Reviewing AP Inter 2nd Year Accounts Study Material Chapter 8 Computerized Accounting System Questions and Answers can help students prepare confidently for exams.
AP Inter 2nd Year Accountancy 8th Lesson Computerized Accounting System Questions and Answers
I. Fill in the blanks
Question 1.
Manual system of accounting requires maintaining books of accounts such as ___, Cash Book, Special Purpose Books, and Ledger.
Answer:
Journal
Question 2.
The concept of ___ accounting became possible only through computerised systems.
Answer:
real-time
Question 3.
In a real-time accounting system, once a transaction is entered and saved, it is instantly posted to all relevant ___, ___, and financial statements.
Answer:
accounts, ledgers
Question 4.
A Computerised Accounting System (CAS) uses _____ based software to record, store, and process financial transactions.
Answer:
computer
Question 5.
Examples of accounting software include ___, QuickBooks, and SAP.
Answer:
Tally
Question 6.
The first stage in the process of computerised accounting is identifying and collecting ___ documents.
Answer:
source
Question 7.
All accounting data in CAS is stored electronically in the system’s ___
Answer:
database
Question 8.
One key feature of CAS is ___ accounting, which ensures updates are reflected immediately across all accounts. Answer:
real-time
II. Very Short Answer Questions
Question 1.
What is Computerised Accounting?
Answer:
- A Computerised Accounting System (CAS) is an accounting information system that utilizes computer-based software to record, maintain, and process financial transactions.
- Instead of maintaining accounts manually in physical books, CAS automates accounting activities through software such as Tally, QuickBooks, or SAP.
Question 2.
Give two examples of accounting software.
Answer:
- Tally, Busy, and Marg ERP.
- GNU Cash and Odoo
- Zoho Books, Quick Books Online, and Xero
Question 3.
What is Real-Time Accounting?
Answer:
Real-Time Accounting:
- In a real-time accounting system, whenever a transaction is entered and saved, it is immediately updated in all the related journals, ledgers, and financial statements.
- This enables management to make prompt decisions and respond effectively to business opportunities and challenges.
Question 4.
Name the first stage of the Computerised Accounting process.
Answer:
Identifying and Collecting Source Documents:
- The accounting process starts with collecting source documents such as invoices, receipts, vouchers, debit notes, credit notes, and payroll records.
- These documents act as proof of business transactions and provide the foundation for recording accounting data.
Question 5.
Mention one driving force of Computerised Accounting.
Answer:
Driving Forces of the Computerised Accounting System : The transition from manual accounting to computerised accounting was gradual and was influenced by several business and technological developments that made CAS more effective and dependable than traditional methods. The major driving forces are:
1) Expansion and Complexity of Business Activities :
- Present-day businesses operate on a larger scale and deal with numerous transactions every day.
- Manual accounting becomes difficult because it is slow and more likely to result in errors.
- CAS efficiently manages large amounts of data while providing real-time information.
2) Requirement for Accuracy and Dependability:
- Accounting information must be highly accurate, as even minor mistakes can affect decision making.
- CAS minimizes human errors through automated functions such as ledger posting, balance computation, and report preparation.
- Built-in validation checks and controls improve the dependability of financial information.
3) Faster Availability of Information :
- In today’s competitive business world, management requires financial information without delay.
- Reports prepared manually are usually generated at intervals and may not be available immediately.
- CAS produces reports such as the Trial Balance, Profit & Loss Account, and Balance Sheet instantly, helping management make timely decisions.
Question 6.
How are reports generated in a Computerised Accounting System ?
Answer:
Generation of Reports :
1) The system is capable of producing different financial reports instantly, including:
- Trial Balance
- Ledger Accounts
- Cash Book and Bank Book
- Profit & Loss Account
- Balance Sheet
- Cash Flow Statements
2) Reports can also be modified and tailored to meet specific management requirements, such as sales analysis and cost reports.
III. Short Answer Questions
Question 1.
Explain any two advantages of Computerised Accounting System.
Answer:
Advantages of Computerised Accounting System : A computerised accounting system provides many benefits, which are explained below:
- Speed : A computerised accounting system processes accounting information much faster than the traditional manual method.
- Accuracy: Since accounting data is entered only once and used for all related processes, the chances of errors are greatly reduced while preparing accounting reports.
- Reliability : Computers can perform repetitive tasks without getting tired or losing concentration. Therefore, theyproduce consistent and dependable results compared to manual work.
- Up-to-Date Information : In a computerised accounting system, accounting records are automatically updated whenever new data is entered and saved.
- Real-Time User Interface : Most computerised accounting systems operate through interconnected computer networks, allowing several users to access updated information instantly at the same time.
- Automated Document Production : These systems generate accounting reports automatically using predefined and user-customised report formats.
- Efficiency : Computerised accounting helps in the effective use of time and resources, improving decision-making and providing useful reports quickly.
