Difference Between Accounting

Concepts and Conventions

Accounting Concepts vs Conventions
At the end of each financial year, financial statements are prepared by firms for a number
of purposes, which include summarizing all activities and transactions, review the firm’s
financial status, evaluate performance, and to make comparisons between previous years,
competitors, and industry benchmarks. The financial statements prepared must be
consistent and comparable and must also offer a true and fair view of the firm’s financial
standing. In order to ensure that these standards of accuracy, fairness and consistency are
met, a number of accounting concepts and conventions have been developed. While both
aim to offer a more realistic and true view of the firm’s financial statements, there are a
number of subtle differences between accounting concepts and conventions. The article
clearly explains what is meant by accounting concepts and accounting conventions and
highlights the similarities and differences between accounting concepts and conventions.

What are Accounting Concepts?

Accounting concepts refer to a set of principles set in place that ensures that accounting
information is presented in a true and fair manner. There are a number of concepts that
have been established as standard accounting principles. These concepts have been
created by professional organizations and may also be backed by law and governing bodies
as the standard principles that need to be followed when preparing financial statements.
Accounting concepts include the going concern concept, accruals concept, the
prudence concept, realization concept, money measurement concept, dual aspect
concept, etc.

What are Accounting Conventions?

Accounting conventions are a set of practices that are generally accepted and followed by
accountants. These conventions have been established over time, and are followed as a
practice and can change depending on the changes in the financial landscape. Accounting
conventions are practices that are generally accepted to be the norm and are not recorded
or written down in a formal manner by professional bodies or governing organizations.
Accounting conventions can cover a range of issues including how to handle situations
ethically, what measures to take when faced with specific issues, how to report and disclose
specific sensitive information, etc. With the rise of new accounting issues, new financial
products, and changes in the financial reporting landscape, new conventions shall be
developed. Examples of conventions include consistency, objectivity, disclosure,
etc.

What is the difference between Accounting Concepts and Conventions?

Accounting concepts and conventions are a set of standard methodologies, guidelines and
procedures when preparing financial statements, thereby ensure that accounting
information is prepared in a manner which is consistent, true, fair and accurate. Accounting
concepts and conventions are accepted worldwide as the norm for financial reporting
practices. As such, all accounts prepared according to the concepts and conventions are
uniform in nature and can be easily used in comparisons and evaluation. The uniformity
also reduces any confusion and makes it easier and simpler to understand. Accounting
conventions may have to be developed to cater to changes in the financial reporting
landscape. These conventions may eventually be made official accounting concepts and
added onto the list of standards that are to be followed.

The main difference between accounting concepts and conventions is that, “Accounting
concepts are officially recorded, whereas accounting conventions are not officially
recorded and are followed as generally accepted guidelines”. Accounting concepts
have been established by professional organizations and are standard principles that must
be followed when preparing financial accounts. Conventions are generally accepted
practices that can change and are updated over time, depending on the changes in the
financial reporting landscape.

Summary:

Accounting Concepts vs. Conventions

• Accounting concepts and conventions are a set of standard methodologies, guidelines and
procedures when preparing financial statements, thereby ensure that accounting
information is prepared in a manner which is consistent, true, fair and accurate.

• Accounting concepts refer to a set of principles set in place which ensures that
accounting information is presented in a true and fair manner. There are a number of
concepts that have been established as standard accounting principles.

• Accounting concepts have been created by professional organizations and may also be
backed by law and governing bodies as standard principles that must be followed in the
preparation of financial statements.

• Accounting conventions are a set of practices that generally are accepted and followed by
accountants.

• Accounting conventions are accepted to be the norm and are not recorded or written down
in a formal manner by professional bodies or governing organizations.
Difference Between Accounting Concept
and Convention
Last updated on January 9, 2018 by Surbhi S

Accounting is a business language, which is used to communicate financial

information to the company’s stakeholders, regarding the performance,
profitability and position of the enterprise and help them in rational decision
making. The financial statement is based on various concepts and
conventions. Accounting concepts are the fundamental accounting
assumptions that act as a foundation for recording business transactions and
preparation of final accounts.

