If you’re unfamiliar with accounting software and the many capabilities it comes with, it may be difficult to understand what exactly each accounting software module does. From the general ledger to accounts payable and receivable, making the most of these accounting modules is crucial to optimizing your business’s financial performance.
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Adding accounting software into the mix can do a lot for your financial health, especially for a new business with little accounting experience. But if you’re unfamiliar with the modules, you might not feel comfortable entrusting such a crucial part of your day-to-day to a software. Putting time into understanding these modules and their best practices will greatly benefit your business in the long run.
In this article, we’ll explain what accounting software modules are, how they correlate to practices and accounts in pen-and-paper accounting, and what implementing them can do for your business. By the end, you should have a good sense of which modules could help your accounting process most.
Essential Accounting Modules
You can find the following modules in almost any accounting software on the market. They’re standard for a reason — each one is fundamental to the accounting and financial management processes for every size and kind of business.
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General Ledger
The general ledger keeps a running log of every transaction your business makes or handles. In accounting, this means having a central database for all of your incoming and outgoing financial data. It pulls together numbers from other databases and sources to provide a single location where every piece of data can be found.
Traditionally, this required manual writing down of the details of every transaction. But with accounting software, the general ledger automatically updates every time a transaction is made, eliminating the need for you to manually enter your data.
Other database modules in the software have this information copied into and out of them as needed, further saving you time and personnel on data entry and reducing the risk for typos and errors. General ledger modules can also automatically organize information into easy-to-read dashboards, such as with Sage Intacct as shown below.
Sage Intacct automatically organizes your general ledger information into an easy-to-read dashboard.
Accounts Payable
Businesses often make purchases of their own, and the accounts payable book exists to help keep track of what they owe to other businesses and suppliers on a short-term basis.
A business’s goal at the end of any given period is to bring this database’s running total of short-term debts down to zero by paying them off. To fully “balance the books,” your accounts receivable book should be at zero too (more on that in a bit).
In a similar process to the general ledger, the accounts payable module in accounting software automatically logs the short-term debts you accrue as you make purchases and transactions, and copies them to the general ledger instantly. This process makes it a lot easier to balance your books at the end of the day and eliminates the possibility of errors popping up in your data.
Accounts Receivable
Acting as the opposite end of the accounts payable book, accounts receivable logs the short-term debts that other businesses owe you. Balancing this book means collecting on those payments, which requires you to maintain contact with those businesses and make sure they pay you when they promise to. Data from this book is also tracked in the general ledger alongside accounts payable data.
In an accounting software module, accounts receivable transactions are automatically logged and tracked as with all other transactions, leaving your accounting staff free to focus on more important and less tedious tasks.
Additionally, you can make use of the billing and invoicing module included with most accounting software to facilitate the collection of those payments (more on that module in a moment).
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Invoicing
Your accounting department needs to be able to write and send bills and invoices to ensure you collect on customer and business debts, regardless of how long those debts have been owed. In the past, a business would have needed document design professionals or robust Microsoft Word templates to put these together, as well as data entry operators to ensure the right numbers are being used on the bills.
Thankfully, accounting software makes this process much easier. Solutions such as Freshbooks copy data directly from your financial databases and provide you the tools to create professionally designed documents with just a few clicks. Some solutions also support payment processing integrations, enabling you to directly collect on these debts through your software and balance your books instantly.
The Freshbooks invoicing module gives you tools to generate invoices with professional company letterhead.
Chart of Accounts
A chart of accounts works hand in hand with your general ledger, accounts payable, accounts receivable and other modules to put together a complete list of every account that impacts the flow of money in your business. Without software, the chart is a list, either digital or on paper, that needs to be manually updated as every transaction and change occurs and new accounts are added.
Accounting software such as Xero links your chart of accounts to each account as they’re created, saving time and giving you a central location from which you can quickly access each one. This makes it easier to get information, back up claims, fill out reports and improve the transparency of your organization’s financial data for higher-ups and external governing parties that may need to review your progress.
Xero features a chart of accounts that makes it easy to track the progress of each. source
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Next Steps
We hope this article gives you a better understanding of the most essential accounting software modules and what they do for you.
No two products are exactly alike, so there may be variations in the general ledgers or invoicing features you run into out there. Some solutions are also best-suited for specific types of businesses, situations or industries. But this list gives you a good place to start, especially if you’re new to browsing the market and want to make an informed decision.
If you need more help on your journey, we’ve got you covered. Take a look at our accounting software buyer’s guide to get an even more comprehensive insight into what accounting software is and how it works. If you’re ready to dig into the software search, try our free comparison report to see how different market leaders stack up.
So, which module stands out as the most important? Did we miss any? Let us know in the comments!