- Quality Reports: Built-in validation checks and automated processing ensure accurate, reliable, and unbiased accounting reports.
- MIS Reports : The system enables the instant generation of Management Information System (MIS) reports, helping management monitor business activities and exercise effective control
- Storage and Retrieval: A computerised accounting system stores large volumes of data electronically, requiring very little physical space and allowing easy retrieval whenever required.
Question 2.
What are the main limitations of Computerised Accounting System?
Answer:
Limitations of the Computerised Accounting System:
The limitations of a computerised accounting system mainly arise from the environment in which it operates. They are as follows :
- Cost of Training: Computerised accounting software is advanced and often requires skilled personnel to operate it. As a result, organisations must spend money on regular staff training.
- Staff Opposition : Employees may resist the shift from manual accounting to computerised systems because they fear job loss or feel that their role in the organisation may become less important.
- Disruption of Work: The transition from manual to computerised accounting may temporarily interrupt normal work, as employees need time to learn and adjust to the new system
- System Failure and Errors : A computerised accounting system depends heavily on technology. Hardware problems, software failures, or power interruptions can lead to delays or loss of data. In addition, computers cannot apply human judgment to identify unexpected errors that an accountant might easily notice.
- Security Risks : Computerised accounting systems may be exposed to threats such as hacking, password misuse, unauthorised access, or manipulation of accounting data.
- Threat of Viruses : Computer viruses pose a continuous risk, particularly for systems connected to the internet. They may damage software, corrupt data, or delete important files
Question 3.
Differentiate between a Manual Accounting System and a Computerised Accounting System.
Answer:
| Basis | Manual Accounting System | Computerised Accounting System (CAS) |
| Recording of Transactions | Transactions are entered manually in books such as the Journal, Ledger, and Cash Book. | Transactions are recorded by entering data into accounting software. |
| Posting and Classification | Posting to ledger accounts and classification of transactions are done manually. | The software automatically performs posting and classification. |
| Speed and Efficiency | It is comparatively slow and is mainly suitable for small businesses. | It is quick and efficient, capable of processing a large number of transactions with ease. |
| Accuracy | More chances of human errors in recording, posting, and calculations. | Provides greater accuracy through automation and built-in error-checking features. |
| Reports Generation | Financial reports such as the Trial Balance, Profit & Loss Account, and Balance Sheet are prepared manually and may take more time. | Reports are produced instantly and can be customised according to user requirements. |
| Cost | Requires less initial investment but involves higher expenditure on manpower and stationery. | Involves a higher initial investment for software and training, but reduces long-term operating costs. |
| Data Security | Records are exposed to risks such as fire, theft, pests, or physical damage. | Data is stored digitally with security measures like passwords and backup facilities. |
| Flexibility | Making corrections or modifications is difficult and time consuming. | Changes and adjustments can be carried out quickly and easily. |
| Storage | Needs physical space to store books of accounts and registers. | Uses digital storage, thereby reducing the need for physical space. |
| Integration | Operates independently without linking to other business activities. | Can be integrated with inventors payroll, billing, taxation, and other business functions. |
| Decision Making | Decision-making is delayed because reports require more time to prepare. | Real-time information enables faster and better business decisions. |
| Scalability | Suitable only for small and less complex business operations. | Easily scalable and appropriate for medium and large business organisations. |
Question 4.
Briefly explain the sources of accounting software.
Answer:
Accounting software forms the foundation of a computerised accounting system. It enables businesses to record, maintain, process, and generate financial information effectively. The selection of accounting software depends on the size, type, and operational requirements of the business. The major sources of accounting software are as follows:
1) Ready-Made Software:
- Ready-made or packaged accounting software is developed to satisfy the common accounting requirements of small and medium-sized businesses.
- It is easily available in the market at an affordable price and can be installed without much difficulty. Examples include Tally, Busy, and Marg ERP.
2) Customized Software:
- Customized software is created by modifying an existing accounting package to meet the specific needs of an organisation.
- Vendors add or alter features so that the software suits the unique requirements of the business.
3) Tailor-Made or Bespoke Software :
- Tailor-made software is specially designed and developed from the beginning for a particular organisation.
- It is suitable for businesses with complex and specialised accounting needs.
- Such software is costly and generally requires more time for development.
4) Open-Source Software:
- Open-source accounting software provides access to its source code either free of cost or at a very low price.
- Organisations can modify and customise the software according to their own requirements. Examples include GNU Cash and Odoo.
5) Cloud-Based Accounting Software:
- Cloud-based accounting software is hosted online and can be accessed through the internet from any location at any time.
- These solutions are widely used because of their convenience and flexibility. Examples include Zoho Books, QuickBooks Online, and Xero.
Question 5.
What is Tally Prime ? Mention any two of its features.
Answer:
Tally Prime : Tally Prime is the latest edition of the accounting software developed by Tally Solutions Pvt. Ltd. It is an integrated business management application that simplifies accounting, finance, inventory management, payroll, taxation, and statutory compliance. It is the upgraded version of Tally. ERP 9, offering a more advanced, user-friendly, and efficient interface.