On the other extreme, accounting conventions are the methods and

procedures which have universal acceptance. These are followed by the firm
while recording transactions and preparation of financial statement. Let’s take
a look at the article to understand the difference between accounting concept
and conventions.

Content: Accounting Concept Vs Accounting Conventions

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR
ACCOUNTING CONCEPT ACCOUNTING CONVENTION
COMPARISON

Meaning Accounting concepts refers to Accounting conventions implies the

the rules of accounting which are customs or practices that are widely
to be followed, while recording accepted by the accounting bodies and
business transactions and are adopted by the firm to work as a
preparing final accounts. guide in the preparation of final
accounts.

What is it? A theoretical notion A method or procedure

 BASIS FOR
ACCOUNTING CONCEPT ACCOUNTING CONVENTION
COMPARISON

Set by Accounting bodies Common accounting practices

Concerned with Maintenance of accounts Preparation of financial statement

Biasness Not possible Possible

Definition of Accounting Concept

Accounting Concepts can be understood as the basic accounting assumption,

which acts as a foundation for the preparation of financial statement of an
enterprise. Indeed, these form a basis for formulating the accounting
principles, methods and procedures, to record and present the financial
transactions of business.

These concepts provide an integrated structure and rational approach to the

accounting process. Every financial transaction that occurs is interpreted
taking into consideration the accounting concepts, which guides the
accounting methods.

 Business Entity Concept: The concept assumes that the business

enterprise is independent of its owners.
 Money Measurement Concept: As per this concept, only those
transaction which can be expressed in monetary terms are recorded in
the books of accounts.
 Cost concept: This concept holds that all the assets of the enterprise
are recorded in the accounts at their purchase price
 Going Concern Concept: The concept assumes that the business will
have a perpetual succession, i.e. it will continue its operations for an
indefinite period.
 Dual Aspect Concept: It is the primary rule of accounting, which
states that every transaction effects two accounts.
 Realisation Concept: As per this concept, revenue should be recorded
by the firm only when it is realized.
 Accrual Concept: The concept states that revenue is to be recognized
when they become receivable, while expenses should be recognized
when they become due for payment.
  Periodicity Concept: The concept says that financial statement
should be prepared for every period, i.e. at the end of the financial year.
 Matching Concept: The concept holds that, the revenue for the
period, should match the expenses.

Definition of Accounting Convention

Accounting Conventions, as the name suggest are the practice adopted by an

enterprise over a period of time, that rely on the general agreement between
the accounting bodies and helps in assisting the accountant at the time of
preparation of financial statement of the company.

For the purpose of improving quality of financial information, the accountancy

bodies of the world may modify or change any accounting convention. Given
below are the basic accounting conventions:

 Consistency: Financial statements can be compared only when the

accounting policies are followed consistently by the firm over the period.
However, changes can be made only in special circumstances.
 Disclosure: This principle state that the financial statement should be
prepared in such a way that it fairly discloses all the material
information to the users, so as to help them in taking a rational decision.
 Conservatism: This convention states that the firm should not
anticipate incomes and gains, but provide for all expenses and losses.
 Materiality: This concept is an exception to the full disclosure
convention which states that only those items to be disclosed in the
financial statement which has a significant economic effect.

