Accounting software is a type of computer program that carries out accounting functions. This software has now largely replaced older paper accounting systems. The software may be in the form of packages or written specially to meet a business’s unique requirements. Accounting modules include the general ledger, accounts receivable, accounts payable, payroll, inventory, and fixed assets, and integrated accounting software usually links a number of these modules together. Data from one module are transferred to another module; for example, updating accounts payable automatically updates the general ledger.
The general ledger module is central to the whole accounting system. A small business may find that a general ledger module is adequate. The general ledger module typically produces a chart of accounts, journals, trial balance, general ledger, and financial statements. An accounts receivable module is needed where there are significant amounts of sales transactions. The accounts receivable module assists cash flow and credit policy. Receivables from customers are tracked, reconciled, invoiced, and aged. An accounts payable module is needed only when numerous checks are written. The frequency of the system may be weekly, semi-monthly, or monthly, depending on the availability of cash discounts and the number of transactions. The accounts payable package makes out checks to vendors, assures the receipt of discounts and prepares an aging of payables.
Payroll software aids in determining the payroll deposit and offers needed payroll data at tax reporting time. A good fixed asset package could provide description and categorization of assets; number of assets accommodated; cost, life, and salvage value for fixed assets; allowance for different depreciation methods; pro-rata depreciation calculation and fixed asset cost center.
In purchasing accounting software, compatibility, efficiency, integration, and cost are considerations. It is better to purchase individual modules from one supplier. At the low end, commercial programs are available at around $100. Low-cost accounting software programs focus on cash flow and profitability functions, which small business owners are most concerned with. Two examples of inexpensive small business accounting software are Quickbooks by Intuit and Peachtree products. They are scalable products that may be upgraded as a business grows. Low-end accounting software can be a fairly good accounting information system solution for businesses with less than $10 million per year in revenues and fewer than 100 employees.
When transaction processing needs grow in volume and complexity, a mid-range software package may be a better solution. Some examples are Microsoft’s Dynamics GP and Sage Software’s MAS 90, Everest, and Accpac. With these programs, modules cost several hundred dollars each and are usually sold separately. Many international companies do their business globally and need software to handle transactions in multiple currencies. This software can convert transactions from one currency to another and can even write checks in foreign currencies. Another example of a specialized feature that may be included in higher-end accounting software is the ability to split commissions among multiple salespersons.
The number of transactions processed monthly is one important factor in the choice between low-end and high-end software. If a company processes only a few accounts receivable transactions daily, an inexpensive package should handle this processing satisfactory. Transferability is also important: Each time one changes software, employees may need to reenter all transaction data. Cost savings are great when the software vendor offers programs that allow data to be imported automatically into higher-end products.
- Nancy A. Bagranoff, Mark G. Simkin, and Carolyn Strand Norman, Core Concepts of Accounting Information Systems (John Wiley & Sons, 2008);
- James A. Hall, Accounting Information Systems (South-Western Cengage Learning, 2008).
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