
(1) Readymade Software: Readymade Software are the software that are developed not for any specific user
but for the users in general. Some of the readymade softwares available are Tally, Ex, Busy. Such softwares
are economical and ready to use. Such softwares do not fulfill the requirement of very user.
(2) Customised Software: Customised software means modifying the readymade softwares to suit the
specific requirements of the user Readymade softwares are modified according to the need of the business
Cost of installation, main tenance and training is relatively higher than that of readymade user. There packages
are used by those medium or large business enterprises in which financial transactions are some what peculiar
in nature.
(3) Tailor-made Software: The softwares that are developed to meet the requirement of the user on the basis
of discussion between the user and developeksh Such softwares help in maintaining effective management
information system. The cost of these softwares in very high and specific training for using these packages is
also required.
Generic Considerations Before Sourcing Accounting Software
(i) Flexibility: a computer software system must be flexible in respect of data handling and report preparing.
(ii) Maintenance Cost: The accounting software must be such which has less maintenance cost.
(iii) Size of organisation: The accounting software must be according to need and size of organisation.
(iv) Easy to adaptation: The accounting software must be such which is easy to apply in organisation.
(v) Secrecy of data: The accounting software must be such which provide the secrecy of business data, from
otheksh

ACCOUNTING EQUATION
Accounting is based on the principle of two-sided. In order to carry out business activities, the company needs
funds; these funds must be given to the company by someone. The funds owned by the company are
called assets. Part of these assets is provided by the owner, total amount of funds contributed by him is
called owner’s equity or capital. If the owner is the only one who contributed, then the equation A = O.E will
be fair. (assets equal to capital).
However, the assets may be contributed by someone else who is not the owner. The debt of the enterprise for
these assets is called liabilities. Therefore, now the equation will take the following form: A = L + O.E.
(Assets equal equity plus liabilities). The left and right sides of the equation always coincide.
What is accounting equation?

The accounting equation summarizes the essential nature of double-entry system of accounting. Under which,
the debit always equal to credit, and assets always equal to the sum of equities and liabilities.

Accounting equation can be simply defined as a relationship between assets, liabilities and owner’s equity in
the business
Accounting Equation and Formulae correlation

The accounting equation represents the relationship between the assets, liabilities and capital of a business and

it is fundamental to the application of double entry bookkeeping where every transaction has a dual effect on

the financial statements.

What is the accounting equation?

In its simplest form, the accounting equation can be shown as follows:

Capital = Assets – Liabilities

In this format, the formula more clearly shows how the assets controlled by the business have been funded.
That is, through investment from the owners (capital) or by amounts owed to creditors (liabilities). You may
also notice two other interesting points regarding the formula being laid out in this way:

1. It reflects the format of the statement of financial position (ie assets are presented first and the total
assets figure balances with the total amount of equity and liabilities); and
2. It more clearly reflects the fact that total debits will always equal total credits (ie Assets (Dr) = Capital
(Cr) + Liabilities (Cr))

What about drawings, income and expenses?

Drawings are amounts taken out of the business by the business owner. They will therefore result in a
reduction in capital.
Income and expenses relate to the entity’s financial performance. Individual transactions which result in
income and expenses being recorded will ultimately result in a profit or loss for the period. The term capital
includes the capital introduced by the business owner plus or minus any profits or losses made by the business.
Profits retained in the business will increase capital and losses will decrease capital. The accounting equation
will always balance because the dual aspect of accounting for income and expenses will result in equal
increases or decreases to assets or liabilities.
The accounting equation can be expanded to incorporate the impact of drawings and profit (ie income
less expenses):
3. Assets = Capital introduced + (Income – Expenses) – Drawings + Liabilities

Practical example

We will now consider an example with various transactions within a business to see how each has a dual
aspect and to demonstrate the cumulative effect on the accounting equation.

Example
Anushka began a sole trade business on 1 January 20X1. During the first month of trading, the following
transactions took place:

1. She started the business with $5,000 of cash

2. She took out a loan from the bank of $10,000
3. She purchased a van for $12,000 cash
4. She purchased 100 units of inventory on credit at a total cost of $2,500 (ie $25 per unit)
5. She sold 10 units of inventory to a customer on credit for a total of $400 (ie $40 per unit)
6. She paid interest on the loan of $60
7. She repaid $250 of the loan
8. She took $10 from the business bank account to cover a personal expense
Required
Explain how each of the above transactions impact the accounting equation and illustrate the cumulative effect
that they have.

