CHAPTER – 3

USING COMPUTRISED ACCOUNTING

❖ STEP IN INSTALLATION OF
CAS,CODIFICATION AND HIERCHY OF
ACCOUNTS HEADS , CREATION OF
ACCOUNTS .
Implementing a Computerized Accounting System (CAS)
involves several key steps, from planning and installation to
creating a structured chart of accounts and establishing the
hierarchy of account heads. Here's a detailed guide:

1. Steps in Installation of CAS

1. Requirement Analysis
o Description: Identify the specific accounting needs and
requirements of the organization.
o Activities: Conduct meetings with key stakeholders,
analyze current accounting processes, determine the
necessary features and functionalities.
2. Selection of Software
o Description: Choose an appropriate accounting software
that meets the organization's requirements.
o Activities: Evaluate different software options, consider
factors such as cost, scalability, user-friendliness, and
support.
3. Hardware Setup
o Description: Ensure that the necessary hardware is in
place to support the CAS.
 o Activities: Set up computers, servers, networking
equipment, and ensure compatibility with the chosen
software.
4. Software Installation
o Description: Install the accounting software on the
designated hardware.
o Activities: Follow the installation guidelines provided by
the software vendor, configure initial settings, and ensure
proper installation.
5. Data Migration
o Description: Transfer existing accounting data to the new
system.
o Activities: Extract data from legacy systems, clean and
format the data as needed, import the data into the new
CAS.
6. Customization and Configuration
o Description: Customize the software to fit the specific
needs of the organization.
o Activities: Set up user accounts, configure modules (e.g.,
accounts payable, accounts receivable), customize reports
and dashboards.
7. User Training
o Description: Train employees on how to use the new
system.
o Activities: Conduct training sessions, provide user
manuals and resources, ensure users are comfortable with
the system.
8. Testing and Validation
o Description: Test the system to ensure it works correctly.
o Activities: Perform functional tests, validate data
accuracy, fix any issues that arise.
9. Go-Live
o Description: Officially start using the new system for
daily accounting operations.
o Activities: Monitor the system closely, provide support to
users, ensure smooth transition.
10. Post-Implementation Review
 o Description: Evaluate the performance of the new system.
o Activities: Collect feedback from users, assess whether the
system meets the organization’s needs, make necessary
adjustments.

2. Codification and Hierarchy of Accounts Heads

1. Defining Account Heads
o Description: Establish the main categories of accounts.
o Activities: Identify broad categories such as Assets,
Liabilities, Equity, Revenue, and Expenses.
2. Creating Sub-Accounts
o Description: Break down the main account heads into
more specific sub-accounts.
o Activities: For example, under Assets, create sub-accounts
like Cash, Accounts Receivable, Inventory, etc.
3. Developing a Codification System
o Description: Assign unique codes to each account and
sub-account.
o Activities: Use a logical numbering system, for example,
1xxx for Assets, 2xxx for Liabilities, etc.
4. Establishing Hierarchy
o Description: Organize accounts in a hierarchical structure.
o Activities: Ensure that parent accounts and sub-accounts
are logically connected, e.g., Assets -> Current Assets ->
Cash.
5. Documentation
o Description: Document the chart of accounts and
codification system.
o Activities: Create a reference manual, ensure all users
understand the coding and hierarchy.

3. Creation of Accounts
1. Setting Up Master Accounts
o Description: Create the primary accounts in the
accounting software.
 o Activities: Input account codes, names, and descriptions
into the system.
2. Adding Sub-Accounts
o Description: Create detailed sub-accounts under each
master account.
o Activities: Ensure each sub-account is correctly coded and
placed under the appropriate master account.
3. Configuring Account Settings
o Description: Set up account-specific settings and
parameters.
o Activities: Define account types (e.g., asset, liability), set
up default tax codes, configure currency settings.
4. Inputting Opening Balances
o Description: Enter the opening balances for each account.
o Activities: Gather accurate opening balance data, input the
data into the system.
5. Testing Accounts
o Description: Ensure that all accounts are set up correctly
and function as expected.
o Activities: Perform trial transactions, generate sample
reports, verify accuracy.
6. User Access and Permissions
o Description: Define user roles and permissions for
accessing accounts.
o Activities: Set up user profiles, assign permissions based
on roles, ensure data security.
7. Regular Review and Maintenance
o Description: Periodically review and update the chart of
accounts as needed.
o Activities: Conduct regular audits, update account codes
and descriptions, ensure the system remains up-to-date
with organizational changes.

