Accounting Software Can Be Sophisticated Or Simple But Rarely Both

Jan 8


Terry Cartwright

Terry Cartwright

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Many types of accounting software exist to record the financial transactions of business and provide the management with financial control to achieve the profit and loss performance required. The correct choice is highly dependent upon the size of the business and the degree of sophistication and financial control required.


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,Accounting Software Can Be Sophisticated Or Simple But Rarely Both Articles bookkeepers and substantial input from automated data sources. Many small businesses with limited financial transactions can produce annual financial accounts in a single day.

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. Accounts payable would normally be multi functional of the purchasing department, purchase invoice accounts department and a legal function for overdue payments.

Small business accounting software need consist of little more than listing sales invoices, purchase invoices 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.

Database systems assume a knowledge of what happens to the financial data after it has been input to the system to enable the accountant to be able to extract from the system the required information for better financial cvontrol. 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 and bookkeeping software produced on fixed templates is less flexible as it is not intended to be a source of queries such as a databased accounts package would. These disadvantages of flexibility being compensated by the fact that all entries are visible, transparent and changes can be made more easily.

Small business has different requirements from accounting software due to the intimate knowledge those businesses the owner manager has. More sophisticated accounting aspects such as debtor and crditor control accounts,trial balances and financial control information are not present. The most important aspect of self employed accounting software is often to produce a set of accounts for tax purposes.

Small business accounting that does not require the production of a balance sheet can use single entry bookkeeping. 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.