Tamil Nadu HSE Second Year Accountancy cheat sheet

Accounting is the process of identifying, measuring, recording, classifying, summarising and communicating economic information to permit informed judgements by users.

Dual aspect concept: every transaction has two effects; total debits always equal total credits, so the accounting equation Assets = Liabilities + Capital holds at all times.

Going concern concept assumes the business will continue in operation long enough to realise assets and discharge liabilities in the normal course; hence cost, not break-up value, is used.

Money measurement concept records only transactions expressible in monetary terms; qualitative factors such as employee skill or reputation are excluded from accounts.

Accrual concept records revenue when earned and expense when incurred, not when cash moves; matching concept then charges expenses of a period against revenue of the same period.

Business entity concept treats the owner as separate from the business; capital contributed is a liability of the business to the owner, and drawings reduce capital.

Accounting conventions: consistency (same policies each year), full disclosure (all material facts), materiality (only significant items need separate treatment) and conservatism (anticipate losses, not profits).

Accounting standards in India are issued by ICAI; the statutory body for standards is the NFRA and the Accounting Standards Board (ASB) drafts them.

Journal is the book of original entry; format is Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.), with a narration below each entry.

Debit the receiver, credit the giver; debit what comes in, credit what goes out; debit all expenses and losses, credit all incomes and gains.

Compound journal entry records more than two accounts in one entry; one total debit equals one total credit.

Opening entry records the assets and liabilities brought forward at the start of the year: debit assets, credit liabilities, and credit capital with the net balance.

Ledger is the principal book containing all accounts in T-form; posting transfers each journal effect to the correct side of the correct account.

Balancing rule: an account with a larger debit total has a debit balance (asset/expense); a larger credit total gives a credit balance (liability/income).

Trial balance lists debit and credit balances on a date; it proves arithmetical accuracy only, not the absence of errors of principle or complete omission.

Errors not disclosed by trial balance: complete omission of a transaction, posting to the wrong account of the correct class, compensating errors, and errors of principle such as treating capital expenditure as revenue.

Suspense Account is opened for the difference in trial balance and is closed once all one-sided errors are rectified.

Subsidiary books divide the journal by transaction type: cash book, purchases book, sales book, purchases return, sales return, bills receivable and bills payable books, and the general journal for the rest.

Cash book is both a journal and a ledger account; types are single column, two column (cash and bank with discount), and three column (cash, bank and discount).

Contra entry arises when cash is deposited into or withdrawn from bank; it appears on both sides of the cash book and is excluded from posting to the ledger.

Purchases book records only credit purchases of goods dealt in; cash purchases, asset purchases and purchases returns are excluded.

Sales book records only credit sales of goods; cash sales go to the cash book, and sale of an asset goes to the journal proper.

Bank Reconciliation Statement reconciles the cash book bank balance with the pass book balance on a given date, starting from either balance.

Starting from cash book (debit) balance: add cheques deposited but not yet credited and bank charges not recorded; deduct cheques issued but not presented and interest/dividends credited by bank only.

Starting from pass book (credit) balance the treatment reverses: deduct cheques deposited but not credited, add cheques issued but not presented.

Overdraft is a credit balance in the cash book; when reconciling an overdraft, the additions and deductions reverse relative to a positive balance.

Depreciation is the systematic allocation of the depreciable amount of a fixed asset over its useful life; it is a charge against profit, not a cash flow.

Straight line method: Depreciation = (Cost - Scrap value) / Useful life; the charge is equal each year and the asset can be written down to zero or scrap.

Written down value method: Depreciation = Book value at start of year x Rate %; the charge falls each year and the asset is never fully written off.

When the rate is not given, the WDV rate can be derived from r = 1 - (Scrap/Cost)^(1/n), where n is the useful life.

Depreciation is charged from the date of purchase to the date of sale; a pro-rata charge applies for part of a year unless the question says otherwise.

Profit or loss on sale = Sale proceeds - (Cost - Accumulated depreciation to date of sale).

Methods of providing depreciation include fixed instalment, diminishing balance, annuity and sinking fund; the last two also provide for replacement.

Depletion applies to wasting assets such as mines; amortisation applies to intangible assets such as patents and goodwill.

Under the Companies Act 2013 Schedule II, depreciation is based on useful life; residual value is normally capped at 5% of original cost.