Habib Ullah Sadiq is wholesale trader; following transactions are record in Accounting Equation?
i. Commence business with cash Ksh 200,000 and Land Ksh 50,000.
ii. Bought merchandising for cash Ksh 80,000.
iii. Cash sales of worth Ksh 25,000.
iv. Bought goods on credit from Salman of worth Ksh 50,000.
v. Sales on account to Ali Raza Ksh 12,000.
vi. Purchase furniture of the value of Ksh 5,000 by cash.
vii. Received cash form Ali Raza of Ksh 10,000.
viii. Return defective furniture of worth Ksh 1,500.
xi. Paid wages Ksh 1,000, Rent 2,000 and Electricity Bill Payable Ksh 1,500.
Preparation of Accounts Groups
Groups of accounts means classifying the accounting transactions into different heads like Assets Group,
Liabilities Group, Income Group and Expenses Group. By these grouping of accounts the final Accounts are
meaningful for its users

Generation of Accounting Reports

After collecting business data, it is converted into meaningful information. Such summarised and converted
information is known as a report.

The report is more effective if it is based on accurate and timely data.

SOURCE DOCUMENTS
Source documents is an accounting terms to describe the original records that contain the details that
substantiate the financial transactions that are entered into the internal accounting system of a business.
Typical source documents include sales invoices, cash receipts, cash register slip, credit notes and deposit slip.
Source documents provide the documentary evidence of a business deal or accounting event and are a critical
part of an audit trail that establishes the authenticity and tracking history of an accounting system's financial
records.
COMMON SOURCE DOCUMENTS
Source documents are generally related to the particular activity as shown in the table
below:
BUSINESS ACTIVITY SOURCE DOCUMENTS
1. Cash received by the business Cash receipt (copy), cash register
tapes,
a. bank statement, bank deposit slip
2. Cash paid by the busines Cheque butt, ATM or EFTPOS receipt bank statement,
payroll records, ,
cancelled cheque
3. Petty cash payments Petty cash Voucher, cash receipts
4. Business giving credit to customer Business invoice (copy), Business
credit/debit note
5. Business receiving credit from a supplier Supplier's original invoice, supplier’s
statement,
card statement and receipts Supplier's
debit/credit note, credit
6. Any activity not generating a document Memorandum

SOURCE DOCUMENTS
This shows the evidence transactions. They are collected, filed and posted in the books of prime entry.
Example, if a firm sells goods on credit, then an invoice is raised. The source documents as shown in the
above include:
 Sales invoice
 Purchases invoice
 Credit note
 Debit note
 Receipts, cheques and petty cash vouchers
 Other correspondences.

(i) Sales Invoice

The sales invoice is raised by the firm and sent to the debtor/customer when the firm makes a credit sale.
The sales invoice contains the following:
i. Name and address of the firm
ii. Name and address of the buying firm
 iii. Date of making the sale – invoice date.
iv. Invoice number
v. Amount due (net of trade discount)
vi. Description of goods sold
vii. Terms of sale

(ii) Purchases Invoice

A purchase invoice is raised by the creditor and sent to the firm when the firm makes a credit purchase. It
shows the following:
i. Name and the address of the creditor/seller
ii. Name and address of the firm
iii. Date of the purchase (invoice date)
iv. Invoice number
v. Amount due
vi. Description of goods sold
vii. Terms of sale
(iii) Credit note
A credit note is raised by the firm and issued to the debtor when the debtor returns some goods back to the
firm. It’s contents include:
i. Name and address of the firm
ii. Name and address of the debtor
iii. Amount of credit
iv. Credit note number
v. Reason for credit e.g. if goods sent but of the wrong type.
The purpose of the credit note is to inform the debtor or customer that the debtor’s account with the firm
has been credited i.e. the amount due to the firm has been reduced or cancelled.
The credit note may also be issued when the firm gives an allowance of the amounts due from the debtors.
From the context we can assume that all credit notes are issued when goods are returned.
(iv) Debit note
This is raised by the creditor and issued to the firm when the firm returns some goods to the creditor. It
includes the following items:
 i. Name and address of the firm
ii. Name and address of the creditor
iii. Amount of debit
iv. Debit Note number
v. Reason for the debit
The purpose of the debit note is to inform the firm that the amount due to the creditor has been reduced or
cancelled.