Key Differences Between Accounting Concept and

Convention
The difference between accounting concept and convention are presented in
the points given below:

1. Accounting concept is defined as the accounting assumptions which the

accountant of a firm follows while recording business transactions and
preparing final accounts. Conversely, accounting conventions imply
procedures and principles that are generally accepted by the accounting
bodies and adopted by the firm to guide at the time of preparing the
financial statement.
 2. Accounting concept is nothing but a theoretical notion that is applied
while preparing financial statements. On the contrary, accounting
conventions are the methods and procedure which are followed to give a
true and fair view of the financial statement.
3. While accounting concept is set by the accounting bodies, accounting
conventions emerge out of common accounting practices, which are
accepted by general agreement.
4. The accounting concept is basically related to the recording of
transactions and maintenance of accounts. As against, the accounting
conventions focus on the preparation and presentation of financial
statements.
5. There is no possibility of biases or personal judgement in the adoption
of accounting concept, whereas the possibility of biases is high in case of
accounting conventions.

Conclusion

To sum up, the accounting concept and conventions outline those points on
which the financial accounting is based. Accounting concept does not rely on
accounting convention, however, accounting conventions are prepared in the
light of accounting concept.

What is the difference between

Accounting statement and Financial
statement?
Answer added by SHAHZAD Yaqoob, SENIOR ACCOUNTANT , ABDULLAH H AL
SHUWAYER
2 years ago

An account statement is a periodic summary of account activity with a beginning date

and an ending date. The most commonly known are checking account statements,
usually provided monthly, and brokerage account statements, which are provided
monthly or quarterly. Monthly credit card bills are also considered account
statements. Account statements refer to almost any official summary of an account,
wherever the account is held. Insurance companies may provide account statements
summarizing paid-in cash values, for example. Account statements should be
scrutinized for accuracy, and historical statements are critical for budgeting. Accounting
statement not be audited mostly used for internal purposes.
Financial Statements

Definition: Financial statements are a collection of reports about an organization's

financial results, financial condition, and cash flows. They are useful for the following
reasons:

 To determine the ability of a business to generate cash, and the sources and uses of
that cash.
 To determine whether a business has the capability to pay back its debts.
 To track financial results on a trend line to spot any looming profitability issues.
 To derive financial ratios from the statements that can indicate the condition of the
business.
 To investigate the details of certain business transactions, as outlined in the disclosures
that accompany the statements.

The standard contents of a set of financial statements are:

 Balance sheet. Shows the entity's assets, liabilities, and stockholders' equity as of the
report date. It does not show information that covers a span of time.
 Income statement. Shows the results of the entity's operations and financial activities for
the reporting period. It includes revenues, expenses, gains, and losses.
 Statement of cash flows. Shows changes in the entity's cash flows during the reporting
period.
 Supplementary notes. Includes explanations of various activities, additional detail on
some accounts, and other items as mandated by the applicable accounting framework,
such as GAAP or IFRS.

If a business plans to issue financial statements to outside users (such as investors or

lenders), the financial statements should be formatted in accordance with one of the
major accounting frameworks. These frameworks allow for some leeway in how
financial statements can be structured, so statements issued by different firms even in
the same industry are likely to have somewhat different appearances.

If financial statements are issued strictly for internal use, there are no guidelines, other
than common usage, for how the statements are to be presented.

At the most minimal level, a business is expected to issue an income statement and
balance sheet to document its monthly results and ending financial condition. The full
set of financial statements is expected when a business is reporting the results for a full
fiscal year, or when a publicly-held business is reporting the results of its fiscal quarters.
Answer added by Saeed Ur Rehman, Senior Manager Audit & Advisory , Afrasiab Tanveer & Co
Chartered Accountants
2 years ago

ACCOUNTING STATEMENT

An accounting statement is summary of accounting activities/ transactions incurred

over a period of time. e.g Customer Account statement, Supplier Account statement,
Bank Account statement, Brokerage Account statement.

Accounting statement may be of use to limited range of users.

There is no specific representation format.

Accounting statements may be prepared weekly, monthly, quaterly, annually or as

required but not mandatory.

FINANCIAL STATEMENT

Financial Statements provide information about the financial position, financial

performance and cash flows of an entity that is useful to a wide range of users in
making economic decision. As per International Accounting Standard IAS-1, a complete
set of financial statement includes:

a. Statement of financial position (Balance Sheet) at the end of period.

b Statement of profit & loss and Other comprehensive income for the period.

c. Statement of Cashflow for the period.

d. Statement of changes in Equity for the period.

e. Notes, comprising a summary of significant accounting policies and other explanatory

notes.