❖ DATA ENTRY , VALIDATION

AND VARIFICATION
1. Data Entry
Data entry involves inputting financial and transactional data
into the accounting system. This step is crucial as accurate
data entry ensures reliable financial reports and effective
financial management.
1. Identify Data Sources
o Description: Determine where data will come from, such
as invoices, receipts, bank statements, etc.
o Activities: Gather and organize all necessary documents
for data entry.
2. Use Data Entry Templates
o Description: Utilize standardized templates to ensure
consistency.
o Activities: Input data into predefined fields to minimize
errors.
3. Manual vs. Automated Entry
o Description: Decide whether data entry will be manual or
automated.
o Manual Entry: Enter data by hand, which can be time-
consuming and prone to errors.
o Automated Entry: Use software tools to automate data
input from digital sources.
4. Regular Updates
o Description: Ensure data is entered regularly to keep the
accounting records up-to-date.
o Activities: Schedule regular data entry sessions.

2. Data Validation
Data validation ensures the accuracy, completeness, and
consistency of data entered into the accounting system.
Validation checks help prevent errors and maintain data
integrity.
 1. Set Validation Rules
o Description: Define rules for what constitutes valid data.
o Examples: Correct date format, numerical values in
amount fields, mandatory fields completed.
2. Automated Validation
o Description: Use software features to automatically check
data against validation rules.
o Activities: Enable validation features in accounting
software to flag inconsistencies.
3. Real-Time Feedback
o Description: Provide immediate feedback during data
entry.
o Activities: Display error messages or warnings when
invalid data is entered.
4. Cross-Referencing
o Description: Validate data by comparing it with existing
records.
o Activities: Check for duplicate entries, verify account
balances.

3. Data Verification
Data verification involves ensuring that the data entered into
the system matches the original source documents and is
correctly recorded.
1. Source Document Matching
o Description: Compare data entered with the original
source documents.
o Activities: Cross-check invoices, receipts, bank statements
with entries in the system.
2. Reconciliation
o Description: Regularly reconcile accounts to verify data
accuracy.
o Activities: Match entries with bank statements, supplier
statements, and customer ledgers.
3. Review and Approval
 o Description: Implement a review and approval process.
o Activities: Have another person or team review and
approve data entries.
4. Audit Trails
o Description: Maintain a log of all data entry activities.
o Activities: Use the accounting system's audit trail features
to track who entered or modified data and when.
5. Periodic Reviews
o Description: Conduct periodic reviews and audits of the
data.
o Activities: Schedule regular internal audits to ensure
ongoing accuracy and compliance.

By effectively managing data entry, validation, and

verification processes, organizations can maintain accurate,
reliable, and up-to-date financial records, leading to better
financial management and decision-making.

ADJUSTING ENTRIES,PREPATION
OF BALANCE SHEET,PROFIT AND LOSS
ACCOUNT WITH CLOSING ENTRIES
AND OPENING ENTRIES .
1. Adjusting Entries
Adjusting entries are made at the end of an accounting period to
update account balances before preparing financial statements. They
ensure that revenues and expenses are recorded in the period in which
they occur.

1. Types of Adjusting Entries

o Accrued Revenues: Revenues earned but not yet
received.
 ▪ Example: Debit Accounts Receivable, Credit
Revenue.
o Accrued Expenses: Expenses incurred but not yet paid.
▪ Example: Debit Expense, Credit Accounts Payable.
o Deferred Revenues: Revenues received in advance but
not yet earned.
▪ Example: Debit Unearned Revenue, Credit Revenue.
o Deferred Expenses (Prepaid Expenses): Expenses paid in
advance but not yet incurred.
▪ Example: Debit Expense, Credit Prepaid Expense.
o Depreciation: Allocation of the cost of a fixed asset over
its useful life.
▪ Example: Debit Depreciation Expense, Credit
Accumulated Depreciation.
2. Process of Making Adjusting Entries
o Identify accounts that need adjustment: Review trial
balance for accounts needing adjustments.
o Calculate adjustment amounts: Determine the amounts
to adjust.
o Record adjusting entries: Make entries in the general
journal.