Trading Account finds gross profit: Gross Profit = Net Sales - Cost of Goods Sold, where COGS = Opening stock + Purchases + Direct expenses - Closing stock.

Direct expenses include wages, carriage inward, freight, octroi, factory rent, power and fuel; they are debited to the Trading Account.

Profit and Loss Account finds net profit: Net Profit = Gross Profit + Other income - Indirect expenses (office, selling, distribution, depreciation, interest).

Balance Sheet is a statement of assets, liabilities and capital on the closing date; it is not an account and has no debit or credit balance.

Closing entries transfer nominal accounts to the Trading and Profit and Loss Account and real and personal accounts to the Balance Sheet.

Adjusting entries are needed for outstanding expenses, prepaid expenses, accrued income, income received in advance, depreciation, bad debts, provision for doubtful debts and goods drawn by the owner.

Closing stock appears on the credit of the Trading Account and as a current asset in the Balance Sheet; goods in transit or goods with consignee need special treatment.

Capital = Opening capital + Additional capital + Net profit - Drawings - Net loss; this closing capital is shown in the Balance Sheet.

Manager's commission is calculated on net profit before charging the commission; on profit after charging, commission = Profit x Rate / (100 + Rate).

Single entry system records only personal accounts and cash; real and nominal accounts are incomplete, so a trial balance cannot be prepared.

Statement of Affairs lists estimated assets and liabilities on a date to derive opening or closing capital: Capital = Assets - Liabilities.

Profit under the net worth method: Profit = Closing capital + Drawings - Additional capital - Opening capital.

Total debtors account: Opening balance + Credit sales + Bills receivable dishonoured - Cash received - Discount allowed - Sales returns - Bad debts - Closing balance.

Total creditors account: Opening balance + Credit purchases - Cash paid - Discount received - Purchases returns - Closing balance.

Missing figure of cash sales = Total sales - Credit sales, where credit sales come from the total debtors account.

Conversion method prepares a full double entry set from incomplete records by opening a suspense or difference account until all missing figures are traced.

Gross profit ratio helps estimate missing figures: Credit sales = Debtors turnover based, and Cost of goods sold = Sales x (1 - GP ratio).

Credit purchases can be found from the creditors account; cash purchases = Total purchases - Credit purchases.

Partnership is a relation between persons who agree to share the profits of a business carried on by all or any of them acting for all; a partnership deed governs the terms.

In the absence of a deed: profits and losses are shared equally, no interest on capital or drawings is allowed, and interest on a partner's loan is 6% per annum.

Profit and Loss Appropriation Account shows interest on capital, interest on drawings, partner salaries, commission and the distribution of residual profit.

Interest on drawings is income to the firm and is credited to the Profit and Loss Appropriation Account; interest on capital is an expense of the firm.

Goodwill is valued by the average profit method, super profit method (Super profit = Average profit - Normal profit) or capitalisation method.

On admission of a partner, the new profit sharing ratio and sacrificing ratio (Old share - New share) determine the goodwill brought in by the incoming partner.

Revaluation Account records the increase or decrease in assets and liabilities on admission, retirement or death; the balance is shared by old partners in the old ratio.

On retirement or death, the retiring partner's capital account is settled with share of goodwill, revaluation profit, accumulated reserves and interest on capital to date.

Sacrificing ratio is used for goodwill distribution on admission; gaining ratio (New share - Old share) applies on retirement.

A company is an artificial legal person with perpetual succession, limited liability and a common seal; capital is divided into shares.

Share capital types: authorised (registered), issued, subscribed, called-up, paid-up and reserve capital; uncalled capital is the balance of called-up not demanded.

Issue of shares at par, at premium (Securities Premium Account, a capital receipt) or at discount (restricted by the Companies Act 2013).

Calls in arrears is a current asset shown by deducting from called-up capital; calls in advance is a current liability and earns interest at the rate in the articles.

Forfeiture of shares cancels the membership; Share Capital is debited with called-up amount, and the amount already received is credited to Forfeited Shares Account.

Reissue of forfeited shares can be at a discount not exceeding the amount originally forfeited; the gain is transferred to Capital Reserve.

Debentures are acknowledgement of debt; issue can be at par, premium or discount, and discount on issue is written off against Securities Premium or statement of profit and loss.

Interest on debentures is a charge against profit, paid even in loss, and is subject to tax deducted at source.

