Computerised accounting and accounting software (Tally)
Financial Accounting · Unit V · Topic 14 of 14 · 5 min read
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1. Meaning
A computerised accounting system is one in which transactions are recorded, stored and processed by accounting software on a computer, and the books and reports (ledger, trial balance, final accounts) are generated from that data. The user enters each transaction once, as a voucher; the software posts it to the ledger accounts and updates every report. The principles of double entry are unchanged; only the method of recording and processing is different.
2. Features
- Single entry of data, many outputs — journal, ledger, cash book, trial balance and final accounts all come from the same vouchers.
- Speed and accuracy — posting, totalling and balancing are automatic; the trial balance always agrees.
- Real-time information — balances and reports are available at any moment.
- Grouping of accounts into predefined heads (assets, liabilities, income, expenses) so that statements are prepared automatically.
- Security — passwords and user rights; audit trail of changes.
- Storage and retrieval — years of data on a disk or the cloud, with backup.
- Statutory compliance — GST returns, TDS, e-invoicing and e-way bills generated from the same data.
- Integration with inventory, payroll and banking.
3. Manual and computerised accounting compared
| Point | Manual | Computerised |
|---|---|---|
| Recording | Journal, then ledger by hand | Voucher entry once; posting automatic |
| Speed | Slow | Fast |
| Accuracy | Arithmetical errors common | Arithmetic error-free; input errors remain |
| Trial balance | Prepared to check accuracy | Generated; always agrees |
| Reports | Prepared at year end | Available at any time |
| Correction | Rectification entries | Edit or reverse voucher, with audit trail |
| Storage | Bulky books | Electronic, with backup |
| Cost | Low set-up cost | Hardware, software, training |
| Skill | Book-keeping knowledge | Accounting and computer knowledge |
4. Advantages and limitations
Advantages: speed; accuracy; up-to-date reports; reduced staff cost over time; easy comparison and analysis (ratios, budgets, MIS); better control of debtors and stock; quick statutory filing; easy audit; scalability.
Limitations: (1) high initial cost of hardware, software and training; (2) “garbage in, garbage out” — wrong input gives wrong reports, and errors of principle and omission are not caught; (3) risk of data loss through system failure, virus or theft, unless backups are kept; (4) unauthorised access and fraud through manipulation of data; (5) dependence on power supply, hardware and trained staff; (6) frequent upgrades needed as tax laws change; (7) resistance from staff used to manual methods.
“Best form of accounting system?” For most businesses of any size, yes: the advantages in speed, accuracy and compliance outweigh the costs, and GST compliance in practice requires software. But the system is only as good as the data and controls around it; it does not replace the accountant’s judgment on classification, valuation and adjustments. A balanced answer agrees, with that qualification.
5. Applications of computers in accounting
- Recording transactions and maintaining books; preparation of final accounts.
- Inventory control: stock levels, reorder levels, valuation.
- Payroll: salary computation, PF, ESI and TDS deductions, pay slips.
- Receivables and payables management: ageing of debtors, reminders.
- Bank reconciliation and online banking.
- Taxation: GST returns, TDS returns, income-tax computation.
- Costing and budgeting; MIS reports and ratio analysis for management.
- Audit: computer-assisted audit techniques.
6. Kinds of accounting software
- Ready-made (packaged) software — standard software for general use (Tally, Busy, Marg, QuickBooks, Zoho Books). Cheap, quick to install, easy to learn, vendor support; but limited scope for the firm’s special needs.
- Customised software — ready-made software modified to suit a particular business (extra reports, links with its billing system). Suits medium businesses; costlier and depends on the vendor for changes.
- Tailor-made software — developed specially for a large organisation, often as part of an ERP (enterprise resource planning) system such as SAP or Oracle. Fits the business exactly; very expensive, long to build, needs trained staff.
7. Factors in introducing or sourcing accounting software
- Size and nature of the business and the volume of transactions.
- Cost — of software, hardware, installation, training and annual maintenance, against the expected benefit.
- Flexibility and scalability — can it grow with the business and adapt to changes in tax law?
- Ease of use and availability of trained staff.
- Statutory compliance — GST, TDS, e-invoicing, and the audit trail that the Companies (Accounts) Rules require of companies.
- Data security — passwords, access levels, encryption, backup.
- Vendor support — after-sales service, updates, reputation.
- Integration with inventory, payroll, banking and other systems; multi-user and remote access.
- Reporting — range of reports and MIS needed by management.
- Staff and transition — training, change-over plan, and running manual and computer systems side by side for a period.
8. Tally
Tally is an accounting and inventory software developed by Tally Solutions of Bengaluru, and is the most widely used accounting package among Indian small and medium businesses. Its earlier version, Tally.ERP 9, has been succeeded by TallyPrime. Features:
- Creation of a company; ledgers grouped under predefined groups (Capital Account, Current Assets, Sundry Debtors, Direct Expenses and so on).
- Voucher-based entry: Contra (F4), Payment (F5), Receipt (F6), Journal (F7), Sales (F8), Purchase (F9), with credit and debit notes.
- Automatic books and reports: day book, ledger, trial balance, P&L account, balance sheet, cash-flow and ratio analysis.
- Inventory management with stock items, godowns and valuation.
- GST: tax invoices, e-invoices, e-way bills and returns; TDS and payroll modules.
- Bank reconciliation, multi-currency, multi-company, budgets, security controls and audit features.
How this is examined
Two questions from Unit V in the 80-mark paper (one of 10 marks, one of 6), and one essay or short note in the 100-mark paper. Each is a list question; give a one-line definition first, then eight to ten headed points. For “manual versus computerised”, use the table in section 3. For the Tally note, name the voucher types and the reports; that is what distinguishes the answer from a general one on software.
Now try the real questions: Financial Accounting past question papers.