The UAE is a growing market with companies ranging from small and medium enterprises to multinational firms. There are two types of accounting, and they are as follows; manual accounting and digital accounting integrated with the ERP software UAE. The following blog post explores the main distinctions between these two systems, with emphasis on their applicability to the UAE businesses.
- Overview of Manual Accounting
Manual accounting is the process of recording the financial transaction by using manual tools such as books of accounts. It is the process of employing physical registers, journals and manual documentation systems in the documentation of financial activities.
- Processes Involved:
All the transactions are recorded manually on books or on spreadsheets. Every financial document including the invoices, receipts and payment vouchers is held and checked in physical form.
- Workload:
This system necessitates a very large human capital for the simple reason that all records have to be kept and balanced.
- Accuracy:
Due to the fact that manual accounting requires physical input, there is increased chances of making errors.
- Cost:
First, manual accounting might appear as a much more affordable way as it does not require purchasing accounting software. However, the need for skilled labor and time-consuming methods can reach a significant sum in the long run.
- Overview of Digital Accounting
Digital accounting can on the other hand be referred to as the use of software in the management of financial data. This increase is due to the benefits associated with the digital accounting systems that include efficiency, speed among others and the current compliance requirements from authorities such as the FTA in the UAE.
- Processes Involved:
Digital accounting helps in automating the various steps that are involved in accounting. Information is manually fed into an accounting program and the program in turn analyzes the input and produces reports as well as performs the task of tracking the flow of business transactions.
- Software Examples:
The best accounting software in dubai such as SowaanERP, Zoho books, Xero, Tally are considered as popular tools in the UAE for almost every function including tax computation, payroll processing.
- Efficiency:
As a result of the digital accounting system, many tasks are done in a shorter time than when done manually, thus faster.
- Cost:
Although the funding of digital accounting software may involve the cost of license fee and training cost, the long term benefits of the software in terms of time and effort saving and accuracy outweigh the initial costs.
- Major Differences between Manual and Digital Accounting
Reduction of Errors and Accuracy
- Manual Accounting:
This is so because there are usually mistakes that are made by people who are involved in the process of preparing the document. This is due to the fact that a small error in a ledger entry can result in a chain effect and therefore cause difficulty in reconstructing accounts.
- Digital Accounting:
The use of computers in this context is an added advantage because calculations are done electronically hence reducing the possibility of error. Almost every software contains features that check for any discrepancy and notify the users.
- Time Efficiency
- Manual Accounting:
Manual recording of the transactions, balancing the books and preparing the reports is time-consuming. Closing entries can be really time-consuming especially when the process is done on a monthly or on a yearly basis.
- Digital Accounting:
The whole process is made simple. There is availability of push button report generation and almost all the tasks including reconciliation takes hours or days to complete.
- Compliance with UAE Regulations
- Manual Accounting:
One of the major issues that need consideration when practicing manual accounting for the UAE’s FTA and, in particular, the VAT is strict compliance with the regulations. This leads to an increase in the amount of time spent in producing the results, and also enhances the possibility of making mistakes.
- Digital Accounting:
The current software technology in the management of business affairs helps in the computation of VAT and filing of returns, as well as informing the business of changes in the law.
- Data Storage and Protection
- Manual Accounting:
Traditional paper systems have the disadvantage of being susceptible to damage, loss or access by unauthorized persons. Prime among them is the ability to store physical files is a big challenge especially when it is done for an extended period.
- Digital Accounting:
All the accounting software solutions provide safe storage of data in the cloud. Data is usually duplicated to minimize data loss or data unavailability due to hardware or software failure. Another way of controlling the access to information is through passwords and permissions.
- Cost of Operation
- Manual Accounting:
Though there are no software costs involved that are initially required in the software solution and can even seem less costly overall, it requires more manpower, and the error rates as well as the time required to complete a process are considerably higher.
- Digital Accounting:
However, there are costs involved in its installation, development, and training of the employees, but in the long run, it becomes cheap for businesses because the process becomes automated, and the company’s employees are not fully involved.
- Scalability
- Manual Accounting:
Growth of a business requires more deals and thus more documentation and more employees. That’s why, when a company is growing, the process can become quite cumbersome at times.
- Digital Accounting:
Digital systems are very much flexible in terms of scaling. Thus, a software can work more transactions as compared to requiring more people to manage the accounts of the business; therefore, businesses can expand without considering how they will manage the accounts.
Conclusion
In the UAE business environment that has been rapidly evolving and becoming more competitive, digital accounting is clearly the better option than traditional manual accounting in terms of accuracy, speed and conformity. Despite the fact that manual accounting works in small establishments that do not have many activities, it is the automated form of accounting that will dominate the future.
