Comparison of Manual and Computerized Accounting Software

Abstract

Improvement in efficiency of business activities by automating its daily operations the use of Computerized accounting system by many organizations rapidly increased. Computerized Accounting system significantly increases the performance of business. Computerized Accounting focuses on to collect, record and processes data and information and extract results, preparing reports for internal and external stakeholders. This study gives a comparison about computerized and manual accounting system and evaluation of it in current rapidly changing business environment, which system is more effective. 

Introduction

Emergence of technology developments changed the ways of doing businesses. Businesses through Internet, new accounting and economic models all are the results of information technology developments. In addition these changes not only decreased time, cost and money but also facilitating increased transactions and communication for businesses. Computerized accounting system had made it possible to process more information, increased capacity to store information, capability of analyzing massive amount of data, and increased the use of information and producing accurate and timely reports. 

The rapid technological advancement has changed the way the business operates in the world. This make possible to people to communicate anywhere from the globe. By using internet now people have expanded social networks and interpersonal relationships. Now people’s Personal life is also highly dependent on the technology developed. Through the years Technology has advanced and has changed every aspect of human’s life, their way of purchasing products, their life style, living style; their communication way, traveling, learning etc through these continuous technological advancements. The change in people’s demands changes the demand of type of technology. For better standards everything they use has been refurnished. Since last few decades, there has been a drastic change from manual to automated accounting systems. Although a pencil entry into a sales journal is ended but understanding of double entry systems and the data flow through a manual system is vital. Instead of manual accounting done by business owners in the past, now accounting is done with the help of computers. That’s why business is amongst one of the witnesses of rapidly changing world. An Effective and advance software system is of great importance. In Manual accounting, whole accounting cycle was performed by the employee manually on a periodic basis: trial balances calculations journalize transactions, financial statements preparations, reports and routine processes. These all are time, efforts and resource consuming in large organizations. While computerized accounting only require recording of transactions into the computer it automatically processes the other steps of accounting cycle or also on a request. But this is not very simplified view as it seems. Every organization has a complex category of transaction which includes sales, acquisitions, depreciation, dividends, premiums, wages calculation, etc. But accurate calculations and quick and smart reports provided by computer needed much time, resources and effort and choice of which accounting type is faster and economical is difficult to access. Trained accountants require who can use specific software of the computerized system and thus costs more. You have to clearly explain what you exactly need because computers don’t know what you need. A good computerized accounting system cost thousands and millions of dollars. This cost depends upon the complexity and the size of the organization. In Contrast to manual internal control system which was time consuming, the computerized accounting system by controlling thousands controlling indicators simultaneously gives better internal control report system for any given period of time and create notifications for appropriate timely corrective action to management by departments or workers if some indicators do not correspond to the normal state. 

Why we need comparison between Manual and Computerized accounting System?

With the changing environment, change is also occurred in use of accounting information. Now information’s are used to meet the needs of multi-users and become expanded, including all levels of management, government agencies, investment bodies outside, intermediary organizations, and so on, included accountant and non-accountant in contrast to traditional accounting information system which provides information only for narrow users such as financial statements required by financial executive. By recording all business economic activities and resources in databases, it helps users on interactive interface through event driven keys to get the required information’s they want. 

According to the value chain management, business activities should be the value-added process, and account is mean of a measure of the value of economic activity, so, any economic activity can be reflected and measured through the accounting information system. 

Account is the function of control and supervision of economic activities in an organization. For pre control and post control, traditional manual account can only do post control inspection and errors could not be avoided. Computerized system integrating real-time processing, budget management, standard cost, authorized the approval process control etc. It enables employees to manage their own activities by change from passive to active, based on the standard budget, do Real-time check, control, and timely identify problems, correct deviations and do truly afterwards, in advance and in concurrent Control. 

If we compare computerized verses manual accounting then computerized accounting has many advantages over traditional manual accounting. Computerized accounting tends to be faster, easy to use, accurate and precise than its manual counterpart. In this era of Information and communication Technology, computerized accounting is used in every type and size of businesses. So, anyone who is planning to enter in accounting field at any level should be familiar with its principles and operation. 

