Computerised Accounting

The One Thing

Computerised accounting combines accounting principles, software and database technology to record, process, store and report financial transactions efficiently. Its reliability depends on accurate data entry, appropriate accounting treatment, validation, security, backups and regular review.

Definitions and Results

• Computerised Accounting System: A system that uses computers, accounting software, procedures and users to process accounting data and produce financial information.
• Accounting Software: A computer program used to record transactions, maintain accounts, perform calculations and generate reports.
• Data: Raw facts entered into the system, such as invoice numbers, dates, quantities and amounts.
• Information: Processed and organised data that is useful for decision-making, such as profit figures or outstanding balances.
• Data Entry: The process of entering transaction details into the accounting system through forms, vouchers or other input methods.
• Source Document: Evidence of a transaction, such as an invoice, receipt, bank advice, debit note or credit note.
• Voucher: A digital or printed record used to enter and classify an accounting transaction.
• Master Data: Permanent or relatively stable information, such as details of customers, suppliers, ledger accounts, inventory items and tax rates. It must be created carefully because errors in account names, opening balances, tax rates or inventory units can affect many reports.
• Transaction Data: Details of individual business events, such as sales, purchases, receipts, payments and journal entries.
• Database: An organised collection of related data stored so that it can be accessed, updated and managed efficiently.
• Database Management System: Software that creates, stores, retrieves, updates and controls access to data in a database.
• Table: A database structure that stores related data in rows and columns.
• Record: A complete set of related fields describing one item, transaction or entity.
• Field: A single data item in a record, such as date, account code, quantity or amount.
• Primary Key: A unique field or combination of fields used to identify each record in a database.
• Query: A request made to retrieve, filter, calculate or analyse selected data from a database.
• Report: A formatted presentation of processed accounting information, such as a ledger, trial balance or balance sheet.
• Chart of Accounts: A systematic list of all ledger accounts with their codes or names, grouped into assets, liabilities, capital, revenue and expenses.
• General Ledger: A collection of all accounts used to classify and summarise transactions.
• Trial Balance: A statement showing debit and credit balances of ledger accounts to check the arithmetical equality of entries.
• Audit Trail: A record showing who entered, changed or authorised a transaction and when the activity occurred.
• Validation: Checking whether entered data follows required rules, such as valid dates, account codes or numerical limits.
• Verification: Checking whether the entered data is complete and agrees with the original source document.
• Backup: A separate copy of accounting data kept for recovery in case of loss, damage, corruption or system failure.
• Access Control: Security procedures that restrict system functions and data according to user identity and authority.
• Real-Time Processing: Processing in which records and balances are updated immediately after a transaction is entered.
• Batch Processing: Processing in which transactions are collected and processed together at a later time.
• Integrated Accounting System: A system in which areas such as sales, purchases, inventory, payroll and finance share connected data.
• Cloud-Based Accounting: Accounting software hosted online and accessed through the internet, subject to internet availability and security controls.
• Accounting equation:

Assets = Capital + Liabilities

• Double-entry rule:

Total debits = total credits

• Basic processing cycle:

Source documents → data entry → validation and verification → processing → storage → reports

Worked Methods

1. Processing a transaction

• Obtain an appropriate source document, such as an invoice, receipt, bank advice, debit note or credit note.
• Enter the transaction through a transaction form, voucher, menu, drop-down list, account code, barcode reader or imported electronic file.
• Use the correct voucher type and classify the transaction according to the Chart of Accounts.
• Apply validation checks, including:

- required-field checks; - range checks; - format checks; - existence checks; and - duplicate checks.

• Verify that the entered data is complete and agrees with the original source document.
• Process the transaction using the accounting rules of double entry, ensuring that total debits = total credits.
• Update the relevant accounts and records. In real-time processing, records and balances are updated immediately; in batch processing, transactions are collected and processed together later.
• Store the transaction in the database.
• Use the stored data to produce reports such as journals, ledgers, the cash book, bank book, sales register, purchase register, trial balance, trading account, profit and loss account, balance sheet, receivables ageing report and inventory report.

