Accounting Systems serve as the system of record for the collection, recording, tracking, and computing of losses, gains, gross and net totals for businesses.
The purpose of an accounting system is to provide a record of the financial transactions that have accumulated to the business, and its current and potential partners.
Today, many different software solutions provide businesses with computer-automated or cloud-based technology for their accounting systems.
The primary benefit of accounting systems and software is to automate functions like Accounts Payable, Accounts Receivable, Payroll, Billing, and General Ledger entries. These systems work together to provide real-time analysis for key measurements such as a business’s cash flow and expenses, as well as management information that serves as the basis for crucial decision making.
Accounting System Benefits
Modern accounting software applications, such as cloud-based accounting systems, provide many benefits to the accounting team, management and business owners. Some of the benefits include the following:
Automates Data Entry and Processing
Accounting systems are substantially more efficient than manual processes by simplifying the data entry and providing automated task performance for customer invoices, deposit and payments.
Accounting software can help to minimize errors in data entry, perform calculations during the data entry process, and automatically record transaction accurately.
Strengthens Internal Controls
Accounting systems help improve internal controls in several way. First, accounting software provides restricted access to the company’s accounting records. Second, accounting software facilitates separation of duties reducing the risk of employee fraud. Third, accounting systems enables closer monitoring of the transaction of the business.
Leading accounting applications improve financial reporting and help ensure compliance with accounting standards, tax and other statutory filing requirements.
Accounting software enables better collaboration and task sharing which leads to several benefits for the organization including segregation of duties for improved controls, training and developing of employee skills, and cross-training of employees.
Enhances Business Monitoring and Decision Making
With modern accounting systems, businesses are better equipped to maintain current accounting information. As a result, the automation and enhanced financial reporting of accounting systems enable companies to continuously monitor the financial result of the business and identify issues earlier improving outcomes.
Provides adequate security and safeguards
Modern accounting software applications allow users to save data and back up financial information in the cloud reducing the risk of catastrophic loss of crucial financial information.
Accounting Systems Features and Capabilities
Accounting systems vary significantly in functionality and complexity with the general ledger features comprising the core record of transactions and balances. Essential functions and systems for any small company, startup or growth-stage company should include the following:
Accounts Payable (AP) – Software and systems include invoice creation and capture, payment approvals and authorization processes. Transactions are recorded in the accounts payable and general ledger tables.
Accounts Receivable (AR) – Software and systems include tracking customer credits for payments and purchases. Also recorded on the general ledger.
Bank Reconciliations – This matches credits and debits. The net benefit is to identify any gaps in entries and to correct discrepancies.
Billing and Invoicing – Creates invoices, forwards bills and records information in the accounting system.
Expense Tracking – Records the total expenses incurred in a business. Software applications increasingly allow users to submit expenses by via a mobile app.
Financial Reporting – Reports within financial reporting can include but are not limited to sales reports, AR/AP, balance sheets and cash flow analysis.
General Ledger – Lists the accounts payable and accounts receivable information in a table. It also summarizes assets, equity, expense, and revenue information for each account.
Project Accounting – This tracks different, client-facing activities, such as incurred costs, expenses, billable hours, and client payments.
Choosing the Right Accounting Software
Managing the accounting function for a business can be complicated and seem like a distraction. By selecting the right accounting software, businesses can help to simplify managing the daily financial tasks and avoid costly mistakes by investing in the wrong accounting software and costs to implement a new system.
Assess the needs of your business
In the accounting software selection process, a key item to consider is the assessment of the needs of your business. Business requirements such as accounting for inventory, project accounting, multiple companies and consolidations, revenue recognition, multi-currency, reporting and integration with other systems should be part of the requirements list before you begin evaluating accounting system.
Determine the features required
Technology, integration with other software used in the business, industry focus, ability to scale and other features.
The cost of cloud accounting software systems designed to serve small to medium business can range from several hundred dollars to several hundred thousand per year. It is crucial to consider not only the annual subscription costs but also implementation costs, support and training costs to ensure an appropriate return on investment.
It is a good practice to seek references prior to selecting an accounting systems, preferably recent customers and customers in your industry. In addition, in performing your research prior to the selection of an accounting system, many professionals have found that research features, product comparisons, and user feedback on software review websites such as Capterra, G2, TrustRadius, and Software Advice to be useful during the evaluation process.
Importance of the Chart of Accounts
The chart of accounts is a crucial element to the accounting systems that serves as the foundation of record keeping system in an organized format. The goal of a well-designed chart of accounts is to permit the accounting system to present the accounting information in a clear and useful manner. Without a proper chart of accounts compilation of management reports can be cumbersome and time consuming.
Benefits of a ideal chart of account including the following.
Assists in adhering to accounting standards
Saves time – The right chart of accounts leads to more efficient data entry and reduces time spent researching and locating transactional information.
Improves reporting – Enables the transactional accounting data to be captured and organized to drive the ideal operational, financial and tax reporting of a business.