Accounting is evaluating, categorising, presenting, documenting, and summarising a company entity's financial transactions and obtaining, storing, sorting, summarising, and giving the findings in different reports and analyses. In accounting, a business or organisation maintains its financial accounts every year for auditing purposes and enters data to record financial accounts on a monthly, quarterly or annual basis, either manually or by computer using accounting software. Nowadays, most accounts are done using computer software due to modern technology. In today's world, there are very few companies and small businesses that use manual accounting. We have discussed the differences between manual and computerised accounting in this blog.
Do you know? Computerised methods outperform manual accounting in terms of speed and dependability, and it is highly accurate and provides speedy reporting capabilities. In this system, the workflow may be regulated, and maintenance costs minimal.
What is Manual accounting?
It is an old accounting system in which financial records are handwritten in journals without modern technologies. Small intricate firms typically employ manual accounting systems since they are less expensive and easy to use. This system, however, has a substantially slower processing time and a higher probability of mistakes.
Benefits of Manual Accounting
Some people still prefer working with pen and paper rather than computers. The manual accounting method is one of the most straightforward bookkeeping methods and operates even when the power is turned off.
- One of the primary advantages is that manual accounting is less expensive than a computerised accounting system and only requires paper pads, notebooks, and a pencil or pen.
- Another advantage of employing this approach is that there is no risk of data duplication and corruption, which may occur with computerised accounting software. Each account in a manual accounting system has its file and ledger.
Also read: What are the major accounting conventions?
Drawbacks of Manual Accounting
- Manual accounting systems have a high risk of inaccuracy.
- Common mistakes, such as putting data into the wrong account, recording data backwards, or transposing statistics, can impact the system. Bookkeepers will spend hours locating and correcting entries.
- Another downside of manual accounting is the lack of security.
- Organisations may be unable to prevent employees from accessing sensitive data stored in paper or diaries, and employees may be able to omit financial information through fraud.
- Employees dissatisfied with their jobs may potentially severely harm the data and erase important financial records.
It is easy to add and delete data from computer files. It is impossible to see any changes in the numbers on the screen unless you dig deeper.
What is a Computerised Accounting System?
Until 1980, when computers were not introduced, a manual accounting system was the only method of documenting financial transactions. After that, computers were launched, and it was found that computers were easy-to-use, gave accurate data, and were considered reliable software.
A computerised accounting system records, stores, and analyses financial data using software and digital technology.
Benefits of a Computerised Accounting System
When doing a task, computers require considerably less time than humans. As a result, accounting data is processed more quickly, because the software handles all calculations. Computerised accounting eliminates many time-consuming and traditional processes associated with manual accounting.
Invoices, for example, are immediately processed once issued. This system is intended to be as precise as possible. The programme does all computations, including additions and subtractions, as soon as the data is fed into the system.
Accounting software makes the entire process of producing accounts faster. In addition, statements and reports may be generated instantaneously. Managers do not have to wait hours, or days, to obtain a crucial report.
Furthermore, this method makes data protection simple. For example, if data becomes corrupted or reports get destroyed or lost, computerised accounting allows for immediate restoration of data from backup, ensuring that essential information is not lost. For further safety of essential details, digital backups can be kept on- or off-site.
Disadvantages of Computerised Accounting System
Problems might develop when working with computers.
- You may be interrupted in any important work when the power goes off.
- Computers can become infected with viruses and fail.
- It is costly to establish a computerised accounting system and update various hardware and software on a regular basis.
- It may correct a user's error if they attempt one thing but accidentally do something else; lengthy efforts to correct technology may sometimes lead to deeper problems.
- As more software data is stored in the cloud, hackers have more opportunities to obtain and utilise your company's financial information.
- And if hackers exploit employer tax identity to accept credit cards and company loans, it puts assets at risk and raises possible responsibility.
There is also the possibility that someone within the company may gain access to the information, possibly stealing money from daily deposits and manipulating the data in the software. Business owners must carefully guard financial details.
Key Differences Between Manual and Computerised Accounting Systems
Manual Accounting System
Computerized Accounting System
System accountants in computerised accounting use software to keep the data digitally.
In a computerised accounting system, after journal entries are submitted ledger accounts and trial balance sheets are also prepared automatically.
Automated accounting systems don't require the manual calculation of financial statements. The report for ratio analysis and cash flow statement is prepared automatically.
Automated accounting systems handle data automatically.
Automated accounting systems are significantly faster.
Comparison Between Manual Accounting and Computerized Accounting
Let us distinguish between manual accounting and computerised accounting, and all the reasons are mentioned below :
1. Data entry
Manual accounting involves entering data into the company's records at various levels of financial data processing. Data is reviewed for correctness and relevancy at each level.
In computerised accounting, financial data is recorded once in the accounting system and then transmitted to all necessary books.
2. Processing Speed
Data processing speed in manual accounting is slow, but data processing speed in automated accounting is faster.
3. Accuracy of Data Processing
The risk is higher in terms of manual vs computerised accounting as in Manual accounting error owing to the inherent nature of the human error. In contrast, automated accounting has a lower risk of processing errors. Errors will only arise if a programming error occurs in the accounting software or while using a formula.
4. Data Handling Volume
Manual accounting can manage a limited amount of data simultaneously, but computerised accounting can handle a large amount of data simultaneously.
5. Financial Data Storage
Manual accounting maintains huge amounts of financial data since manual records decay is difficult to restore. In computerised accounting, keeping financial data is simple, and all data can be backed up and restored in the event of data loss.
6. Need for Accounting Knowledge
Manual accounting requires more accounting abilities to execute all accounting chores; however, automated accounting requires fewer skills because computer systems or accounting systems automatically process all transactions once submitted in the first instance.
7. Ledger Accounts
Data is recorded twice in the manual accounting. Following a physical journal check, information is put into ledger accounts.
In a computerised accounting system, data is automatically processed in categorised ledger accounts.
8. Trial Balance
After preparing ledger accounts, we must gather information on the balances of all ledger accounts to generate a trial balance that summarises the data.
There is no requirement to create ledger accounts to establish a trial balance. The data in each transaction is automatically processed to provide the balance report.
There are many more comparisons between manual and computerised accounting as both systems have advantages and disadvantages. However, automated systems facilitate work, which is beneficial, particularly in large firms. The manual accounting method makes it difficult to keep track of accounts since the number of financial transactions grows daily.
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