Reserves: General Reserve is an appropriation of profit; Capital Reserve arises from capital profits and cannot be distributed as dividend.

Tools of analysis: comparative statements, common size statements, trend analysis, ratio analysis and cash flow analysis.

Current Ratio = Current Assets / Current Liabilities; the ideal is 2:1, and it tests short-term solvency.

Quick Ratio = Quick Assets / Current Liabilities, where quick assets exclude stock and prepaid expenses; ideal is 1:1.

Debt Equity Ratio = Long-term Debt / Shareholders' Funds; a lower ratio means greater long-term safety.

Proprietary Ratio = Shareholders' Funds / Total Assets; it measures the owners' stake in total assets.

Gross Profit Ratio = Gross Profit / Net Sales x 100; Net Profit Ratio = Net Profit / Net Sales x 100; Operating Ratio = Operating Cost / Net Sales x 100.

Stock Turnover = Cost of Goods Sold / Average Stock; Debtors Turnover = Credit Sales / Average Debtors; average collection period = 365 / Debtors Turnover.

Return on Capital Employed = Net Profit before interest and tax / Capital Employed x 100; Capital Employed = Total Assets - Current Liabilities.

Earnings Per Share = Profit available to equity shareholders / Number of equity shares; it is a market-based profitability measure.

Cash Flow Statement reports inflows and outflows of cash and cash equivalents classified into operating, investing and financing activities.

Cash equivalents are short-term, highly liquid investments with original maturity of three months or less, subject to insignificant risk of change in value.

Operating activities cover cash from revenue-producing activities: cash received from customers, cash paid to suppliers and employees, tax paid.

Investing activities cover purchase and sale of fixed assets, investments and interest or dividend received on investments.

Financing activities cover issue of shares and debentures, long-term borrowings, repayment of loans, and dividends and interest paid on borrowings.

Indirect method starts from net profit before tax and adjusts for non-cash items (depreciation, amortisation, provisions), then changes in working capital.

Increase in a current asset (debtors, stock) is deducted; increase in a current liability (creditors, outstanding expenses) is added.

Interest paid on borrowings by a non-financing company is classified as a financing activity under AS-3, while interest received on investments is investing.

Cash and cash equivalents include cash in hand, bank balance and cheques in hand; bank overdraft is deducted as a negative cash equivalent.

Cost accounting classifies, records and allocates costs to determine the cost of a product, process or service and to aid control and decision making.

Cost sheet format: Prime Cost = Direct material + Direct labour + Direct expenses; Works Cost = Prime Cost + Factory overheads +/- work-in-progress.

Cost of Production = Works Cost + Administration overheads; Cost of Sales = Cost of Production + Selling and distribution overheads.

Sales - Cost of Sales = Profit; Profit ratio on cost = Profit / Cost x 100, while on sales = Profit / Sales x 100.

Classification of costs: by nature (material, labour, expenses), by behaviour (fixed, variable, semi-variable), by function (production, administration, selling) and by variability.

Fixed cost remains constant in total but falls per unit as output rises; variable cost varies with output but stays constant per unit.

Material control uses EOQ = square root of (2 x Annual consumption x Ordering cost / Carrying cost per unit).

Labour turnover = (Number of replacements / Average number of workers) x 100; it measures labour stability.

Overheads are absorbed by a predetermined rate: Overhead absorption rate = Budgeted overhead / Budgeted base (labour hours, machine hours or direct wages).

Computerised accounting records transactions in a database; the same debit and credit rules apply, but posting and balancing are automatic.

Accounting software may be ready-to-use, customised or tailor-made; Tally, Busy and Marg are common ready-to-use packages in Indian practice.

A group in Tally defines the nature of an account (asset, liability, income, expense); ledgers are created under groups and vouchers record transactions.

Data security is maintained by user rights and passwords; audit trail records who entered or altered a voucher and when.

Backup protects against data loss; restore returns the database to a saved state, and should be tested periodically.

Advantages: speed, accuracy, automatic reports, easy retrieval, scalability and reduced clerical cost; limitations include setup cost, training and system failure risk.

Computerised Accounting System (CAS) and Management Information System (MIS) reports include trial balance, profit and loss account, balance sheet and ratio reports generated instantly.

Data validation controls such as mandatory fields, voucher-type restrictions and period locks prevent wrong entry.

Under the Companies (Accounts) Amendment Rules, companies must use accounting software with an audit trail feature from FY 2023-24.