Financial statements are presented in accordance with the Generally Accepted

Accounting Principles (GAAP).

It is mandatory for an organisation to prepapre financial statements annually at the end

of accounting year and may prepare it quarterly, semi-annually or as needed.

TOP 8 DIFFERENCES BETWEEN BOOKKEEPING

AND ACCOUNTING
Bookkeeping and accounting are two functions which are extremely important for every
business organization. In the simplest of terms, bookkeeping is responsible for the recording
of financial transactions whereas accounting is responsible for interpreting, classifying,
analyzing, reporting, and summarizing the financial data.

Bookkeeping and accounting may appear to be the same profession to an untrained eye. This
is because both accounting and bookkeeping deal with financial data, require basic accounting
knowledge, and classify and generate reports using the financial transactions. At the same
time, both these processes are inherently different and have their own sets of advantages.
Read this article to understand the major differences between bookkeeping and accounting.

Bookkeeping vs Accounting - 8 Major Differences

A major misconception regarding bookkeeping vs. accounting is that both are considered to be
one profession. Though they seem to be very similar, there are some striking differences
between the two. To resolve this confusion, we have listed down accounting vs bookkeeping
differences here -

Definition

Bookkeeping is mainly related to identifying, measuring, and recording, financial transactions

Accounting is the process of summarizing, interpreting, and communicating financial transactions

which were classified in the ledger account
Decision Making

Management can't take a decision based on the data provided by bookkeeping

Depending on the data provided by the accountants, the management can take critical business
decisions

Objective

The objective of bookkeeping is to keep the records of all financial transactions proper and systematic

The objective of accounting is to gauge the financial situation and further communicate the
information to the relevant authorities
Preparation of Financial Statements

Financial statements are not prepared as a part of this process

Financial statements are prepared during the accounting process

Skills Required

Bookkeeping doesn't require any special skill sets

Accounting requires special skills due to its analytical and c omplex nature
Analysis

The process of bookkeeping does not require any analysis

Accounting uses bookkeeping information to analyze and interpret the data and then compiles it into
reports

Types

Basically there are two types of bookkeeping - Single entry and double entry bookkeeping

The accounting department does preparations of a company's budgets and plans loan proposals
Bookkeepers and Accountants

Bookkeepers are required to be accurate in their work and knowledgeable about financial topics.
Bookkeepers work is usually overseen by an accountant

Accountants with sufficient experience and education can obtain the title of Certified Public
Accountant (CPA)

The Shifting Landscapes of Bookkeeping and Accounting

Bookkeeping and accounting have been in existence since a very long time and both fields
have seen a tremendous amount of change in the way the operations are carried out. This trend
will continue in a similar fashion in the future too. Some of the upcoming trends in the field
of accounting and bookkeeping include -
 Merging of Bookkeeping and Accounting Functions
The line between accounting and bookkeeping is slowly diminishing. It is interesting to note
that with the advent of accounting and bookkeeping software, some parts of accounting are
being slowly absorbed into the bookkeeping process. At the same time, boo kkeeping
software is now capable of generating financial statements which were earlier part of the
accounting process

 Bookkeeping to Slowly become Obsolete

While most businesses will still need a bookkeeper to keep the books, bookkeeping will
become a lot more than just data entry, balancing bank ledgers, and reconciling bank
statements. These functions will slowly diminish in the coming years and may even become
obsolete, as most of the tasks will be handled by bookkeeping software

 Extending the Services

Newer technologies have persuaded bookkeepers and accountants to be open to the
technological advancements and explore emerging software options. It is an opportunity for
bookkeepers to support their clients through this change, presenting value -added services
such as payroll processing, credit card reconciliation, etc. with the help of the latest software

