Manual vs Computerized Accounting: Difference and Comparison

Today we shall learn the difference between these 2 types of accounting.

Key Takeaways

1. Manual accounting uses physical ledgers and journals to record financial transactions, which can be time-consuming and prone to errors.
2. Computerized accounting employs software to automate and streamline the accounting process, reducing errors and providing real-time financial data.
3. Businesses should weigh the costs and benefits of each approach, considering factors like size, complexity, and the need for up-to-date financial information.

Manual vs Computerized Accounting

Manual accounting is a traditional method of bookkeeping that involves recording financial transactions by hand in journals and ledgers. This involves writing down all transactions. Computerized accounting is a modern method of record keeping that uses specialized accounting software to record, store, and analyze financial data.

Manual accounting is slow on the other hand computerized accounting is comparatively faster. Calculation error might occur in manual accounting but not in computerized accounting.

Comparison Table

Parameter of Comparison	Manual Accounting	Computerized Accounting
Definition	It uses books and physical registers to record financial data.	It uses a computer with financial software to collect financial data electronically.
Documenting	Documenting is attainable via book of original entry	A customized database is used to record data content.
Calculation	One performs all the calculations by hand.	The computer system carries out the calculations after one feeds it with the data.
Accuracy	Prone to mistakes	The software confirms transactions making it unlikely to record a mistake
Financial Statements	Accountants develop it at the end of every fiscal year or quarter.	It is always ready.
Trial balance	It is prepared when required	It provides a trial balance every day
Speed	Slow	Relatively faster
Backup	It is hard to backup data	You can save entries of transactions and back them up easily.

What Is Manual Accounting?

Before the introduction of the computerized financial system, accountants executed all accounting processes by hand using paper-based accounting systems like vouchers, journals, and account books to store and analyze financial transactions. Some small organizations and businesses still use this method.

A manual system is more cost-effective because it is not necessary to buy computers and software or train employees.

A manual system can also be more secure because it is not required to use the internet to transfer data to the IRS or accountants. The manual accounting system has no inconvenience since it can work even when there is no electricity, unlike a computer system setup.

However, human errors such as figure transposition, omitting a transaction, and so forth, can occur while using the manual accounting system.

In manual accounting, you need a strategy for correcting errors efficiently. You can use a calculator tape on each page of the general ledger and journal to make sure the totals are correct.

What is Computerized Accounting?

A computerized accounting system comprises of computer systems and software.

The software is designed to track the company’s accounting transactions, intending to produce monthly financial reports, tax return information, annual financial statements, and other financial report configurations that analyze a company’s efficiency, profitability, and operations.

The two primary essentials include:

1. Operating procedure: A proper method of operating the system to store and process the data.
2. Accounting framework: It consists of grouping structure and principles for records maintenance.

Companies with computerized accounting software can customize the software to accommodate business entities in different areas, multiple currencies, and their branches that sell various products.

The benefits of computerized accounting include minimum mistakes, better efficiency, lower operating expenses, and better quality work.

Main Differences Between Manual Accounting And Computerized Accounting

Speed

Computerized accounting systems are much faster than manual accounting systems. The time required to enter data may almost be the same for both systems.

However, a computerized system helps users when tallying the results.

Computers generate reports quickly, and you can change parameters just by clicking and choosing options instead of adding whole columns of numbers. Computerized systems are susceptible to glitches and bugs that can slow you down.

Even though manual systems generate data more slowly, you can easily predict how long it will take to perform different functions when using a manual system.

Reliability

To access the data in computerized systems, the computer’s hardware should be reliable. If the system freezes or crashes, accessing the records may be impossible.

You can mitigate this risk by updating your software and maintaining your computers well. However, you never know when your system can be back up and running.

Manual accounting takes place in ledgers that are always available to view and use. Nonetheless, it is possible to damage or misplace physical records.

You may photocopy manual records to back up the data, but the procedure of backing up digital files is much easier.

Simplicity

Business owners or accountants do all the calculations in a manual accounting system. They add and subtract the transactions manually.

However, in computerized accounting, the software does the calculations automatically.

1. In manual accounting, you identify transactions annually. Computerized accounting systems identify the transactions automatically.
2. In the manual accounting system, one needs to record the balances of accounts manually in the ledger; thus, the trial balance is prepared manually. A computerized accounting system produces the trial balance automatically.
3. In manual accounting, you prepare a trial balance when required, but in computerized accounting, the trial balance is available upon request.

References

1. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3008043
2. https://www.tandfonline.com/doi/abs/10.1080/09639289400000008