OSCEEN MISHRA

NATIONAL POST GRADUATE COLLEGE

(An Autonomous College of Lucknow University)
B-COM (H)-VI
COMPUTERIZED ACCOUNTING & E-COMMERCE
BCH- 604

UNIT I
Introduction to Computer and Accounting: Computer and Accounting:
Application of Computer in accounting. Meaning, Features and scope of
computerized accounting, advantages and limitations of computerized
accounting, comparison between manual and computerized accounting,
considerations for sourcing an accounting software, type of accounting
software’s- Their merits and demerits. Relationship between Computerized
Accounting, Accounting Information System (AIS)
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INTRODUCTION TO COMPUTER AND ACCOUNTING

COMPUTERISED ACCOUNTING SYSTEM
In modern business accounting transactions are processed through computers. Usage of computers
and Information Technology (IT) enables a business to quickly, accurately and timely access the
information that helps in decision-making. This sharpens the competitive edge and enhances
profitability. The computer systems works with the data which is processed by the hardware
commanded by the user through software.
The Computerized Accounting System (CAS) has the following components:

• Procedure: A logical sequence of actions to perform a task.

• Data: The raw fact (as input) for any business application.
• People: Users.
• Hardware: Computer, associated peripherals, and their network.
• Software: System software and Application software.
These are the five pillars on which Computerized Accounting System rests.
Computerized Accounting System refers to the processing of accounting transaction through the use
of hardware and software in order to produce accounting records and reports. CAS takes accounting
transactions as inputs that are processed through Accounting Software to generate the following
reports:

• Day books/Journals
• Ledger
• Trial Balance
• Position Statement (Balance Sheet)
• Statement of Profit and Loss (Profit and Loss Account)

EVOLUTION:
Manual accounting was the most popular method of accounting until recent times. Businesses had to
hire a full-time or part-time accountant or book-keeper for this purpose. They would manually record
transactions, generate books and ledgers, and prepare financial statements. They had to do all
accounting work manually on paper.

Accounting process later moved to computerized systems like billing machines. As we read above, these
machines resembled typewriters and calculators and people used them in stores. They performed tasks
like calculating net totals, deducting discounts, recording billing information, etc. With the advent of newer
technology, modern computerized systems made accounting easier. They enabled users to enter
accounting data real-time. Apart from basic outcomes, these technological innovations helped record
sophisticated transactions as well. The most important innovation in this regard was the Transaction
Processing System.

Transaction Processing System (TPS)

The Transaction Processing System plays a huge role in recording and processing diverse business
transactions. It basically records, corrects, validates, processes, stores and displays information.
The business employing it can later retrieve this information and use it for various purposes.The TPS
performs its tasks using many steps and procedures. Some of these steps are as follows:
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• Entry of data: Firstly, the user enters data into the system using input devices like keyboard, mouse,
barcode scanner or interactive screen.
• Validation of data: Next, the system uses a set of programmes that compute and validate the data
users enter in it.
• Processing of data: Once the system validates the data and checks its accuracy, it then processes
it on the basis of the user’s commands.
• Storage of data: After processing data, the system stores it either in its short-term memory or
the long-term one. This depends on the user’s command.
• Reporting of information: Finally, processed data is now called information, which is displayed to
the user in pre-determined formats.
The Transaction Processing System also performs real-time accounting operations. Users can edit and
use this data digitally using the internet. The reports generated by the system are stored and displayed
in a language called Structured Query Language.

