Difference Between Manual and Computerized Accounting (With Table)

Manual vs Computerized Accounting

The key difference between Manual and Computerized Accounting lies in the fact that manual accounting is where all the financial transactions are maintained in a register or in an accounting book and in computerized accounting all the financial transactions are recorded in accounting software.

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.

 

Manual Accounting

A manual accounting system is a way of maintaining financial records in the form of a written ledger of transactions. It does not involve using computers and software.

The transactions are recorded in journals.

Accountants or business owners then roll up the information in the journal manually into a set of financial statements.

Manual accounting systems have been in existence since ancient scribes started recording information about tribute and temple inventories as well as taxes.

 

Computerized Accounting

A computerized accounting system is a software that assists business owners in managing significant financial transactions, reports, data, and statements more accurately and faster.

The software allows business owners to set up income and expense accounts like salaries, sales income, material costs, and advertising expenses.

Business owners can customize the software to meet their business needs.


 

Comparison Table Between Manual and Computerized Accounting (in Tabular Form)

Parameter of ComparisonManual AccountingComputerized Accounting
DefinitionIt uses books and physical registers to record financial data.It uses a computer with financial software to collect financial data electronically.
DocumentingDocumenting is attainable via book of original entryA customized database is used to record data content.
CalculationOne performs all the calculations by hand.The computer system carries out the calculations after one feeds it with the data.
AccuracyProne to mistakesThe software confirms transactions making it unlikely to record a mistake
Financial StatementsAccountants develop it at the end of every fiscal year or quarter.It is always ready.
Trial balanceIt is prepared when requiredIt provides a trial balance every day
SpeedSlowRelatively faster
BackupIt is hard to backup dataYou 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.

Manual accounting
Manual accounting records transactions in journals and physical records
 

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.

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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.

Computerized Accounting
Computerized accounting used advanced software to record transactional data

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.

 

Frequently Asked Questions (FAQ) About Manual Accounting And Computerized Accounting

  1. Why is a Computerized system better than a manual?

    A computerized system is better compared to the manual system for the following reason:
    a) Speed: The primary difference between hands-on and electronic systems is speed.
    The audit software program not only refines the information, as well as creates reports much faster than hands-on systems, but additionally allows much faster data entry.
    b) Accuracy: Standard manual bookkeeping is tiresome. Computerized bookkeeping systems enable accounting professionals to process more info than in the past by creating precise financial records.
    c) Automation: Manual accountancy is more tiresome compared to digital bookkeeping. You have to include columns accurately, double-check your work and literally write in numbers.
    d) Assimilation of bookkeeping with other company processes: Accounting is interlinked with other organizational processes, such as purchases, sales, banking, taxes, and so on.
    In electronic accounting, it takes to enter data just once, and all the incorporated processes are as necessary cared for.
    e) Coverage: The digital audit enables quick data access.
    Yes, the computerized system is better than the manual system.

  2. What is the difference between computer files and manual files?

    In the event of a physical catastrophe in the workplace, making use of paper management software means all your documents can be recovered via a routine “restore from back-up” activity.

    The main benefits of digital document monitoring are:
    a) Electronic file administration frees your team from the grind of bulk paper filing as well as intuitive added tools assist streamline work procedures.
    b) Robust declaring adaptability, the very same document might be filed on several references, for example, Document Number, Name, as well as Day, which would not be possible using paper documents.
    c) Integrating the declaring of other electronic data, as well as paper records, enables you to attain one consistent, as well as a logical declaring structure for all your files.

  3. What are the features of computerized accounting?

    Below are the features of computerized accounting:
    1) Automation
    2) Precision
    3) Reliability
    4) Information Accessibility
    5) Scalable
    6) Safety and security
    7) Faster
    8) Visuals
    9) Cost-effective

  4. What are the types of accounting software?

    Relying on the kind of operations, accounting systems fall under four categories.

    Here is a short summary:
    1) Invoicing and Billing systems
    2) Payroll administration systems
    3) Business resource planning systems
    4) Time and Expense monitoring systems

  5. What are the components of the computerized accounting system?

    The standard components of the computerized accounting system are:
    1) Organization transactions are evaluated.
    2) The transactions are recorded.
    3) Entries are published to the ledger accounts
    4) A test balance is prepared from the equilibriums of accounts.
    5) Accounts are reviewed, and the needed changes made.
    6) Modifications are uploaded in the ledger to prepare modified trial equilibrium.
    7) Readjusted test equilibrium is utilized to prepare the annual report, as well as revenue and loss account.
    8) Financial Statements are prepared from the lastly readjusted ledger and balancing the accounts.

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Conclusion

Both manual and computerized systems have their merits and demerits.

However, automated systems make work easier, which is welcome, especially for large organizations.

It is hard to oversee accounts, using the manual accounting system because the number of financial transactions expands each day.

More effort is required to update each transaction in the affected accounts.

Manual systems are suitable for small businesses and do not work efficiently in companies that have many financial transactions.


 

Word Cloud for Difference Between Manual Accounting And Computerized Accounting

The following is a collection of the most used terms in this article on Manual Accounting And Computerized Accounting. This should help in recalling related terms as used in this article at a later stage for you.

Manual and Computerized Accounting 1
Word Cloud for Manual Accounting And Computerized Accounting

 

References

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

3 thoughts on “Difference Between Manual and Computerized Accounting (With Table)”

  1. Hi Piyush,

    How can I upgrade my skills so that I know computerized skills as I work in a bank

    • Hi Jack,
      There are many online courses in banking. You can search on udemy.com or lynda.com for the same.

  2. In the present times, one cannot imagine doing business without computerized accounting.
    Only old organizations that didn’t upgrade are using manual computing.

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