Find the answers to many of the most commonly asked questions on accounting software below.
Accounting software is any software used to record and process accounting transactions.
The core features of accounting software typically help track: accounts payable (what a company owes to others), accounts receivable (what a company is owed by others), journal entries (all credits and corresponding debits), the general ledger (records of all transactions per account), payroll (what is owed or has been paid to employees) and trial balances (that confirm total debit balances equal total credit balances).
Compared to keeping paper-based accounting records, the benefits of accounting software are: better transparency and faster access into a company’s finances, easier data entry, simplified reporting, fewer calculation errors, easier tax filings, reduced time for accountants, automation of invoices and expense tracking, and being able to make decisions faster.
Rather than financials being only available to an accountant or the accounting team, accounting software allows any authorized person within an organization to quickly and easily access financial records.
This allows more people to know what is being spent where (accounts payable) as well as where and when additional funds (accounts receivable) are expected by the company.
Faster Access to Financials:
Instead of waiting until the end of month or even end of quarter to see if a company’s books are balancing, or whether you are tracking to be above or below budget, most accounting software allows for real-time budget analysis and forecasting. This means you know where your company stands sooner than with non-digital accounting systems.
Accounting software doesn’t just make reporting for external parties (like tax authorities) easier, but also through accounting data visualization makes understanding your company’s finances much easier.
Typical accounting reports found in accounting software include: cash flow statements, income statements, and balance sheets; but can also include more granular reports like revenue per customer, aging of accounts receivable/payable, and more.
Easier Data Entry:
Accounting software takes a fraction of the time that historical pen and paper based accounting methods took. Aside from the fact that people can type faster than they can write, data entry is spot checked immediately, and corrections can be made on the spot as soon as they are found.
Fewer Calculation Errors:
Calculation errors can wreak havoc on any accounting system. Accounting software completes calculations automatically which virtually eliminates manual calculation errors, it also reduces rounding errors, and errors when transferring data from one sheet to the next.
Easier Tax Filing:
When filing taxes for a business, most governments will require a balance sheet, income statement, and cash flow statements, which are generated automatically for you upon data entry in most accounting software systems.
Reduced Time for Accountants:
For internal, or in house, accountants the aforementioned benefits lead to a lot of time savings and cost savings for the business. For external accounting firms, businesses spend substantially less on accounting hours when all their books are in order via properly used accounting software.
A lot of accounting software allows for invoices to be issued for customers and paid for via a payment link. This has been proven to increase the number of on-time payments made to businesses and to reduce overall accounts receivable follow-up. In short, it allows you to get paid on time more often than traditional paper based accounts receivable systems.
Automating Expense Tracking:
Most accounting software allows for easy expense tracking on the business level, and accounting software are more and more frequently integrating with employee expenses tracking platforms to keep track of one-off expenses or expenses to be reimbursed to employees.
Faster Decision Making:
With important financial information available at their fingertips, decision makers can quickly identify both positive and problem areas and decide where to increase or decrease spending. It also allows budgeting and other items to be completed more quickly through financial visibility.
The types of accounting software include: 1) Spreadsheet software, 2) Out-of-the-box accounting software, 3) Cloud or SAAS accounting software, 4) Enterprise accounting software, and 5) Custom accounting software.
Spreadsheet software for accounting
For years, many businesses and accountants have relied on robust spreadsheets to keep track of their company’s books.
Although using Excel or Google Sheets can work well for small companies, they tend to become problematic as the company grows and has increased invoicing, expense, and payroll needs.
Out-of-the-box accounting software
As the name suggests, out-of-the-box accounting software can be purchased commercially (at most software or office supply stores) and comes out of the box with a ton of features. This was for many years the most commonly used accounting software as it was low cost and a one-time got you lifetime access to the software. The only drawback was that as the software became outdated or obsolete a new software would need to be purchased.
Cloud based accounting software (or SAAS)
Cloud accounting software is quickly replacing out of the box software solutions as there are many benefits to cloud accounting software. The benefits range from free updates, to the ability to access data anywhere in the world from any computer without installing software. Typically cloud based accounting software is paid on a monthly basis.
Custom accounting software
Custom accounting software typically describes either in-house accounting software that a firm has built for its own personal use (often due to specific features not being available in other pre-built software) or accounting software that is specific to an industry that has different requirements than most commercially available accounting software (like HIPAA compliance for the healthcare industry).
Although we would recommend popular small business accounting software like Quickbooks, Freshbooks, or Oracle Netsuite for most use cases. If you fall into any of the following industries or use cases you might be better suited with a more niche or custom accounting software.
Accounting software can cost as low as $0 for some very basic free or open source tools, however most accounting software will cost around $10 per month (or $100 per year) per user. In the case of cloud based software, the more users you have and the more features you need, will drive that cost up substantially to as high as $1000 per month per user for larger companies.
Short answer, YES. If you are able to use most basic online software like Word, Excel, Google Drive, etc., you should have no problem using accounting software.