ROLE OF COMPUTERS IN ACCOUNTING

The most popular system of recording of accounting transactions is manual which requires
maintaining books of accounts such as Journal, Cash Book, Special purpose books, ledger and so
on. The accountant is required to prepare summary of transactions and financial statements manually.
The advanced technology involves various machines capable of performing different accounting
functions, for example, a billing machine. This machine is capable of computing discount, adding net
total and posting the requisite data to the relevant accounts. With substantial increase in the number
of transactions, a machine was developed which could store and process accounting data in no time.
Such advancement leads to number of growing successful organizations. A newer version of machine
is evolved with increased speed, storage, and processing capacity. A computer to which they were
connected operated these machines. As a result, the maintenance of accounting data on a real-time
basis became almost essential. Now maintaining accounting records become more convenient with
the computerized accounting. The computerized accounting uses the concept of databases. For this
purpose an accounting software is used to implement a computerized accounting system. It does
away the necessity to create and maintain journals, ledgers, etc., which are essential part of manual
accounting. Some of the commonly used accounting softwares are Tally, Cash Manager, Best Books,
etc. Accounting software is used to implement computerized accounting.
The computerized accounting is based on the concept of database. It is basic software which allows
access to the data contained in the data base. It is a system to manage collection of data ensuring at
the same time that it remains reliable and confidential.
Following are the components of Computerized accounting software:
1. Preparation of Accounting Documents: Computer helps in preparing accounting documents like
Cash Memo, Bills and invoices etc., and preparing accounting vouchers.
2. Recording of Transactions: Every day business transactions are recorded with the help of
computer software. Logical scheme is implied for codification of account and transaction. Every
account and transaction is assigned a unique code. The grouping of accounts is done from the first
stage. This process simplifies the work of recording the transactions.
3. Preparation of Trial Balance and Financial Statements : After recording of transaction, the data
is transferred into Ledger account automatically by the computer. Trial Balance is prepared by the
computer to check accuracy of the records. With the help of trial balance the computer can be
programmed to prepare Trading, Profit and Loss Account and Balance Sheet. These components
can be shown as:
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FEATURES OF CAS
1. Simple and Integrated: CAS is designed to automate and integrate all the business
operations, such as sales, finance, purchase, inventory and manufacturing. CAS is integrated
to provide accurate, up-to-date business information rapidly. The CAS may be integrated with
enhanced MIS (Management Information System), Multi-lingual and Data Organization
capabilities to simplify all the business processes of the organization easily and cost-
effectively.

2. Transparency and Control: CAS provides sufficient time to plan, increases data accessibility
and enhances user satisfaction. With computerized accounting, the organization will have
greater transparency for day-to-day business operations and access to the vital information.

3. Accuracy and Speed: CAS provides user-definable templates (data entry screens or forms)
for fast, accurate data entry of the transactions. It also helps in generalizing desired documents
and reports.

4. Scalability: CAS enables in changing the volume of data processing in tune with the change
in the size of the business. The software can be used for any size of the business and type of
the organization.

5. Reliability: CAS makes sure that the generalized critical financial information is accurate,
controlled and secured.

6. Performing various Functions with Accuracy: Accounting software is used to perform the
function of accounting. The software functions on the concept of database. As discussed
above, accounting software eliminates the process of posting a transaction into the Ledger
Account, that is, when a transaction is entered in the computer system, the posting in the
Ledger Account is automatic. The software is so designed that a transaction, once entered, is
automatically transported to the Ledger Account also.
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NEED AND REQUIREMENTS OF COMPUTERSIED ACCOUNTING:

The need for computerized accounting arises from advantages of speed, accuracy and lower cost of
handling the business transactions.

1) Numerous Transactions: The computerized accounting system is capable of handling large

number of transactions with speed and accuracy.

2) Instant Reporting: The computerized accounting system is capable of offering quick and
quality reporting because of its speed and accuracy.

3) Reduction in Paper Work: A manual accounting system requires large physical storage space
to keep accounting records/books and vouchers/ documents. The requirement of stationery
and books of accounts along with vouchers and documents is directly dependent on the volume
of transactions beyond a certain point. There is a dire need to reduce the paper work and
dispense with large volumes of books of accounts. This can be achieved by introducing
computerized accounting system.

4) Flexible Reporting: The reporting is flexible in computerized accounting system as compared

to manual accounting system. The reports of a manual accounting system reveal balances of
accounts on periodic basis while computerized accounting system is capable of generating
reports of any balance as when required and for any duration which is within the accounting
period.

5) Accounting Queries: There are accounting queries which are based on some external
parameters. For example, a query to identify customers who have not made the payments
within the permissible credit period can be easily answered by using the structured query
language (SQL) support of database technology in the computerized accounting system. But
such an exercise in a manual accounting system is quite difficult and expensive in terms of
manpower used. It will still be worse in case the credit period is changed.

6) On-line Facility: Computerized accounting system offers online facility to store and process
transaction data so as to retrieve information to generate and view financial reports.

7) Scalability: Computerized accounting systems are fully equipped with handling the growing
transactions of a fast growing business enterprise. The requirement of additional manpower in
Accounts department is restricted to only the data operators for storing additional vouchers.
There is absolutely no additional cost of processing additional transaction data.

8) Accuracy: The information content of reports generated by the computerized accounting

system is accurate and therefore quite reliable for decision-making. In a manual accounting
system the reports and information are likely to be distorted, inaccurate and therefore cannot
be relied upon. It is so because it is being processed by many people, especially when the
number of transactions to be processed to produce such information and report is quite large.