Is “manual Accounting system” out of date?

Manual accounting system is very detailed because accountants is very careful while enter information into physical books. Manual accounting system can deliver timely and accurate information if developed correctly and can apply in any type of businesses. As compared to computerized accounting system it is more flexible and easier to set up. Unlike the computerized, comparatively cheap resources and workforce, reliability, independence from external breakdowns of electricity or machines, skilled workers, easy availability are the advantages of manual accounting. On the other hand, users of manual accounting system disagree with this argument that manual accounting system affects their decision making. It appears that some small businesses do not have any formal accounting system. Since they just use their records for compliance purposes, their accounting records do not affect their decision making. 

Processing of data in the computerized accounting system is basically in the same manner as it does in a manual system. On source documents Transactions are initially recorded manually. From these source documents data are key punched into punched cards, which is read by the computer. Now computer ready to processes the information and performs routine tasks of posting and printing of transaction journals, ledger accounts, account balances and preparations of financial statements and reports. 

Manual accounting can be computed by either using actual paper journal and ledger sheets or by creating these sheets in a computer program such as excel. It is considered manual because each transaction is entered into the systems individually. The manual system though it requires a greater understanding of how to book keep, can be easier to manage. It is easier to set up. It can be more flexible than a computerized accounting system. Unlike the computerized, it does not need electricity or battery. Comparative cheap workforce and resources, reliability, independence from machines, and skilled workers availability are the advantages of manual accounting. 

Is computerized accounting system a “necessity?”

Due to globalization every organization facing tough competition and everyone want to invest in rapidly fast growing business. Continued evolution of business requires more development and improvement in financial management operations and practices to minimize the problems these organizations encountered s. Computerized Accounting Systems now became the “backbone” in today's interconnected, computerized, global business environment. To speed up routine transactions, quick analysis, facilitation in decision making, timeliness, accuracy and true reporting etc all require involving the computerization of accounting information systems. It is believed that the manual system has its own advantages over the computerized accounting system. It is also observed that organizations that still use manual accounting now are planning to change it to the computerized accounting system. 

Computerized accounting system electronically imports information rather than engaging employees to input financial transactions into the general ledger. Under specific rules and guidelines management can also set up internal procedures in an accounting software application. This helps accountants to spend more time on reporting and analyzing information rather than spending more time on inputting the data. Computerized accounting system without changing the accounting principles, handles large volume of data with speed, effectively, efficiently and accurately and produce quality and reliable work. Likewise, Romano (2013) emphasizes that by using computerized accounting system, accounting data can be easily access outside of the office securely. It is more efficient than paper based accounting, saving time and work will be done faster. For an important report, People do not have to wait for hours, even days. But all these benefits have to pay a cost of highly skilled worker, high cost of resources and effort too and it is difficult to assess which accounting type is faster and economic. In less time Computer accounting provides better internal control report system as compared to manual for any given period of time. For decision making purpose it generate timely and accurate reports of all types needed by management such as variance analysis and budget analysis. The computerized system also provides reliability for routine work, high speed and mobility of reporting, increased productivity, easy back up and restoration of records, increased accuracy. However, the computerized accounting system supporter said that their accounting system is easier to set up as compared to manual. But the need of trained and skilled accountant would be a burden for the organization that uses computerized accounting system. The choice of the best fit appropriate system according to the nature of business is also a difficult task. 

The rapid advancement in information technology, the wide spread of user-friendly software applications and the over reliance on information system by organizations to perform their operations have increased security threats to the information system which in turn have affected business activities

The usage of Information Technology has been a challenge to some users and companies. This is due to the constant evolution of technologies and new things coming up daily. A challenge is that of language, as well as technicality, some of this computer software comes in languages that cannot easily be understood by the users, they have features that involve codes and other computer languages. Therefore, workers have to under-go a level of training before usage, to enjoy the benefits. Another challenge is the difficulty to adjust to such frequent changes. Some workers may lose interest and this may lower job morale, but others may see it as a task in order to maintain relevance and it gives them a job focus. Generically, there is difficulty in the measurement of the cost and benefits of ICT on organizational performance as it is a wide qualitative factor that cannot be measured easily, numerically. Though, proved that information technology has brought about positive changes in organizations, familiarization has not been the easiest. Organizations have to follow the trend, to be up-to-date, and so have to investment as much as they can. 

