Understanding the Difference Between Manual and Computerized Accounting Systems

Estimated reading time: 5 minutes

Accounting is a process by which business entities record, analyze, summarize, and report their financial information to company stakeholders, regulators, tax authorities, and other involved parties. The accounting process typically involves the preparation of financial statements, which are a succinct summary of all the company’s financial transactions over a defined period of time and help describe the company’s cash flows, operations, and general financial situation.

Traditionally, accounting work has been done manually, using paper record books, documents, and journals. However, with the advent of more sophisticated business technology, many companies all over the world have made the switch to computerized accounting systems (CAS). In the Philippines, the Bureau of Internal Revenue (BIR) requires all large taxpayers to adopt and register a CAS and to submit their digital accounting records to the agency at the end of each taxable year.

Adopting a BIR CAS compliant system guarantees that big businesses in the Philippines can stay on top of their accounting processes and make timely reports. Even without this legal mandate, however, there are many good reasons for enterprises of any size to switch from manual to computerized accounting. To illustrate, let’s explore the differences between the two systems in more depth:

Defining Manual vs. Computerized Accounting

As previously mentioned, manual accounting systems predominantly revolve around paper-based processes. Accountants register business transactions by hand in written ledgers, physical documents, and accounting books. It’s also common practice for a manual accounting system to keep multiple ledgers and record different types of transactions separately in their own books. Towards the end of the accounting cycle, accountants will use this information to prepare the company’s financial statements.

In contrast, computerized accounting systems perform all accounting tasks using specialized digital accounting software or other similar applications. Most computerized accounting systems only require transaction data to be entered once, after which the software automatically makes copies of the data in all the relevant books. The software can also perform all necessary calculations and generate complete financial statements automatically with minimal human intervention.

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Key Differences and Points of Comparison

The most fundamental difference between manual and computerized accounting systems has to do with how data is entered and processed within the system. This difference in turn gives rise to many significant discrepancies between the two systems in terms of speed, performance, operational efficiency, and other factors. Some of the most notable points of comparison include the following:

Processing Speed

Because accountants enter transaction information in multiple accounting books by hand and check these judiciously at each stage for accuracy, manual accounting processes can be slow and time-consuming. Comparatively, because multiple accounting books can be integrated within accounting programs, users no longer need to enter their transaction data multiple times. Computerized accounting systems can usually produce complete financial records speedily, sometimes within a matter of minutes.

Processing Accuracy

Even the most diligent and well-trained accountants will not be immune to human error, and the more data they handle, the greater the risk of making mistakes during data entry or calculations becomes. Mistakes like erroneous calculations, duplicated entries, incorrect encoding, and others can cause companies to incur sizeable penalty fines from regulators or from the BIR.

With a computerized system, however, there are fewer chances of processing errors, as the software performs all calculations automatically. Many accounting programs also contain features to flag duplicated or otherwise questionable data, allowing users to spot and correct any mistakes efficiently.

Data Handling Capacity

Human accountants can only process financial data in relatively small amounts, especially because most practicing accountants make it a point to double and triple-check all entries and correct errors in real-time. Digital accounting software, meanwhile, is specifically programmed to handle large volumes of transaction information at once without compromising data accuracy.

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Data Storage

Storing and preserving extensive hard-copy financial records is one of the biggest challenges businesses that run manual accounting systems face. Accounting books not only take up a lot of physical space but are also guaranteed to deteriorate over time, as all paper-based files inevitably do. The information contained in documents that have grown too old to be read clearly may thus prove difficult, if not impossible, to recover.

With computerized accounting systems, all the company’s financial data is stored on a secure server or database and can be accessed anytime. It can also be easily backed up and recovered in the event of equipment malfunctions, data breaches, or other setbacks.

Security

Physical records run the risk of being lost, stolen, or damaged, which could jeopardize company data security as a result. The digital records maintained by computerized accounting systems, on the other hand, are likely to be protected by the most up-to-date cybersecurity features. High levels of encryption and granular user permissions management ensure that a company’s financial information can only be accessed by individuals authorized to view and work with it.

Accounting is a necessary function for businesses of any size, as up-to-date financial records help companies make effective decisions, plan for anticipated costs, and measure their economic performance. Using a computerized system can help optimize your accounting processes for the highest possible levels of efficiency, security, and operational productivity.