NCERT Solutions Class 11 Accountancy Chapter 12

Q.1 State the different elements of a computer system.

Ans.

The different elements of a computer system are:

• Hardware.
• Software.
• People.
• Procedures.
• Data.
• Connectivity.

Q.2 List the distinctive advantages of a computer system over a manual system.

Ans.

The distinctive advantages of a computer system over a manual system are:

• Speed: Computers require far less time than human task or completes an operation.
• Accuracy: The computers rarely commit errors and perform all types of complex operations accurately.
• Storage: The computer systems, besides having instant access to data, have huge capacity to store such data in a very small physical space.
• Reliability: Computer systems are well-adapted to performing repetitive operations; they are immune to tiredness, boredom or fatigue. Therefore they are more reliable than human beings.
• Versatility: It refers to the ability of computers to perform a variety of tasks, simple as well as complex.

Q.3 Draw block diagram showing the main components of a computer.

Ans.

The functional components of computer system consist of Input Unit, Central processing system and Output Unit. The way those components are embedded in a computer may differ from one architectural design to another, yet all of them constitute the essential building blocks of a computer system.

(Block diagram of main components of computer)

Q.4 Give three examples of a transaction processing system.

Ans.

Examples of a transaction processing system are:

• Order Processing: Such applications collect and process orders from clients through mail or telephone or staff sales. Once orders are taken, invoicing accounts receivable and inventory control processing applications are initiated.
• Payroll applications: They were used earlier to run on a computer system with punched cards using batch processing. Nowadays, payroll programs are being run using terminals and online processing.
• Automatic Teller Machines (ATM’s): Such machines use a number of specialised computer programs to handle bank transactions.

Q.5 State the relationship between information and decision.

Ans.

An organisation is a collection of interdependent decision-making units that exist to pursue organisational objectives. As a system, every organisation accepts inputs and transforms them into outputs.

All organisational systems persue certain objectives through a process of resource allocation, which is accomplished through the process of managerial decision-making. Information facilitates decisions regarding allocation of resources and thereby assists an organisation in pursuit of its objectives.

Therefore, the information is the most important organisational resource. Every medium sized to large organisation has a well-established information system that is meant to generate the information required for decision making.

Q.6 What is Accounting Information System?

Ans.

An accounting information system (AIS) gathers data describing the organisations’s activities, maintains a detailed financial record of the organisation operations, transforms the data into information and makes the information available to users both inside and outside the organisation.

It is one of the oldest and most popular information systems. It is widely used in profit as well as non-profit organisations because the accounting information that it provides is used not only by the accounts department but also by other departments like sales, production, human resource etc.

Q.7 State the various essential features of an accounting report.

Ans.

Information supplied to meet a particular need is called report. The content and design of the report is expected to vary depending upon the level to which it is submitted and decision to made on the basis of the report.

A report must be effective and efficient to the user and should substantiate the decision-making process.

An accounting report having essential features like:

• Relevance.
• Timeliness.
• Accuracy.
• Completeness.
• Summarisation.

Q.8 Name three components of a Transaction Processing System.

Ans.

Transaction Processing System processes the transactions affecting the activities of the organisation.

(1) Input:

• Data Collection: It gathers all data needed to complete one or more transactions either manually or using devices like scanners and point-of-sale equipment.
• Data Editing: It is the process of checking the data for validity and completeness.
• Data Validation: It is the process of checking the data for validity and completeness.
• Data Manipulation: It is the process of performing calculations.

(2) Storage:

• Data Storage: It is the process of placing transaction data into one or more databases.

(3) Output:

• Output generation: It is the process of creating reports and outputting records.
• Query Support: It is the process of making available the mechanism that empowers the users of TPS to query upon the stored data and extract the required information in required format.

Q.9 Give example of the relationship between a Human Resource Information System and MIS.

Ans.

The manufacturing department receives the list of workers from the Human Resource Department. It sends the details of production achieved by the workers on the basis of which the HR department to the finance and accounts (F&A) department to pay the wages. The details of the wages paid and statutory dues are also send by the F&A department to the production department also to the HR department to monitor the performance of workers. The HR department communicates to the other departments about the good/bad performances on the basis decision on various operational matters may be taken.

(Diagram of Relationship between AIS, Manufacturing Information System and Human Resource Information System)

Q.10 An organisation is a collection of interdependent decision making units that exists to pursue organisational objectives. In the light of this statement, explain the relationship between information and decisions. Also explain the role of transaction processing system in facilitating the decision-making process in business organisations.

