When deciding to go for Accounting software, it must be understood that the best accounting software is the one that performs the entire core accounting functions quickly and accurately. All additional features are secondary to the basic functions. Never forget, it is the “rigid rules” of accounting that makes the software so consistent throughout.
The most comprehensive financial accounting packages incorporate in-depth financial reporting information and are managed by teams of qualified accountants supported by accounts clerks, bookkeepers, and substantial input from automated data sources. At the other end of the scale a self employed sole trader might use accounting software themselves and produce a set of financial accounts for the year in an afternoon.
Different accounting standards are required from accounting software dependent upon the purpose of the company and client needs. Double entry bookkeeping automated through a database system and arranged in financial modules would normally be the choice of public companies. Single entry bookkeeping would not be an acceptable accounting solution for a large corporation due to audit requirements and statutory obligations.
The Double entry concept works on the principle that for every Debit, there has to be a Credit. Accounting software comes in handy to prepare Trial Balance, which demonstrates the accounting accuracy of the involved transactions. The Trial Balance has a Debit and a Credit side.
To find out if the transactions have been recorded properly or not, the sum total on Debit side should equal the Credit side. If the tally is accurate, it indicates that the transactions have been accurately recorded.
Single entry bookkeeping does however have its place in the market place for the smaller less complex businesses who maintain financial control through a close intimate knowledge of every financial transaction. The main objective of a sole trader is more likely to be the production of the tax accounts and complete the periodic and annual tax return forms.
The most sophisticated level of accounting software reflects the accounting data with various financial modules for accounts receivable, accounts payable, stock control, general ledger and fixed assets. These accounting modules may also be integrated with non-accounting functions such as production and dispatch functions and also divided into separate modules within the accounting function.
In larger companies the sales daybook and data entry of sales turnover would often be the responsibility of one department. The accounts receivable function might be split with a specialist credit control function within that accounting module. A further division may also include sales administration and customer records. Accounts payable would normally be multi-functional of the purchasing department, purchase invoice accounts department and a legal function for overdue payments.
Accounting software for smaller companies is commonly a system of data entry of prime transactions which include sales income, purchase expenses and cash and bank transactions. The prime entries of these documents are to a database. The accounting software automates the double entry accounting principles and produces both 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 employ a bookkeeper or accounts clerks to input data and in slightly larger small companies also qualified accountants to manage the accounting function.
The need for accounting knowledge in a database system is partially to understand the data entry principles and the relevancy of the rules that need to be followed but essentially understanding of accounting principles is required to understand what is happening ton the information after input. And most important, a qualified accountant has the financial knowledge, training and experience to know what the system should be producing and how to search the database to retrieve that information.
A database accounting software system not only produces high quality financial records but offers numerous financial control alternatives for both junior and senior business management. The accounting function also has the security of producing trial balances, periodic profit and loss accounts, balance sheets and other financial and statements for tax and control purposes.
Joe Coffee is a consultant for the online marketing firm, Web Shepherd. Visit www.accountingandyou.com for tips about leading methods of accounting and small business accounting options.