Manual Accounting Vs. Accounting Software

accounting software
 | Updated on: January 3, 2023

Accounting is the recording, management, and reporting of the financial data of a company. Financial data records begin with the recording of every transaction in the company. Traditionally, transactions would be manually recorded in the ledgers and books of accounts. If the transaction had to be reflected in multiple accounts, the appropriate entries would be made manually in those books. Manual accounting is, therefore, a very time-consuming process. And any errors in entering the precise numbers in the correct books could throw the accounts out of balance. When a business maintains its accounting records manually, auditing becomes a very time-consuming process. Accounting software needs the user to perform one vital step which is keying in the transaction entry details. All the other processes are automated. Naturally, this creates a huge difference in manual accounting vs accounting software.

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What is manual accounting?

Manual accounting is the accounting method that uses registers, journals, ledgers, and other physical account books to record financial transactions. Though medium and large-sized businesses have started using accounting software, many small and single-owner companies still maintain their accounts manually. This is because of the perceived lower cost and familiarity. It is easily accessible and makes the business owner feel that it has no risk of hacking or other IT-related issues.

One of the main disadvantages of manual accounting is that it becomes cumbersome, inefficient, and results in the accounting paperwork slowing down the entire operations of the company. In a smaller business, the correct recording of financial information is entirely dependent on the capabilities of the person. When each business owner follows his own method of keeping records, it becomes challenging for others to understand. It also becomes difficult to properly categorize the transactions when the business owner needs to generate and submit financial reports for official purposes. Auditing, reporting, and finding specific information is challenging in a manual system. It is also at risk of being damaged or stolen. Sharing of information from a manual accounting system would require making copies of the data.

What is computerized accounting?

Accounting software has revolutionized the world of business. Accounting software is used to store, manage and report financial information digitally. The information is stored in a computer database that the user accesses through an user-friendly interface. Some accounting software is available in specific modules for different aspects of accounting, for example, inventory or payroll. Integrated software such as TallyPrime is designed to fully integrate all the modules of financials into one accounting software. It is this kind of software that helps a company benefit from the pros and cons of manual accounting vs accounting software. Accounting software eliminates human errors from the calculation and ledger posting of accounts. The calculation and generation of reports are accurate, quick, and up-to-date.

Differences between manual and computerized accounting

There are many differences between manual accounting vs accounting software. The most notable points are listed below:

Storage: Manual accounting stores financial information in physical books and ledgers. Entries that affect multiple accounts must be individually entered without error in each of the books of accounts. Accounting software records transactions in digital form. The databases that hold the accounting information are accessed through the interface of the software. Multiple entries are not required. Once the transaction data is keyed in, it is automatically reflected in all the relevant books of accounts.

Calculation: Manual accounting requires the accounting calculations to be carried out manually or with the help of a calculator. Automated accounting performs all calculations automatically. Automated accounting has no human errors in calculation. It is also quicker than automated calculations. There is no necessity to particularly initiate the calculation for any amount as it is automated, and all the relevant reports are recalculated and updated with the freshest data. Manual calculations are prone to errors, whereas automated software is designed to adhere to standard accounting principles.

Backup: Manual accounting does not have any backups. All the financial records are recorded in books that are vulnerable to damage, theft, or loss. Automated accounting software with backup features comes with the benefits of backing up data to its features.

Report generation: Generating reports manually is a time-consuming affair. There may also be a time lag in between the data collection and report finalization. Larger reports like a trial balance will be generated infrequently simply because it takes too much time to do so. Accounting software instantly generates even complicated reports. So, you can generate a trial balance every day if you wish to. Instant reports mean that the data used is real-time and fresh.

Advantages of accounting software

Saves time and money: Manual bookkeeping is a time and labor-intensive task. The number of personnel and time taken for processes is proportional to the size of the company and the volume of transactions. Accounting software does all the repetitive tasks of accounting. Accountants have to keep in the relevant transaction data and analyze the reports and trends in the financial information. Accountants use their time for analysis and driving business strategy rather than maintaining the books of accounts. Report generation through software is instant. This saves the company a lot of time and money. The company also enjoys the benefits of higher productivity and quicker and better-informed decisions.

Financial visibility and transparency: It is more challenging to search, extract and summarize data that is stored manually. Accounting software makes information more accessible and can be presented  in easy-to-understand formats. There is also more transparency in the way data flows through the company. This enhances efficiency and accountability.

Fewer errors: Automated calculations are error-free. So, there are fewer business losses and time wasted because of an accounting or clerical error. There is also less burden on the accountant to look out for errors.

Better asset and inventory management: Assets and their depreciation are better managed through software. Integrated accounting software like TallyPrime helps a company gain better control over its inventory, thereby optimizing cost and minimizing inventory holding costs.

Real-time data: It is not possible to get a reflection of the latest transactions in a manually generated report. Such static reports become obsolete quickly. Accounting software gives you reports and analysis in real-time and helps you monitor any changes.

Informed decisions: A manager who uses actual data to make decisions has a better success rate. Getting accurate reports of sales data, demands, trends, costs, and cash flows are vital management tools to make good decisions and better strategies.

Flexibility and accessibility: The best accounting software can manage a company’s accounts across networks and multiple geographical locations. Software such as TallyPrime also allows you to securely access your accounting records through a mobile device. This suits the modern pace of doing business quickly and digitally.

Selecting the right accounting software

All accounting software is not created equally. The right software choice helps your company derive the maximum benefits from accounting automation. TallyPrime is the best-integrated accounting solution for your company. It allows you the flexibility of customizing the software to your company's needs without compromising on accounting principles. TallyPrime generates all the reports that are required for tax and other government filings to save you time and effort. It helps your company grow and stay competitive in the modern business world.

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