Accounting software is a system of recording financial transactions on a computer across a full range of accounting options almost invariably dependent on the size of the business being served. Financial software can range from a multi-million pound solution for major public companies to simple managed lists of income and expenses.
Account software requirements are diverse with the most complex and comprehensive financial accounting packages incorporating financial reporting information and managed by teams of qualified accountants supported by account clerks, bookkeepers and substantial input from automated data sources. At the other end of the scale, a sole trader who is self-employed could use accounting software and produce a set of financial accounts for the year in one afternoon.
Different accounting standards are required from software packages depending on suitability for purpose and customer needs. Automated double-entry bookkeeping through a database system and probably organized into financial modules would normally be the choice of most public companies. Single-entry accounting would not be an acceptable accounting solution for a limited partnership due to auditing requirements and legal obligations.
However, single-entry accounting has its place in the marketplace for smaller, less complex businesses that maintain financial control through close, intimate knowledge of each financial transaction. The primary purpose of a sole trader is more likely to be the production of tax accounts and completion of periodic and annual tax return forms.
The most sophisticated level of financial software in larger companies mirrors the accounting functions in those organizations with various modules for accounts receivable, accounts payable, inventory control, general ledger, and fixed assets. These accounting modules can also be integrated with other business functions, such as production and dispatch functions, and also split into separate modules within the finance function.
In larger companies, the sales journal and sales invoicing data entry would often be the responsibility of one department, while the accounts receivable function could be split with a specialized credit control function within that module. accounting. An additional division may also include sales administration and customer records. Similarly, the accounts payable function could be divided between the purchasing department, the account purchase invoicing department, and a legal function for late payments.
Accounting software for smaller businesses and organizations is typically a primary transaction data entry system that includes sales revenue, purchase expenses, and cash and bank transactions. Entry of these primary documents is done in a database that automates double-entry accounting principles and produces accounts receivable, accounts payable, and general ledger databases.
Some accounting knowledge is usually required to operate a database accounting software system and that financial knowledge is usually available within the company, as most companies that use database accounting software also they employ a bookkeeper or accounting clerk to enter data and in slightly larger small businesses also qualified accountants. to manage the accounting function.
The need for knowledge of accounting in a database system is partly to understand the principles of data entry and the relevance of the rules that must be followed, but essentially an understanding of accounting principles is required to understand what happens with the information after the input. And most importantly, a qualified accountant has the financial knowledge, training, and experience to know what the system should produce and how to query the database to retrieve that information.
In addition to entering the main details of income and expenses, the greatest benefit of a database system is the level of control that the information it contains can provide to the financial and management leadership of the company. The accounting function is also assured of producing trial balances, periodic profit and loss accounts, balance sheets, and other financial and control statements.
Accounting packages are available for small businesses that require little to no accounting knowledge.
Small limited liability companies should obtain accounting software based on double-entry accounting principles, as in addition to producing a profit and loss statement and trial balance to demonstrate the accuracy and completeness of financial records, it requires a balance sheet for reporting purposes. Accounting regulations require limited companies to have a financial control system and accounting software is a fundamental tool to achieve this.
Some accounting knowledge, whether from management or outsourcing accounting services, is usually required with even the simplest database accounting solutions, even if this requires an understanding of what the books mean accounts receivable ledger, accounts payable ledger, and control accounts.
There are other possibilities, and those companies with a modicum of accounting knowledge may want to consider spreadsheet-based accounting software. Spreadsheet accounts are less flexible and often don’t have the range of options that a database system does due to a lack of available database queries. These flexibility drawbacks are offset by the fact that all inputs are visible, transparent, and changes can be made more easily.
From a financial standpoint, accounting software requirements can be entirely different for independent and self-employed traders on the business spectrum. Gone are the sophistication of control accounts, trial balances, and many aspects of financial control. The most important aspect of accounting for the self-employed is usually the preparation of a set of accounts for tax purposes.
Small self-employed businesses that do not require a balance sheet can use accounting software based on single-entry bookkeeping instead of double-entry and with the reduced financial control requirement, fewer financial inquiries to the system are required. . In these respects, the simpler an accounting solution the better, and in this market an accounting solution written in spreadsheets that can produce the net taxable profit would fit the bill.