Accounting software is a system for recording financial transactions on a computer through a full range of accounting options that almost invariably depend on the size of the business being served. Financial software can range from a multi-million pound solution for major public companies to simple managed income and expense lists.
Account software requirements are diverse with the more complex and comprehensive financial accounting packages incorporating financial reporting information and being managed by teams of qualified accountants supported by account clerks, bookkeepers, and substantial input from automated data sources. At the other end of the scale, a freelance sole trader could use the accounting software on their own and produce a set of financial accounts for the year in one afternoon.
Different accounting standards of software packages are required depending on suitability for purpose and customer needs. Automated double entry bookkeeping through a database system and probably organized into financial modules would normally be the choice of most public companies. Single entry accounting would not be an acceptable accounting solution for a limited company due to auditing requirements and legal obligations.
However, single entry accounting has its place in the market for smaller and less complex businesses that maintain financial control through intimate knowledge of each financial transaction. The main objective of an individual trader is more likely to be the production of the tax accounts and the completion of the periodic and annual tax return forms.
The most sophisticated level of financial software in larger companies reflects the accounting functions in those organizations with various modules for accounts receivable, accounts payable, stock control, general ledger, and fixed assets. These accounting modules can also be integrated with other business functions, such as production and dispatch functions, and can also be divided into separate modules within the finance function.
In larger companies, the sales schedule and sales volume data entry would often be the responsibility of one department, while the accounts receivable function could be divided with a specialized credit control function within that accounting module. . An additional division may also include sales management and customer records. Similarly, the accounts payable function could be divided between the purchasing department, the account purchase invoice department, and a legal function for overdue payments.
Accounting software for smaller businesses and organizations is commonly a data entry system for major transactions that include sales income, purchase expenses, and bank and cash transactions. The entry of these main documents is done in a database that automates double-entry accounting principles and produces databases of accounts receivable, accounts payable and general ledger.
Generally, some accounting knowledge is required to operate a database accounting software system and that financial knowledge is generally available within the company, as most companies using database accounting software They also employ a bookkeeper or account clerk to enter data and in slightly larger smaller companies also qualified accountants to manage the accounting function.
The need for accounting knowledge in a database system is in part to understand the principles of data entry and the relevance of the rules to be followed, but essentially an understanding of accounting principles is required to understand what is going on with information after entry. Most importantly, a qualified accountant has the financial knowledge, training, and experience to know what the system should produce and how to query the database to retrieve that information.
In addition to entering key income and expense details, the greatest benefit of a database system is the level of control that the information it contains can provide company management and financial management. The accounting function also has the assurance of producing trial balances, periodic profit and loss accounts, balance sheets, and other financial and control statements for fiscal and control purposes.
Small business accounting packages are available that require little to no accounting knowledge.
Small limited businesses should obtain accounting software based on double-entry accounting principles, as in addition to producing a profit and loss account and trial balance to demonstrate the accuracy and completeness of financial records, in addition to a balance sheet required for reporting purposes. Accounting standards require that the corporation have a financial control system and accounting software is a fundamental tool to achieve this.
Usually some accounting knowledge is required, either from administration or outsourcing of accounting services, even with the simplest database accounting solutions, even if this requires an understanding of what the books mean accounts receivable, accounts payable book and control accounts.
There are other possibilities and those companies with minimal accounting skills may consider spreadsheet-based accounting software. Spreadsheet accounts are less flexible and often do not have the range of options that a database system has due to the lack of available database queries. These flexibility disadvantages are offset by the fact that all entries are visible, transparent, and changes can be made more easily.
Financially at the end of the self-employed trader business spectrum, accounting software requirements can be completely different. Gone are the sophistication of control accounts, trial balances, and many aspects of financial control. The most important aspect of self-accounting is often the compilation of a set of accounts for tax purposes.
Small stand-alone businesses that do not require a balance sheet can use accounting software based on single-entry bookkeeping instead of double-entry, and with the reduced requirement for financial control, fewer financial inquiries are required to the system. In these respects, the simpler an accounting solution, the better and, in this market, an accounting solution written in spreadsheets that can produce net taxable profit would meet the requirements.