Challenges in the Adoption and Implementation of Information Technology

Despite of greater advantages of ICT on accounting system and organizational performance, there are also many drawbacks. While business organizatios adopting and implementing IT, the sources of challenges that may arise will be:

1. Infrastructure Cost: To set up an information technology system, full fledged infrastructure of IT required which included all the components of IT. And IT specialist is also needed to design, install, fix and maintain the systems and to maximize the usage of such technologies and systems and to train others. Without such infrastructures organizations cannot enjoy the maximum benefit of adopting IT. 
2. Training and Qualification: Today organizations heavily invest on trained and qualified staff in order to make efficient use of the new technologies. It is of great expense and cost to the organization to continuously train staff, and lack of required qualifications and skills, leads to difficulty in implementing IT. 
3. Adaptability and Responsiveness: Adaptation and positive response to change is a big challenge for organization despite of invests in training of their staff to boost their qualifications. Non response and unwilling to go with change result in less productive worker and organizations failed to take benefit of adopting IT in the system. 
4. Management Systems: It is hard to adopt and implement an IT system in rigid management system in organizational settings where the management is unwilling to change and evolve with the world. If such management continue behave like that, eventually the business will become less competitive and irrelevant. Management system should be volatile, to influence the lower level workers positively to become IT oriented. 
5. Cost: Computerized accounting system is great investment. This involves investing money, time, intellect and others. It also cost on acquiring the components such as hardware, computer components and setting up the software, maintenance cost etc. The amount of staff needed may be reduced in organizations where most of its activities taken over by computers and other electronics. Less worker requirement in adopting computerized accounting system results in resistance to change, low morale and job security, a high level of no productivity and inefficiency. The inefficiency of workers cost the business overall success and its profit. Adoption and implementation of computerized accounting system may not only cost the business and employees, but also affect the economy. Laying off workers and replaced by machines, this increases the number of unemployed people in the economy. 

Summary

Information technologies development, international legal arrangements and globalization, have generated new concepts of “new economy”, “new accounting” and “e-commerce”. By accelerating transactions and communication these are useful in saving time and money and reducing the costs. With the developments of information technologies, all or some of the financial transactions in a business transferred to different forms as electronic commerce and electronic data exchange in electronic environments. This result in the shifting of financial transactions from the paper-based traditional environment to the electronic environment of accounting information system and therefore, resulted in changes in all accounting processes such as recording, classifying, reporting and analysis. This change has also affected traditional accounting applications of keeping the books, auditing activities, preparing financial statements, tax statements, and, the activities of the members of the accounting profession at the same time. 

Information Technology has proved to be a relevant and inevitable factor in accounting system and organizational performance. It can be said that IT has been able to increase the speed in preparation of accounting reports, reliability and accuracy of such reports, which has an effect of transparent and honest dealings of the organization with customers, partners and outsiders, thereby boosting the overall success of such organization. ICT has had great effects on both accounting system in an organization and their organizational performance. The extent to which is so high that it covers for the few disadvantages. It has been provided advantages on communication, globalization and creation of jobs. The efficiency of accounting practice and increased productivity and high turnover as well as the profit of any organization is as a result of the impact of ICT. 

All the studies examined contain the idea that, to get to a more competitive position, the firm should balance ICT investments with a suitable use of these technologies, for which, supporting resources are required. As the world is going global and electronic, most organizations are encouraged to stay in business by adopting technology and involving computers in most of their operations. ICT is similar everywhere, so therefore its usage cannot just be limited to a certain category of places, people or machines. It is universal. 

From the analysis of research paper work, It is clear that computerized accounting system has significant impact on organizational performance. In recent time, for survival of organization in this rapidly changing business environment, organizations must stay relevant by incorporating ICT systems into their operations. To go extra miles, businesses now go to invest greatly in ICT for rich return without being which a huge risk. 

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