 Advent of Smartphones
More and more businesses are shifting their operations online, especially as smartphones and
mobiles are becoming increasingly intuitive and easily available. Business owners want to
access the data from anywhere in the world on different devices, and accounting and
bookkeeping professionals are making sure the duly-generated reports are available online
for their clients to access at all times

 More Efficient Services

Consulting and advising corporations are taking full advantage of these new technologies
and services due to the advancement of the analytical tools, making bookkeeping and tax
preparation services more efficient and significantly cheaper

Difference Between Single Entry System

and Double Entry System
Last updated on July 26, 2018 by Surbhi S

A business entity can record its monetary transactions either on Single Entry
System or Double Entry System of Bookkeeping. The former is less laborious
as well as less time consuming while the latter completely records the
transactions which need substantial effort and time.

Single entry system of bookkeeping, is economical but at the same time it is

unscientific because it does not records all the transactions rather only a few
ones are tracked and some are recorded partially. On the other hand, double
entry system of bookkeeping is based on fundamental prinicples of
accounting and so it records each and every aspect of the transaction.

Take a read of the article provided to you, so as to understand the difference

between single entry system and double entry system.

Content: Single Entry System Vs Double Entry System

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR
SINGLE ENTRY SYSTEM DOUBLE ENTRY SYSTEM
COMPARISON

Meaning The system of accounting in which The accounting system, in which every
only one sided entry is required to transaction affects two accounts
record financial transactions is Single simultaneously is known as the Double
Entry System. Entry System.

Nature Simple Complex

Type of recording Incomplete Complete

Errors Hard to identify Easy to locate

Ledger Personal and Cash Account Personal, Real and Nominal Account

Preferable for Small Enterprises Big Enterprises

Preparation of Difficult Easy

Financial
 BASIS FOR
SINGLE ENTRY SYSTEM DOUBLE ENTRY SYSTEM
COMPARISON

Statement

Suitable for tax No Yes

purposes

Financial position Cannot be ascertained easily. Can be ascertained easily.

Definition of Single Entry System

Single Entry System of Bookkeeping is the oldest method of maintaining

financial records in which an entry is made for every financial transaction. In
this system, the corresponding opposite entry is not made because the
transactions are recorded only once. Full record keeping of transactions is not
done due to a single entry of every transaction. It mainly keeps track of the
transactions relating to cash receipts and disbursements.

This method of keeping records is primarily used by a sole proprietorship and

partnership firms. This system does not require high knowledge and expertise
for entering transactions. Journals, Ledgers and Trial Balance, are not
prepared for it. However, the income statement is prepared to know the profit
or loss of the business.

Due to some drawbacks like one sided entry, reconciliation of accounts is not
possible, the possibility of frauds and errors is maximum. That is why it does
not coincide with Generally Accepted Accounting Principles (GAAP).
Moreover, accounting records maintained under this system are not suitable
for tax purposes.

Definition of Double Entry System

Double Entry System is the scientific method of keeping financial records,

developed by Luca Pacioli, in 1494. This system is based on the principle of
duality, i.e. every transaction has a dual aspect. Each transaction affects two
accounts at the same time, in which one account is debited while the other is
credited.

E.g. Suppose Mr. A has purchased goods of Rs.1000 for cash from Mr. B, so
here, on one hand, he has received goods and on the other hand the cash is
given to Mr. B. So, you should have noticed that the goods have been acquired
by giving up cash. Therefore, as its name signifies, this system records both
the aspects of a single transaction, i.e. the increase in goods with the
simultaneous decrease in cash.

Due to two-fold effect, the system possesses completeness, accuracy as well as

it matches with the Generally Accepted Accounting Principles (GAAP).
A complete procedure is there for recording every transaction. The procedure
starts from source documents, followed by the journal, ledger, trial
balance, then at the end financial statements are prepared.