Ans.

An organisation is a collection of various independent decision making units that strive to achieve the common organisational goals. Every organisation, as a system, performs the same functions of accepting the inputs and transforming them into outputs. Information is one of the most important resources in today’s business environment and successful businesses are investing heavily in information systems.

Every organisation irrespective of its size depends upon its information system for the purpose of decision-making.

Role of Transaction Processing System:

Let us consider a case wherein a customer withdraws money using the Automated Teller Machine (ATM) facility, as described below:

• Data Entry: The action data must be entered into the system before it is processed. There are a number of input devices to enter data: keyboard, mouse etc. For example, 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.
• Data Validation: It ensures the accuracy and reliability of input data by comparing the same with some predetermined standards or known data. This validation is performed by error detection and error correction procedures. The personal Identification Number (PIN) of the customer is validated with the known data. If it is incorrect, a suggestion is made to indicate that the PIN is invalid.
• Processing and Revalidation: The processing of data, representing actions of the ATM user, occurs almost instantaneously in case of the Online Transaction Processing (OLTP) system provided a valid data representing actions of the users has been encountered. This is called check input validity. Revalidation occurs to ensure that the transaction in terms of delivery of money by ATM has been completed. This is called check output validity.
• Storage: Processed actions, as described above, culminate into financial transaction data, which describe the withdrawal of money by a particular customer are stored in transaction database of computerised personal banking system. This implies that only valid transactions are stored in the database.
• Information: The stored data is processed using the query facility to produce desired information. A database supported by DBMS is bound to have standard structured query language (SQL) support.
• Reporting: Finally, reports can be prepared on the basis of the required information content according to decision usefulness of report.

Q.11 Explain using examples the relationship between the organisational MIS and the other functional information system in an organisation. Describe how AIS receives and provides information to other functional MIS.

Ans.

A management information system is an information system that generates accurate, timely and organised information to help managers make decisions, control process, solve problems, supervise activities and track progress.

Accounting information system identifies, collects, processes and communicates economic information of an organization to a wide variety of users.

(Diagram of Relationship of the Accounting system with other functional management information system)

Initially MIS was considered to be a financial accounting system and was a tool to maintain the financial record keeping activities. But gradually it developed into a broader concept and accounting system has now become one of its sub components.

An accounting information system on the other hand performs the accounting applications of an organisation. Accounting information system contributes to problem solving by producing standard management reports that summarise the firm’s financial condition and by providing the data base that issued by other information system.

Relationship between AIS and Manufacturing Information System:

The business process in the manufacturing department involves the following activities:

1. Preparation of plans and schedules
2. Issue of material requisition forms and job cards
3. Issue of inventory
4. Issue of orders for procurement of raw materials
5. Handling of supplier invoices.
6. Payment to suppliers.

The accounting sub-system transaction cycle therefore includes:

1. Processing of purchase orders.
2. Advance to suppliers.
3. Inventory status updation
4. Report of accounts payable.

Relationship between AIS and Marketing Information System:

The business process in the marketing and sales department involves the following activities:

1. Inquiry process.
2. Creating contacts and establishing personal relations.
3. Order taking.
4. Dispatching goods.
5. Bills generation.

The accounting sub-system transaction cycle therefore includes:

1. Processing sales order.
2. Authorising the credit limits.
3. Keeping custody of the goods.
4. Stock status.
5. Dispatch Details.
6. Accounts Receivables.

Q.12  ‘An accounting report is essential a report which must be able to fulfill certain basic criteria ‘Explain? List the various types of accounting reports.

Ans.

Information supplied to meet a particular need is called report.

A report must be effective and efficient to the user and should substantiate the decision-making process. Every accounting report must be able to fulfill the following criteria:

• Relevance.
• Timeliness.
• Accuracy.
• Completeness.
• Summarisation.