Features :
- Simple and Easy to Use : Tally Prime is designed with a user-friendly interface that allows even individuals with limited accounting or computer knowledge to operate it comfortably.
- Real-Time Reporting and Accuracy: It provides instant financial reports while maintaining a high level of accuracy, enabling businesses to make timely and informed decisions.
- Additional Features: TallyPrime also offers remote access, supports multiple users, provides strong data security, and includes backup facilities, making it a dependable solution for modern business operations.
IV. Long Answer Questions
Question 1.
Explain the process of a Computerised Accounting System with advantages and limitations.
Answer:
Advantages of Computerised Accounting System :
A Computerised Accounting System (CAS) provides several benefits that make accounting faster, more accurate, and more efficient. The major advantages are given below:
- Speed: A computerised accounting system processes financial data much faster than manual accounting methods, saving considerable time.
- Accuracy : Since accounting information is entered only once and used for all subsequent processing, the chances of calculation and posting errors are greatly reduced.
- Reliability : Computers are designed to perform repetitive tasks without getting tired or losing concentration. Therefore, they produce consistent and dependable results.
- Up-to-Date Information : Accounting records are automatically updated whenever new transactions are entered, ensuring that financial information remains current.
- Real-Time User Interface : Most computerised accounting systems operate through interconnected networks, allowing multiple users to access updated information simultaneously in real time.
- Automated Document Generation: Accounting software can automatically prepare reports in standard or customised formats according to user requirements.
- Efficiency : By reducing manual effort and improving resource utilisation, CAS increases operational efficiency and supports better managerial decision-making.
- High-Quality Reports : Built-in validation checks and automated processing help produce accurate, objective, and dependable financial reports.
- Management Information System (MIS) Reports :
Computerised accounting enables the instant generation of management reports, helping management monitor activities and exercise effective control over business operations. - Storage and Retrieval: Electronic storage allows large volumes of accounting data to be stored in minimal physical space, while also making retrieval quick and convenient.
Limitations of the Computerised Accounting System :
The limitations of a Computerised Accounting System mainly arise from the technological environment in which it operates. These include :
- Training Cost: Accounting software is often complex and requires trained personnel to operate it effectively. Regular training programmes increase organisational expenses.
- Resistance from Employees: Employees may oppose the transition from manual accounting to computerised systems because they fear job loss or a reduction in their role within the organisation.
- Interruption of Work: During the implementation of a computerised system, employees require time to learn new procedures, which may temporarily affect the normal workflow.
- System Failures and Technical Errors: CAS depends heavily on technology. Hardware breakdowns, software failures, or power interruptions may disrupt operations and lead to delays or loss of data. In addition, computers cannot exercise human judgment to identify unexpected errors.
- Security Risks : Computerised accounting systems may be exposed to cyber threats such as hacking, password theft, unauthorised access, or data manipulation.
- Virus Attacks : Systems connected to the internet are susceptible to computer viruses, which may damage software, delete important files, or corrupt valuable accounting data.
Question 2.
Discuss the driving forces behind the shift from manual to computerised accounting.
Answer:
Driving Forces Behind Computerised Accounting:
The transition from manual accounting to computerised accounting took place because of several business and technological developments. These factors made computerised systems more effective, dependable, and suitable for modern organisations. The major driving forces are explained below:
1) Expansion and Increasing Complexity of Business Operations :
- Businesses today operate on a much larger scale and handle thousands of financial transactions every day.
- Manual accounting becomes inefficient because it is slow and more prone to mistakes.
- A Computerised Accounting System efficiently manages large volumes of transactions while providing real-time updates.
2) Requirement for Accuracy and Dependability :
- Accurate accounting information is essential, as even minor mistakes can affect business decisions.
- CAS minimises human errors by automating activities such as ledger posting, balance calculations, and report preparation.
- Built-in validation checks and internal controls improve the reliability of financial information.
3) Faster Availability of Financial Information :
- In today’s competitive environment, management requires financial information without delay.
- Manual accounting usually produces reports only after a certain period, causing delays.
- CAS instantly prepares reports such as the Trial Balance, Profit and Loss Account, and Balance Sheet, enabling quicker decision-making.
4) Integration with Other Business Activities :
- Modern organisations require accounting to work together with functions such as inventory management, payroll, taxation, billing, and sales.
- Computerised accounting systems integrate these functions, ensuring smooth coordination and improved efficiency
5) Cost Effectiveness :
Although the initial investment in computerised accounting may be high, it proves economical over time by:
- Reducing the need for manual labour.
- Lowering expenditure on stationery and physical storage.
- Saving time by automating repetitive accounting tasks.
6) Real-Time Reporting and Better Decision-Making :
- CAS records and updates financial transactions immediately as they occur.
- This enables management to monitor business performance continuously, control expenses, and take timely corrective measures.