Difference between Manual and Computerized Accounting

Manual and Computerized Accounting:

In today’s globalized environment, computerized accounting systems and professional awareness of them have become a must. Businesses of all types and sizes are quitting the practice of managing their accounts manually. The manual method is more time-consuming, inconvenient, and prone to human errors.

In this blog, we have discussed the difference between manual accounting and computerized accounting systems.

Manual Accounting

A manual accounting system is a bookkeeping system for recording business activities by hand. Here, financial records are kept without the use of a computer system with specialized accounting software.

Many small businesses perform their accounting manually and they are satisfied with this setup. The number of transactions in a day is not so large and thus, they easily maintain their accounts by hand.

Under manual accounting systems, physical registers of Journal and Ledger are kept to maintain the records of each and every transaction. All entries are manually entered and posted to the accounts.

Computerized Systems

Computerized accounting systems record, store, and analyze financial data using computers and accounting software. These are software programs that are stored on a company’s computer, or a network server, or can be accessed remotely via the Internet.

Computerized accounting is a technology innovation in the field of commercial accounting that allows the user(s) to set up income and expenditure accounts such as rental or sales income, salaries, advertising, and material costs. They can also be used to manage bank accounts, pay bills, and create budgets. In addition, depending on the program (e.g., SAP, ERP, Tally, etc.), certain accounting systems allow users to make tax documents, manage payroll, and manage project costs.

Features of Computerized Accounting

The adoption of computerized accounting systems has transformed the way organizations are managed. Their important features are as under:

  • Simple and integrated: Computerized accounting is intended to make all businesses more efficient by automating and integrating critical business activities. Some of these activities may be sales, financing, purchasing, inventory, and manufacturing. Computerized accounting helps in the production of accurate and up-to-date business information and presents it in an easily readable format.
  • Speed and accuracy: Computerized accounting provides users with customized templates that allow for quick and accurate data entry. Once the transactions have been recorded, documents and reports can be generated automatically using specific commands.
  • Scalability: The system is adaptable enough to record transactions with varying volumes of business.
  • Instant reporting: Because of speed and accuracy, quality reports can be generated in real-time.
  • Security: When compared to manual accounting, data and information are highly secured and can be kept confidential.
  • Quick decision-making: It enables quick decision-making. Real-time, comprehensive MIS reports can be generated and access to complete and critical information can be instantly obtained.
  • Reliability: Computerized accounting ensures that the reports are generated with consistency. Errors are also minimized.

Difference between Manual accounting and Computerized accounting

Manual and computerized accounting systems perform essentially the same procedures; the accounting principles and concepts applied are also the same. The only difference lies in the mechanics of the process.

The main differences between manual accounting and computerized accounting are given as under:

Manual AccountingComputerized Accounting
Manual recordDigital record
Physical registers are kept to record all transactions of the business.Computers and accounting software are used to maintain a digital record of transactions.
Low SpeedHigh Speed
The major difference between manual and computerized accounting methods is speed. Accounting software processes data and generates reports much faster than manual systems.  Calculations are performed automatically in software applications, reducing errors and increasing efficiency. Once data has been entered into the system, reports can be generated by simply clicking a button in the computerized system.
Low costHigh cost
Another difference between manual accounting and computerized accounting systems is price. A manual accounting system using paper and pencil is substantially less expensive than a computerized system that requires a machine and software.Computerized accounting systems, on the other hand, are usually more expensive. Training and program maintenance are two additional costs connected with accounting software. Costs for printers, paper, ink, and other supplies can also quickly mount up.
Large teamSmall team
Manual accounting necessitates a larger team. As a result, in the case of manual accounting, more money is spent on salaries and wages.You do not need a large team as the majority of work is performed by accounting software.
Difficulty in back-upEase of back-up
A further difference between manual and computerized accounting is the ease with which a computerized system can be backed up. Manual accounts can’t be backed up.In the event of a fire or other mishap, all transactions can be saved and backed up. You can’t do this with paper records unless you create duplicates of every page, which is a time-consuming and wasteful task.
Posting to LedgerAutomatic posting
From the Journal, entries are manually posted to the debit or credit side of relevant ledger accounts.Once voucher entries are fed into the respective heads, computerized accounting systems automatically process the details and create all ledger accounts.
Manual Trial BalanceAutomatic Trial Balance
In manual accounting, the Trial Balance is manually prepared by extracting the balances of all accounts from the ledger.Computerized accounting systems automatically produce the Trial Balance.
Less accuracyMore accuracy
Manual systems are more prone to errors as data processing and the generation of reports are handled by staff. Thus, the resultant information might not be accurate.This accounting system is intended to be as precise as possible. Once the data is entered into the system, the accounting software automatically performs all computations, including additions and subtractions.
Not accessible by allEasy data access
Manual accounting records may not be accessible by all and at all times.Accounting software makes it much easier for different individuals to safely access accounting data outside of the workplace. This is especially true if an online accounting solution is used.
Lacks in presentationBetter presentation
Manual accounting systems cannot present reports in a variety of formats and charts.When viewing the accounts on a computer, users have the choice of seeing the data in various formats, such as tables and other types of charts.
Less reliableMore reliable
Manual accounts are susceptible to mistakes.Because the calculations are very accurate, the financial statements generated by computers are highly reliable.
Not scalableScalable
When a company grows in size, the transactions not only increase but also become complex. Keeping track through a bunch of papers does not seem feasible.With accounting software, you can easily record transactions of varying volumes as your business grows.
No trainingAdditional training
For maintaining accounts manually, you only need to be conversant with accounting concepts and conventions. Good knowledge and ample experience in accounting are enough. No special technology-driven training is needed.Accounting software necessitates taking the effort to learn how to use it. Even if you’re an experienced accountant, you’ll need to learn what each button and menu option does in order to use accounting software properly. If you are not tech savvy, the process may be even more difficult.
Tracing of errors is simplerDifficulty in tracing errors
Even though manual accounts cannot be free of human errors, it is much easier to trace the cause of the error from written ledgers. This is so because accounts are prepared manually through a step-by-step process.Sometimes entering data into the software too quickly can result in serious errors. And it is difficult to trace the cause when all calculations are performed by the software. Also, it is easier for users to alter data and commit fraud. Hence, there is an increased need for internal auditors to check the records.

Conclusion

While some businesses continue to handle their bookkeeping by hand, the majority of businesses have far too many transactions to support a manual accounting system. The more complicated a company’s financial operations, the more likely it will require a computerized accounting system to assure accurate financial reporting.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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