There are fewer chances of fraud and embezzlement because the full-fledged
recording of transactions is done in this system. Errors can easily be detected.
Further, the accounts can be reconciled, due to the two-fold aspect. Tax laws
also recommend Double Entry System to record transactions. Although a
person should be professionally skilled to maintain records as per this system.
Moreover, due to the complexity of this system, it is time-consuming too.

Key Differences Between Single Entry System and Double

Entry System
The following are the major differences between single entry system and
double entry system of bookkeeping:

1. The bookkeeping system in which only one aspect of a transaction is

recorded, i.e. either debit or credit, is known as Single Entry System.
Double Entry System, is a system of keeping records, whereby both the
aspects of a transaction are captured.
2. Single Entry Transaction is simple and easy whereas Double Entry
System is complex as well as it requires expertise in accounting for
maintaining records.
3. In single entry system, incomplete records are maintained while in
double entry system complete recording of transactions is there.
 4. In single entry system comparison between two accounting periods is
very difficult. Conversely, we can easily compare two accounting periods
in the double entry system.
5. Single Entry System maintains personal and cash accounts. On the other
hand, personal, real and nominal accounts are kept in Double
Entry System.
6. The Single Entry system is best suited for small enterprises, but big
organisations prefer Double Entry System.
7. Frauds and embezzlement are easy to identify in double entry system
which cannot be located in single entry system.

Conclusion

A person of little accounting knowledge can maintain records as per single

entry system, but due to some shortcomings in this system, double entry
system has been evolved. Almost all the countries of the world have adopted
double entry system for maintaining accounting records.

Difference Between Cash Accounting and

Accrual Accounting
Last updated on July 26, 2018 by Surbhi S

In every business, only those transactions are recorded and recognized which
are related to money. There are two accounting systems, based on which the
transactions are recognised, namely cash system of accounting and accrual
system of accounting. The basic difference between the two approaches to
bookkeeping of an entity is in timing, i.e. in cash accounting, the recording
is done when there is an inflow or outflow of cash. On the other hand,
in accrual accounting, it records the income and expense immediately
when it arises.

In cash accounting system, accounting entries are made when cash is received
or paid, while in the case of accrual accounting, the transactions are recorded,
as and when the amount is due. Here, in this article we have compiled the
difference between cash accounting and accrual accounting, take a read.

Content: Cash Accounting Vs Accrual Accounting

 1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR
CASH ACCOUNTING ACCRUAL ACCOUNTING
COMPARISON

Meaning The accounting method in which the The accounting method in which
income or expense is recognized only the income or expense is
when there is actual inflow or outflow of recognized on mercantile basis.
cash.

Nature Simple Complex

Method Not recognized method as per companies Recognized method as per

act. companies act.

Income statement Income statement shows lower income. Income statement will show a
comparatively higher income.

Applicability of No Yes
matching concept

Recognition of Cash is received Revenue is earned

revenue

Recognition of Cash is paid Expense is incurred

expense

Degree of Accuracy Low Comparatively high

Definition of Cash Accounting

The basis of accounting in which the recognition of revenues and expenses are
done only when there is actual receipt or disbursement of cash takes place. In
this method, in which the income or expense is recognised when the inflow or
outflow of cash exists in reality.

The method is mostly used by sole traders, contractors and other professionals
who recognise their income when there is an inflow of cash and
report expenses when cash goes out of the entity.

Moreover, Cash Accounting does not require high knowledge in accounting, a

person having little knowledge of bookkeeping can also maintain records as
per this system. One of the major benefits of Cash accounting is seen in tax,
i.e. expenses and deductions are allowed easily. However, the method is not
recommended by the GAAP (Generally Accepted Accounting Principles) and
IFRS (International Financial Reporting Framework) due to a number of
drawbacks like:

 It does not coincide with matching concept.

 Time lags in the occurrence of a transaction and its recognition.
 Lacks in accuracy.

