Computers and Technology

Is Computerized Accounting Better Than Manual Accounting?

Financial accounting is the process by which business owners organize their company’s financial data. Accounting supports tracking, reporting and analyzing business financial data. The fiscal data is available in general ledgers and journals from various business transactions. Traditionally, the accounting process involves manual operations with paper books and documents for financial data.  With the advancement of business technology, plenty of improvement happened in the accounting and financial management software. 

The manual accounting process is easy to handle and cost-effective for small business owners. However, computerized accounting offers numerous benefits over manual accounting. Computerized accounting is time-efficient and error-free that allows enhanced accounting procedures. Both of the accounting processes are the same in the principles but vary as per their mechanism. Manual accounting works with pen and paper for tracking records, while computerized accounting involves using computers and the internet for digital recording of transactions.  

Manual Accounting 

Earlier, accountants perform all the financial accounting management with a lot of paperwork. It includes vouchers, journals, and accounting books for storing and analyze financial information. Still, some companies or startups use this method. 

The Manual accounting process gets preference due to its cost-effectiveness as there is no requirement to procure computers or software or educate the employees regarding the same. It’s a more secure method as it doesn’t involve transferring confidential data over the internet to the IRS or accountants. However, the manual accounting process is more prone to errors, like omitting a transaction or calculation intersection that can happen while working. 

Computerized Accounting 

A computerized accounting includes software and computer systems. Accounting software gets created to record the business financial transactions, generate financial reports monthly, file your tax returns, prepare annual financial statements, and separate financial reporting for analyzing the company’s learning, profitability, and operations. 

Companies that are using computerized accounting software can customize the software as per the business entities in multiple areas, various currencies, and according to their different branches for selling a variety of products and services. The vital benefits of computerized accounting comprise fewer errors, enhanced efficiency, lower operating expenditure, and improved quality operations. 

Key differences between computerized accounting & manual accounting 

Speed – 

The speed of computerized accounting is faster than manual accounting. Time taken for the data entry might be the same, but computerized accounting helps in tallying at the same time. 

Computers generate reports swiftly and, you can change the parameters with a single click, then select the options instead of adding an entire column.

Reliable process –

For accessing the computerized data, the hardware of computers should have reliability. Accessing files or data may get barred due to system failure or if the system freezes. 

Businesses can get over this risk by updating and maintaining software and computers regularly. 

On the other hand, manual accounting works with ledgers, which are available anytime to view or process. Although, the paperwork is easy to damage or misplace. So, the retrieval process of digital data is much easier and convenient. 

Simplex –

In computerized accounting, all the calculations get computed by the computers. However, the business owners or accountants perform all the computations manually in a manual accounting system. 

  • In the manual accounting system, the trial balance gets recorded manually. However, the computer prepares the trial balance automatically in computerized accounting.
  • In manual accounting, the trial balance gets prepared when there is any requirement, but with computerized accounting trial balance gets computed daily. 

Benefits of Computerized Accounting over Manual Accounting 

Speed –

The vital advantage of computerized accounting is speed. The auditing software does the filtration of data and generates the reports quicker than manual accounting. Also, you perform a faster data entry process.  

Error-free –

Traditional bookkeeping methods are tedious. Computerized accounting allows accounting professionals to perform more information with error-free financial records. 

Automated –

Computerized accounting enables the automated processes. It helps in adding columns precisely, reviewing your work and error-free calculations. 

Adaptation of bookkeeping with other business processes –

Financial accounting has interconnection with other business processes like sales, procurement, banking, taxes, etc. With computerized accounting, a single entry is necessary to get all the integrated processes updated. 

Time-saving –

Manual accounting processes involves the usage of papers and ledgers for recording and operating accounting transactions. The double-entry system available in financial accounting makes the manual accounting system more tiresome. With computerized accounting, a single entry is essential as other relevant and connected ledgers get updated automatically. The invoices, receipts and other accounting files get stored digitally, which saves time and helps in searching any information faster. 

Broad visibility and monitoring –

Accounting involves working and saving plenty of documents. It includes invoices, receipts, bank statements and delivery notes. With a manual accounting system, it becomes more prone to errors. However, in computerized accounting, it is easy to search for the transactions, related documents and work on any pending action against them. It also enables instant reporting displaying all the transactions for broader visibility anytime and allows more control to the business managers and financial managers on the accounts. 

Enhanced security –

A security breach is effortless in a manual accounting system. Generally, financial information is always confidential and sensitive information. Accounting software is available with all the security measures to protect the sensitive and confidential information that is accessible only to authorized personnel. 

Quicker and agile reporting –

In the manual accounting process, every calculation and work gets completed manually. Generating any specific or latest report becomes tiresome and time-consuming. On the other hand, in the computerized accounting process, you can create reports with a click. The various reports are ageing, trial balances, income statements, accounts receivable, revenue by customer, etc. These reports are available in real-time and updated with the latest information. You can also customize the reports and their parameters according to your requirement. 

Instant auditing –

As per the legal process, every business needs to get its financial auditing every year. Auditing manual accounting is a tedious job, as searching for a simple transaction will lead to drawing out a complete process. However, in accounting software auditing is much easier for accounting professionals to search for any transaction. It helps in minimizing the effort and impact of auditing on your regular business operations. The quicker and instant auditing process will cost you less. 

Compliance – 

Compliance is a critical aspect of every business. Following compliance regulations is time-consuming in the manual accounting. Computerized accounting enables instant checking of transaction-based compliance, matching books, and ultimately filing accurate tax returns based on business data.  

Different types of accounting software 

Based on the business operations, accounting systems get categorised into four types:

  1. Invoicing and billing 
  2. Payroll administration 
  3. Business resource planning 
  4. Time and expense monitoring 

Features of Computerized Accounting 

  1. Automation 
  2. Accuracy 
  3. Reliable 
  4. Data Accessibility
  5. Scalability 
  6. Safe and Secure
  7. Faster 
  8. User-friendly dashboard
  9. Cost-efficient
  10. Time-saving

All in all, we can say that both manual and computerized accounting have their pros and cons. But, to sustain in the competitive market and adapt to the latest technologies, it’s advisable to shift from manual accounting to a computerized accounting process. 

Computerized accounting transforms the tedious job of accounting into effortless and convenient working. It empowers the business with speed, accuracy, data security, scalability and cost-efficiency for enhanced business growth. 

Although, the decision is totally upon the business owners and accounting professionals to use the suitable accounting process as per their business needs. 

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