Manual Accounting Vs Software based Accounting

 

Accounting is a process of recording financial transactions. Visicalc is the first accounting software which enabled financial modeling on the computer in 1978. Later on, Peachtree was introduced as the first accounting package software for the personal computer. Now a day, we have a lot of accounting software like Sage, QuickBooks, IRIS, PTP, Vt Transaction+, Oasis, Excel, Oracle, SAP, Xero etc.

Manual Accounting: Accounting works step by step. All steps are shown below:

1.      1. Journal (Initial or daily record book)

2.     2.  Ledger (Final book of recording transactions individually)

3.      3. Trial balance (Prepared from all ledgers balances)

4.      4. Adjustment entries (Given before the financial statement)

5.      5. Adjusted trial balance (this trial balance prepared after the adjustment entries)

6.      6. Financial Statement (Income statement & Balance sheet)

We used to record our entries manually before inventing the accounting software. If a person understands the manual accounting, he can easily understand any accounting software. Manual accountings are mainly based on following:

a)      Sales day book (SDB): All credit sales are recorded in SDB. The journal of SDB is:

Accounts Receivable (individual receivable)                          Dr

Sales                                                                                         Cr

b)     Cash/card sales book: All cash, cheques and credit card sales are recorded in this book. The journal of cash book is:

Cash in hand/Petty cash                                                            Dr

Sales                                                                                          Cr

c)      Purchase day book (PDB): All credit purchases are recorded in PDB. The journal of PDB is:

Cost of goods purchase/ Expenses                                             Dr

Accounts Payable (individual payable)                                      Cr

d)     Petty Cash Account: All cash purchases are recorded in petty cash. The journal of petty cash is:

Cost of goods purchase/Expenses                                               Dr

Petty Cash                                                                                    Cr

e)     Bank Receipt: All bank receipts are listed or recoded in this section. The common journal of bank receipt is:

Bank a/c                                                                                        Dr

Accounts receivable                                                                      Cr

f)       Bank Payment: All bank payments are recorded in this section. The of bank payment is:

Accounts Payable                                                                           Dr

Bank a/c                                                                                          Cr

g)  Bank reconciliation: After recording all the bank receipts and payments, bank reconciliation is prepared.

h)     Individual ledger: Individual ledger for all accounts recorded in above mentioned ( a to f) are prepared after the bank reconciliation.

i)       Trial balance (TB): TB is prepared by the individual ledger balance.

j)       Adjustment entries: After TB, adjustment entries are prepared for Financial statement.

k)      Adjusted Trial Balance: Adjusted trial balance is prepared after doing the all adjustments.

l)       Financial statement: Income statement and balance sheet are prepared from the adjusted trial balance.

Software based accounting: Accounting software also follow all the manual accounting steps. Software complete all the steps automatically after recording the transactions in the AP, AR and Bank modules. As per my experiences, many of our qualified accountants become confused how the full accounting process work in software.  That’s why they struggled a lot while using new accounting software.

Due to use of control account, they also get confused and can’t be able to match their academic knowledge with the practical work.  Organizations use the control account for showing the integrated balance in trial balance instead of showing all individual accounts separately. For example, accounts payable will show the total value of accounts payable rather than showing all payable vendors ledger in trial balance. Big organizations are mostly used to using the control account for accounts receivable & payable, petty cash, corporate credit card accounts etc. Also, when we record any GL entries in software, those are basically adjustment entries for doing the adjusted trial balance.

I strongly believe that if anyone know how the manual accounting works, he or she can easily use any accounting software easily within couple of days training of software.

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