Manual Accounting Systems: Decision-Making And Reflection

Manual Accounting Systems: Decision-Making and Reflection

Manual accounting systems are often intricate and require a thorough understanding of fundamental accounting tools such as special journals and subsidiary ledgers. According to Ermler and Trump (2018), in their case study of a small appliances and parts wholesaler, Ermler and Trump utilize a manual accounting system that hinges on these core tools. Recognizing the roles and functionalities of these tools is essential for effective decision-making and accurate financial reporting.

Special journals serve to streamline the recording process by categorizing transactions into specific types, thereby reducing the complexity and volume of entries that need to be posted directly to the general ledger. Typically, special journals encompass purchases, sales, cash receipts, and cash payments. These journals facilitate efficient recording by providing predefined columns that capture pertinent details, making the process less prone to error and ensuring consistency (Weygandt et al., 2018). For instance, a sales journal records credit sales, including customer accounts debited, invoice dates, and amounts, centralizing sales data for quick reference and easier summarization.

The subsidiary ledgers function as detailed sub-accounts that support control accounts within the general ledger. As Ramli (2015) highlights, accounts payable and accounts receivable are crucial subsidiary ledgers that link detailed transaction records to their respective control accounts. In the case of Ermler and Trump, subsidiary ledgers would document individual customer credit sales and individual supplier purchases, while the control accounts would aggregate this information for inclusion in the general ledger. This segregation enhances accuracy, simplifies audits, and provides detailed insights into each customer or supplier account. For example, the accounts receivable subsidiary ledger would include individual customer transactions, with totals reflected in the control account within the general ledger.

Implementing effective special journals in a manual system requires meticulous planning and labeling. For Ermler and Trump, appropriate column headings are vital to ensure clarity and ease of use. The sales journal's columns might include customer account debited, invoice date, and transaction amount. The purchase journal would similarly include supplier account credited, invoice date, and purchase amount. Cash receipts and disbursement journals should incorporate columns for cash amount, date, and relevant account details (Ndubuisi, Chidoziem & Chinyere, 2019). Accurate classification and detailed entries help prevent errors and facilitate smooth financial analysis.

Beyond the recording of sales and purchases, control accounts such as accounts payable and receivable play a pivotal role in providing an overarching view of outstanding balances and financial health. Control accounts are updated with totals from subsidiary ledgers, serving as a bridge between detailed records and summarized financial statements. They enable swift reconciliation and help detect discrepancies promptly. For example, the accounts payable control account in Ermler and Trump’s system would reflect total amounts owed to suppliers, while the subsidiary ledger would detail individual transactions with each creditor (Weygandt et al., 2018).

Maintaining accuracy in manual accounting also involves regularly reconciling subsidiary ledgers with control accounts and ensuring that each transaction is properly classified. For instance, credit sales of appliances to retail customers should be recorded in the subsidiary ledger for accounts receivable, with the corresponding total reflected in the control account. Similarly, cash payments made to suppliers should be separately logged in the cash disbursements journal and then posted to the subsidiary ledger of accounts payable. This systematic approach helps prevent discrepancies and promotes reliable financial data, which is crucial for managerial decision-making (Ramli, 2015).

Reflection on the limitations of manual systems underscores their susceptibility to human error, time consumption, and difficulty in maintaining large volumes of data. While automation and computerized systems have enhanced efficiency and accuracy, manual systems like that used by Ermler and Trump still hold relevance for small businesses or in contexts where technological infrastructure is limited. Nonetheless, these systems require rigorous oversight to ensure accuracy, particularly when dealing with multiple transactions that impact various accounts.

In conclusion, effective manual accounting systems depend on the disciplined application of tools such as special journals and subsidiary ledgers. Proper categorization, detailed documentation, and regular reconciliation are essential for accurate financial reporting and informed decision-making. Although manual systems have inherent challenges, their structured approach provides insightful perspectives into the financial workings of small enterprises, emphasizing the importance of systematic record-keeping and internal controls.

References

• Ndubuisi, A. N., Chidoziem, A. F., & Chinyere, O. J. (2019). Comparative analysis of computerized accounting system and manual accounting system of quoted Microfinance banks (MFBs) in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2).
• Ramli, A. (2015). The Status of Accounting Information Systems (AIS) Adoption in the Hotel Industry. Journal of Entrepreneurship and Business, 3(1), 46-59. doi:10.17687/JEB.0301.04
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting (10th ed.). Wiley.
• Ermler, D. & Trump, T. (2018). Decision-Making across the Organization: A case study. Columbia Southern University.
• Chidoziem, A., & Chinyere, O. (2019). Comparative analysis of accounting systems in Nigerian microfinance banks. International Journal of Academic Research in Accounting, Finance and Management Sciences.
• Ndubuisi, A. N., Chidoziem, A. F., & Chinyere, O. J. (2019). An analysis of accounting systems in microfinance banks. International Journal of Academic Research in Accounting, Finance and Management Sciences.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting. Wiley.
• Ramli, A. (2015). The status of AIS adoption in the hotel industry. Journal of Entrepreneurship and Business.
• Ndubuisi, A. N., Chidoziem, A., & Chinyere, O. (2019). Comparative analysis of manual and computerized accounting systems. International Journal of Academic Research in Accounting, Finance and Management Sciences.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting. Wiley.