Automated vs. manual journal entries

For financial teams, journal entries are both fundamental and a potentially arduous task – eating up valuable time and potentially delaying the month-end close. Across the broader financial sector we’re therefore seeing an increasing number of teams adopt automation to aid the running of routine financial operations. In fact, 82% of finance leaders found AI and automation very important to helping evolve their team’s role in order to support their organisation’s strategic goals.

So, what exactly is the scope and potential benefit of automated journal entries – and how does it compare to handling the journal entry process manually? We’ll compare the pros and cons of both in full detail below. 

What are journal entries?

Accountancy teams are responsible for keeping track of a company's fiscal standing with accuracy and concision. Journal entries are a key part of this work, ensuring an organisation has a clear view of how much was credited and debited across accounts through the application of double-entry bookkeeping. 

In essence, journal entries will cover the date of entry of a recorded transaction along with a reference number, credits and debits, the affected accounts and a brief annotation of the reason for the entry. Types of entries that might be made as a part of this process include allocation journals (looking at the division of costs between different departments), correcting journals (denoting amendments made to mistakes that have been found), and fee journals (detailing the value of services rendered to clients). 

What matters when creating a journal entry?

There are a number of things to consider when recording journal entries. For instance, each journal entry should always adhere to the double-entry method, meaning there should always be notations of debit and credit figures in your entries. In addition, when done correctly, journal entries will cover each of the following core principles:  ‍

• ‍No errors - this goes without saying, but it’s really essential that journal entries are carried out accurately. Making errors means running the risk of knock-on issues down the line. It’s important, for example, in the case of an audit, that journal entries are all documented and approved. When mistakes are made it can lead to inaccurate financial statements and reports – with possible over or underestimation of revenue, expenses, assets, liabilities, equity (or a mix of all these things).
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• Swift creation - Creating journal entries in a timely manner helps to avoid potential mistakes later on. With everything in order you can avoid the confusion that often comes when pending entries pile up, ensuring your financial records are up to date. After all, the more time that stretches out between a transaction taking place and the proper recording of it via journal entry, the greater the chance it will be in some way inaccurate. 
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• Clear approval of journals - In accountancy, a journal must be entered and completed before it can then be approved and posted to the general ledger. An approver will ensure that the information collected about a given transaction is accurate, and if this is not the case, the journal will be rejected so corrections and clarifications can take place. This is why clear journal approval makes the entire process easier and more efficient, without the need for too much back and forth which has the potential to cause confusion.
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• ‍Agility - Of course, in any profession mistakes will sometimes happen. It’s often how these mistakes are handled that makes the difference to the actual impact it might have on a finance team or broader organisation. Given that meticulous recording of figures is an essential part of good accountancy, when correcting entries, not only is the correction itself required, but a notation of that correction in a correction journal tool. Hence, why being able to swiftly and agilely make correction journals is so important. 

Considering these core elements of the journal entry process, let’s take a look at how exactly it can be handled manually and also via automation – along with the associated pros and cons. 

How effective are manual journal entries?

Manual journal entries require that a person – or team of people – manually add in the full details of each credit or debit needing to be logged, and that they do so in the correct journal. Unfortunately, this can often become a time-consuming effort when the financial close is upon you and there’s still a large number of transactions and numbers to work through.

When it comes to avoiding errors, undertaking this process manually is not the best route due to the potential knock-on effect of even a small mistake. What begins as a slightly inaccurate recording of a single transaction can lead to incorrect financial reporting later on. It is also much more challenging to scale manual journal entries as the manpower of a financial team rarely increases in line with the number of incomings and outgoings that naturally come with a growing business. 

Equally, creating entries swiftly and being able to act in an agile and accurate manner is more difficult when handling journal entries manually. Inevitably, when you have a large number of transactions to work through – and the potential for a high amount of corrections as a result – the risk of errors also goes up. 

Ultimately, these challenges are exactly what is driving the increasing adoption of automation in the finance sector. Indeed, financial managers are growing more reluctant to spend their time sifting through journal entries, invoices and other documentation when a viable alternative exists. But how exactly does automation hold up when it comes to tackling journal entries?  

How effective are automated journal entries?

When it comes to automating bank reconciliation – and, as a part of this – automating journal entries, one obvious benefit for financial teams is an increase in speed and efficiency. Automating journal entries saves time and frees up team members to handle value-adding work that they otherwise might not have time for. But can it still be counted on for accuracy? 

Well, the short answer is yes. Automated journal entries actually greatly reduce the risk of errors. By removing the need for repeated physical data entry, you inherently minimise the risk of incorrect entries and the mistakes that come with handling this manually.

You can also ensure that journal entries take place in the same way they would when handled by your team, except with increased accuracy. For example, Aurum offers its customers the option to build standardised processes which are then automated by our software in order to ensure perfect journal entries. This means you can rest assured that you are audit-ready, with all your actions and records in a one-stop shop that keeps you compliant with industry standards. 

All this is why automated journal entries greatly speed up the previously lengthy process of going through the financial close. In Aurum, journal files can be built using industry-specific templates, along with APIs that allow you to easily collate and centralise data from different software systems – and even ultimately post your journals. 

As June Manock, Head of Control at BedFred, says of using Aurum: “it pretty much writes the journal for us!” 

What’s the best way to create journal entries?

Given that automating journal entries not only improves speed but actually also boosts accuracy and provides accountants with time to focus on more important things, it’s not hard to see why its adoption is becoming so widespread. In fact, the most important question for teams today may not be whether automation is better – but instead which tool is best for undertaking this process? 

Aurum offers robust and comprehensive functionality for reconciling thousands of transactions while still providing the important information crucial to keeping accountancy teams in the loop. This is why more and more companies are turning to Aurum for automated journal entries, which provide the basis for key financial decisions and keep them in line with auditing regulations. 

If you’re interested in finding out more about how you can improve the process of creating journal entries with automation, why not get in touch with us today so we can talk it through? Click here to request an Aurum demo today.