Advantages & Disadvantages of Manual Accounting Systems
Many years ago, before the invention of computers, bookkeepers and accountants entered and tallied numbers by hand. A manual accounting system can be as simple as a single-entry ledger or as complicated as a double-entry system that keeps track of a long list of accounts. While any accounting system is as effective or ineffective as the quality of its data, manual accounting systems offer facility and ease but may fall short when it comes to compiling reports and connecting dots.
A sole proprietor who simply wants to do her own books and develop a working understanding of her company's financial activities may not need a double-entry program that transfers debits and credits between theoretical accounts such as equity and accounts payable. Although accountants and business owners interested in gleaning as much information as possible about company finances can choose from sophisticated systems such as Peachtree and QuickBooks, it is difficult to find a computerized single-entry bookkeeping system that provides simple, straightforward information. An accounting pad divided into 12 columns provides a sufficiently clear accounting format for many small-business owners.
It is easy to enter information into a manual accounting system, but it can be difficult to distill information and create reports. A bookkeeping program such as QuickBooks can create an income statement in seconds once you select a date range. However, if you use a manual accounting system, you must review and manually transfer information from each relevant account, enter these figures onto a separate page or spreadsheet and then manually perform the computations. A computer bookkeeping program also makes it less likely to make mistakes.
Manual accounting systems are more durable than computer systems, because they exist as hard copies rather than digital files that can be wiped out by a computer mishap. However, paper files can also be destroyed as well by fires or floods, and they are easier to misplace. In addition, a digital accounting format gives you the opportunity to back up files by making multiple copies. It takes much longer to photocopy or manually copy a spreadsheet than to save a computer file on a thumb drive or cloud.
Computer files can be modified simply by adding and deleting data. The numbers on the screen show no trace of these changes unless you dig deeper and uncover the date a file was last modified. In contrast, manual accounting systems show evidence of having been changed. If you work in pencil, then erasures are obvious, and if you work in pen you must cross out old entries to make new ones. The difficulty of hiding changes makes it easier to tell when you have changed a manual accounting system and facilitates transparency.