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What is accounting software?
Accounting software helps users manage and automate an organization's financial functions and transactions with modules including accounts payable, accounts receivable, payroll, billing, and general ledger. Integrated applications for accounting programs allow for comprehensive, real-time analysis of an organization's financial status including cash flow and expense management. Accounting software is also known as bookkeeping software.
The benefits of a comprehensive accounting system
- Cost savings: Outsourcing has been the traditional approach for managing small business accounting, which adds to the operational expenses of the business. Accounting software helps small businesses bring the accounting functions in-house, thereby reducing the total price tag.
- Improved process efficiency: Accounting involves a lot of paperwork and manual data entry, which is time consuming and can be prone to human error. By digitizing financial paperwork, accounting programs help small businesses reduce the time it takes to process financial transactions such as expense management, accounts payable, and accounts receivable. Moreover, accounting software ensures that there is no error in calculations or discrepancy in records.
- Easier tax compliance: Tax management for small businesses also involves a lot of documentation and paperwork. Small businesses need to make sure that all their tax forms are submitted on-time in order to avoid penalties due to delayed filings. Accounting software uses the financial and accounts information stored in the system, thereby making this process easier and free from human errors.
Typical features of accounting software
- Accounts payable (AP): Automates invoice capture, approval management, and authorization processes. The transaction information is reflected in the accounts payable and general ledger tables.
- Accounts receivable (AR): Tracks customer credits related to payments and purchases. This information is reflected automatically on the general ledger.
- Bank reconciliation: Matches "credits" and "debits" in an account to help businesses spot and correct discrepancies and missing entries in a record.
- Financial reporting: Provides a graphical representation of data in accounting systems. These reports include sales reports, AP/AR, and cash flow analysis.
- General ledger: Lists the accounts payable and accounts receivable information in a table. It also summarizes assets, equity, expense, and revenue information for each account.
- Billing and invoicing: Creates invoices based on customer records, prints and sends them to the customers, and records the information in the accounting system.
- Expense tracking: Records the total expenses incurred in a business. Most products allow users to submit expenses by uploading bills from a mobile app.
- Project accounting: Tracks different accounting attributes for a client-facing project, such as incurred costs, expenses, billable hours, and client payments.
Considerations when purchasing accounting software
- Data security: An accounting system handle sensitive client and financial information, which makes them a target for hackers. That's why security should be a prime consideration when selecting accounting software. Small business should ensure that their solution adheres to the necessary security standards, such as Extended Validation (EV) SSL and 256-bit Encryption.
- Third-party integrations: Accounting software cannot work in isolation: it needs an ecosystem of other business applications. For example, integration with customer relationship management (CRM) software automatically pulls transactional records after a payment is received from the client. Integration with an HR and payroll solution allows users to pull the information related to the payroll-related costs. Buyers should evaluate integration capabilities before making a purchase decision.
Relevant accounting software trends
- Small businesses continue on the path of automation: In an attempt to reduce paperwork and minimize human errors, small businesses are looking for new ways to automate their accounting functions. The most recent development in this area is OCR (optical character recognition) technology, which allows users to scan physical documents and store their content in a digital format. As advancements in artificial intelligence and machine learning improve the accuracy of OCR, adoption of this technology can be expected to increase further.
- Small businesses want visual representation of financial reports: Since around 65% of learning happens via visual content, buyers find visual representation of financial reports an important consideration while shortlisting their accounting system. This is also driving small business accounting vendors to include stronger visualization capabilities in their reporting modules.