Key takeaways:
- Manual journal entries offer flexibility but come with risks
- A hybrid approach balances accuracy and efficiency
- Tools like Aico can enhance manual processes
A lot of businesses still rely on manual accounting despite the automation software available to them. That is because, in some cases, manual entries let you fix nuances that a computer might miss. Still, there are also drawbacks to manual accounting, such as human errors and delayed entries.
In this post, we’ll explore how manual journal entries work and tackle the challenges they present with best practices. We’ll explain how to balance traditional methods with modern tools for pristine financial records.
What Is a Manual Journal Entry?
A manual journal entry is an entry made by hand, either physically or through accounting software. Manual journal entries are the backbone of any solid accounting system because they offer benefits such as flexibility and precision when recording adjustments, corrections and unique transactions.
Learn what are manual journal entries and why they still matter in modern finance and accounting.
Challenges and Limitations in Manual Journal Entries
Although still widely used, manual journal entries have some challenges, such as:
- Errors: A misplaced decimal or an incorrect account can lead to significant issues down the line. Even small errors can impact financial reports and audits and cause an inaccurate view of your financials.
- Time and resource limitations: Journal entry processes done by hand take up a lot of time that could be used more sensibly. They require accounting teams to add manual entry on top of their day-to-day tasks, which can slow operations.
- Compliance and audit risks: Every financial entry you make is subject to scrutiny, especially during audits. Without regular checks and documentation, manual journal entries can introduce compliance risks and legal problems.
Traditional Approach of Journal Entry
The traditional approach to journal entry in accounting is a systematic method based on double-entry bookkeeping. Every financial transaction is analysed to identify the accounts involved and classified as either debit or credit, ensuring each entry affects at least two accounts.
This method uses the "debit what comes in, credit what goes out" principle for asset accounts, and similar rules for liabilities, expenses and revenues. Entries are handwritten in the general journal, with clear identification of the date, accounts, amounts and explanation. Manual posting requires significant attention to accuracy and relies on established accounting rules and the chart of accounts.
Each entry is then transferred to the ledger, maintaining the integrity of financial records. Consistency, transparency and traceability are hallmarks of the traditional journal entry method.
Best Practices for Manual Journal Entries
If you still want to do manual entry, there are some best practices you should follow to avoid errors:
- Standardise and document everything: One way to reduce errors in manual journal entries is to standardise the process. You can establish guidelines for everyone on your team to follow, which you can refer to during audits.
- Establish strong internal controls: Internal controls help you check if entries are accurate, and you’ll be able to quickly catch any mistakes. For example, you can pinpoint another accountant to go over the work once you’re done.
- Leverage technology: Journal entry automation is an excellent assistant to experienced accountants. There are now software tools that support your manual processes without entirely replacing them. They can help you do routine checks or generate digital audit trails, saving you plenty of time.
Manual Journal Entry Examples
To understand them better, here are some of the most common examples of manual journal entries:
- Purchase of office supplies for cash:
Debit: Office Supplies
Credit: Cash
- Payment of rent:
Debit: Rent Expense
Credit: Cash
- Owner invests cash into the business:
Debit: Cash
Credit: Owner’s Capital
- Sale of goods on credit:
Debit: Accounts Receivable
Credit: Sales
- Recording depreciation:
Debit: Depreciation Expense
Credit: Accumulated Depreciation
- Withdrawal of funds by owner:
Debit: Owner’s Drawings
Credit: Cash
Manual vs. Automated Journal Entries
When you compare manual and automated journal entries, the difference is clear. Automated entries use fixed rules and algorithms to record transactions and support. They are very beneficial for enterprises that require real-time accounting due to the amount of transactions they process. However, they may not be as flexible when it comes to handling unique transactions.
Manual entries, on the other hand, let you make adjustments that are sometimes too complicated for an automated system. They offer the kind of oversight that can catch errors an algorithm might miss.
However, solely relying on one approach may not be the best solution, as both types offer unique benefits. Instead, you should learn when to use each method and leverage the power of both.
How Aico’s Journal Entry Solution Can Help
Many enterprises struggle with transitioning from manual to automated systems. The main reason is that the process is time-consuming. First, you have to train your employees and then reevaluate all your processes. This is also why most accounting teams take a hybrid approach – they use manual entries for adjustments and automated systems for routine transactions.
The Aico Journal Entries tool is a fantastic way to streamline your manual journal entry process. It can automate routine checks and even provide digital audit trails, all while preserving the essential human oversight you trust.
Aico’s journal entry automation software helps reduce errors by letting you monitor all entries so that every transaction is documented thoroughly. Integrating this kind of technology into your process means you get efficiency and accuracy without sacrificing the detailed analysis that only a human can provide.
Conclusion
Manual journal entries are done physically instead of being automated with software. They’re the traditional way of doing accounting; however, automated entries are becoming more and more popular. Still, some accountants prefer to leverage both.
To understand what level of automation you need, you should first evaluate your accounting practices. This will help you decide where you might benefit from a hybrid approach that combines manual entry with automation.
Once you understand the challenges and best practices, you can create a manual journal entry process that works for you.
FAQs
What is the difference between automatic and manual journal entry?
You add manual journal entries by writing them down or entering them into an accounting program. On the other hand, automatic entries are routinely added by specialised software in real time, completely hand-free.
How can I reduce manual journal entries?
You can reduce manual entries by using automation software for accounting. This kind of software automatically records entries as they happen without you having to double-check if the amounts are correct.
What procedure is used to correct a general journal entry error in a manual system?
Follow this procedure to correct a general journal entry error in a manual system: Draw a line through the incorrect entry, write "void" or "error" next to it and record the correct entry below. Never erase or use correction fluid (or any kind of redacting or covering).
When recording amounts in a manual journal, what is the correct order to follow?
Record the date, then account to be debited and its amount, then account to be credited and its amount, followed by the description/narration.
Are you able to set up auto repeating manual journal entries?
No, manual journal entries are not automated and must be recorded individually by hand.
Who should decide what to manually enter into general journal entries?
The organisation's authorised accounting personnel or finance manager should determine what is manually entered.