The accounting related MIS reports may be of following reports:

• Summary Reports: Summarise all activities of the organisation and present in the form of summary report. Profit and Loss account and Balance Sheet.
• Demand Reports: This report will be prepared only when the management requests them, e.g. Bad Debts Report for a given product, Stock Valuation Report.
• Customer/Supplier Reports: According to the specifications of the management it will be prepared. For example, Top 10 Customers report, Interest on Customer Account/Invoices, Statement of Account, Customer Reminder Letters Outstanding/Open Delivery Order, Purchase Analysis, and Vendor Analysis Report.
• Exception Reports: According to the conditions or exceptions the report is prepared. For example, Inventory Report in short supplies, Stock Status Query, Over Stocked Status, etc.
• Responsibility Reports: The MIS structure specifies the premises of management responsibilities. For example, the report on Cash Position to be submitted by the head of Finance and Accounts department.

Q.13 Describe the various elements of a computer system and explain the distinctive features of a computer system and manual system.

Ans.

The various elements of a computer system are:

(a) Hardware:

Hardware of computer consists of physical components such as keyboard, mouse, monitor and processor. These are electronic and electromechanical components.

Basic components of the Computer Hardware:

• Motherboard
• Processor (ALU, Memory Unit and Control Unlit)
• Primary Storage memory
• Secondary Storage Devices (Disk drive, portable flash drives, CDS and DVDs)
• Keyboard
• Sound Card and Speakers
• Monitor and LCD Panel
• Printers

(b) Software:

A set of programmes, which is used to work such hardware, is called its software. A coded set of instructions stored in the form of circuits is called firmware. There are six types of software as follows:

• Operating System: An integrated set of specialised programmes that are meant to manage the resources of a computer and also facilitates its operation is called operating system.
• Utility Programmes: These are a set of computer programmes, which are designed to perform certain supporting operations: such as programme to format a disk, duplicate a disk, etc.
• Application Software: These are user oriented programmes designed and developed for performing certain specified tasks: such as payroll accounting, inventory accounting, financial accounting, etc.
• Language Processors: These are the software which check for language syntax and eventually translate the source programme (that is a programme written in a computer language) into machine language (language which the computer understands).
• System Software: These are a set of programmes which control such internal functions as reading data from input devices, transmitting processed data to output devices and also checking the system to ensure that its components are functioning properly.
• Connectivity Software: These are a set of programmes which create and control a connection between a computer and a server so that the computer is able to communicate and share the resources of server and other connected computers.

(c) People:

People interacting with the computers are also called live-ware of the computer system. They constitute the most important part of the computer system:

• System analysts;
• Programmers;
• Operators.

(d) Procedures:

The procedure means a series of operations in a certain order or manner to achieve desired results. There are three types of procedures which constitute part of a computer system: hardware-oriented, software-oriented and internal procedure.

• Hardware-oriented procedure provides details about components and their method of operation.
• The software oriented procedure provides a set of instructions required for using the software of computer system.
• Internal procedure is instituted to ensure smooth flow of data to computers by sequencing the operation of each subsystem of overall computer system.

(e) Data:

These are facts and may consist of numbers, text, etc. These are gathered and entered into a computer system. The computer system in turn stores, retrieves, classifies, organizes and synthesises the data to produce information according to a pre-determined set of instructions.

Comparison between Manual and Computerised Accounting Systems:

(a) Identifying Financial Transactions:

Identifying Financial Transactions and recording them in the books of accounts by applying the principle of accounting is a manual process carried out by an authorised person or on the basis of the accounting manual. This process is, thus common under both the processes.

(b) Recording:

The process of recording transactions in the books of original entry, posting them in the ledger accounts, performing mathematical functions are carried out manually under the manual process. In the computerised process, transactions are recorded in the books of accounts and the remaining functions are performed without any further process or command being carried out manually.

(c) Classification:

In the manual process, the transactions are recorded in the books of original entry, and are posted into the ledger accounts. In computerised accounting, the posting process is carried out by internal sorting of data, i.e., with the help of utility or application software, without any further process.

(d) Summarising:

In the manual system of accounting, the data under each Ledger is summarized and a balance of each account is ascertained to prepare a Trial Balance. In the computerised process, a transaction or event once recorded is stored in the database and can be processed to produce a Trial Balance directly.

(e) Adjustment entries:

Adjustment entries are passed to rectify an error or to follow the matching concept of accounting, i.e., matching the cost with revenue. The process of passing adjustment entries can be equated with the recording process. These entries are identifies and recorded in the books of accounts. The remaining process is the same.

(f) Financial Statements:

In the manual process, availability of the Trial Balance is essential to prepare the financial statements. In the computerised process, financial statements are generated from the system itself and hence, there is no need to have a Trial Balance.