Accounting is the process of identifying, measuring, recording, classifying, summarising and communicating economic information to permit informed judgements by users.

Dual aspect concept: every transaction has two effects; total debits always equal total credits, so the accounting equation Assets = Liabilities + Capital holds at all times.

Going concern concept assumes the business will continue in operation long enough to realise assets and discharge liabilities in the normal course; hence cost, not break-up value, is used.

Money measurement concept records only transactions expressible in monetary terms; qualitative factors such as employee skill or reputation are excluded from accounts.

Accrual concept records revenue when earned and expense when incurred, not when cash moves; matching concept then charges expenses of a period against revenue of the same period.

Business entity concept treats the owner as separate from the business; capital contributed is a liability of the business to the owner, and drawings reduce capital.

Accounting conventions: consistency (same policies each year), full disclosure (all material facts), materiality (only significant items need separate treatment) and conservatism (anticipate losses, not profits).

Accounting standards in India are issued by ICAI; the statutory body for standards is the NFRA and the Accounting Standards Board (ASB) drafts them.

Journal is the book of original entry; format is Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.), with a narration below each entry.

Debit the receiver, credit the giver; debit what comes in, credit what goes out; debit all expenses and losses, credit all incomes and gains.

Compound journal entry records more than two accounts in one entry; one total debit equals one total credit.

Opening entry records the assets and liabilities brought forward at the start of the year: debit assets, credit liabilities, and credit capital with the net balance.

Ledger is the principal book containing all accounts in T-form; posting transfers each journal effect to the correct side of the correct account.

Balancing rule: an account with a larger debit total has a debit balance (asset/expense); a larger credit total gives a credit balance (liability/income).

Trial balance lists debit and credit balances on a date; it proves arithmetical accuracy only, not the absence of errors of principle or complete omission.

Errors not disclosed by trial balance: complete omission of a transaction, posting to the wrong account of the correct class, compensating errors, and errors of principle such as treating capital expenditure as revenue.

Suspense Account is opened for the difference in trial balance and is closed once all one-sided errors are rectified.

Subsidiary books divide the journal by transaction type: cash book, purchases book, sales book, purchases return, sales return, bills receivable and bills payable books, and the general journal for the rest.

Cash book is both a journal and a ledger account; types are single column, two column (cash and bank with discount), and three column (cash, bank and discount).

Contra entry arises when cash is deposited into or withdrawn from bank; it appears on both sides of the cash book and is excluded from posting to the ledger.

Purchases book records only credit purchases of goods dealt in; cash purchases, asset purchases and purchases returns are excluded.

Sales book records only credit sales of goods; cash sales go to the cash book, and sale of an asset goes to the journal proper.

Bank Reconciliation Statement reconciles the cash book bank balance with the pass book balance on a given date, starting from either balance.

Starting from cash book (debit) balance: add cheques deposited but not yet credited and bank charges not recorded; deduct cheques issued but not presented and interest/dividends credited by bank only.

Starting from pass book (credit) balance the treatment reverses: deduct cheques deposited but not credited, add cheques issued but not presented.

Overdraft is a credit balance in the cash book; when reconciling an overdraft, the additions and deductions reverse relative to a positive balance.

Depreciation is the systematic allocation of the depreciable amount of a fixed asset over its useful life; it is a charge against profit, not a cash flow.

Straight line method: Depreciation = (Cost - Scrap value) / Useful life; the charge is equal each year and the asset can be written down to zero or scrap.

Written down value method: Depreciation = Book value at start of year x Rate %; the charge falls each year and the asset is never fully written off.

When the rate is not given, the WDV rate can be derived from r = 1 - (Scrap/Cost)^(1/n), where n is the useful life.

Depreciation is charged from the date of purchase to the date of sale; a pro-rata charge applies for part of a year unless the question says otherwise.

Profit or loss on sale = Sale proceeds - (Cost - Accumulated depreciation to date of sale).

Methods of providing depreciation include fixed instalment, diminishing balance, annuity and sinking fund; the last two also provide for replacement.

Depletion applies to wasting assets such as mines; amortisation applies to intangible assets such as patents and goodwill.

Under the Companies Act 2013 Schedule II, depreciation is based on useful life; residual value is normally capped at 5% of original cost.

