Accounting software

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Accounting software is application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. It functions as an accounting information system. It may be developed in-house by the company or organization using it, may be purchased from a third party, or may be a combination of a third-party application software package with local modifications. It varies greatly in its complexity and cost.

The market has been undergoing considerable consolidation since the mid 1990s, with many suppliers ceasing to trade or being bought by larger groups.

Modules

Accounting software is typically composed of various modules, different sections dealing with particular areas of accounting. Among the most common are:

Core Modules

• Accounts receivable—where the company enters money received
• Accounts payable—where the company enters its bills and pays money it owes
• General ledger—the company's "books"
• Billing—where the company produces invoices to clients/customers
• Stock/Inventory—where the company keeps control of its inventory
• Purchase Order—where the company orders inventory
• Sales Order—where the company records customer orders for the supply of inventory

Non Core Modules

• Debt Collection—where the company tracks attempts to collect overdue bills (sometimes part of accounts receivable)
• Electronic payment processing
• Expense—where employee business-related expenses are entered
• Inquiries—where the company looks up information on screen without any edits or additions
• Payroll—where the company tracks salary, wages, and related taxes
• Reports—where the company prints out data
• Timesheet—where professionals (such as attorneys and consultants) record time worked so that it can be billed to clients
• Purchase Requisition—where requests for purchase orders are made, approved and tracked

(Different vendors will use different names for these modules)

Implementations

In many cases, implementation (i.e. the installation and configuration of the system at the client) can be a bigger consideration than the actual software chosen when it comes down to the total cost of ownership for the business. Most midmarket and larger applications are sold exclusively through resellers, developers and consultants. Those organizations generally pass on a license fee to the software vendor and then charge the client for installation, customization and support services. Clients can normally count on paying roughly 50-200% of the price of the software in implementation and consulting fees.

Other organizations sell to, consult with and support clients directly, eliminating the reseller.

See the article Comparison of accounting software.

Categories

Personal Accounting

Mainly for home users that use accounts payable type accounting transactions, managing budgets and simple account reconciliation at the inexpensive end of the market suppliers include:

Low End

At the low end of the business markets, inexpensive applications software allows most general business accounting functions to be performed. Suppliers frequently serve a single national market, while larger suppliers offer separate solutions in each national market.

Many of the low end products are characterized by being "single-entry" products, as opposed to double-entry systems seen in many businesses. Some products have considerable functionality but are not considered GAAP or IFRS/FASB compliant. Some low-end systems do not have adequate security nor audit trails.

Mid Market

The mid-market covers a wide range of business software that may be capable of serving the needs of multiple national accountancy standards and allow accounting in multiple currencies.

In addition to general accounting functions, the software may include integrated or add-on management information systems, and may be oriented towards one or more markets, for example with integrated or add-on project accounting modules.

Software applications in this market typically include the following features:

• Industry-standard robust databases (eg PostgreSQL, MySQL, Microsoft SQL, Oracle, Pervasive)
• Industry-standard reporting tools (eg Cognos, Crystal)
• Tools for configuring or extending the application (eg an SDK, access to program code, the ability to be controlled via Visual Basic for Applications (VBA))

High End

The most complex and expensive business accounting software is frequently part of an extensive suite of software often known as Enterprise resource planning or ERP software.

These applications typically have a very long implementation period, often greater than six months. In many cases, these applications are simply a set of functions which require significant integration, configuration and customisation to even begin to resemble an accounting system.

The advantage of a high-end solution is that these systems are designed to support individual company specific processes, as they are highly customisable and can be tailored to exact business requirements. This usually comes at a significant cost in terms of money and implementation time.

Vertical Market

Some business accounting software is designed for specific business types. It will include features that are specific to that industry.

The choice of whether to purchase an industry-specific application or a general-purpose application is often very difficult. Concerns over a custom-built application or one designed for a specific industry include:

• Smaller development team
• Increased risk of vendor business failing
• Reduced availability of support

This can be weighed up against:

• Less requirement for customisation
• Reduced implementation costs
• Reduced end-user training time and costs

Some important types of vertical accounting software are:

• Banking
• Construction
• Medical
• Nonprofit
• Point of Sale (Retail)
• Daycare accounting (a.k.a. Child care management software)

Hybrid Solutions

As technology improves, software vendors have been able to offer increasingly advanced software at lower prices. This software is suitable for companies at multiple stages of growth. Many of the features of Mid Market and High End software (including advanced customization and extremely scalable databases) are required even by small businesses as they open multiple locations or grow in size. Additionally, with more and more companies expanding overseas or allowing workers to home office, many smaller clients have a need to connect multiple locations. Their options are to employ software-as-a-service or another application that offers them similar accessibility from multiple locations over the internet.

Use by Non-Accountants

With the increasing dominance of having financial accounts prepared with Accounting Software, as well as some suppliers' claims that anyone can prepare their own books, accounting software can be considered at risk of not providing appropriate information as non-accountants prepare accounting information. As recording and interpretation is left to software and expert systems, the necessity to have a Systems Accountant overseeing the accountancy system becomes ever more important. The set up of the processes and the end result must be vigorously checked and maintained on a regular basis in order to develop and maintain the integrity of the data and the processes that manage these data.

History

Bob Frankston has noted that his VisiCalc wasn't an early accounting program and that software that "overly tuned for such function (Javelin, Lotus Improv, etc.) completely failed."^[1]

See also

• Accounting, and List of accounting topics
• Construction Software
• Comparison of accounting software
• Double-entry bookkeeping system
• E-accounting
• Enterprise Resource Planning
• ERP On Demand
• ‎Investment management
• ‎Tax

References