The
Credit sales (sales invoice) The
Firm
Debtor
Returns inwards (credit note)

Credit purchase (purchase invoice)

The
The
Firm
Returns outwards (debit note) Creditor

(vi) Receipts
A receipt is raised by the firm and issued to customers or debtors when they make payments in the form of
cash or cheques. It shows:

i. The name and address of the firm

ii. The date of the receipt
iii. Amount received (cash or cheque or other means of payment)
iv. Receipt number.
Cheques
When a firm opens a current account with the bank, a chequebook containing cheques issued. The cheques
allow the firm to make payments against the account with the bank. When a firm issues a cheque to its
creditors for payments, it authorizes the bank to honour payments against the firm’s account with the bank.
The cheque contains the following information:
i. Name and account number of the firm (account holder)
ii. The date of the cheque
iii. Name of the payee (creditor)
iv. Name of the firm’s bank
v. Amount payable in words and figures
vi. The cheque number
vii. The authorized signature(s)
Petty cash vouchers
A petty cash voucher is raised by a cashier to seek authority for payments (payments of small value in the
firm which require cash payments e.g. fuel, bus-fare, office snacks), which is approved by a senior manager
and filed for record purpose. It shows:
i. Date of payment
ii. Amount paid
iii. Reason for payment
iv. Authorized signature(s):
v. Person approving
vi. Person receiving
The person receiving the money must then return a document supporting how the money was utilized e.g.
fuel receipt, bus ticket e.t.c.
The ledger accounts can also be classified as follows:

LEDGER

ACCOUNTS
 IMPERSONAL

ACCOUNTS
PERSONAL

ACCOUNS

REAL NORMAL
ACCOUNTS a/cs
DEBTORS CREDITORS

(for goods) (For goods)

Other
Non-current Liabilities
assets
Other
Inventories/ Assets
Stocks
Income

Expenses

Capital
REINFORCING QUESTIONS
QUESTION ONE
Mr J Ockey commenced trading as a wholesaler stationer on 1 May 2000 with a capital of £5,000.00 with
which he opened a bank account for his business.

During May the following transactions took place.

May 1 Bought shop fittings and fixtures from store fitments Ltd for £2,000.00
May 2 Purchased goods on credit from Abel £650.00
May 4 Sold goods on credit to Bruce £700.00
May 9 Purchased goods on credit from Green £300.00
May 11 Sold goods on credit to Hill £580.00
May 13 Cash sales paid into bank account £200.00
May 16 Received cheque from Bruce in settlement of his account
May 17 Purchased goods on credit from Kay £800.00
May 18 Sold goods on credit to Nailor £360.00
May 19 Sent Cheque to Abel in settlement of his account
May 20 Paid rent by cheque £200.00
May 21 Paid delivery expenses by cheque £50.00
May 24 Received from Hill £200.00 on account
May 30 Drew cheque for personal expenses £200.00 and assistant wages £320.00
May 31 Settled the account of Green.

Required
a) Prepare the journal entries
b) Post the entries in the ledger accounts
c) Balance the ledger accounts where necessary
d) Extract a trial balance as at 31 May 2000.
A report must be relevant to users and contain all relevant information like Debtor’s Report, Creditor’s Report,
Trial Balance and Financial Statement Report and others

PROJECT
COMPREHENSIVE PROJECT
Mr. Deepak, after completing his graduation wants to start his own business but he was little bit confused
which business to start. Moreover, he was short of funds also as only Ksh2,00,000 (to be used in business)
were available with him, which he saved by doing part time jobs during his graduation. He discussed the
matter with his father, Mr. Mahesh, a Bank Manager and decided to start a shop dealing in man’s wear from
1st April 2012 His father also help him in raising loan of Ksh 1,000,000 from xyz Bank against his personal
guarantee. On 5th April 2012, Mr. Deepak open a Bank A/c with Ksh 5,000 in xyz Bank. Bank also credited
his Bank A/c with the amount of loan on 1st June 2012, after completing all formalities, which is to be repaid
in Ten equal yearly installments along with with interest @12% p.a. on 31st March every year. Same day he
purchased a computer for Ksh 50,000 to maintain all the records regarding purchase, sales and stock and make
the payment by cheque. He also deposited Ksh 45,000 in Bank.