Trading Account finds gross profit: Gross Profit = Net Sales - Cost of Goods Sold, where COGS = Opening stock + Purchases + Direct expenses - Closing stock.

Direct expenses include wages, carriage inward, freight, octroi, factory rent, power and fuel; they are debited to the Trading Account.

Profit and Loss Account finds net profit: Net Profit = Gross Profit + Other income - Indirect expenses (office, selling, distribution, depreciation, interest).

Balance Sheet is a statement of assets, liabilities and capital on the closing date; it is not an account and has no debit or credit balance.

Closing entries transfer nominal accounts to the Trading and Profit and Loss Account and real and personal accounts to the Balance Sheet.

Adjusting entries are needed for outstanding expenses, prepaid expenses, accrued income, income received in advance, depreciation, bad debts, provision for doubtful debts and goods drawn by the owner.

Closing stock appears on the credit of the Trading Account and as a current asset in the Balance Sheet; goods in transit or goods with consignee need special treatment.

Capital = Opening capital + Additional capital + Net profit - Drawings - Net loss; this closing capital is shown in the Balance Sheet.

Manager's commission is calculated on net profit before charging the commission; on profit after charging, commission = Profit x Rate / (100 + Rate).

Single entry system records only personal accounts and cash; real and nominal accounts are incomplete, so a trial balance cannot be prepared.

Statement of Affairs lists estimated assets and liabilities on a date to derive opening or closing capital: Capital = Assets - Liabilities.

Profit under the net worth method: Profit = Closing capital + Drawings - Additional capital - Opening capital.

Total debtors account: Opening balance + Credit sales + Bills receivable dishonoured - Cash received - Discount allowed - Sales returns - Bad debts - Closing balance.

Total creditors account: Opening balance + Credit purchases - Cash paid - Discount received - Purchases returns - Closing balance.

Missing figure of cash sales = Total sales - Credit sales, where credit sales come from the total debtors account.

Conversion method prepares a full double entry set from incomplete records by opening a suspense or difference account until all missing figures are traced.

Gross profit ratio helps estimate missing figures: Credit sales = Debtors turnover based, and Cost of goods sold = Sales x (1 - GP ratio).

Credit purchases can be found from the creditors account; cash purchases = Total purchases - Credit purchases.

Partnership is a relation between persons who agree to share the profits of a business carried on by all or any of them acting for all; a partnership deed governs the terms.

In the absence of a deed: profits and losses are shared equally, no interest on capital or drawings is allowed, and interest on a partner's loan is 6% per annum.

Profit and Loss Appropriation Account shows interest on capital, interest on drawings, partner salaries, commission and the distribution of residual profit.

Interest on drawings is income to the firm and is credited to the Profit and Loss Appropriation Account; interest on capital is an expense of the firm.

Goodwill is valued by the average profit method, super profit method (Super profit = Average profit - Normal profit) or capitalisation method.

On admission of a partner, the new profit sharing ratio and sacrificing ratio (Old share - New share) determine the goodwill brought in by the incoming partner.

Revaluation Account records the increase or decrease in assets and liabilities on admission, retirement or death; the balance is shared by old partners in the old ratio.

On retirement or death, the retiring partner's capital account is settled with share of goodwill, revaluation profit, accumulated reserves and interest on capital to date.

Sacrificing ratio is used for goodwill distribution on admission; gaining ratio (New share - Old share) applies on retirement.

A company is an artificial legal person with perpetual succession, limited liability and a common seal; capital is divided into shares.

Share capital types: authorised (registered), issued, subscribed, called-up, paid-up and reserve capital; uncalled capital is the balance of called-up not demanded.

Issue of shares at par, at premium (Securities Premium Account, a capital receipt) or at discount (restricted by the Companies Act 2013).

Calls in arrears is a current asset shown by deducting from called-up capital; calls in advance is a current liability and earns interest at the rate in the articles.

Forfeiture of shares cancels the membership; Share Capital is debited with called-up amount, and the amount already received is credited to Forfeited Shares Account.

Reissue of forfeited shares can be at a discount not exceeding the amount originally forfeited; the gain is transferred to Capital Reserve.

Debentures are acknowledgement of debt; issue can be at par, premium or discount, and discount on issue is written off against Securities Premium or statement of profit and loss.

Interest on debentures is a charge against profit, paid even in loss, and is subject to tax deducted at source.

Reserves: General Reserve is an appropriation of profit; Capital Reserve arises from capital profits and cannot be distributed as dividend.

