Accounting / Bookkeeping Basics: Manual vs Computerized Bookkeeping

Both manual and computerized bookkeeping methods are based on the same values, rules, and accounting standards. Business bookkeeping can be conducted with a physical, hard-copy ledger rather than with the help of a computer. 

Understanding Manual Bookkeeping Methods
A manual bookkeeping program can be put into operation easily. It's a basic form of bookkeeping that can function well enough for sole proprietors or small business owners. But what exactly does the process entail? The manual method is a bookkeeping system where records are compiled manually and without a computer program. Usually, transactions are published in papers, through which the details are carefully organized into a range of financial statements.
These systems have a high error rate and are sometimes slower than computer-controlled systems. Manual processes are most often used in small companies with few purchases. This is because new or small entities have fewer financial entries to produce, and perhaps their accounting needs are basic. Although errors are inevitable in a manual bookkeeping system, they can still be minimized and sometimes avoided as long as the person in charge of maintaining the financial records understands what he or she is supposed to do. When proper procedures are taken, manual bookkeeping can be just as reliable as the computerized accounting system.

How Manual Bookkeeping Works
The manual bookkeeping system is defined as any standard manual documentation of business operations to disclose the company's financial well-being to stakeholders, whether these stakeholders are employees, bank executives, or private owners. The systems are approximately divided into four rounds. These include Revenue, Purchase, Payroll, and General Journal.
Manual bookkeeping systems use physical documents, paper pads, and books. This is where all the transactions are recorded manually. Bookkeeping pages have four or more written columns and several rows, natural divisions for the details required, including date, definition, and dollar amounts. Journals and books consist of working and final versions of records and different books for the various accounts. Cash receipts could be one collection, for example, and payrolls could be another collection. The results of these working papers are generally merged into the general directory of the organization, which is commonly called the general ledger.

Some Common Advantages of Bookkeeping
Error Detection and Correction: Despite the simplicity and industry penetration of computer-based accounting systems, manual accounting also provides a range of upsides that make it a real alternative. The first one is the fact that it makes error correction very easy. Double-entry accounting, attributed to Luca Pacioli, an Italian of the 15th century, provides a simple means of avoiding mistakes in data entry and number conversion. Each transaction is performed as a debit in one account and a credit in another. Trial balances determine the equality of total debits and total credits. If this is not the case, a mistake has been made somewhere in the records.
Data System Failures and File Corruption are Minimized: Computer systems manage data in contexts that are not widely accepted by several users. Trying to open the wrong file with either the old data or having to face a data file with a digital error may destroy the applicability of your current data. Manual systems mitigate this by using a single file – the ledger – for each account.
Always Easy to Access: Electricity or Internet shutdowns won't keep you from operating on the accounts (unless you're plunged into total darkness.)
Data Entry Mistakes: Double-entry accounting in a manual system is labor-intensive since all transactions must be reported twice manually. Many business owners using a manual bookkeeping system employ a double-entry strategy, but most often, the second entry is generated automatically. While this does not preclude an incorrect number from being recorded, it does eradicate the dissimilarities in first and second entries.

Drawbacks of Manual Bookkeeping System
Possible Loss of Physical Copies: Though digital files can be corrupted, appropriate backups can secure records, even off-site copies, such as cloud service storage. Journals and books, being real objects, are vulnerable to destruction. Theft or fire may imply that all the financial data of a business is damaged or lost. Duplicating and processing the general ledger off-site can be a time-consuming process relative to other digital storage solutions.
Awareness of Accounting Processes: Unlike other consumer software or product, the Manual Accounting Program is not designed for ease of use; neither should you anticipate customer service or patented assistance. You may require a bookkeeper or accountant to set up and manage the manual accounting program.
There may be other drawbacks to the use of a manual bookkeeping system. Bookkeeping, for any company, can be a complicated task. A manual bookkeeping system requires you to grasp the accounting system to a degree that may be utterly pointless when dealing with a computerized system. This can be seen as an upside or a drawback, depending on the individual performing the accounting.
Often, a specially trained professional is needed to make sure that the business record keeping is carried out appropriately. Unraveling the complexities of the financial reports by hand can be tedious. As it takes a long time to accumulate reports, you might be ignoring other areas of the business and missing potential for growth. Human error also plays a vital role in incorrect financial records; manual bookkeeping can be monotonous and cumbersome, which may result in more errors from the accountant's end.