It was also decided that all the purchases are to be made by cheques and all receipts on account of sales were
to be deposited into Bank. He named his business as M/s Rajasthan Man’s wear and entered into a contract
with a dis- tribute of Man’s wear on 15th June 2012. The distributer want him to make all the payments with
regard to the orders in advance. Mr. Deepak’s transactions for the year ending on 31st March 2013 were as
follows.

Ksh

Purchases (on 15 June 12) 15,00,000

Sales 25,00,000

Staff Salary 2,00,000

 Telephone Expenses 50,000

Electricity charges 1,00,000

Packing charges 25,000

Insurance 1,00,000

Rent (Ksh 10,000 p.m.) 1,20,000

Carriage Inward. 55,000

Furniture purchased (on 1st June 12) 1,00,000

25% payment for furniture was made by cash and rest by cheque. All the expenses were paid by cheque.
Furniture and computer were depreciated @12% p.a. The closing stock on 31st Mar. 2013 was valued at Ksh
1,00,000. A plot/ land for Ksh 10,00,000 was also purchased on that day to construct shop in future. You are
required to:
(1) Journalize the transactions.
(2) Post all the items to the relevant Ledger Accounts
(3) Prepare Trial Balance.
(4) Prepare Trading and Profit & Loss A/c and Balance sheet at the end of the year.
Journal
Date Particulars L.F. Dr. (Ksh) Cr. (Ksh)

Cash A/c Dr.

2012 To Capital A/c
Apr 1 2,00,000 2,00,000
(Being business commenced)

Apr 5 Bank A/c Dr. 5,000 5,000

 To Cash A/c

(Being Bank A/c opened)

Bank A/c Dr.

To Bank Loan A/c
June 1 10,00,000 10,00,000
(Being Bank Loan raised)

Computer A/c Dr.

To Bank A/c
June 1 50,000 50,000
(Being Computer purchased)

Bank A/c Dr.

To Cash A/c
June 1 45,000 45,000
(Being Cash deposit into Bank)

June 1 Furniture A/c Dr. 1,00,000 25,000

To Cash A/c 75,000

To Bank A/c

(Being furniture purchased & payment made

 in cash & by cheque)

Purchase A/c Dr.

To Bank A/c
June 15 15,00,000 15,00,000
(Being purchase made)

Bank A/c Dr.

To Sales A/c
Mar 31 25,00,000 25,00,000
(Being Sales made)

Staff Salary A/c Dr.

To Bank A/c
Mar 31 2,00,000 2,00,000
(Being Staff salary paid)

Telephone expenses A/c Dr.

To Bank A/c
Mar 31 50,000 50,000
(Being Telephone exp paid)

Mar 31 Electricity Charges A/c Dr. 1,00,000 1,00,000

To Bank A/c
 (Being Electricity Charges paid)

Date Particulars L.F. Dr. (Ksh) Cr. (Ksh)

Packing charges A/c Dr.

To Bank A/c
Mar 31 25,000 25,000
(Being Packing charges paid)

Insurance A/c Dr.

To Bank A/c
Mar 31 1,00,000 1,00,000
(Being Insurance paid)

Rent A/c Dr.

To Bank A/c
Mar 31 1,20,000 1,20,000
(Being Rent paid)

Carriage Inward A/c Dr.

To Bank A/c
Mar 31 55,000 55,000
(Being Carriage inward paid)

Mar 31 Bank Loan A/c Dr. 1,00,000 2,00,000

 Interest on Loan A/c Dr.

To Bank A/c 1,00,000

(Being installment & interest loan paid)

Depreciation A/c Dr.

To Furniture A/c
10,000
Mar 31 To Computer A/c 15000 5,000

(Being Electricity Charges paid)

Land A/c
To Bank A/c
Mar 31 10,00,000 10,00,000
(Being plot land purchased)

Capital Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Balance c/d 2,00,000 1.4.12 By Cash A/c 2,00,000

2,00,000 2,00,000

1.4.12 By Balance c/d 2,00,000

Cash Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Capital c/d 2,00,000 5.4.12 By Bank A/c 5,000

