Manual accounting involves the use of paper ledgers and journals to record financial transactions. These tools are from a bygone era. Accountants — often wearing green visors and black armbands — would use manual accounting to help keep financial score for their companies. Businesses today may still use manual accounting for some processes. Disadvantages, however, can weaken manual accounting activities.
Accounting processes that use paper journal and ledgers or similar tools requires copious time to complete tasks. Accountants will need to locate accounts and journals in the system prior to recording entries. Checking account balances and reviewing information is also difficult. Accountants may also need to rifle through multiple documents to locate information requested by executives. Copying this information can also be difficult.
Errors can be quite frequent in manual accounting processes. Common errors are entering information into incorrect accounts, transposing figures or recording information backwards. While these errors are also in modern accounting systems, manual systems have no internal checks and balances. Accountants researching errors will often spend several hours to locate and correct entries. Multiple accountants working in several manual accounting ledgers can exacerbate these problems.
A lack of security is another common disadvantage to manual accounting. Companies may be unable to prevent employees from reviewing sensitive data in paper ledgers and journals. Files copied and stored on a computer may also be less secure. This may allow employees to abuse financial information through fraud or embezzlement. Disgruntled employees may also irreparably damage the information and destroy important financial records.
Large organizations often find manual accounting difficult due to the lack of multiple ledgers and journals. Most businesses will have one journal for accounts payable, accounts receivable, payroll, fixed assets and so on. This means only one accountant can work on a journal at any given time. Separating out these ledgers into subledgers can result in less security and the potential for duplicating information in the accounting system.