Computerized Bookkeeping Systems
Computerized bookkeeping systems can be defined as accounting systems that require a computer system and pre-packaged, customized, or configured accounting software. This system is based on the idea of a database. This database is regularly managed with an integrated framework where accounting technology applications and reporting mechanisms are used.

The two main components include the following:
- The Accounting System: A system of principles and a classification method for the maintenance of records.
- Operating Protocol: There is a standard approach or procedure for running the system. This is to ensure that the information is appropriately stored and processed. It includes a front-end interface, back-end storage, database management, and reporting system to store data in a database-oriented program.
Computerized bookkeeping benefits are based on velocity, precision, reliability, brevity, up-to-date information and reports, and much more. Let's take a moment to explore the pros and cons of a computerized bookkeeping system.

Benefits of a Computerized Bookkeeping System
- Precision: This accounting method is structured in such a way that it is precise down to the very minutest details. As the data enters the system, the software automatically performs all computations.
- Automation: Because all calculations are performed using software, computerized bookkeeping avoids the time-consuming procedures involved in manual accounting. For instance, as invoices are issued, they are stored immediately, making the bookkeeping process less time-consuming.
- Easy Data Access: With the use of accounting software, accessing accounting data outside of the office is much easier, especially if you are using online accounting.
- Reliability: Since the computations are so precise, computerized financial statements are extremely reliable.
- Scalability: The amount of accounting required not only increases but is more complicated as the business expands. All is kept clear in computerized bookkeeping, thus sifting through data with the help of software is more straightforward than sifting through a collection of documents.
- Speed: With the use of accounting tools, the whole process of account planning becomes faster. Additionally, statements and reports can be easily generated by clicking a button. Business executives need not wait hours or days to lay their hands on a significant report.
- Security: The latest information can be stored off-site. Hence, it is completely secure from natural and man-made disasters such as earthquakes, explosions, storms, bomb attacks, and much more. The program will be rapidly replicated on other machines in the event of a tragedy. Clever accounting takes that level of safety.

Drawbacks of Computerized Bookkeeping Systems
The key drawbacks of computerized systems revolve around the fact that they rely solely on the operating environment in which they function.
Some of them are:
- High Installation Fee: Computer hardware has to be replaced, and the software has to be updated once in a while with newer versions.
- Possible Fraud: Heavy reliance on computers occasionally contributes to more severe problems. With even more software data collected in the cloud, there is an increasing possibility for hackers to access and exploit the financial details of your company. This puts the business resources in danger when hackers use employer tax identification to open credit cards and commercial loans. There is also a possibility that someone inside the company may have access to the records and engage in pilfering money from regular deposits and modifying the details in the system. Company owners must safeguard financial records carefully.
- Cost of Training: To guarantee the efficient and reliable use of the computerized accounting system, newer versions of hardware and software are implemented. This means proper training, and the cost of educating workers is incurred.
- Technical Glitches: Issues may emerge when dealing with computers. You could be compiling the monthly or yearly details and experience a power outage. Computers may become infected with a virus and may crash in the process. There is also the ability of users to inappropriately execute program functions with which they are not acquainted; if a user wants to do one thing but accidentally does another thing, it may take some time to fix.
- Wrong Details: The financial reports are only as reliable as the information entered into the system. Company owners who do not take the time to identify account categories can insert data and produce reports that are not reliable. Business owners will do a great deal to minimize the drawbacks and possible challenges involved with computerized accounting through proper preparation and program integration. Taking the time to do things right is faster and cheaper than struggling to get back on track when there is an issue.

Manual Bookkeeping vs a Computerized Bookkeeping System
No doubt, the computerized bookkeeping system has made significant progress in the field of financial management. But how exactly does it differ from a manual bookkeeping system? The following point briefly explains the differences between the two.
- By Definition: Manual Bookkeeping makes use of physical records and transaction books, to keep financial information. Computerized bookkeeping systems make use of accounting software to record business transactions digitally.
- Recording: In manual bookkeeping, the financial recording is done through the book of original entry or in an accounting book. Computerized bookkeeping, on the other hand, collates financial data using accounting software.
- Calculations: In a manual bookkeeping system, calculations are performed manually, while computerized bookkeeping systems take a more automated approach. In essence, only financial data inputs are required, upon which computations are performed within the computer system.
- Speed: Because the procedures of manual bookkeeping systems are quite tedious, the system is generally slow. The computerized bookkeeping system is comparatively faster.