Advantages Of Manual Accounting System

Advantages of Computerised Accounting System: The main advantages of using a computer accounting program are as follows: (i) Faster Processing: ADVERTISEMENTS: Computers require far less time than human beings in performing a particular task. Therefore, accounting data is processed faster using a. One of the advantages of the manual accounting system is its easy accessibility. It is also characterised by confidentiality, which makes the sensitive information hacking free. Nevertheless, manual accounts can only be prepared correctly if the accountant possesses good knowledge of bookkeeping and accounting. A manual accounting system is a written, paper-based accounting system that does not involve a computer or software. If you own and operate a very small business, a manual system has several major advantages for you. Like many small businesses, you may start with a manual system, then move to a software-based system as your company grows. Advantages and disadvantages of using manual accounting system accounting? An advantage to using manual accounting systems is that there is a written record of transactions.

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Key Advantages Of Automating A Manual Accounting System
Advantages Of Manual Accounting System Definition
Advantages And Disadvantages Of Manual And Computerized Accounting System

1 Differences Between Manual & Computerized Accounting Systems
2 Problems With Double-Entry Bookkeeping Systems
3 What Are the Benefits of an Information System in Accounting?
4 The Advantages of a Manual Invoice

There's a thing about technology that's easy to forget: You don't always need to use it. You can still buy your groceries from a list on a notepad, you can still get where you're going with a paper map instead of a GPS and you can keep your company's books in actual books instead of an accounting program. It may seem counterintuitive, but for many small businesses, a manual accounting system is the practical, pragmatic option.

Ease of Setup and Entry

A traditional manual system would typically use one ledger each for receivables, payables and sales, and then consolidate those figures into one general ledger. You can either set them up yourself or have a bookkeeper do it for you, but either way, it can be done in an afternoon. Once everything is ready, you just need to sit down at closing time to enter the day's transactions, or – if you prefer – sit down the next morning to enter the previous day's transactions.

A computerized system can take longer to set up, although your accountant probably does it on a regular basis and can tweak a standardized set of accounts to fit your business's needs. Once the accounts are set up, you'll need to either learn how to use the software or hire someone who's got experience with it. Paper ledgers can potentially get you up and running more quickly, which is a small win for manual systems.

Transparent Error Correction

You can make a case for either manual or computerized systems when it comes to fixing errors in your books. With a paper ledger, you'll be able to simply erase and overwrite any inaccurate entries, or cover them with correction fluid. It's quick, it's easy and the corrections are self-evident. Computerized accounting systems don't show physical corrections and erasures like paper ledgers do, so instead, they have built-in safeguards to create an audit trail from any changes. That can make corrections more time-consuming, but it means you'll have a solid paper trail.

Everything at a Glance

Generating informative reports and graphs is one of the strengths of computerized accounting, but creating those reports and graphs isn't always the simplest process. With a paper ledger, remembering how to conjure up the figures you need is never a problem. Just open the appropriate ledger to its current page, and the numbers are right in front of your eyes. For a small business with modest numbers of transactions, a manual system can be simpler, but as you grow, you'll appreciate the more powerful reporting features of a software-based system.

Data Security and Access

How long has it been since you last read a news story about a company's data being stolen or compromised? A day? A week? If your accounting systems are connected to the internet, they're vulnerable to hacking, and even standalone computers can fail. Unless you back up your data diligently, either to other computers or the cloud, you could be in real trouble.

Paper ledgers can be less problematic. Data security is a simple matter of locking them up at night in a fireproof and waterproof safe, though it's still prudent to keep a second set of books in a separate location in case of a natural disaster or another catastrophe. That gives a slight security advantage to manual systems – you'll never get hacked – but with computerized systems, you'll have access to your accounting data even when you're on the road, which is a major advantage of automation.

Size Matters

The two big issues with manual accounting are accuracy and growth. When numbers have to be manually added to ledgers and then transferred between them, you're creating the potential for errors. You can minimize errors by using the so-called 'one write' systems, which copy your entries onto the underlying pages so you don't have to re-enter them, but mistakes will still creep in.

Time is another factor. Manual accounting is an efficient answer for small companies, but as your business grows, entering transactions manually will begin to sap more and more of your time. Even if a manual system makes the most sense for you today, you should keep one eye on the future and have a plan in place to transition to a computerized system when the time comes.

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Key Advantages Of Automating A Manual Accounting System

About the Author

Fred Decker learned business fundamentals at second hand as an insurance and mutual funds broker, and at firsthand as a retail store manager and the chef/proprietor of his own restaurants. He has written hundreds of business-related articles for sites including Zacks.com, Chron.com, Vitamix.com, Bizfluent and GoBankingRates and many others. He was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.

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Decker, Fred. 'The Advantages of Manual Vs. Computerized Accounting.' Small Business - Chron.com, http://smallbusiness.chron.com/advantages-manual-vs-computerized-accounting-4020.html. 01 March 2019.

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A manual accounting system is a written, paper-based accounting system that does not involve a computer or software. If you own and operate a very small business, a manual system has several major advantages for you. Like many small businesses, you may start with a manual system, then move to a software-based system as your company grows.

Description

In a manual accounting system, generally you or your bookkeeper records all transactions manually in a book called a general ledger and in subsets of books often called journals. You can use a bound general ledger but, for ease of use, most use a binder and general ledger paper. You also make all calculations manually but may use a calculator or adding machine. Because you can lock the accounting books in a safe, manual accounting can provide a high level of security. In addition, manual accounting systems remove the risk of computer problems erasing your records.

Deeper Understanding

A major strength of using a manual accounting system is it requires you to develop a deeper understanding of accounting. Knowing how what you do in your business affects the numbers and accounting values can help you use the accounting and financial information to make decisions that drive value to your company. On a base level, you must clearly understand debits and credits and how the increase in one account causes a decrease in another account. Many small business owners with computerized systems never fully grasp the debit and credit relationship.

Understanding of Classifications

As a part of deepening your understanding, you must clearly know how to classify accounts receivable and payable, reduce the book value of an asset by its depreciation and decrease loan liabilities by the amount of the principal payments. You must understand what constitutes a direct general ledger transaction and what goes into the sub-books or journals. Without this knowledge, you cannot properly perform your accounting duties. With a software-based system, the software performs many of these functions automatically.

Paper Trail

Another major strength is the paper trail that manual accounting produces. Your business may track enough data to complete annual tax returns but have large amounts of missing support data for an Internal Revenue Service audit. Not so with a manual accounting system. Your company must manually record each and every transaction and save the corresponding receipts in case of human error. You must transfer data from the journals into the general ledger. This requires a significant level of attention to detail.

Financial Record Support

As your business grows and you move to computerized systems, you will have developed the excellent habit of maintaining a strong paper trail. If your business grows large enough to justify an external audit by a CPA firm, your company will only need to document its processes. If you obtain government contracts in the future, you will have minimal concerns about contract compliance audits because you established your internal tracking system at the beginning.