Comparison between Manual and Computerised Accounting

 Comparison between Manual and Computerised Accounting

Accounting, by definition, is the process of identifying, recording, classifying

and summarising financial transactions to produce the financial reports for

their ultimate analysis. Let us understand these activities in the context of

manual and computerised accounting system.

• Identifying : The identification of transactions, based on application of

accounting principles is, common to both manual and computerised

accounting system.

• Recording : The recording of financial transactions, in manual accounting

system is through books of original entries while the data content of such

transactions is stored in a well-designed accounting database in

computerised accounting system.

• Classification : In a manual accounting system, transactions recorded in

the books of original entry are further classified by posting into ledger

accounts. This results in transaction data duplicity. In computerised

accounting, no such data duplication is made to cause classification of

transactions. In order to produce ledger accounts, the stored transaction

data is processed to appear as classified so that the same is presented in

the form of a report. Different forms of the same transaction data are

made available for being presented in various reports.

• Summarising : The transactions are summarised to produce trial balance

in manual accounting system by ascertaining the balances of various

accounts. As a result, preparation of ledger accounts becomes a prerequisite

for preparing the trial balance. However, in computerised

accounting, the originally stored transactions data are processed to churn

out the list of balances of various accounts to be finally shown in the trial

balance report. The generation of ledger accounts is not a necessary

condition for producing trial balance in a computerised accounting system.

• Adjusting Entries : In a manual accounting system, these entries are made

to adhere to the principle of cost matching revenue. These entries are

recorded to match the expenses of the accounting period with the revenues

generated by them. Some other adjusting entries may be made as part of

errors and rectification. However, in computerised accounting, Journal

vouchers are prepared and stored to follow the principle of cost matching

revenue, but there is nothing like passing adjusting entries for errors and

rectification, except for rectifying an error of principle by having recorded

a wrong voucher such as using payment voucher for a receipt transaction.

• Financial Statements : In a manual system of accounting, the preparation

of financial statements pre-supposes the availability of trial balance. However,

in computerised accounting, there is no such requirement. The generation

of financial statements is independent of producing the trial balance because

such statements can be prepared by direct processing of originally stored

transaction data.

• Closing the Books : After the preparation of financial reports, the accountants make

preparations for the next accounting period. This is achieved by posting of

closing and reversing journal entries. In computerised accounting, there is

year-end processing to create and store opening balances of accounts in

database.

It may be observed that conceptually, the accounting process is identical

regardless of the technology used.

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