A manual accounting system is a type of bookkeeping process wherein financial transactions are recorded and maintained without the use of computers or any other electronic system. This means that all financial entries such as time and billing records, sales, purchases, coding of invoices, and payments are done entirely with paper. Manual accounting is still practiced in some companies, especially in certain industries that deal with large volumes of transactions.
How Does Manual Accounting Work?
The basic process of manual accounting consists of making record-keeping entries, which document the movement of funds. These entries are recorded and stored in accounts, which are then used to update the ledger. The ledger contains all of the current financial information. Once it is updated, it can be used to generate financial statements, balance sheets, and other reports about the company’s finances. The manual system of accounting is labor intensive compared to automated options, as it requires more paperwork and time.
Benefits of Manual Accounting
The main advantage that comes with using a manual accounting system is that it is much more secure than other automated systems. This is because entries are all kept and entered manually on paper, which means that financial details cannot be hacked or stolen. Manual accounting also offers a greater degree of flexibility and control over entries. Many manual systems also have an audit system that allows for double-checking of entries, ensuring accuracy and preventing fraud. It is also easier to identify discrepancies and errors in manual accounting systems than automated ones.
Drawbacks of Manual Accounting
One of the major drawbacks of manual accounting is the amount of time and energy it requires. Entries into the ledger must be entered accurately and manually, which can be labor-intensive. It also requires more resources in the form of paper, pen, and staff. Manual accounting is also more prone to human error, which means that financial records may be incorrect or be lost completely. What’s more, manual accounting systems may not be able to produce financial statements quickly, which can be a real problem for time-sensitive decisions. Finally, manual accounting is a lot less efficient than automated solutions, so it may not be suitable for larger businesses.
Conclusion
Manual accounting systems are still used by some companies because they offer a much higher degree of security and control over the accuracy of financial entries. However, these systems can be extremely labor-intensive and prone to errors. For businesses that are dealing with large volumes of transactions, the time and resources required to maintain a manual accounting system may simply not be worth it. Before you decide which type of accounting system is right for you, make sure to weigh the pros and cons and consider whether your organization can actually benefit from it.