What is the Purpose of an Accounting Software?

There was a time when accounting transactions were manually recorded on large, columnar sheets of green paper called ledger pads. Fortunately for business owners, accounting software helps make accounting efficient, accurate and compliant. Choosing an accounting software is a major consideration for any business owner or management professional and should receive top priority.

Accounting software stores business transactions into different accounts that are designated by type of transaction and category. Income and expenses are two types of transactions stored in accounting software. Examples of categories include payroll costs and office supplies. A complete list of all transactions recorded by type and category is referred to as the general ledger.

Accounting software is generally classified into two types. The first type is intended for accounting professionals who have a clear understanding of general ledger accounting. The second type is intended for business owners who lack anything but basic accounting knowledge. Accounting software may also be industry-specific.

Accounting software divides functionality into modules that are either standard to the software or purchased separately. Accounts payable and accounts receivable are examples of two modules that are usually part of a standard accounting package. Payroll and inventory management are examples of additional modules that you might purchase separately. Some accounting software is installed directly on your personal computer or network, while other software is accessed using the Internet.

The most critical thing to consider when selecting accounting software is the education level of the person who will use the software. Other important things to consider are functionality and cost. When calculating the total investment cost, don’t forget to allow for conversion costs, technical support costs and annual renewal fees. Learning curve is also an important consideration when choosing accounting software. Turnover is expensive and software with a steep learning curve can make turnover cost increase dramatically.

Accounting software eliminates redundancy that once existed in the accounting function. For example, once vendor information is entered into an accounts payable module, the information never has to be entered again regardless of how many checks you issue to that vendor. At the touch of a button, accounting software can also generate complex financial statements such as the income statement, balance sheet and statement of cash flow.

Many software manufacturers provide trial versions of their product. Create test cases of daily accounting transactions and test them in each trial version that you consider. If a trial version is not available, ask a sales representative for a live demonstration and provide them with your test cases. Ask manufacturers for client references, preferably in your line of business.