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Accounting Software Can Be Sophisticated Or Simple But Rarely Both
Accounting software is a system for recording financial transactions on a computer in various accounting options, almost always depending on the size of the business being served. Financial software can vary from several million pound solutions for large publicly traded companies to simple managed income and expense registers.
The requirements of account software vary with the most complex and comprehensive financial accounting packages incorporating financial reporting information and maintained by a team of qualified accountants supported by account clerks, bookkeepers and substantial input from automated data sources. On the other hand, a self-employed sole trader might use his own accounting software and produce a set of financial accounts for the year in an afternoon.
Different accounting standards are required of the software package depending on suitability for the goals and needs of the client. Automatic double-entry bookkeeping through a database system and perhaps managed in a financial module is usually the choice of the majority of public companies. Single entry bookkeeping would not be an acceptable accounting solution for limited companies due to auditing requirements and legal obligations.
Single entry bookkeeping however has its place in the market for less complex small businesses that maintain financial control through in-depth knowledge of every financial transaction. The primary goal of sole traders is likely to be to set up tax accounts and complete periodic and annual tax return forms.
The most sophisticated level of financial software in the largest companies mirrors the accounting function in those organizations with modules for accounts receivable, accounts payable, stock control, general ledger and fixed assets. This accounting module can also be integrated with other business functions such as production and shipping functions and is also divided into separate modules within the finance function.
In larger companies, sales diary and sales turnover data entry are often the responsibility of a single department while the accounts receivable function may be split with the specialist credit control function within the accounting module. Subsequent divisions may also include sales administration and customer records. Similarly, the accounts payable function can be divided between the purchasing department, the account purchases invoice department, and the legal function for overdue payments.
Accounting software for small companies and organizations is generally a primary transaction data entry system that includes sales revenue, purchase expenses, and cash and bank transactions. Entry of these key documents into a database automates the principle of double entry bookkeeping and generates a database of accounts receivable, accounts payable and general ledgers.
Some accounting knowledge is usually required to operate a database accounting software system and that financial knowledge is usually available within the company as most of the companies using database accounting software also employ bookkeepers or account clerks to enter data and in small companies a little more Most are also qualified accountants. to manage the accounting function.
The need for knowledge of accounting in database systems is partly to understand the principles of data entry and the relevance of the rules that need to be followed but basically an understanding of accounting principles is necessary to understand what happens to the information after input. And most importantly, a qualified accountant has the financial knowledge, training, and experience to know what systems to produce and how to query the databases to retrieve that information.
Apart from entering details of key income and expenses, the greatest benefit of database systems is the level of control the information they contain can provide company management and financial directors. The accounting function also has the security of producing trial balances, periodic income statements, balance sheets and other financial reports for tax and control purposes.
Small business accounting packages that require little or no accounting knowledge are available.
Small limited companies should acquire accounting software based on the principle of double entry bookkeeping in addition to generating profit and loss accounts and trial balances to demonstrate the accuracy and integrity of financial records plus a balance sheet required for reporting purposes. Accounting standards require limited companies to have a system of financial controls and accounting software is an important tool to achieve this.
Some accounting knowledge either from management or outsourcing bookkeeping services is usually required even with the simplest database accounting solutions even if this requires an understanding of what accounts receivable ledger, accounts payable ledger and control accounts mean.
There are other possibilities and businesses with minimal accounting knowledge may consider spreadsheet-based accounting software. Spreadsheet accounts lack flexibility and often lack the range of options that database systems have due to a lack of available database queries. This loss of flexibility is compensated for by the fact that all entries are visible, transparent, and changes can be made more easily.
Financially at sole traders and self-employed at the opposite end of the business spectrum the requirements of accounting software may be very different. Gone is the sophistication of control accounts, trial balances, and many aspects of financial controls. The most important aspect of self-employed accounting is often producing a set of accounts for tax purposes.
Self-employed small businesses that do not require balance sheets can use accounting software based on single-entry bookkeeping rather than multiple-entry and with reduced requirements for financial controls fewer financial requests to the system are necessary. In this case, the simpler the accounting solution the better and in this market an accounting solution written on a spreadsheet that can generate net taxable profit will meet the requirements.
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