1.6.12 By Bank A/c 45,000

1.6.12 By Furnire A/c 25,000

2,00,000 2,00,000

1.4.13 To Balance b/d 1,25,000->

Bank Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

5.4.12 To Cash A/c 5,000 1.6.12 By Computer A/c 50,000

To Bank Loan
1.6.12 10,00,000 1.6.12 By Furniture A/c 75,000
A/c

1.6.12 To Cash A/c 45,000 15.6.12 By Purchase A/c 15,00,000

31.3.13 To Sale A/c 25,00,000 31.3.13 By Staff Salary A/c 2,00,000

31.3.13 By Telephone A/c 50,000

31.3.13 By Electricity A/c 1,00,000

By Packing Charges
31.3.13 25,000
A/c

31.3.13 By insurance 1,00,000

 31.3.13 By Rent A/c 1,20,000

31.3.13 By Carriage A/c 55,000

31.3.13 By Bank Loan A/c 1,00,000

By Interest on Loan
31.3.13 1,00,000
A/c

31.3.13 By Land A/c 10,00,000

31.3.13 By Balance c/d 75,000

35,50,000 35,50,000

To Balance b/d 75,000

Bank Loan Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 1,00,000 1.6.12 By Bank A/c 10,00,000

To Balance c/d 9,00,000

10,00,000 10,00,000

1.4.13 To Bal. b/d 9,00,000

Purchases Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 15,00,000 31.3.13 By Bal. A/c 15,00,000

 15,00,000 15,00,000

1.4.13 To Bal. b/d 15,00,000 1.4.13 To Bal. b/d

Sales Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bal. c/d 25,00,000 31.3.13 By Bank A/c 25,00,000

25,00,000 25,00,000

1.4.13 To Bal. b/d 25,00,000

Computer Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

1.6.12 To Bank A/c 50,000 31.3.13 By Dep. A/c 5,000

50,000 31.3.13 To Bal. b/d 45,000

1.4.13 To Bal. b/d 45,000 50,000

Furniture Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

1.6.12 To Cash A/c 25,000 31.3.13 By Dep. A/c 10,000

1.6.12 To Bank A/c 75,000 31.3.13 To Bal. b/d 90,000

1,00,000 1,00,000

1.4.13 To Bal. b/d 90,000

Staff Salary Account
 Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 2,00,000 1.6.12 By Bal. c/d 2,00,000

2,00,000 2,00,000

1.4.13 To Bal. b/d 2,00,000

Telephone Expense Account

Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 50,000 31.3.13 By Bal. c/d 50,000

50,000 50,000

1.4.13 To Bal. b/d 50,000

Electricity Charges Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 1,00,000 31.3.13 By Bal. c/d 1,00,000

1,00,000 1,00,000

1.4.13 To Bal. b/d 1,00,000

Packing Charges Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 25,000 31.3.13 By Bal. c/d 25,000

25,000 25,000
 1.4.13 To Bal. b/d 25,000
Insurance Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 1,00,000 1.6.12 By Computer A/c 1,00,000

1,00,000 1,00,000

1.4.13 To Bal. b/d 1,00,000

Rent Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 1,20,000 31.3.13 By Computer A/c 1,20,000

1,20,000 1,20,000

1.4.13 To Bal. b/d 1,20,000

Carriage Inward Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 55,000 31.3.13 By Bal. A/c 55,000

55,000 55,000

1.4.13 To Bal. b/d 55,000

Interest Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 1,00,000 31.3.13 By Bal. A/c 1,00,000

 1,00,000 1,00,000

1.4.13 To Bal. b/d 1,00,000

Depreciation Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Furniture A/c 10,000 31.3.13 By Bal. c/d 15,000

To Computer A/c 5,000

15,000 15,000

1.4.13 To Bal. b/d 15,000

Land Account
Date Particulars J.F (Ksh) Date Particulars J.F. (Ksh)

31.3.13 To Bank A/c 10,00,000 31.3.13 By Bal. A/c 1,00,000

10,00,000 1,00,000

1.4.13 To Bal. b/d 10,00,000

Trial Balance as on 31.3.2013
Particulars Debit Balance Credit Balance

Capital A/c 1,25,000 2,00,000

Cash A/c 7,5000 9,00,000

Bank A/c 15,00,000 25,00,000

Bank Loan A/c 45,000

Purchase A/c 90,000

Sales A/c 2,00,000

Computer A/c 50,000

Furniture A/c 1,00,000

Staff Salary A/c 25,000

Telephone Expenses A/c 1,00,000

Electricity Charges A/c 1,20,000

Packing charges A/c 55,000

Insurance A/c 1,00,000

Rent A/c 15,000

Carriage inward A/c 10,00,000

Interest on Loan A/c

Depreciation A/c
 Land A/c

36,00,000 36,00,000
Trading & Profit & Loss A/c for the year ending on 31.3.2013
Particulars Ksh Particulars Ksh

