Accounting software is a system of recording financial
transactions on a computer across a full range of
accounting options almost invariably dependent upon the
size of business being catered for. Accounting software can
vary from multi million pound solutions for major public
companies to simple managed lists of income and expenses.
The requirements from accounting software are diverse with
the most complex and comprehensive financial accounting
packages incorporating financial reporting information and
managed by teams of qualified accountants supported by
accounts clerks, bookkeepers and substantial input from
automated data sources. At the other end of the scale a
self employed sole trader might use accounting software
themselves and produce a set of financial accounts for the
year in an afternoon.
Different accounting standards are required from accounting
software dependent upon the fitness for purpose and client
needs. Double entry bookkeeping automated through a
database system and probably arranged in financial modules
would normally be the choice of the majority of public
companies. Single entry bookkeeping would not be an
acceptable accounting solution for a limited company due to
audit requirements and statutory obligations.
Single entry bookkeeping does however have its place in the
market place for the smaller less complex businesses who
maintain financial control through a close intimate
knowledge of every financial transaction. The main
objective of a sole trader is more likely to be the
production of the tax accounts and complete the periodic
and annual tax return forms.
The most sophisticated level of accounting software in the
largest companies mirrors the accounting functions in those
organisations with various financial modules for accounts
receivable, accounts payable, stock control, general ledger
and fixed assets. These accounting modules may also be
integrated with non accounting functions such as production
and dispatch functions and also divided into separate
modules within the accounting function.
In larger companies the sales daybook and data entry of
sales turnover would often be the responsibility of one
department while the accounts receivable function might be
split with a specialist credit control function within that
accounting module. A further division may also include
sales administration and customer records. Similarly the
accounts payable function might be split between the
purchasing department, accounts purchase invoice department
and a legal function for overdue payments.
Accounting software for smaller companies and organisations
is commonly a system of data entry of prime transactions
which include sales income, purchase expenses and cash and
bank transactions. The prime entry of these documents being
to a database which automates the double entry accounting
principles and produces both accounts receivable, accounts
payable and general ledger databases.
Some accounting knowledge is usually required tom operate a
database accounting software system and that financial
knowledge is usually available within the company as most
companies that use database accounting software also employ
a bookkeeper or accounts clerks to input data and in
slightly larger small companies also qualified accountants
to manage the accounting function.
The need for accounting knowledge in a database system is
partially to understand the data entry principles and the
relevancy of the rules that need to be followed but
essentially understanding of accounting principles is
required to understand what is happening ton the
information after input. And most important, a qualified
accountant has the financial knowledge, training and
experience to know what the system should be producing and
how to query the database to retrieve that information.
In addition to inputting the prime income and expenditure
details the most benefit of a database accounting system is
the level of financial control the information it contains
can provide the company management and financial
directorship. The accounting function also has the security
of producing trial balances, periodic profit and loss
accounts, balance sheets and other financial and statements
for tax and control purposes.
Accounting software packages requiring little or no
accounting knowledge are available.
Small limited companies must obtain accounting software
based upon double entry accounting principles as in
addition to producing a profit and loss account and a trial
balance to demonstrate accuracy and integrity of the
financial records plus a balance sheet is required for
reporting purposes. Accounting standards require the
limited company to have a system of financial control and
accounting software is an essential tool in achieving this.
Some accounting knowledge either from the management or
outsourcing the bookkeeping services is usually required
with even the simplest database accounting solutions eve3n
if this requires the understanding of what accounts
receivable ledgers, accounts payable ledger and control
accounts mean.
There are other possibilities and those businesses with a
minimum of accounting knowledge can consider spreadsheet
based accounting software. Accounting software compiled
from spreadsheets is less flexible and often does not have
the range of options a database system has due to the lack
of database queries available. These disadvantages of
flexibility being compensated by the fact that all entries
are visible, transparent and changes can be made more
easily.
Financially at the sole trader and self employed end of the
business spectrum then the requirements from accounting
software may be completely different. Gone are the
sophistications of control accounts, trial balances and
many aspects of financial control. The most important
aspect of self employed accounting software is often to
produce a set of accounts for tax purposes.
Self employed small business that do not require a balance
sheet can use accounting software based upon single entry
bookkeeping rather than double entry and with the reduced
requirement for financial control then less financial
queries to the system are required. In these respects the
simpler an accounting solution the better and in this
market an accounting solution written on spreadsheets that
can produce the net taxable profit would meet the
requirements.
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Terry Cartwright, accountant and CEO at DIY Accounting,
designs Accounting Software at
http://www.diyaccounting.co.uk/ providing accounting
solutions for small to medium sized business in the UK with
payroll software at
http://www.diyaccounting.co.uk/payroll.htm for up to 20
employees
