What is Accounting Software?

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So, what is accounting software and how can it help your business? In short, accounting software is a computer application that automates standard financial processes, records, and transactions. There are several different types of accounting software, including in-house applications that are most often developed and implemented by larger companies with unique and diverse needs.

There are also off-the-shelf accounting solutions, such as Quickbooks Pro and Peachtree Accounting, which are suitable for small-to-medium-sized businesses. The last category of accounting software is customized, configurable solutions that are part of a larger ERP system suitable for Tier 1 and 2 companies.

What is Accounting Software – Modules

The vast majority of accounting software solutions comprise various modules that manage the activities of different financial areas. The common core modules are accounts receivable, in which revenues and income are recorded; accounts payable that records bills and money owed to vendors and other parties; the general ledger documents high-level transactions and provides the source for subsidiary ledgers and the balance sheet; the billing module, which is the source for bills sent to clients; and the inventory module, which manages raw materials and finished goods.

There are several non-core modules that add functionality to accounting software, including electronic payment processing that eliminates paper checks and other forms of payment; a reports module that produces detailed analytics for analysis by senior management decision makers.

What is Accounting Software – Types of Accounting Software

Different types of accounting software also exist depending on how large your finances are. There is personal accounting software that lets home users track their finances and prepare year-end taxes with ease. Low cost solutions are available that perform general business accounting functions with few bells and whistles. Many of these are single-entry products and, as such, are not GAAP-compliant.

Mid-market accounting products are capable of dealing with multiple currencies and accounting standards in a number of countries. They typically come complete with a robust database, such as Oracle, and an industry-standard report generator, such as Crystal Reports. Some solutions also allow access to their source code via Visual Basic to extend or configure the capabilities of the application.

High end accounting software is most frequently associated with an enterprise resource planning (ERP) solution. These solutions are highly customizable and can be configured to support very specific business requirements. The cost of this software, as one might expect, is also very high, and implementation can take up to six months.

Another category of accounting software today is specific to particular vertical markets. These solutions are developed to satisfy unique needs to the industry. Examples of this type of software are banking, construction, medical, and non-profit accounting software. This category is less expensive than ERP-based solutions and does not require as much training for end-users as the mid-market or ERP solutions. However, they are often a riskier proposition since there is typically not as much customer support provided. A company must carefully weigh the pros and cons of this alternative before making a decision.

Accounting software has, in just a few decades, become ingrained in the business world, and with ever-changing tax laws and regulations, it will only grow more critical in the coming years.

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