What is a Manual System?

A manual system is a bookkeeping system where records are maintained by hand, without using a computer system. Instead, transactions are written in journals, from which the information is manually rolled up into a set of financial statements. These systems suffer from a high error rate, and are much slower than computerized systems. Manual systems are most commonly found in small enterprises that have few transactions, and which operate from a single location.

Advantages of a Manual System

Using a manual accounting system has several advantages, despite the prevalence of digital and automated systems in most organizations. Some of the key benefits include the following:

Minimal cost. Manual accounting systems are often less expensive to set up and maintain since they don’t require specialized software, hardware, or technical support. Only basic materials like ledgers, journals, and calculators are needed.
Simplicity. Manual systems are straightforward to understand and operate, especially for small businesses with limited transaction volumes. They do not require training in software or dealing with system updates and technical glitches.
Avoids technology. Manual accounting doesn’t rely on computers, software, or electricity, making it more reliable in environments with limited technological infrastructure. Therefore, there is no risk of data loss due to system crashes, cyberattacks, or hardware failures.
Enhanced data security. Sensitive financial data remains secure in a manual system since it is not stored digitally and is less vulnerable to hacking or unauthorized access.

While manual accounting systems are less efficient and scalable for larger businesses or those with complex needs, they remain a viable option for smaller operations, individuals, or organizations looking for simplicity and cost-efficiency.

Disadvantages of a Manual System

There are several problems with a manual system. First, it relies on a high level of accountant accuracy in the entry of transactions, so an inexperienced accountant will likely enter a number of mistakes. It can be quite time-consuming to manually find and correct these errors. A second concern is that they require a large amount of documentation, which would not have been the case with a computerized system. This can be a major problem when a company’s operations are transaction-intensive, and require large numbers of supplier invoices, customer invoices, employee compensation payments, and so forth. The result can be a large amount of storage space, which can be expensive when a business is located in a high-rent district. A third concern is that it results in inefficient recordkeeping when a business expands into multiple locations, since all transactions must be sent to the central location for recordation into the manual system. In total, these concerns are significant, and should drive most company owners in the direction of using a computerized system.