Tools of analysis: comparative statements, common size statements, trend analysis, ratio analysis and cash flow analysis.

Current Ratio = Current Assets / Current Liabilities; the ideal is 2:1, and it tests short-term solvency.

Quick Ratio = Quick Assets / Current Liabilities, where quick assets exclude stock and prepaid expenses; ideal is 1:1.

Debt Equity Ratio = Long-term Debt / Shareholders' Funds; a lower ratio means greater long-term safety.

Proprietary Ratio = Shareholders' Funds / Total Assets; it measures the owners' stake in total assets.

Gross Profit Ratio = Gross Profit / Net Sales x 100; Net Profit Ratio = Net Profit / Net Sales x 100; Operating Ratio = Operating Cost / Net Sales x 100.

Stock Turnover = Cost of Goods Sold / Average Stock; Debtors Turnover = Credit Sales / Average Debtors; average collection period = 365 / Debtors Turnover.

Return on Capital Employed = Net Profit before interest and tax / Capital Employed x 100; Capital Employed = Total Assets - Current Liabilities.

Earnings Per Share = Profit available to equity shareholders / Number of equity shares; it is a market-based profitability measure.

Cash Flow Statement reports inflows and outflows of cash and cash equivalents classified into operating, investing and financing activities.

Cash equivalents are short-term, highly liquid investments with original maturity of three months or less, subject to insignificant risk of change in value.

Operating activities cover cash from revenue-producing activities: cash received from customers, cash paid to suppliers and employees, tax paid.

Investing activities cover purchase and sale of fixed assets, investments and interest or dividend received on investments.

Financing activities cover issue of shares and debentures, long-term borrowings, repayment of loans, and dividends and interest paid on borrowings.

Indirect method starts from net profit before tax and adjusts for non-cash items (depreciation, amortisation, provisions), then changes in working capital.

Increase in a current asset (debtors, stock) is deducted; increase in a current liability (creditors, outstanding expenses) is added.

Interest paid on borrowings by a non-financing company is classified as a financing activity under AS-3, while interest received on investments is investing.

Cash and cash equivalents include cash in hand, bank balance and cheques in hand; bank overdraft is deducted as a negative cash equivalent.

Cost accounting classifies, records and allocates costs to determine the cost of a product, process or service and to aid control and decision making.

Cost sheet format: Prime Cost = Direct material + Direct labour + Direct expenses; Works Cost = Prime Cost + Factory overheads +/- work-in-progress.

Cost of Production = Works Cost + Administration overheads; Cost of Sales = Cost of Production + Selling and distribution overheads.

Sales - Cost of Sales = Profit; Profit ratio on cost = Profit / Cost x 100, while on sales = Profit / Sales x 100.

Classification of costs: by nature (material, labour, expenses), by behaviour (fixed, variable, semi-variable), by function (production, administration, selling) and by variability.

Fixed cost remains constant in total but falls per unit as output rises; variable cost varies with output but stays constant per unit.

Material control uses EOQ = square root of (2 x Annual consumption x Ordering cost / Carrying cost per unit).

Labour turnover = (Number of replacements / Average number of workers) x 100; it measures labour stability.

Overheads are absorbed by a predetermined rate: Overhead absorption rate = Budgeted overhead / Budgeted base (labour hours, machine hours or direct wages).

Computerised accounting records transactions in a database; the same debit and credit rules apply, but posting and balancing are automatic.

Accounting software may be ready-to-use, customised or tailor-made; Tally, Busy and Marg are common ready-to-use packages in Indian practice.

A group in Tally defines the nature of an account (asset, liability, income, expense); ledgers are created under groups and vouchers record transactions.

Data security is maintained by user rights and passwords; audit trail records who entered or altered a voucher and when.

Backup protects against data loss; restore returns the database to a saved state, and should be tested periodically.

Advantages: speed, accuracy, automatic reports, easy retrieval, scalability and reduced clerical cost; limitations include setup cost, training and system failure risk.

Computerised Accounting System (CAS) and Management Information System (MIS) reports include trial balance, profit and loss account, balance sheet and ratio reports generated instantly.

Data validation controls such as mandatory fields, voucher-type restrictions and period locks prevent wrong entry.

Under the Companies (Accounts) Amendment Rules, companies must use accounting software with an audit trail feature from FY 2023-24.