9) Security: Under manual accounting system it is very difficult to secure such information
because it is open to inspection by any eyes dealing with the books of accounts. However, in
computerized accounting system only the authorized users are permitted to have access to
accounting data. Security provided by the computerized accounting system is far superior
compared to any security offered by the manual accounting system.
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ADVANTAGES OF COMPUTERISED ACCOUNTING SYSTEM
1) Large Volume of Transactions: In the present-day business environment, the transactions
of a business are normally large in volume. The computerized accounting system can store
and process such voluminous transactions with speed and accuracy.

2) Scalability: A computerized accounting system is scalable to handle the growing transactions.

3) Security: The accounting data under the computerized environment is safer than the
accounting data under the manual system. The data can be kept secure by using a password,
i.e., allowing only authorized users to access the data.

4) Timely Reporting: Availability of reports on time enables the management to take quick
decisions, which is an important element for the success of an enterprise. A computerized
accounting system makes these reports available as and when required.

5) Lower Cost: The cost of maintaining books of accounts under the computerized process is
lower than in comparison to the manual process.

6) Less Paper Work: Under the computerized process, there is less paper work as compared to
the paper work in the manual process.

7) Flexible Reporting: Reporting under the computerized process is flexible in comparison to the
manual process. The database can be processed further to obtain the desired report.

8) Queries: Replies to queries based on external factors can be obtained easily under a
computerized process. For example, list of debtors who have not paid on time can be taken
out by processing the database.

9) Accurate Information: There is less space for error because only one account entry is needed
for each transaction unlike repeated posting of the same accounting data in manual system.

10) Updating: Updating and treatment of wrong transactions are easily done.

11) Financial Statements: From the day book, the Voucher Posting software can manage the
General Ledger, Trial Balance and Balance Sheet.

12) Faster Processing: Computers require far less time than human beings in performing a
particular task. Therefore, accounting data is processed faster using a computerized
accounting system.

13) Easy Availability of Information: The data can be made available to different users at the
same time. This is called data sharing.

14) Better Quality Work: The accounts prepared with the use of computers are usually uniform,
neat, accurate, and more legible than manual job.
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15) Better Control: From the management point of view, greater control is possible and more
information may be available with the use of computer in accounting. It ensures efficient
performance in accounting work.

16) Facilitates Standardization: Computerized accounting facilitates standardization of

accounting routines and procedures. Therefore, standardization in accounting is ensured.

LIMITATIONS OF COMPUTERISED ACCOUNTING SYSTEM

1) Controls: If adequate controls are not built and, where build, are not followed, it can lead to
loss of data. It is important to take back-ups at regular intervals to avoid such a situation.

2) Data Corruption: The data can get corrupted through viruses that may come in through the
internet or the use of external input devices without scanning them for viruses.

3) Heavy Cost of Installation: Computer hardware needs replacing and software needs to be
updated from time to time with the availability of newer versions.

4) Cost of Training: To ensure effective and efficient use of computerized system of accounting,
newer versions of hardware and software are introduced. This requires special training and
cost is incurred to train the staff personnel as specialists.

5) Fear of Unemployment: Reflects the feelings of the staff on the introduction of computerized
accounting system. The staff fears redundancy and show less interest in computers.

6) Disruption in Work: When computerized system is introduced, there might be loss in the work
time and certain changes in the working environment.

7) System Failure: The danger of a system crashing due to some failure in hardware can lead
to subsequent loss of work. This occurs when no back-up is retained.

8) Time Consuming: In order to avoid loss of work at the time of system failure, there is a need
for providing backup arrangements which is a time consuming process.

9) Unanticipated Errors not Known: Unlike human beings, computers do not have the capability
to judge or detect unanticipated errors in the system.

10) Breaches of Security: The danger of viruses and hacking into the system from outside creates
a strong need for security of system. Similarly, the person who has created the specific
program can easily defraud by tempering with the original records.

