Manual vs. Automated Accounting Management

We’re already living in the 21st century where almost everything is automated from client communications through chatbots and employee time tracking through automated machines, but still many small and large businesses are still using the traditional ‘manual’ way of accounting management. If manual accounting works for you, of course, you can keep doing it. After all, the accounting standards are going to be the same; whether you use ledgers or laptops.

However, this can be said only for small businesses with limited numbers of financial transactions. When your business grows, the number of transactions you need to record grows too. At such a moment, you might want to think ‘Should I jump to automated accounting?’ or ‘How is automated accounting different than manual accounting?’ Well, we’re going to discuss the same in this detailed blog.

Manual Accounting

Manual accounting, as the name suggests, is the traditional way to keep financial records by hand, instead of using computers or automated accounting software systems. These systems may be still common in global small businesses with a few or limited transactions and simple finances. With manual accounting, you’ll only need to record the transactions into a paper spreadsheet or a ledger, using a calculator to do any calculations. This can be good for revenue growth management. With this method of accounting system, it is also possible to draft tax returns and financial statements by hand, without computers.

Automated Accounting

In this highly advanced world, where almost everything is automated, the involvement of automation technology in the accounting and financial world is not new. Global businesses as well as small business accounting firms are already using this technology to reduce workload. These systems are backed by Artificial Intelligence (AI) and Machine Learning (ML) technologies to help manage a company’s bookkeeping. An accounting professional will enter financial transactions into a basic software program that adjusts account balances for them. However, automated accounting can do much more, such as entering one transaction into multiple accounts.

Difference between Manual & Automated Accounting

Time

Whether you are running a small business accounting firm or a company, opting for an automated accounting system can be a much better option as this saves a lot of your time compared to the traditional manual accounting system. As a result, you will have enough time to spend on other important and business-growth-related tasks. For example, accounting software can be used to enter one transaction into multiple relevant accounts simultaneously. It can also track sales tax rates in multiple locations, among many other time-saving features and functions.

Error

If you have been following the same traditional accounting method, you’d have noticed how even a minor error can result in a drastic change in the final calculation. Even a moment’s distraction can result in an error. For example, can turn 2,100 into 1,200 or 210. And when the final amount is calculated, which looks incorrect, you’ll then have to check the overall entries once again. It may require hours to track down where you went wrong. Since automated financial systems reduce the amount of manual data entry, there are least or no chances of typo errors. That’s a win for automation and your business.

Reliability

When there is no need to enter the transactions manually, your accounting system becomes more reliable and accurate. It is very important because your overall business growth may be dependent on good accounting. For example, you’d have the opportunity to identify the product line that is generating the maximum profits or even know a reason behind the overhead running high. This is all possible when you are using an automated system or simply outsourcing accounting to a professional small business accounting firm.

Corrections

We already discussed above that identifying even a single error in accounting transactions can take hours. For example, if the actual amount was 1300 and you mistakenly entered 130, it can make a huge error in the final calculation. If it goes unnoticed, things can become even more drastic as this can destroy your sales tax calculations, accounts receivable, cash, net income, and multiple other accounts. Unlike the manual accounting system, the automated one lets you easily identify errors and make corrections accordingly within seconds, making it easier to ensure accurate revenue growth management.

Cost Differences

When choosing the right type of accounting system (manual accounting or automated accounting) cost plays a vital role. When you are running a small business with a tight budget, opting for manual accounting can be much cheaper than investing in a top-flight automated accounting system. But you should not also underestimate the benefits an automated system can offer as this saves a lot of your time and can also ensure accurate accounting transactions, which can benefit your business in the long run. While the upfront automated accounting costs are higher, it puts you in a better position to manage accounting and finances in a hassle-free manner.

Tax & Accounting Simplified

Knowing that automated accounting is a faster and more accurate way of accounting, we can say that automated systems can help make tax and accounting sessions simple and hassle-free. Not just this, but you will have more confidence in yourself that all the entries in the system are accurate, even when you’re being audited. Opting for an automated accounting system is a much better choice as it can also eliminate the risk of losing your paper-based files as all the accounting files are safe on the cloud platform.

Final Words

While opting for manual accounting can be a cheaper alternative, but it is always better to go with the better and more accurate way, which is the automated accounting system. If you’re not having experience in the field, it is suggested to simply outsource your accounting needs to an experienced small business accounting firm that you can trust. This way, you can concentrate on your business growth while ensuring that the accounting is being handled by trained professionals using advanced systems and software.