Manual Accounting Vs. Digital Accounting – Pros and Cons
Today, businesses are aiming for superior operational efficiency. It spans all the functions of a business. Regarding accounting, manual systems used to be a common approach to handling numbers. But, we are witnessing that organizations are coming to grips with the modern technologies to reconcile, consolidate, and report their fiscal and financial position.
Accounting software helps automate accounting processes and business continuity, and we witnessed this during the 2019 pandemic when remote accounting workforces could perform their accounting activities without any hindrances. Finance and accounting are orchestrated through tools to bring out efficiency in operational accounting.
Unfortunately, a few businesses are yet to invest in accounts automation tools for various reasons. Manually maintaining accounting processes is challenging—manual and digital accounting functions on the same rules and regulations. Yet, what sets them apart is their implementation methods. One works in a traditional manner where a book is used to collect financial data, and the other works with software to keep all the financial records under one dashboard.
The grandeur of accounting software has spread so rapidly that its market is determined to cross $20,408 million by the end of 2026 at an 8.02% CAGR. Thus, this article will address the difference between manual accounting methods and digital accounting software to explain which is more impactful for your business.
How does Manual Accounting & Digital Accounting Work?
Accounting is documenting, maintaining, reporting, and utilizing an organization’s financial activities. This recorded information is a mirror reflection of the profit and loss incurred by the company. Hence, having documented data on every financial transaction is necessary to run a business.
Traditionally, the accounting process was done manually. It was complicated, and one error cost the company huge. In Manual Accounting, accountants and bookkeepers write every financial transaction of an organization and take care of all the accounting affairs.
With digitalization, accounting processes also went through an evolution. Today, the process is carried out with modern, next-generation, cloud-based, or on-premise accounting software. An accounting tool is a computer-based accounts management system responsible for storing every transaction of your business. Accounting Software for small businesses is in great demand today, with more startups opting for suitable investment in technologies. Medium-sized firm owners to corporate giants opt for financial accounting software to streamline money with workflow.
Manual Accounting VS Digital Accounting
Although digital accounting is picking up in a big way, with more and more businesses opting for digitization, a few companies are still following the traditional manual process. The following section will highlight the pros and cons of manual accounting and digital accounting.
Storage & Backup:
In manual accounting, accountants must consciously write entries in multiple places affecting many accounts. Digital accounting software is easy because accountants must enter only one entry in a single dashboard. The accounting software automatically integrates the information with the other systems and workflows.
Cons: Traditional accounting requires 100% attention of accountants as they have to do all the calculations manually and ensure there are no errors, or it can lead to a big financial data fiasco. Hence, it becomes exhausting work for employees, and finding a mistake can be a gruesome task for a human. This situation creates a slow workflow, and the organization cannot take advantage of human power in the accounting department.
Pros: Accounting software deals with trivial entries that take place daily. Due to automatic multi-entries, accountants’ work gets reduced. They can focus on more essential details of business and ensure the integration of digital accounting software with every department creates a flawless and smooth workflow in the company. So, an efficient digital accounting system takes the upper hand in storing and backing the accounting information.
Data Access, Entry, Correction & Compliance:
In manual accounting, accountants must write entries in multiple places that affect many accounts. Digital accounting software is easy because accountants need to enter only one entry and the accounting software automatically fills the rest of the entries.
Cons: Traditional accounting requires 100% attention of accountants as they have to do all the calculation manual and make sure there are no errors anywhere, or it can lead to a big financial data fiasco. Hence, it becomes exhausting work for employees, and finding a mistake can be a gruesome task for a human. This situation creates a slow workflow, and the organization cannot take advantage of human power in the accounting department.
Pros: Accounting software deals with trivial entries that take place daily. Due to automatic multi-entries, accountants’ work gets reduced. They can focus on more essential details of business and ensure the integration of financial accounting software with every department creates a flawless and smooth workflow in the company.
Tax & Audit Trails:
The motive of keeping such records is to understand business progress and performance with an overview of its monetary activities. This data helps set a firm foot in the market and helps in cost-cutting. At the end of the year, such information is used to file tax details. Hence, analytical data helps to identify and rectify mistakes and also to do taxation.
Cons: Collecting past data and producing a file as an overview of the past year or running year can become a gruesome task for accounts in traditional accounting. Additionally, scrutinizing is a time-consuming job for a human. Auditing becomes a lengthy and mind-numbing process in this scenario. Accountants have to be careful while filing tax details because of legalities.
Pros: With digital accounting software, finding a mistake is a cakewalk as the system can easily catch and rectify it. In addition, digital accounting software can smoothly convert a large amount of information into a report to get a gist of every moment. Audits are quick and easy due to accounting software’s efficiency because the system can quickly assess and highlight a trail of mistakes. Digital accounting software can automatically produce tax files and remind accountants about them. Preparing legal files is easier and more accurate.
Budget & Time Effectiveness:
Accounting is a time-consuming process that demands focus and energy. Traditional accounting requires sufficient human power to keep the data up-to-date. Digital accounting software behaves proactively, where humans don’t have to pay attention to all the small details. The system is also capable of generating reports, files, etc.
Cons: In manual accounting, an organization needs knowledgeable staff in the accounting department, and sometimes even experts are invited to provide insights to save money, which can be expensive. Moreover, humans are bound to make mistakes in monotonous work. Recording transactions in multiple accounts is complex work, so a human’s lack of attentiveness can reduce workflow speed and create errors.
Pros: Digital accounting software continuously takes care of daily finance details and updates in real-time. With minimal human interactions, the system is prone to make fewer to almost no mistakes and is easy to use. Additionally, when accounting software takes care of fundamental actions, accountants can focus their energy on capitalization, cost reduction, etc.
Statement Visibility & Transparency:
Ledger keeping is a method for understanding the overall budget, profit-loss, expenses-income, etc. Based on such details, owners are capable of making crucial decisions for the business. It is not always possible to avert fraudulent activities and losses with manually maintained records.
Cons: Keeping track of every transaction is not possible in traditional accounting. That’s why accountants always have to be alarmed about every financial move, which is a dreadful task. Plus, this method has more chances of employees committing fraud because manual accounting doesn’t keep an active eye on everything. Statement visibility and transparency are a big challenge with this method.
Pros: When it comes to digital accounting software, every transaction is updated in real-time. Thus, it builds a trustworthy and lucid workflow. Money trails, payment methods, vendor payments, etc., help to give clarity to businesses.
In short, the traditional accounting method is outdated due to many drawbacks, as mentioned. Digital accounting software has brought the beginning of a new era that demands real-time, automated, integrated business process management.
Soon to be obsolete, the traditional accounting system is slowly losing its charm due to its lack of authenticity, speed, and adaptability. On the other hand, efficiency, reliability, data quality, accuracy, and ease of use are the major characteristics of robust financial accounting software used to enhance business performance these days. Therefore, most business owners are willing to transform to digital accounting software to improve controls and keep the company on the financial track.