Accounting is the process of maintaining and recording the financial transactions of a business or organization for a financial year to facilitate auditing and financial reporting. It involves systematically entering and managing financial data on a monthly, quarterly, or annual basis. Traditionally, accounting was performed manually using handwritten records, but with advancements in technology, most organizations now use computerized accounting systems and specialized accounting software to manage their accounts efficiently. Today, only a few small businesses continue to rely on manual accounting methods. Therefore, the two primary methods of maintaining a company's financial accounts are Manual Accounting and Computerized Accounting.
Manual Accounting
Manual accounting is the traditional method of recording financial transactions by hand in books such as journals, ledgers, and registers. All calculations and entries are done manually without the use of computers or accounting software.
Features of Manual Accounting:
- Transactions are recorded in physical books.
- Calculations are done by hand.
- Requires more time and effort.
- Suitable for small businesses with fewer transactions.
Computerised Accounting
Computerised accounting is the modern method of recording financial transactions using accounting software and computers. It automates most accounting processes and reduces human effort.
Features of Computerised Accounting:
- Transactions are recorded using accounting software.
- Automatic calculations reduce errors.
- Faster processing of financial data.
- Suitable for medium and large businesses.
Comparison Between Manual Accounting and Computerised Accounting
| Basis | Manual Accounting | Computerised Accounting |
|---|---|---|
| Meaning | Manual accounting is the procedure where the financial accounts are recorded manually using physical registers, ledgers, and subsidiary books. | Computerised Accounting is software-based operations done by specific account software which has an automatic framework. |
| Time Taken | It is a time taking process and the records are maintained manually using paper based account books, and sometimes it is not accurate. | The process of accounting is much faster, more reliable, and easy. All data is maintained systematically and accurately using the software. |
| Margin of Error | Since the accounting is done manually, so there is a chance of human error in calculations and accuracy. | The accounting through software is automated and has very less chance of error and the transactions are precisely recorded. |
| Reliability | Although it is not much easy to store physical accounting books everywhere, as they can be misplaced or get damaged easily and cannot be sent anywhere easily as compared to Computerised accounting. | It is very reliable to store information on the computer in the form of format documents like PDF, Microsoft Excel, etc. and can be sent digitally anywhere in a fraction of a second. |
| Safety | The Books can be kept safely and cannot be stolen easily, as it does not require any internet access to get stolen by a cyber attack. | There is a chance of cyber attacks to steal the data unless it is strongly secured using advanced anti-hacking software, as this process requires the internet. |
| Editable | It is much more difficult to edit the report or make changes once entered manually, a whole page has to be re-entered if any mistake occurs. | Any changes can be performed easily as it's easy to edit things in a computer system and doesn't have to redo the whole work again. |
| Technology | It is exempted from such maintenance as this process does not require a computer and the data is always available to access and use as every record is done physically and stored safely. | As a computer is a machine so technical problems, like software freezing, system not responding, data crash, etc., can be occurred once in a while if proper maintenance is not done. |
| Backup | The physical data is safe compared to computerised accounting, but a backup is always important, like having a photocopy of the original records to prevent any unexpected data loss. | Every now and then, an online backup or external backup is highly preferred to get rid of any accidental hardware crash and data loss. |
| Additional Device | In manual accounting, all the calculations of transactions like adding, subtracting, multiplications, etc., are done physically and for some tough calculations, an additional device, like a calculator is used. | The software does all the calculations automatically and accurately and doesn't need any additional calculating devices. |
| Automatic | The identification of a particular transaction is manually done and can take some time to record it. | In this accounting, the tracing of reports or identifying transactions is fully automatic and quick. |
| Accuracy | In this process, the balances of accounts have to be entered manually in registers, which is a time-consuming process. So the Trial Balance is manually prepared. | Since the process is based on accounting software, the preparation of the Trial Balance is produced automatically and is accurate. |
| Physicality | The physical storage of accounting books requires a lot of physical space or dedicated racks or shelves to store the records, registers, etc. | The physical space to store the documents is not required as everything is digitally stored, and a limited physical space sufficient for a computer is only needed. |
| Used By | It is used by small businesses and old-fashioned traders as they have less number of transactions. | It is mostly used by large companies and businesses where the number of transactions is more. |
