It's possible to handle business bookkeeping in a physical, hard-copy ledger instead of a computer. Does that make it a good idea? Computer advocates say software is faster, more accurate and more secure. Comparing manual accounting vs. computerized accounting usually makes software look like the better alternative. However, if your accounting is simple and you prefer a hard copy, there's nothing wrong with that.
The biggest of the similarities between manual and computerized accounting is that the rules of accounting don't change, regardless of how you record data. Double-entry bookkeeping, where you debit office equipment when you buy a new computer and credit the same amount to cash or accounts payable, is still the gold standard; financial statements have to meet the same requirements.
Another similarity is that whichever method you use, you face the same requirements:
- The accounting has to be accurate.
- You don't want someone falsifying entries or altering entries without authorization.
- You can't afford to lose your records to a computer crash or a fire.
- Practical considerations matter. You don't want to spend more than necessary, and you don't want to spend more time entering information than you have to.
For most users, the difference between a manual and computerized accounting system is how well they meet these requirements.
The biggest problem in keeping accounting accurate is human error. Among the similarities between manual and computerized accounting are that you can enter inaccurate figures either way. It's easy to transpose $1,200 in sales revenue into $2,100 and not notice whether you're typing or writing.
Software accounting isn't just about data entry, though. It's about tracking totals, subtracting expenses from income and recording new equipment as assets on the balance sheet. Your computer does this automatically; if you have to do it yourself, there's a much higher chance of adding wrong and not even noticing it.
This also makes computerized accounting much faster, although it may take time for you to master the software's quirks. Many programs can speed up or automate other tasks, such as generating invoices or reports.
If cost is a big issue in choosing manual accounting vs. computerized accounting, manual accounting has the edge. A bookkeeper's journal is cheaper than good accounting software. If you're a small startup with simple, cash-basis accounting, it may be all you need.
As your business grows and the accounting becomes more complex, the money you save may not be worth it. If you run your operation on a cash basis, all you have to do is report when you spend or receive money. If you switch to accrual accounting, as most larger businesses do, you have to track money owed to you and money you owe, which is easier to lose track of.
Software programs can still go awry if you forget to enter information, but they make it much easier to record lots of transactions. They're also quicker at complicated challenges such as drawing up financial statements.
Another difference between a manual and computerized accounting system is the ease of access. If you're a sole proprietor running a one-person business, that's irrelevant: you're the only one who needs to see the ledger most of the time. If, however, you have a multi-million dollar business with a half-dozen department heads and a board of directors, lots of people may need to view the accounts.
With a computer, it's much easier to share information around the organization. If you install good safeguards on the system, it should be harder for anyone to access and alter the data.
The risk of damage and data loss exists either way. Data can be corrupted or wiped out by a virus; hard copy ledgers can die from fire or water. However, it's a lot simpler and quicker to back up digital data and store it somewhere secure than to make copies of all your ledgers.