Definition of Accrual Accounting

Accrual Accounting is the base of present accounting. It is also known as the

mercantile system of accounting wherein the transactions are recognised as
and when they take place. Under this method, the revenue is recorded when it
is earned, and the expenses are reported when they are incurred.

As per matching concept, the expenses of a particular accounting period are

matched with its revenue. The accrual basis of accounting fulfills this
criterion; that is why it is regarded as an effective tool for recording receipts
and payments. Although, some items are necessary to be adjusted at the end of
the financial year like:

 Unearned Income
 Accrued Income
 Prepaid Expenses
 Outstanding Expenses

This method is preferred by most of the entities as the system not only informs
about the past transactions regarding the revenue and expense, but it also
predicts the cash receipts and disbursements expected to arise in the future.
Besides this, one of the major drawbacks of accrual accounting is that the
company has to pay tax on the income which is not yet received.

Key Differences Between Cash Accounting and Accrual

Accounting
The following are the major differences between cash accounting and accrual
accounting:

1. The accounting system in which the income or expense is recognised

when an exchange of consideration is actually done is known as Cash
Accounting. Accrual Accounting, in which the income or expense is
recognised when it arises.
2. Cash Accounting is simple as compared to Accrual Accounting.
3. Cash basis of accounting is not a recognised method as per companies
act, whereas accrual basis of accounting is a recognised method.
4. In Cash accounting, the income statement, shows lower income, while in
accrual basis of accounting the income statement shows relatively
higher income.
5. Cash Accounting is not in alignment with the matching concept,
whereas the concept completely applies in Accrual Accounting.
6. The basis of cash accounting is actual receipt and payment of cash. On
the other hand, in accrual accounting, the recognition is done when the
revenue or expense occurs.
7. The degree of accuracy is more in accrual accounting, which is very less
in cash accounting.
8. Cash Accounting is suitable for sole proprietors or contractors.
Conversely, big enterprises should prefer Accrual Accounting.

Conclusion

The gap in the occurrence and recognition of revenue and expense is the main
difference between cash accounting and accrual accounting. The former is
generally used by a small business person, non-profit organisations and
government agencies, etc. while the latter is preferred by the big enterprises
because the transactions occur rapidly. The next difference is that the
organisations where the records are kept on cash basis accounting enjoy tax
benefit whereas in accrual system the entity has to pay tax on the income
which is still not collected.

Difference Between Manual and

Computerized Accounting
Last updated on January 9, 2018 by Surbhi S

In
accounting, the financial transactions are recorded, processed and presented
to generate financial statements, that is useful to the readers, in making
decisions. Traditionally, accounting is done manually, by a trained accountant,
with the use of registers, account books, vouchers etc. But with the emerging
technology, nowadays, computerized accounting is in vogue, due to its
accuracy, convenience and speed.

Both manual and computerized system is based on the same principles,

conventions and concept of accounting. However, they differ only in their
mechanism, in the sense that manual accounting uses pen and paper, to
record transactions, whereas computerized accounting makes use of
computers and internet, to enter transactions electronically.

In this article, you can find the substantial differences between manual and
computerized accounting.

Content: Manual Accounting Vs Computerized Accounting

1. Comparison Chart
 2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR
MANUAL ACCOUNTING COMPUTERIZED ACCOUNTING
COMPARISON

Meaning Manual Accounting is a system of Computerized Accounting is an accounting

accounting that uses physical system that uses an accounting software,
registers and account books, for for recording financial transactions
keeping financial records. electronically.

Recording Recording is possible through book of Data content is recorded in customized

original entry. database.

Calculation All the calculation is performed Only data input is required, the
manually. calculations are performed by computer
system.

Speed Slow Comparatively faster.

Adjusting It is made for rectification of errors. It cannot be made for rectification of

entries errors.

Backup Not possible Entries of transactions can be saved and

backed up

Trial Balance Prepared when necessary. Instant trial balance is provided on daily
basis.

Financial It is prepared at the end of the It is provided at the click of button.