2. Preparation of Balance Sheet

Balance Sheet is a financial statement that presents the financial
position of an entity at a specific point in time, showing assets,
liabilities, and equity.

1. Components of a Balance Sheet

o Assets: Resources owned by the entity.
▪ Current Assets: Cash, Accounts Receivable,
Inventory.
▪ Non-Current Assets: Property, Plant, Equipment.
o Liabilities: Obligations owed to others.
▪ Current Liabilities: Accounts Payable, Short-term
Loans.
 ▪Non-Current Liabilities: Long-term Debt.
o Equity: Owner's claims on the assets.
▪ Components: Common Stock, Retained Earnings.

2. Steps to Prepare a Balance Sheet

o List all assets: Categorize as current or non-current.
o List all liabilities: Categorize as current or non-current.
o Calculate equity: Determine total equity.
o Ensure balance: Assets = Liabilities + Equity.

3. Preparation of Profit and Loss Account

Profit and Loss Account (Income Statement) shows the
entity’s financial performance over a specific period, detailing
revenues and expenses.

1. Components of a Profit and Loss Account

o Revenues: Income from sales and other operations.
o Expenses: Costs incurred to generate revenue.
▪ Cost of Goods Sold (COGS)
▪ Operating Expenses: Rent, Salaries, Utilities.
▪ Non-Operating Expenses: Interest, Taxes.

2. Steps to Prepare a Profit and Loss Account

o List revenues: Include all sources of income.
o List expenses: Include all costs and expenses.
o Calculate net profit or loss: Revenues - Expenses.

4. Closing Entries
Closing entries are made at the end of an accounting period to
transfer the balances of temporary accounts to permanent accounts
and reset the balances of temporary accounts to zero.

1. Steps for Making Closing Entries

o Close Revenues: Transfer to Income Summary.
▪ Example: Debit Revenue, Credit Income Summary.
o Close Expenses: Transfer to Income Summary.
 ▪ Example: Debit Income Summary, Credit Expense.
o Close Income Summary: Transfer net income or loss to
Retained Earnings.
▪ Example: If net income, Debit Income Summary,
Credit Retained Earnings.
▪ Example: If net loss, Debit Retained Earnings, Credit
Income Summary.
o Close Dividends: Transfer to Retained Earnings.
▪ Example: Debit Retained Earnings, Credit Dividends.

5. Opening Entries
Opening entries are made at the beginning of an accounting period
to establish the opening balances of accounts carried over from the
previous period.

1. Steps for Making Opening Entries

o Determine opening balances: Use the ending balances
from the previous period.
o Record opening balances: Enter into the general ledger.
▪ Example: Debit Assets, Credit Liabilities and Equity
based on ending balances.

By following these steps, you can ensure that financial

statements are accurate, reflecting the true financial position
and performance of the organization. This process also
ensures a seamless transition between accounting periods,
maintaining the integrity and continuity of financial records.

➢ NEED AND SECQURITY FEATURE OF

THE SECQURITES
Securities: An Overview
Securities are financial instruments that represent ownership
or a creditor relationship with a company or government.
They are essential for raising capital and provide a means for
investors to earn returns on their investments. The primary
types of securities include stocks, bonds, and derivatives.
1. Stocks
o Description: Represent ownership in a company.
o Types: Common stocks (with voting rights) and preferred
stocks (with fixed dividends).
o Benefits: Potential for capital gains and dividends.
2. Bonds
o Description: Represent a loan made by an investor to a
borrower, typically corporate or governmental.
o Types: Government bonds, corporate bonds, municipal
bonds.
o Benefits: Regular interest payments and return of
principal at maturity.
3. Derivatives
o Description: Financial contracts whose value is derived
from the performance of underlying assets, indices, or
interest rates.
o Types: Options, futures, swaps.
o Benefits: Used for hedging risk or speculative purposes.