11) Health Dangers: Extensive use of computers may lead to many health problems such as
eyestrain, muscular complaints, backache etc. resultantly reducing working efficiency as well
as increasing medical expenditure.
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DIFFERENCE BETWEEN MANUAL ACCOUNTING AND COMPUTERISED
ACCOUNTING
MANUAL ACCOUNTING: Manual Accounting, as the name signifies, is the paper-based accounting
system, in which journal and ledger registers, vouchers, account books are used to store, classify and
analyze financial transactions of an organization. It is often used by small businessmen, such as sole
proprietors, shopkeepers, etc. to maintain the record of the business transactions, due to lower cost.
One of the advantages of the manual accounting system is its easy accessibility. It is
also characterized by confidentiality, which makes the sensitive information hacking free.
Nevertheless, manual accounts can only be prepared correctly if the accountant possesses good
knowledge of bookkeeping and accounting. Moreover, human error, such as incorrect recording of
the transaction, the omission of the transaction, figure transposition and so forth, is likely to occur
while the preparation of manual accounts which cannot be ignored.
COMPUTERISED ACCOUNTING: Computerized Accounting can be described as the accounting
system that uses the computer system and pre-packaged, customized or tailored accounting
software, to keep a record of financial transactions and generate financial statements, for analysis.
Computerized Accounting system relies on the concept of a database. The accounting database is
systematically maintained, with active interface wherein accounting application programs and
reporting system are used.

BASIS FOR
MANUAL ACCOUNTING COMPUTERIZED ACCOUNTING
COMPARISON

Meaning Manual Accounting is a system of Computerized Accounting is an

accounting that uses physical accounting system that uses
registers and account books, for accounting software, for recording
keeping financial records. financial transactions electronically.

Recording Recording is possible through book of Data content is recorded in

original entry. customized database.

Calculation All the calculation is performed Only data input is required, the
manually. calculations are performed by
computer system.

Speed Slow Comparatively faster.

Adjusting entries It is made for rectification of errors. It cannot be made for rectification of
errors.

Backup Not possible Entries of transactions can be saved

and backed up

Trial Balance Prepared when necessary. Instant trial balance is provided on

daily basis.

Financial Statement It is prepared at the end of the period, It is provided at the click of button.
or quarter.
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ACCOUNTING SOFTWARES

MEANING:

Accounting software is a type of computer software used by accounting professionals to manage

accounts and perform accounting operations. Accounting is the systematic practice, work or process
of communicating and recording financial information. In a business setting, this is done for the
purposes of internal and external audits, required reports and financial analysis to meet legal or
internal managerial requirements.

Accounting may also include systematic and diverse measurement, classification, verification,
summation and interpretation of financial information. Accounting software can range from simple,
single-entry programs used for individual record-keeping to more sophisticated, double-entry systems
that can process accounts receivable, accounts payable, payroll and inventory, among other
functions.

TYPES OF ACCOUNTING SOFTWARES:

• Readymade Software

• Customised Software

• Tailor-made Software

1. Readymade Software: Readymade Softwares are the softwares that are developed not for any
specific user but for the users in general. Since, the readymade softwares are for general user, it is
not necessary that all the modules of such softwares are of use for every user. It is likely that a
particular module say ‘Payroll’ may not be used because the enterprise has very few employees.
Similarly, a service enterprise will not require VAT module while a retail enterprise will not require
Service Tax module. Some of the Readymade Software available are Tally, Ex, Busy and Professional
Accountant. Out of these, Tally is very widely used.

Advantages Of Readymade Softwares:

1) Readymade Softwares are economical: Readymade Software are prepared not for particular
user but for the user in general. It means development cost of the software is not loaded on a
single software for determining the cost and thus selling price. The price of the software is
determined on the basis of number of pieces expected to be sold. On the other hand, user
specific softwares are expensive as the development cost is loaded on one software.

2) Readymade Software are Available off-the-shelf: It therefore, saves time that may be
required for development of tailor-made softwares or for customization. Development of a
software consumes considerable time both at the user end and software development end.
User will have to explain its requirements to software developer who on the basis of his
understanding will develop software, test it with a dummy data, debug the software to the best
of his understanding before handing it to the user. All these activities consume time. On the
other hand, Readymade Software requires only installation and are ready for use.
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3) Readymade Software are Development by a Group of Experienced Professionals: It
therefore, addresses the problem that may get overlooked if the user specific software is
developed.

4) Software Like Any Other Product, Requires Maintenance: Readymade Softwares being
sold to a number of users, has better and economical after sales maintenance service. After
sales maintenance service, in the case of user specific softwares will not only be expensive
but time consuming as well.

5) Readymade Softwares are Used by a Number of Users: Therefore, trained accounting

persons are easily available. On the other hand, in the case of tailor-made softwares, every
time a new person is recruited, training will have to be imported.

Disadvantages of Readymade Softwares:

1) Readymade Softwares are Window-based softwares, which support only LaserJet printers for-
outputs in physical form (printout). Printing by laser jet printers is more expensive than Dot-
Matrix printers.