15,00,000
To Purchases 55,000 25,00,000
To Carriage By Sales 1,00,000
10,45,000 By Closing stock
To Gross profit

26,00,000 26,00,000

To Staff Salary 2,00,000 By Gross profit 10,45,000

To Telephone Expenses 50,000

To Electricity Charges 1,00,000

To Packing Charges 25,000

To Insurance 1,00,000

To Rent 1,20,000

To Interest on loan 1,00,000

 15,000
To Depreciation
3,35,000
To Net Profit

10,45,000 10,45,000
Balance sheet as at 31.3.2013
Liabilities Ksh Assets Ksh

10,00,000
Land 90,000
Furniture
45,000
Capital 2,00,000 5,35,000 Computer
Add: Net profit 3,35,000 9,00,000 1,00,000
Closing Stock
Bank Loan 75,000
Bank
1,25,000
Cash

14,35,000 14,35,000
ORGANIZATION OF A COMPUTER SYSTEM
The components from which computers are built is the said to be the computer's organization. Major
components are the storage, processor, peripherals and input/output.

Comparing a computer to a building, the organization would be likened to bricks, nails, cement etc.

Devices are roughly classified into input devices, output devices and storage devices. Examples include:

computer organization consist of following parts

1. CPU – central processing unit
2. Memory
3. Input devices
4. Output devices
CPU – central processing unit
It is alternatively referred to as the brain of the computer, processor, central processor, or microprocessor,
the CPU (pronounced as C-P-U). The computer CPU is responsible for handling all instructions it receives
from hardware and software running on the computer.
CPU is considered as the brain of the computer. CPU performs all types of data processing operations. It stores
data, intermediate results and instructions (program).It controls the operation of all parts of computer.
CPU itself has following three components
1. ALU (Arithmetic Logic Unit)
All arithmetic calculations and logical operation are performed using the Arithmetic/Logical Unit or ALU
2. Memory Unit
A memory is just like a human brain. It is used to store data and instruction. Computer memory is use to
Stores information being processed by the CPU
3. Control Unit
Control unit help to perform operations of input unit, output unit, Memory unit and ALU in a sequence.
Memory
Computer memory is any physical device capable of storing information temporarily or permanently. For
example, Random Access Memory RAM is a type of volatile memory that is stores information on an
integrated circuit, and that is used by the operating system, software, hardware, or the user.
Computer memory divide into two parts
[Link] memory: Volatile memory is a temporary memory that loses its contents when the computer or
hardware device loses [Link]. RAM
[Link]-volatile memory
Non-volatile memory keeps its contents even if the power is lost. Example: ROM or EPROM is a good
example of a non-volatile memory
Input Devices
A device that can be used to insert data into a computer system is called as input device. It allows people to
supply information to computers An input device is any hardware device that sends data to the computer,
without any input devices, a computer would only be a display device and not allow users to interact with it,
much like a [Link] most fundamental pieces of information are keystrokes on a keyboard and clicks with
a mouse. These two input devices are essential for you to interact with your computer. Input devices represent
one type of computer peripheral.
Examples of input devices include keyboards, mouse, scanners, digital cameras and joysticks.
Output Devices
A device which is used to display result from a computer is called as output device. It Allows people to
receive information from computeksh An output device is any peripheral that receives or displays output from
a computer. The picture shows an inkjet printer, an output device that can make a hard copy of anything being
displayed on a monitor. Output device is electronic equipment connected to a computer and used to transfer
data out of the computer in the form of text, images, sounds or print.
Examples of output devices include Printer, Scanner, Monitor, etc.

ORGANIZATION’S SYSTEMS
 A system is a collection of parts (or subsystems) integrated to accomplish an overall goal (a system of

people is an organization). Systems have input, processes, outputs and outcomes, with ongoing feedback

among these various parts. If one part of the system is removed, the nature of the system is changed

 An organizational system is, quite simply, how a company is set up

INFORMATION SYSTEMS

 “Information systems (IS) is the study of complementary networks of hardware and software that people

and organizations use to collect, filter, process, create, and distribute data.
 Tools such as laptops, databases, networks, and smartphones are examples of information systems.

