Manual Accounting Versus Computerized Accounting

As many professional accountants and auditors stateand communication, which are assessed separately
- accounting is a language of business which isand put together a single rate of organization's
accepted in all developed and developing countries.performance. Control environment means the way of
Every company applies accounting because it isorganization's internal control - which manager controls
generally accepted that companies have to revealthe employees, how and whom does that manager
certain financial and management information to thereports next about the plan performance etc. Risk
government and public users and of course becauseassessment implies measures to determine all the
accounting is indispensable tool in businesspotential risks in advance, their causes, probabilities and
decision-making process. With the development ofcounter-measures to avoid and manage them; how
information technologies there were developed manycan those risks influence company's performance and
computer products (software) that make accountingfinancial state; how to minimize the costs of facing
as easy as ABC for those who uses them. From thisfinancial risks etc. Monitoring implies quality control of
point accounting can be divided into two basiccompany's operations and personnel. Information and
categories: those which apply manual accounting andcommunication element means the control over
those which prefer computerized accounting systems.communication flow and the quality of information flow
This paper is targets the main features of manual andwithin the organization in order to minimize the time of
computerized accounting, their benefits andcommunication and information losses. Internal control
shortcomings, and their comparison.procedures allow to keep companies' assets from
From the accounting theory it is known that accountingdissipation and control productivity and usefulness of all
cycle includes the following steps: journalizing thedepartments.
transactions, posting them to ledger accounts,Buy custom essays
preparing trial balance, making adjustment entries,Let's return to the main issue of the paper. Manual
preparing adjusted to end-of-period trial balance,accounting implies that employees perform the whole
preparing financial statements and appropriateaccounting cycle manually on a periodic basis: they
disclosures, journalizing and posting the closing entries,calculate trial balances, journalize transactions, prepare
and preparing after-closing trial balance at last. Fromfinancial statement reports and other routines. Of
the first look it is not very difficult and it is so indeed,course it takes much time, resources and effort in
but when there are thousands or millions oflarge organizations. Computerized accounting implies
transactions the situation dramatically changes. Lots ofthat the only thing that employees do is recording
transactions that must be processed in the accountingtransactions into the computer which processes the
cycle make this process routine and even a littleother steps of accounting cycle automatically or by a
mistake or inaccuracy can cause all the cycle fromrequest. But this is a very simplified view on the
the very beginning in order to find and correct thecomputerized accounting because transaction is a
mistake. So as to shed some light on the matter letscomplex category which includes not only sales or
examine accounting cycle more thoroughly.acquisitions, but depreciation, premiums and wages
Buy custom written essay & term papercalculation, dividends etc. So computers provide
Every transaction (event that change the financialaccurate calculations and smart reports but it takes
resources or obligations of the company) must bemuch time, resources and effort too and it's difficult to
recognized, classified and documented; in addition thereassess which accounting type is more fast and
must be corresponding accounts identified andeconomic. If manual accounting requires qualified
changed. The transactions are recorded in appropriateaccountants to keep a record of business
journals (general journal, sales journal etc) withtransactions, computerized requires accountants which
transaction data, affected accounts' titles, debit andcan use specific software and thus they cost more.
credit of each affected account and explanationComputer software calculates faster but it does not
specified in the journal record. The above procedure isknow what you need until you can clearly explain what
used for each transaction. All the journal records mustexactly you need. In addition good computerized
be posted to the ledger on a periodic basis (daily oraccounting system can cost thousands and even
weekly), which is a group of accounts put togethermillions dollars, depending on the complexity and the
and classified (assets, liabilities, revenue, expenses andsize of organization. Computerized accounting provides
equity) - in other words general ledger summarizes allbetter internal control report system for any given
the transactions within a period of time. In addition thereperiod of time (computer can control thousands
is a subsidiary ledger can be used, which is a moreindicators simultaneously and create notifications to the
detailed source, where individual items comprisedappropriate departments or workers if some indicators
(inventory, accounts payable and accounts receivable).do not correspond to the normal state), while manual
General ledger contains controlling accounts whichcontrol takes more time.
summarize the content of subsidiary ledger.Among the advantages of manual accounting there
At the end of accounting period with the help ofare: comparatively cheap workforce and resources,
general ledger there is a trial balance calculated toreliability, independence from machines, skilled workers
make sure that debit and credit are in balance (if theyavailability; the disadvantages include: reduced speed,
are not equal it means that there is an errorincreased effort of accountants, relatively slower
somewhere). Then there must be appropriateinternal control reporting, routine work and some others.
adjustments made like depreciation and income taxAmong the main advantages of computerized
expenses, adjusted records posted to the ledger andaccounting there are: high speed and mobility of
adjusted trial balance calculated. After this there arereporting, reliability, no routine work, increased accuracy,
financial statements should be prepared, which includeinternal control system of increased productivity, easy
balance sheet, income statement, statement ofback up and restoration of records; the disadvantages
retained earnings and statement of cash flows. Theninclude: extremely high costs on developing, introducing
journal entries of temporary accounts are closed toand using the system, special trainings for personnel,
permanent accounts and posted to the ledger, and atincreased personnel costs, dependence on machines
last after-closing trial balance can prepared.etc.
In order to stay on top companies have to analyze theObviously both computerized and manual accounting
performance of all organizational cells (starting fromhave advantages and disadvantages but they perform
unskilled workers and operating personnel, and finishingthe same task, and the final result is the same. The
with top managers and other key personnel) andmain differences between them are the costs, speed
discover all the deviations from the plan, their causes,and mobility. Thus small and medium businesses usually
and finally companies' management has to takeprefer manual accounting without detriment to quality
corresponding measures to avoid such deviations inwhile large corporations apply complex accounting
the future. These procedures are called internalsystems which cost millions dollars but the effect from
controls and include the following five elements: controltheir application exceeds all the expectations.
environment, risk assessment, monitoring, information