2. Maintaining accounting databases

• Create tables for related accounting data.
• Organise the tables into records, with each record containing fields such as date, account code, quantity or amount.
• Use a primary key to identify each record uniquely.
• Separate and maintain master data, including customers, suppliers, ledger accounts, inventory items and tax rates.
• Store transaction data, including sales, purchases, receipts, payments and journal entries.
• Use a Database Management System to create, store, retrieve, update and control access to the data.
• Use queries to retrieve, filter, calculate or analyse selected information.
• Generate reports for selected dates, accounts, departments, cost centres, products or locations.

3. Applying controls and reviewing records

• Assign user IDs, strong passwords and role-based permissions.
• Require approval procedures for relevant transactions.
• Maintain an audit trail showing who entered, changed or authorised a transaction and when.
• Protect data using antivirus protection and encryption.
• Review access rights periodically.
• Control the changing or deleting of accounting data because such changes may affect the audit trail and the reliability of financial reports.
• Schedule regular backups and store them securely, preferably in more than one location or medium.
• Reconcile computerised records periodically with bank statements, physical inventory and supporting documents.
• Review reports and underlying master data to ensure that the information is suitable for decision-making.

4. Using a trial balance

• Obtain the debit and credit balances from the General Ledger.
• Present the balances in the trial balance.
• Compare total debit balances with total credit balances.
• If the totals agree, the trial balance confirms the arithmetical equality of the postings.
• Continue with further review, because agreement does not detect every error, including an error of omission or an error of principle.

5. Using computerised accounting systems

• Select or customise suitable accounting software for the business.
• Configure features such as the Chart of Accounts, tax rates, inventory units and user permissions.
• Enter data once and classify it correctly.
• Allow the software to automate calculations, maintain ledgers and journals, and post information to connected areas such as sales, purchases, inventory, payroll and finance.
• Generate timely reports for analysis and decision-making.
• Apply security, backup, authorisation, audit-trail and reconciliation procedures.
• Recognise that automation reduces repetitive calculations and posting work but does not remove the need for accounting knowledge, competent users and review.

Where It Goes Wrong

• Entering incomplete, incorrectly classified or inaccurate information produces incorrect reports; this is commonly expressed as “garbage in, garbage out.”
• Failing to support a transaction with an appropriate source document, or using the wrong voucher type, weakens the reliability of the accounting records.
• Treating validation as verification is incorrect: validation checks whether data follows required rules, whereas verification checks whether it agrees with the original source document.
• Assuming that an agreeing trial balance proves that all records are correct overlooks errors of omission and errors of principle.
• Neglecting master data can cause errors in account names, opening balances, tax rates or inventory units to affect many reports.
• Failing to control access, changes, deletions and backups exposes data to unauthorised access, data loss, corruption or unreliable audit trails.

What Gets Asked

• Define a computerised accounting system, accounting software, data, information, database, audit trail, validation, verification, backup, access control, real-time processing, batch processing, integrated accounting system or cloud-based accounting.
• State and explain the basic processing cycle: source documents → data entry → validation and verification → processing → storage → reports.
• State the accounting equation: Assets = Capital + Liabilities.
• State the double-entry rule: total debits = total credits.
• Distinguish between master data and transaction data.
• Explain the difference between a table, record, field and primary key.
• Describe how source documents, vouchers, data entry, validation and verification are used to process transactions.
• Explain the purpose and limitations of a trial balance.
• List common computerised accounting reports, including the cash book, bank book, sales register, purchase register, journals, ledgers, trial balance, trading account, profit and loss account, balance sheet, receivables ageing report and inventory report.
• Explain the advantages of computerised accounting: speed, calculation accuracy, automatic posting, quick report generation, storage, retrieval and analysis.
• Explain its limitations, including dependence on hardware and electricity, unauthorised access, data loss, software errors, training requirements and implementation costs.
• Explain the importance of user IDs, strong passwords, role-based permissions, approval procedures, audit trails, antivirus protection, encryption, backups and periodic review of access rights.
• Explain why periodic reconciliation with bank statements, physical inventory and supporting documents is necessary.
• Discuss how computerised accounting supports better decision-making by providing timely, detailed and easily retrievable financial information.