DATA AND INFORMATION

 Data: facts and figures that are not currently being used in a decision process; form of historical
records that are recorded and filed without immediate intent to retrieve for decision making
 Information: data that has been retrieved, processed, or otherwise used for informative or inference
purposes, argument, or as a basis for forecasting or decision-making

CHARACTERISTICS OF INFORMATION
•Relevance / Significance/
• Timeliness
• Accuracy
• Completeness
• Summarization
• Reliability
• Validity
• Consistency
• Up-to-date
• Impartiality
• Cost-benefit analysis
• Frequency of transmission

TYPES OF INFORMATION
• Strategic information:
 For long term planning
 Top level management
 Unstructured
 Small volume
 Source: external
 Difficult to obtain
• Tactical information:
 For medium term planning to run the business efficiently
 Middle level management
 Less unstructured
 Volume is more than strategic information
 Source: internal and external
Operational information:
 For short term planning (day to day operations of an organization)
 Supervisory level management
 Easy to obtain
 Volume is much more than tactical information
 Source: internal
Statutory information:
 Imposed by law
 Source: processing internal data
 Clearly specified
Three level pyramid model based on the type
of decisions taken at different levels in the
organization

TYPES OF INFORMATION SYSTEMS

  Transaction Processing System (TPS)
 Management Information System (MIS)
 Decision Support System (DSS)
 Executive Information System (EIS)
 Expert System (ES)
 Office Automation System
1) TRANSACTION PROCESSINGSYSTEM
Transaction Processing System are operational-level systems at the bottoms of the pyramid. They are usually
operated directly
by shop floor workers or front-line staff, which provide the key data required to support the management of
operations. This
data is usually obtained through the automated or semi- automated tracking of low-level activities and basic
transactions

TRANSACTION PROCESSING SYSTEM

 Transaction = an event that generates or modifies data
 TPS is Used at Operational level of the organization
Role of TPS
 Produce information for other systems
 Cross boundaries (internal and external) • Used by operational personnel + supervisory level
 Efficiency oriented
 Examples
 Payroll processing
 Sales and order processing
 Inventory management • Accounts payable and receivable
 OBJECTIVES OF TPS
 Efficient and effective operation of the organization
 Provide timely documents and reports
 Increases the competitive advantage
 Provides necessary data for tactical and strategic systems such as
 Provide a framework for analyzing an organization’s activities

2 MANAGEMENT INFORMATIONSYSTEM
 Refers to the data, equipment and computer programs that are used to develop information for
managerial use

 Converts raw data from transaction processing system into meaningful form

 Focus on the information requirements of low to middle level managers

Role of MIS

 Support relatively structured decisions

 Inflexible and have little analytical capacity

 Used by lower and middle managerial levels

 Deals with the past and present rather than the future

 Efficiency oriented
Some examples of MIS

 Sales management systems

 Inventory control systems

 Budgeting systems
  Management Reporting Systems (MRS)

 Personnel (HRM) systems

OBJECTIVES OF MIS

 Provide summary information of organizational activity at periodical intervals

 Operational control and efficiency
 Focus on internal information
• Useful to structured decisions
FUNCTIONS OF MIS
FUNCTIONS OF A MIS IN TERMS OF DATA PROCESSING REQUIREMENTS

INPUTS PROCESSING OUTPUTS

Internal transactions Sorting Summary reports

Internal files Merging Action reports
Structured data Summarizing Detailed reports
 3 DECISION SUPPORT SYSTEM

 Refers to systems which support the process of decision-making dealing with unstructured
problems

 May be defined as the “what-if” approach that assists management in formulating policies and
projecting the likely consequences of decisions

 Considered as an extension of MIS

 An effective blend of human intelligence, information technology and software

  Provides strategic information
FUNCTIONS OF A DSS
• DSS manipulate and build upon the information from a MIS and/or TPS to generate insights and new
information

INPUTS PROCESSING OUTPUTS

Internal Transactions Modelling Summary reports

Internal Files Simulation Forecasts
External Information Analysis Graphs / Plots
Summarizing

DSS
DECISION SUPPORT SYSTEM

• Role of DSS

• Support ill- structured or semi-structured decisions

• Have analytical and/or modelling capacity

• Used by more senior managerial levels

• Are concerned with predicting the future

• Are effectiveness oriented

• Some examples of DSS

• Group Decision Support Systems (GDSS)

