Question

4) Explain the similarities and differences in the flow of information through the balance sheet accounts in a manual versus a computerised accounting information system.

5) And is it important to acknowledge the similarities and differences that you noted above? Discuss

Answer 1

Key Differences Between Manual and Computerized Accounting
The difference between manual and computerized accounting is explained below in points:

Manual Accounting refers to the accounting method in which physical registers for journal and ledger, vouchers and account books are used to keep a record of the financial transactions. On the other hand, computerized accounting implies the method of accounting, which uses an accounting software or package, to record the monetary transactions, which happen to an organization.

In manual accounting, recording of the transaction can be done through the book of original entry, i.e. journal day book. Conversely, in computerized accounting, the transactions are recorded in the form of data, in the customised database.

In manual accounting, all the calculations, i.e. addition, subtraction, etc. with respect to the transactions are performed manually. In contrast, in computerized accounting, there is no need to perform calculations, as the calculations are performed by the computer automatically.

In manual accounting, a person remains involved all the time, with the accounts, to enter and update transactions, which is tedious and time-consuming too. As against, in computerized accounting, once the transaction is entered, it is automatically updated in all the accounts to which it relates and thus, the process is comparatively faster.

In manual accounting method, if there occurs an error while entering and posting the transaction in the books of accounts, then adjustment entries can be passed, for getting accurate results. Moreover, adjustment entries are also made to comply with the matching principle, i.e. the expenses of the accounting period should match the respective revenues. On the other hand, in computerized accounting, to comply with the matching principles journal and vouchers are prepared, but adjustments entries are not passed for rectification of error unless the error is an error of principle.
One of the merits of computerized accounting which manual accounting lacks is that in manual accounting there is no way to back up all the entries and financial statements, but in computerized accounting, the accounting records can be saved and backed up.

In manual accounting, the trial balance is prepared only when it is required, whereas, in computerized accounting, instant trial balance is provided on a daily basis.

In a manual accounting system, the financial statement is prepared at the end of the period, i.e. financial year. On the contrary, the financial statement is provided at the click of a button, in the computerized accounting system.

The main advantages of a computerized accounting system are listed below:

Speed – data entry onto the computer with its formatted screens and built-in databases of customers and supplier details and stock records can be carried out far more quickly than any manual processing.

Automatic document production – fast and accurate invoices, credit notes, purchase orders, printing statements and payroll documents are all done automatically.

Accuracy – there is less room for errors as only one accounting entry is needed for each transaction rather than two (or three) for a manual system.

Up-to-date information – the accounting records are automatically updated and so account balances (e.g. customer accounts) will always be up-to-date.

Availability of information – the data is instantly available and can be made available to different users in different locations at the same time.

Management information – reports can be produced which will help management monitor and control the business, for example the aged debtors analysis will show which customer accounts are overdue, trial balance, trading and profit and loss account and balance sheet.

GST/VAT return – the automatic creation of figures for the regular GST/VAT returns.

Legibility ­– the onscreen and printed data should always be legible and so will avoid errors caused by poor figures.

Efficiency – better use is made of resources and time; cash flow should improve through better debt collection and inventory control.

Staff motivation – the system will require staff to be trained to use new skills, which can make them feel more motivated. Further to this with many ‘off-the-shelf’ packages like MYOB the training can be outsourced and thus making a particular staff member less critical of business operations.

Cost savings – computerized accounting programs reduce staff time doing accounts and reduce audit expenses as records are neat, up-to-date and accurate.

Reduce frustration – management can be on top of their accounts and thus reduce stress levels associated with what is not known.

The ability to deal in multiple currencies easily – many computerized accounting packages now allow a business to trade in multiple currencies with ease. Problems associated with exchange rate changes are minimized.