What Is a Manual Accounting System?
A manual accounting system is a way of keeping business financial records with a written ledger of transactions. Computers and software are not used as part of a manual system.
While most modern businesses use computerized accounting packages, some firms still prefer a manual system. A manual system costs less because there is no expense for computer equipment, software and employee training. A manual system can be more secure because it does not use the Internet to transfer data to accountants or the IRS.
A disadvantage of a manual accounting system is that it is prone to mistakes, with no software in use to confirm calculations. Generating financial reports takes more time and effort, and paper records with no backup are more prone to destruction by fire or flood. Preparing tax returns takes longer when using a manual system. In the event of an audit, a manual system requires more man hours spent on gathering requested documentation.
Manual systems work best for smaller businesses and don't work well in companies with large numbers of financial transactions. Using paper requires that the bookkeeper be more knowledgeable in basic accounting principles than is necessary for an employee using accounting software. This makes it more challenging to find suitable employees to keep books, as fewer companies use manual accounting and more use computerized systems.