8 Reasons to Shift from Manual Accounting to Computerized Accounting

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Introduction

There is one key aspect which business owners have been typically neglecting over the years, which needs to be computerized just like the rest of the business. Yes, we are talking about the language of business – accounting. Just like how language is the backbone of communication, accounting is the backbone of the business. Like how we use language to communicate with the people around us, accounting is the basic language used to communicate all the crucial information that owners, managers, and investors need, to effectively evaluate a company’s financial performance. Unfortunately, business owners have typically underestimated the importance of accounting, and have considered it to be just, “an activity meant for the accountant”, whereas the very purpose of accounting is to help stakeholders, make better business decisions, by providing them with the right information.

Anybody who values his / her money will never want to run an organization or make any investment decisions without accurate and timely financial information. In other words, questioning why accounting is important, is as good as asking – “why are you bothered about where your money goes?”

With that perspective, it may be safe to conclude that the preferred step for businesses to take at this point – is to computerize their accounting as well, along with the rest of their business operations. Listed below are 8 reasons why you need to shift from Manual Accounting to Computerized Accounting.

Why shift from manual accounting to computerized accounting?

Speed

The main difference between manual and computerized systems is speed. Accounting software not only processes data and creates reports much faster than manual systems, but also allows faster data entry. Overall computerized accounting will save you a lot of time, as it allows documents such as invoices, purchase orders, and payroll to be collated and printed quickly and accurately.

Accuracy

Traditional manual accounting is a tedious process requiring accountants to spend copious amounts of time mathematically checking numbers in the company’s accounting information. Simple mistakes such as transposing numbers or entering information into the incorrect column could create significant errors. Computerized accounting systems allow accountants to process more information than before by creating accurate financial reports. Because of its efficiency and ease of use, computerized accounting systems also allow you to improve inventory control and payment collection, saving time and improving cash flow. Accountants can potentially spend less time looking for errors and more time analyzing information for decision purposes.

Automation

Manual accounting is a much more tedious compared to computerized accounting. You have to add columns accurately, double-check your work and physically write in numbers. These routine tasks are handled efficiently by computerized systems, which update records automatically, and on the go. All calculations are done automatically in software programs, minimizing errors and increasing efficiency.

Integration of accounting with other business processes

Accounting by itself is not an isolated activity. It is interlinked with other business processes, such as sales, purchases, banking, taxation etc. In manual accounting, in case a transaction is bound to affect different processes, you need to record it at multiple places to ensure that all the relevant ledgers are affected. In computerized accounting, all it takes is one instance of data entry, and all the integrated processes are accordingly taken care of.

Reporting

With a manual system, it can take time to locate the information from each book and compile it into a report. Under the manual system of accounting, data needs to be collated, aggregated and compiled to generate a particular report. In manual system ‘What If?’ analysis will be tedious. Computerized accounting allows for quick data retrieval. With a computerized accounting system, information or reports for a particular period of time can be compiled quickly, as accounting software will automatically pull all relevant ledger entries for the periodic reports. Computerized systems can also provide instant reports on stock evaluation, profit and loss, receivable and payable reports, payroll and sales analysis, again, allowing faster adjustments in your business strategy.

Compliance

Compliance is one of the crucial activities for any business, more so now, because of the introduction of GST. Businesses ideally want to be compliant, but also want to spend the least possible time on it, because of its time – consuming nature. Be it direct taxes (income tax, 44AB audits) or indirect (GST), it is almost next to impossible in the current day to handle all of this in manual books. Computerized accounting is the way forward, which allows for quick checks for transaction level compliance, matching of books and ultimately filing accurate returns based on accurate business data.

Backup

A crucial difference between manual and computerized systems is the ease of backup of a computerized system. All transactions can be saved and backed up, in case of fire or other mishaps. You cannot do this with paper records unless you make copies of all pages, which in itself is a long and inefficient process. Also in case of a mishap, computerized systems allow for quicker recovery from data loss.

Data storage, security & management

In manual systems, where accounts are maintained in books, it requires a lot of effort to store the crucial business data – as it requires space. Most importantly, the security of the data gets compromised, as the business owner needs to place his trust on a few individuals in his organization and hope that nothing will go wrong. Computerized accounting allows for a robust system for storing business data, such that it requires lesser efforts and costs to store data, and also allows for automated security levels to be set within the organization, which will give the business owner peace of mind.

Conclusion

In short, key business processes – accounts receivable, accounts payable, bank reconciliation, outstanding tracking, financial reporting, and compliance – are taken care of much faster, saving up a lot of time for a typical business. But, most importantly, it allows the business to become more efficient and focus on business growth – all the while making sure that it stays compliant as well – which is clearly the need of the hour in light of recent happenings.

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