Statement period, or quarter.
Definition of Manual Accounting

Manual Accounting, as the name signifies, is the paper-based accounting

system, in which journal and ledger registers, vouchers, account books are
used to store, classify and analyse financial transactions of an organization. It
is often used by small businessmen, such as sole proprietors, shopkeepers, etc.
to maintain the record of the business transactions, due to lower cost.

One of the advantages of the manual accounting system is its easy

accessibility. It is also characterised by confidentiality, which makes the
sensitive information hacking free. Nevertheless, manual accounts can only be
prepared correctly if the accountant possesses good knowledge of bookkeeping
and accounting.

Moreover, human error, such as incorrect recording of the transaction, the

omission of the transaction, figure transposition and so forth, is likely to occur
while the preparation of manual accounts which cannot be ignored.

Definition of Computerized Accounting

Computerized Accounting can be described as the accounting system that uses

the computer system and pre-packaged, customised or tailored accounting
software, to keep a record of financial transactions and generate financial
statements, for analysis.

Computerized Accounting system relies on the concept of a database. The

accounting database is systematically maintained, with active interface
wherein accounting application programs and reporting system are used. The
two primary essentials are:

 Accounting framework: The framework comprises of principles and

grouping structure for maintaining records.
 Operating procedure: There is a proper procedure for operating the
system so as to store and process the data.

Further, it requires front-end interface, back-end database, database

processing and reporting system to store data in a database-oriented
application.
The merits of computerized accounting rely on its speed, accuracy, reliability,
legibility, up-to-date information and reports etc.

Key Differences Between Manual and Computerized

Accounting
The difference between manual and computerized accounting is explained
below in points:

1. Manual Accounting refers to the accounting method in which physical

registers for journal and ledger, vouchers and account books are used to
keep a record of the financial transactions. On the other hand,
computerized accounting implies the method of accounting, which uses
an accounting software or package, to record the monetary transactions,
which happen to an organization.
2. In manual accounting, recording of the transaction can be done through
the book of original entry, i.e. journal day book. Conversely, in
computerized accounting, the transactions are recorded in the form of
data, in the customised database.
3. In manual accounting, all the calculations, i.e. addition, subtraction, etc.
with respect to the transactions are performed manually. In contrast,
in computerized accounting, there is no need to perform calculations, as
the calculations are performed by the computer automatically.
4. In manual accounting, a person remains involved all the time, with the
accounts, to enter and update transactions, which is tedious and time-
consuming too. As against, in computerized accounting, once the
transaction is entered, it is automatically updated in all the accounts to
which it relates and thus, the process is comparatively faster.
5. In manual accounting method, if there occurs an error while entering
and posting the transaction in the books of accounts, then adjustment
entries can be passed, for getting accurate results. Moreover, adjustment
entries are also made to comply with the matching principle, i.e. the
expenses of the accounting period should match the respective revenues.
On the other hand, in computerized accounting, to comply with the
matching principles journal and vouchers are prepared, but adjustments
entries are not passed for rectification of error unless the error is an
error of principle.
 6. One of the merits of computerized accounting which manual accounting
lacks is that in manual accounting there is no way to back up all the
entries and financial statements, but in computerized accounting, the
accounting records can be saved and backed up.
7. In manual accounting, the trial balance is prepared only when it is
required, whereas, in computerized accounting, instant trial balance is
provided on a daily basis.
8. In a manual accounting system, the financial statement is prepared at
the end of the period, i.e. financial year. On the contrary, the financial
statement is provided at the click of a button, in the
computerized accounting system.

Conclusion

As the number of business transactions increases, it is difficult to manage

accounts manually, as it takes a lot of time to update a single transaction in all
the accounts that it affects. In computerized accounting, a number of
limitations of the manual accounting have been removed. Whenever the
transactions occur, the entry is made and it is updated automatically in all the
accounts that it affects, in the computerized accounting.