Comparison of manual and computerized accounting system
Accounting is a process of identifying, recording, classifying and summarizing financial transactions to produce financial statements. Let us discuss the processes under the two accounting processes i.e., manual process and computerized process, for the purpose of comparison.
Identifying Financial Transactions - Identifying financial Transactions and recording them in the books of accounts by applying the principle of accounting is a manual process carried out by an authorized person or on the basis of the accounting manual. This process is, thus, common under both the processes.
- Recording - the process of recording transaction in the books of original entry, posting them in the ledger accounts, performing mathematical functions, i.e., adding, subtraction and totaling, are carried out manually under the manual process. In the computerized process, transactions are recorded in the books of accounts and the remaining functions are performed without any further process or command being carried out manually.
- Classification - in the manual process, the transactions are recorded in the books of original entry and are posted into the ledger accounts. It means that, after recording the transaction, another process of posting is performed. In computerized accounting, the posting process is carried out by internal sorting of data, i.e., with the help of utility or application software, without any further process.
- Summarizing - in the manual system of accounting, the data under each ledger is summarized and a balance of each account is ascertained to prepare a Trial Balance. As a result, preparing ledger accounts is essential to prepare a Trial Balance. In the computerized process, a transaction or event, once recorded, is stored in the database and can be processed to produce a Trial Balance directly.
- Adjustments Entries - Adjustment entries are passed to rectify an error or to follow the matching concept of accounting i.e., matching the cost with revenue. The process of passing adjustment entries can be equated with the recording process. These entries are identified and recorded in the books of accounts. The remaining process is the same as discussed above.
- Grouping Accounts - One of the basics of correct accounting is determining whether a transaction is capital or revenue in nature and accordingly, which account head is to be debited or credited. Once this decision is taken, the account is grouped as an asset, a liability, an income or an expense at the time of preparing the financial statements. The above process is followed when the manual system of accounting is adopted. However, in computerized accounting, whether an account head is an asset, a liability, an income or an expense, is decided at the time of the transaction takes place, as in the case of manual accounting. It is also defined whether the particular head of account shall be shown as an asset or liability, or an income or expense.
- Financial Statement -In the manual process, availability of the Trial Balance is essential to prepare the financial statements. In the computerized process, financial statements are generated from the system itself and hence, there is no need to have a Trial Balance.