Need for Securities

1. Capital Raising
o Description: Companies issue securities to raise capital for
various purposes such as expansion, research and
development, and operational needs.
o Examples: Issuing stocks, bonds, and other financial
instruments.
2. Investment Opportunities
o Description: Securities provide investors with
opportunities to invest their funds and potentially earn
returns.
o Examples: Stocks, bonds, mutual funds, and ETFs offer
different risk and return profiles for investors.
3. Ownership and Control
o Description: Securities like stocks represent ownership in
a company and often come with voting rights, allowing
shareholders to influence corporate decisions.
o Examples: Common stocks grant voting rights and
dividend entitlements.
4. Liquidity
o Description: Securities markets provide liquidity, allowing
investors to easily buy and sell financial instruments.
o Examples: Stock exchanges and bond markets facilitate
the trading of securities.
5. Risk Management
o Description: Certain securities are used to hedge against
risks, such as interest rate fluctuations, currency
movements, and commodity price changes.
o Examples: Derivatives like options and futures contracts.
6. Income Generation
o Description: Securities can generate regular income for
investors through interest payments, dividends, and other
distributions.
o Examples: Bonds pay periodic interest, while stocks may
pay dividends.
7. Diversification
o Description: Investors can diversify their portfolios by
holding a variety of securities, reducing overall risk.
o Examples: A mix of stocks, bonds, and other assets
spreads risk.
8. Economic Growth
 o Description: Securities markets contribute to economic
growth by channeling savings into productive
investments.
o Examples: Investments in corporate bonds and stocks
help finance business expansion and innovation.

Security Features of Securities

1. Encryption
o Description: Encryption ensures that data transmitted
over networks is secure and cannot be intercepted by
unauthorized parties.
o Example: Secure Sockets Layer (SSL) for online trading
platforms.
2. Two-Factor Authentication (2FA)
o Description: 2FA adds an extra layer of security by
requiring two forms of identification before granting
access.
o Example: Using a password and a code sent to a mobile
device.
3. Digital Certificates
o Description: Digital certificates authenticate the identity
of entities involved in electronic transactions.
o Example: Certificates issued by trusted Certificate
Authorities (CAs).
4. Firewalls
o Description: Firewalls protect networks by controlling
incoming and outgoing network traffic based on security
rules.
o Example: Network firewalls that prevent unauthorized
access to trading systems.
5. Secure Access Controls
o Description: Access controls ensure that only authorized
users can access certain systems and data.
o Example: Role-based access control (RBAC) systems.
6. Regular Audits and Monitoring
o Description: Continuous monitoring and periodic audits
help detect and prevent security breaches.
o Example: Security Information and Event Management
(SIEM) systems that monitor and analyze activity in real
time.
7. Data Backup and Recovery
o Description: Regular data backups and robust recovery
procedures ensure data integrity and availability in case of
failures.
o Example: Off-site backup storage and disaster recovery
plans.
8. Intrusion Detection Systems (IDS)
o Description: IDS monitor network and system activities
for malicious activities or policy violations.
o Example: Software that alerts administrators to potential
security threats.
9. Anti-Malware and Anti-Virus Software
o Description: These programs protect systems from
malware, viruses, and other malicious software.
o Example: Anti-virus programs that scan and remove
malicious files.
10. Physical Security Measures
o Description: Physical security controls protect the
hardware and infrastructure supporting securities
transactions.
o Example: Secure data centers with controlled access.
11. Compliance with Regulations
o Description: Adhering to regulatory standards and best
practices ensures the security and integrity of securities
transactions.
o Example: Compliance with the Sarbanes-Oxley Act (SOX)
and the General Data Protection Regulation (GDPR).
12. Secure Software Development Practices
 o Description: Following secure coding standards and
conducting thorough testing reduces vulnerabilities in
trading and financial software.
o Example: Code reviews and penetration testing.

Understanding the need for securities and implementing

robust security features ensures the protection and integrity of
financial instruments, thereby fostering confidence among
investors and stakeholders.