2) Normally, Readymade Softwares do not have the facility of secondary backup. It means, in
case of data loss, the entire data may not be recovered. But, this limitation can be overcome
by taking regular back-up of accounting data.

2.Customised Software: The term Customized Software means making changes in the readymade
software to suit the specific requirements of the user, i.e., making it user-specific. The software
available off-the-shelf is modified to suit the requirements of the user. For example, the design of the
invoice is changed to specifications of the user. The developer, to meet specific user requirements,
can modify all the readymade softwares. However, the user has to bear the cost of such changes.

Advantages and Disadvantages of Readymade Software are also the Advantages of

Customized Software.

3. Tailor-made Software: The term Tailor-made Software refers to designing and developing user-
specific software. These softwares, being user-specific, are not available off-the-shelf but are
developed to meet the requirement of the user on the basis of discussion between the user and
developers.

Advantages of Tailor-made Software:

1) It, being user specific, takes care of the accounting reports and MIS that may be required by
the user and the management of the enterprise.

2) The software being tailor-made, the enterprise may have to engage a software engineer to
maintain it. In other words, the problem faced can be countered immediately.

3) Well-trained users use the softwares and, therefore, they can maximise software utilization.

Disadvantages of Tailor-made Software:

1) The development cost of the software is much higher than the cost of readymade or
customized software.
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2) In case the accounting person leaves the job, it takes some time before the new person
becomes fully conversant with the software.

3) Development and maintenance costs are higher than in the case of readymade or customized
software.

4)

CONSIDERATIONS FOR SOURCING AN ACCOUNTING SOFTWARE:

1) Flexibility: A computerized accounting system must be flexible in respect of data entry,

retrieval of data and generating designs of report. The user should be able to run the software
on a variety of computer environments and machines, that is, on any configuration of
computers and available operating systems.

2) Cost of Installation and Maintenance: It is a must to consider that the cost of the accounting
software, its relevant hardware and the maintenance, cost of addition of dodules, training of
staff, updating of versions and data recovery in case of data failure are negotiable and within
the ability of the organization to afford it.

3) Size of Organization: An accounting system must be according to the size of the organization,
i.e., volume of business transactions, multi-user requirements.

4) Ease of Adaptation and Training Needs: Some accounting softwares are user-friendly and
require a simple training to the users. However, some other complex software packages, linked
to other information systems, require intensive training on a continuous basis. The software
must be capable of attracting users.

5) Expected Level of Secrecy (Software and Data): Security features of accounting system
software are also important. Software should ensure that it prevents unauthorized access and
manipulation of data. In tailored software, the user rights may be restricted according to the
departments and their relevant accounting software functions.
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6) Exporting/Importing Data Facility: The software should allow easy data transfer option for
flexible reporting, such as transfer of information directly from the ledger into the spreadsheet
software like Excel.

7) Utilities/MIS Reports: Another factor which helps in determining the software selection is the
MIS reports and the extent to which they are used in the organization.

8) Vendor Reputation and Capability: The selection of software is also affected by the
capability and competence of the vendor. It depends upon the reputation of the vendor in the
market, the user-reviews of the similar software, the extent of post sales support services from
the vendors, etc.

ACCOUNTING INFORMATION SYSTEM

Accounting Information System (AIS) is also a computer-based system, which an organization uses to
take important financial decisions. An AIS will collect, process, analyze and store financial data of a
company. And when called upon it will retrieve and report such data to its users, namely accountants,
consultants, financial officers CFO, auditors, government tax authorities etc.

There are three basic objectives of AIS, which are

1) It helps an organization fulfill its statutory obligations of preparing and publishing certain
accounting statements and information
2) It analyses financial data and provides reliable and accurate financial information to the users
of the AIS
3) Protects a firms accounting data from breach or theft (which can be a significant problem)

Components of Accounting Information System:

• People: These are the users of the AIS. Internal users include accountants and other financial
officers’ o the company. Then there are also users outside the organization that can be given access
to the AIS. Some such external users are auditors, consultants, tax authorities etc.
• Procedures: These are the procedures the system follows to collect and process data. The
database for such a process can be internal (like employee names, sales figures) or external
databases (like customer orders, tax slabs etc). The feeding of the data can be both manual as well
as automated.
• Data: AIS mainly deals with all kinds of financial and commercial data. Any data that is pertinent to
the accounting of the firm will be input data for an AIS. Care must be taken that the data entered is
accurate and complete. Examples of such data include invoices, orders, payroll, bills etc.
• Software: AIS software performs all the functions of storing, processing, analyzing, retrieving
financial data of a company. The software can be generalized software that is available in the market
(Tally, Oracle etc) or can be specialized software created specifically for a particular company and
its accounting needs. Some of this software has an inbuilt internal control and audit options. They
even help in tax management.
• Hardware: Like any other information system, AIS will also require some hardware components.
these can include computers, laptops, servers, printers, scanners, secondary storage hardware etc.

