Page 284 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Self Assessment

Fill in the blanks:
1. The most popular system of recording of accounting transactions is ……………………
which requires maintaining books of accounts such as Journal, Cash Book, etc.

2. …………………… is prepared by the computer to check accuracy of the records.

13.2 Computerised Accounting

A computerised accounting system is an accounting information system that processes the
financial transactions and events as per Generally Accepted Accounting Principles (GAAP) to
produce reports as per user requirements. Every accounting system, manual or computerised,
has two aspects. First, it has to work under a set of well-defined concepts called accounting
principles. Another, that there is a user-defined framework for maintenance of records and
generation of reports.
In a computerised accounting system, the framework of storage and processing of data is called
operating environment that consists of hardware as well as software in which the accounting
system, works. The type of the accounting system used determines the operating environment.
Both hardware and software are interdependent. The type of software determines the structure
of the hardware. Further, the selection of hardware is dependent upon various factors such as the
number of users, level of secrecy and the nature of various activities of functional departments
in an organisation.
Transaction processing system (TPS) is the first stage of computerised accounting system. The
purpose of any TPS is to record, process, validate and store transactions that occur in various
functional areas of a business for subsequent retrieval and usage. TPS involves following steps
in processing a transaction: Data Entry, Data Validation, Processing and Revalidation, Storage,
Information and Reporting.
It is one of the transaction processing systems which is concerned with financial transactions
only. When a system contains only human resources it is called manual system; when it uses
only computer resources, it is called computerised system and when it uses both human and
computer resources, it is called computer-based system.
These steps can be explained with an example making use of Automatic Teller Machine (ATM)
facility by a Bank-Customer.
1. Data Entry: Processing presumes data entry. A bank customer operates an ATM facility to
make a withdrawal. The actions taken by the customer constitute data which is processed
after validation by the computerised personal banking system.
2. Data Validation: It ensures the accuracy and reliability of input data by comparing the
same with some predefined standards or known data.
This validation is made by the ‘Error Detection’ and ‘Error Correction’ procedures. The
control mechanism, wherein actual input data is compared with predetermined norm is
meant to detect errors while error correction procedures make suggestions for entering
correct data input.

The Personal Identification Number (PIN) of the customer is validated with the known
data. If it is incorrect, a suggestion is made to indicate the PIN is invalid. Once the PIN is
validated, the amount of withdrawal being made is also checked to ensure that it does not
exceed a prespecified limit of withdrawal.

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