Accounting is the process of recording the financial transactions of a business. It’s also the measurement, processing, and communication of financial and non-financial information about economic entities such as businesses and corporations. The accounting process involves summarizing, analyzing, and reporting the transactions to oversight agencies, regulators, and tax collection entities.
Accounting can be done in two ways: manual and by using accounting software. Let’s see more about these two methods.
Manual accounting system is a bookkeeping system for recording business activity transactions. With specialised accounting software financial records is kept without using a computer system . In which transactions are done by hand in accounting books, using a written ledger of transactions, physical records, pads of paper and books. Manual accounting has several ledgers with separate books to record different types of accounts, such as payroll or sales. The information recorded in the ledger can be used to prepare the financial statements for the business. The system is separated into four cycles :
- General Journal
Accounting pages have four or more printed columns and multiple rows, natural divisions for the necessary information such as dates, description and amount. Journals and ledgers comprise the working and financial copies of documents.
Advantages of Manual Accounting
Manual accounting is less costly than specialized accounting software. So manual accounting is mainly used by small businesses. New and small businesses have only less financial entries to make. Another advantage of using manual accounting is that you can always open up the book and gain instant access to records. Also there is no delay due to power or internet outrage. There is no need to worry about being hacked online.
Error correction is another advantage of manual accounting. Every transaction will be entering as debit in one account and credit in another account. Trial balance compares all the debit and all the credit. If these don’t match an error occurs somewhere in the account. When you store accounts data in computers not everyone can understand easily. It may cause accessing the wrong file with old data. In the manual system there is a single file, the ledger, for each account. There is no other version of similar data.
Disadvantages of Manual Accounting
There are many disadvantages in Manual Accounting. The process of accounting is very complex. Manual accounting system requires understanding the accounting process in a way that may be unnecessary with a computerised accounting system. This can be an advantage or a disadvantage. Specially trained professionals needed for Manual Accounting.
Complex financial records made by hand may be time consuming. Since it takes time, you may be neglecting other aspects of the business. Another disadvantage is that there will be human errors. Manual accounting can be tiresome and tedious. Records are available in paper format, which can cause issues if they are lost, damaged or stolen.
As your business expands, your financial data grows more complex. It will be more difficult to handle by a manual accounting system. Recording business accounts in spreadsheets become more confusing, time consuming and prone to error. To overcome this difficulty we have to think beyond the manual accounting system. The solution is accounting softwares.
Accounting softwares offers many features to optimize your business. From basic invoicing and billing, to tax calculation and project management, accounting software will be an essential tool for business accounting. Another benefit of using software is that it will help manage clients, reconcile bank accounts, and generate insightful financial reports.
Advantages of Accounting Software
As we said, manual accounting is time consuming. But accounting software can be used easily for continuous accounting tasks. Report generation through software is instant. This saves money and time. Accounting softwares makes the records easily accessible. There is also transparency by using accounting softwares. This enhances efficiency and accountability.
One of the major advantages is that automated calculations are error free.
Accounting software like TallyPrime helps to gain better control over its inventory. Using accounting software makes accounting a fast and straightforward data entry.
Accounting software gives you data in real-time and helps to monitor any changes.
Expense tracking is vital when you want to get a grip in your cash flow.
Automation tasks like calculating pay, producing payslips, calculating and submitting VAT etc is been doing efficiently.
Another advantage is that integration with other systems such as online banking and e-filing.
Disadvantages of Accounting Software
Accounting softwares is costly. It’s higher than paper-based systems. Its implementation is complex. Only experts can implement accounting softwares.
Another disadvantage is that you need to purchase yearly maintenance and support your package.
Specialist businesses may need to refine the package or change their process to use accounting software successfully.
Difference Between Manual Accounting and Accounting Software
- Manual accounting uses physical registers and account books for keeping financial records. Accounting software uses softwares for recording financial transactions electronically.
- In manual accounting datas recorded through the book of original entry. In a computerized accounting system data is storing in a customized database.
- Manual accounting calculations is doing manually. In accounting softwares calculations is doing using computer system.
- Manual accounting is a slow process. While accounting software is fast.
- Backup is not possible in manual accounting. But using accounting software makes it easy to backup entries of transactions.
- In manual accounting trial balance is been preparing whenever it’s necessary. Instant trial balance is provided on a daily basis by using accounting software.
- In manual accounting financial statements is been preparing at the end of the period or quarter.
Accounting is the core part of a business. You need to have keen knowledge in accounting to run any business. Also if you want to build your career in accounting you need to know all the aspects of accounting.
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