• Computer Supported Co-operative work (CSCW)

 • Logistics systems

• Financial Planning systems

• Spreadsheet Models

COMPARISON BETWEEN MIS AND DSS

MIS DSS

Focuses on structured tasks Focuses on semi-structured tasks

Emphasis on data storage Emphasis on data manipulation

Data is often accessed indirectly by managers Data is accessed directly by managers

Places emphasis on efficiency of decision Places emphasis on effectiveness of decision

Provides tactical information to top management to take Provides strategic information

decisions

Need is regular and recurring Need is irregular

Executive Information Systems are strategic-level information systems that are found at the top
of the Pyramid.
They help executives and senior managers analyze the environment in which the organization
operates, to identify long-term trends, and to plan appropriate courses of action. The information
in such systems is often weakly structured and comes from both internal and external sources.
Executive Information System are designed to be operated directly by executives without the
need for intermediaries and easily tailored to the preferences of the individual using them.

• Specialized form of DSS

• Used by top-level managers

• Reduce the information overload on executives

• Makes use of internal and external information

• Provides managers and executives flexible access to information for monitoring

operational results and general business conditions
• Provides a comprehensive picture of business performance by analysing key performance
indicators for growth

• Meets strategic information needs of the top management

• Also known as Executive Support System

Role of EIS

• Are concerned with ease of use

• Are concerned with predicting the future

• Are effectiveness oriented

• Are highly flexible

• Support unstructured decisions

• Use internal and external data sources • Used only at the most senior management levels • Some
examples:
FUNCTIONS OF AN EIS

INPUTS PROCESSING OUTPUTS

External Data Summarizing Summary reports

Internal Files Pre-defined models Simulation Forecasts
"Drilling Down" Graphs / Plots

Information Systems that Span Organizational Boundaries

6 EXPERT SYSTEMS
Expert systems can be defined as programs that help the computer make decisions
in a similar way as an expert in specific domain, a particular subject area of
interest. It aims at formalising expertise and make it available for repetitive type of
business decisions. It makes use of artificial intelligence to generate knowledge out
of the information, existing theories, beliefs and experiences of managers in
various business activities. It mimics the judgment of experts by following sets of
rules that experts would follow. They’re useful in such diverse areas as medical
diagnosis, portfolio management, and credit assessment.
EXPERT SYSTEMS

• Expert systems can be used in several areas of an organisation:

• Accounting and finance

• In selecting forecasting models

• In providing tax advice

• Marketing
 • In establishing sales quotas

• In responding to customer inquiries

• Manufacturing

• In determining whether process is running correctly

• In analysing quality and providing corrective actions

• In product design and layout

• Others

• In assessing project proposals, etc

Artificial intelligence

•Artificial intelligence is referred to as the capabilities which can be imparted

to computers to enable them to display intelligent humanlike behavior.

•AI is the science of developing computer systems that can mimic human
behavior. The term was coined in 1956.

OFFICE AUTOMATION SYSTEMS

Office automation is the integration of computer, telecommunications and office
equipment technologies to improve the execution of business functions through
increasing the productivity, effectiveness and working conditions of office support.
The concept of office automation encompasses the application of computer and
communication technology to improve the productivity of all types of office
workers including clerical, administrative, professional and executive.
 OFFICE AUTOMATION SYSTEMS

• Help people perform personal record keeping, writing, and

calculations efficiently

• Aim is to improve the productivity of managers at various levels of

management by providing secretarial assistance and better communication
facilities. • Main types of tools include:

• Spreadsheet programs

• Text & image processing systems

• Presentation packages

• Personal database systems and note-taking systems

• Examples:

• Communicating and scheduling

• Document preparation

• Analyzing data

• Consolidating information
COMPONENTS OF OFFICE
AUTOMATION SYSTEM AND THEIR FUNCTIONS

COMPONENT FUNCTION

Word Processing Facilitates the preparation of typed documents

Electronic Mail Allows typed messages to be transmitted electronically

Voice Mail Allows spoken messages to be transmitted electronically

Facsimile Allows documents to be transmitted electronically

Teleconferencing Allows bringing together of participants electronically without travel

Telecommuting Allows employees to work from home

Computer Terminals Provide access to other components of the automated office

Micrographics Stores documents on microfilm for ease of storage and retrieval