Are you feeling overwhelmed by the world of accounting software? Unsure of where to even begin? Whether you’re a seasoned business owner trying to streamline your finances or an accounting beginner looking to take control of your company budget, accounting software can be a game-changer — but navigating the market can feel next to impossible.
In this article, we’ll break down accounting software basics in a clear and concise manner, demystifying those confusing terms and functionalities to help you find the solution you need. Let’s dive in!
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Article Roadmap
- What Is Accounting Software?
- Accounting Software Basics
- How Can Accounting Software Benefit Your Business?
- How Can I Implement Accounting Software?
- Next Steps
What Is Accounting Software?
Accounting software is a program or suite of programs designed to help businesses manage their finances and optimize their workflow. It makes information easier to access, helps inform business decisions by making data understandable, and integrates with other software to further improve workflows, providing greater insights into how money is flowing through the business.
Accounting software can be a standalone program, or it can be part of a larger ERP suite if your business requires a more complete set of software to cover your bases. This means including other software capabilities such as distribution management, which handles your business’s supply chain, or customer relationship management, which helps you maintain positive relationships with your clientele.
Accounting Software Basics
If you’re new to accounting software, there may be several concepts and modules you’re unfamiliar with. While different software options may come with different modules, here are a few features that should be considered standard-issue for any software worth its salt.
General Ledger
Good accounting requires you to maintain several different databases, and the general ledger is the most important of these. It’s the database that stores information about every transaction your business makes, whether it’s incoming or outgoing funds.
When using accounting software, information from your general ledger is shared to other databases in order to ensure consistency between them.
Accounts Payable
Businesses tend to owe short-term debts to suppliers and other business partners, and accounts payable databases exist to make sure those debts are tracked, acknowledged and reconciled at the end of the day. Keeping this information logged ensures your business can settle these debts in a timely manner.
Accounts Receivable
On the other end of the short-term debts spectrum, accounts receivable databases exist to remind your business what’s owed to it by other businesses. Just as accounts payable helps you settle those debts, accounts receivable helps you collect on what’s owed to you, and ensuring payable and receivable are both balanced at the end of the day helps maintain an accurate general ledger.
Invoicing and Billing
When it’s time to request payment from customers or other businesses, accounting software gives you the ability to generate robust invoices from the numbers logged in the general ledger and accounts receivable databases. You can also personalize these invoices by using drag-and-drop capabilities to create professional company letterhead, building your company image.
Reporting
Accounting software draws from many related databases to generate accurate, usable reports for a variety of purposes, whether you’re sending your business performance to your local government for approval or to your company higher-ups to maintain transparency. This data can also be visualized on graphs to track progress over time in a format that any staff member could understand, regardless of their expertise.
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Primary Benefits
With all the aforementioned features and other, more specific modules that differ between different software options, accounting software can do a lot of things to improve your business’s financial operations. Let’s take a look at some of those improvements and how they might represent themselves.
More Accurate Databases
Accounting software comes with automatic data entry capabilities, enabling you to remove a few steps from the financial management process and have the figures and numbers logged as soon as transactions occur. Information is also copied between databases, ensuring consistency and accuracy by removing much of the risk of typos and other errors when inputting data.
Improved Departmental Transparency
Using accounting software to track, log and visualize your business’s financial data makes it much easier to ensure everyone in your company is on the same page and kept up to date with where you stand. For users who don’t have access to the dashboards and databases, you can use the reporting function to send them direct updates in a format that they can understand.
Improved Process Integration
As mentioned above, accounting software is built to be integrated with other software in your organization’s workflow to optimize financial tracking wherever it may come up. You can check the compatibility of various accounting software vendors with other vendors by using our free accounting software comparison report.
More Robust Security
Incorporating accounting software into your process makes it much easier to control who can access what information, ensuring that only employees who are supposed to see it have access and preventing information leaks to third parties. You can rest easy knowing that your financial data is secure.
Future-Proof Systems
When you implement a new piece of accounting software — particularly software that runs on a subscription or cloud-based model, which we’ll get into next — you’re ensuring compatibility with any other new systems you put into place. This also optimizes your system via regular updates from your software providers, and allows you to handle bugs and glitches as quickly as possible.
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How Can I Implement Accounting Software?
When adopting a new software solution, you’ll want to consider the kind of deployment you want to use.
In recent years, cloud-based software and SaaS (software-as-a-service) subscriptions have been on the rise, but there are also benefits to the tried-and-true method of on-premise deployments. There are also hybridized deployments available for those who want the best of both worlds.
SaaS Deployment
Software-as-a-service simply refers to the model of paying a monthly subscription fee rather than a large upfront cost for the software you’re adopting, and in turn, entrusting the maintenance and support to the software vendor. This model reduces the cost of entry while making software accessible from any number of connected devices. However, costs can add up over time, and some businesses prefer not to outsource.
On-Premise Deployment
Housing your accounting software on-premise means a higher upfront cost and the need for a dedicated in-house IT staff to handle software concerns. However, the trade-offs include no subscription fees, further personalization of the software to fit your business and better data security. Cloud software also has robust data security, but keeping your operations on-premise gives you unparalleled control.
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Next Steps
If you came into this article not knowing what accounting software can do for your business, hopefully we’ve answered some of your burning questions. Accounting software basics are just the start — once you have your fundamentals covered, there are even more complex and specialized ways to leverage the right platform for your financial health.
If you’re ready to continue your journey, take a look at our accounting software buyer’s guide for a comprehensive overview of this software category, along with some of our top software picks. For even more insight, check out the free comparison report linked above for a complete breakdown of modules, features and compatibilities among leading software options.
So, what are you looking for in accounting software? Did we leave any of the “basics” out? Let us know in the comments.