Question

manual accounting system has evolved. Provide examples.

Answer 1

Organizations and businesses use an accounting system as a method to collect, report, and maintain their financial information. These accounting systems come in all shapes and sizes and can be easily tailored to an individual organization's needs. Some companies prefer a manual accounting system, which allows them to carefully design the process while using the traditional method of keeping track of all financial transactions on paper or in a localized spreadsheet. Manual accounting systems allow the organization to take full accountability of all the records collected and maintained by the organization. Without the added moving parts of technology, the company is able to meticulously and internally make decisions about how information is recorded. Accounting can be a challenging subject to learn. Knowing how to manually perform accounting functions is helpful in understanding the overall financial health of a business.

An alternative to a manual accounting system is a computerized accounting system. Some businesses choose a manual system because implementation of a computerized system can be difficult. The primary difference between the two types of systems is that a computerized accounting system uses computer software (localized or online) to record and maintain all accounting transactions. Though it requires less time and effort to maintain, implementation of a computerized accounting system can be quite costly. Therefore, many start-up organizations elect to begin their business by maintaining their accounting transactions manually. Maintaining a manual accounting system also provides the user with the ability to easily identify relationships between reports and accounting data. Having a more hands-on approach is beneficial in that errors are easier to notice and there is no potential risk of software errors that could threaten the integrity of the accounting records.

Using an accounting system is simply a way of organizing materials effectively and efficiently. Accountants are tasked with maintaining financial information in an organized way that will give rise to a clear and concise presentation of that information when the time comes. Using a system helps to alleviate the task of repeating processes. It also helps with summarizing the information in a clear way. Regardless of the system used or the size of the organization, having some type of accounting system in place is imperative for the financial success of the organization.
The general ledger contains the balance of all accounts used within an organization. These accounts are the source of data that is used to create the income statement and balance sheet. Each account listed on the general ledger is derived from information contained within the detailed individual accounts, known as the subsidiary ledgers. A subsidiary ledger is a detailed individual account that feeds into a controlling account used to make up the general ledger balance. The individual accounts are then summarized in a controlling account within the general ledger. When financial statements are presented to shareholders and other interested parties, only the current balance in a given control account is included. However, to arrive at the amount or number used in those accounts, the accountant must keep detailed records of the organization's customers and creditors.

For example, John Wales is a customer of ABC Company. He purchased $5,000 worth of supplies on account, and now his current outstanding balance is $10,000. However, upon looking at the balance sheet, ABC Company has a total balance in the accounts receivable account of $50,000. John's outstanding balance of $10,000 is only part of what makes up the current accounts receivable balance for ABC Company. Even though the details do not show up in the financial statements of ABC Company, the accountant still needs to know what makes up the $50,000 balance. The accounts receivable subsidiary ledger (customer ledger) is an individual ledger account used to keep track of all of the individual customer accounts. These individual accounts are then summed together to make up the total accounts receivable balance. The ability to drill down to the individual account level allows the company to have a record of what makes up its accounts receivable balance at any given time. It is also able to trace information back to its original source and spot errors easily.