SUB-SYSTEMS OF ACCOUNTING SOFTWARE:

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1) CASH AND BANK SUB-SYSTEM: It deals with the receipt and payment of cash both physical
cash and electronic fund transfer. Electronic fund transfer takes place without having the
physical entry or exit of cash by using the credit cards or electronic banking.

2) SALES AND ACCOUNTS RECEIVABLE SUB-SYSTEM: It deals with recording of sales,

maintaining of sales ledger and receivables. It generates periodic reports about sales,
collections made, overdue accounts and receivables position as also ageing schedule of
receivables/debtors.

3) INVENTORY SUB-SYSTEM: It deals with the recording of different items purchased and
issued specifying the price, quantity and date. It generates the inventory position and valuation
report.

4) PURCHASE AND ACCOUNTS PAYABLE SUB-SYSTEM: It deals with the purchase and
payments to creditors. It provides for ordering of goods, sorting of purchase expenses and
payment to the creditors. It also generates periodic reports about the performance of suppliers,
payment schedule and position of the creditors.

5) PAYROLL ACCOUNTING SUB-SYSTEM: It deals with payment of wages and salary to

employees. A typical wage report details information about basic pay, dearness allowance,
and other allowances and deductions from salary and wages on account of provident fund,
taxes, loans, advances and other charges. The system generates reports about wage bill,
overtime payment and payment on account of leave encashment, etc.

6) FIXED ASSETS ACCOUNTING SUB-SYSTEM: It deals with the recording of purchases,

additions, deletions, usage of fixed assets such as land and buildings, machinery and
equipments, etc. it also generates reports about the cost, depreciation, and book value of
different assets.

7) EXPENSE ACCOUNTING SUB-SYSTEM: This sub-system records expenses under broad

groups such as manufacturing administrative, financial, selling and distributions and others.
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8) TAX ACCOUNTING SUB-SYSTEM: This sub-system deals with compliance requirement
value-added tax (VAT), excise, customs and income tax. This sub-system used in large size
organization.

9) FINAL ACCOUNTS SUB-SYSTEM: This subsystem deals with the preparation of Profit and
Loss accounts, Balance Sheet and cash flow statements for reporting purposes.

10) COSTING SUB-SYSTEM: It deals with the ascertainment of cost of goods produced. It has
linkages with other accounting sub-systems for obtaining the necessary information about cost
of material, labor, and other expenses. This system generates information about changes in
the cost that takes place during the period under review.

11) BUDGET SUB-SYSTEM: It deals with the preparation of budget for the coming financial year
as well as comparison with the current budget of the actual performances.

12) MANAGEMENT INFORMATION SYSTEM: Management Information System, more commonly

known as MIS is a computer-based system. MIS actually helps the organization, especially
the managers, to organize and evaluate information and data, and provide information in a timely
and efficient manner. This also helps the managers make decisions based on the information and
analysis the MIS provides. As a business grows in size, the management of information and the
decisions based on such data get more complicated. MIS helps organize such information, so
decision making becomes easier right from simple low-level decisions to strategic plans made at
the top level of management. Since it is a computer system, it includes elements of the computer
system as well. It has software (that help make the decisions), users (managers), databases, all
hardware necessary and applications (people and project management applications) as well. MIS
generally focuses on accounting and economic aspects of a firm, analyzing problems and
providing solutions.

Advantages of MIS

1) MIS reports allow for evaluation of the performance of employees, machinery, and even money
(investment). This allows the management to make decisions about the future.
2) Helps in cost control by pointing out turnovers, idle times, wastage of resources etc.
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3) Compares budgets and plans to actual performances and figures. So MIS can pinpoint
variances and help the management in taking appropriate actions to correct the situation.
4) MIS also identifies the strengths of the organization, allowing the management to take the
opportunity to exploit it more
5) Takes away the uncertainty and risks involved with managerial decision making
6) Allows for data to flow smoothly along all the various levels of the organization with minimal
effort, and allows for more effective communication as well
7) And finally, as far as accounting is concerned, MIS is the source for information regarding the
company’s financial health and current financial situation.