Accounting software
Encyclopedia
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.
Core Modules
Non Core Modules
(Different vendors will use different names for these modules)
Other organizations sell to, consult with and support clients directly, eliminating the reseller.
type accounting transactions, managing budget
s and simple account reconciliation at the inexpensive end of the 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.
.
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:
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 customization 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 customizable and can be tailored to exact business requirements. This usually comes at a significant cost in terms of money and implementation time.
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:
This can be weighed up against:
Some important types of vertical accounting software are:
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."
Application software
Application software, also known as an application or an "app", is computer software designed to help the user to perform specific tasks. Examples include enterprise software, accounting software, office suites, graphics software and media players. Many application programs deal principally with...
that records and processes accounting transactions within functional modules such as accounts payable
Accounts payable
Accounts payable is a file or account sub-ledger that records amounts that a person or company owes to suppliers, but has not paid yet , sometimes referred as trade payables. When an invoice is received, it is added to the file, and then removed when it is paid...
, accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
, payroll
Payroll
In a company, payroll is the sum of all financial records of salaries for an employee, wages, bonuses and deductions. In accounting, payroll refers to the amount paid to employees for services they provided during a certain period of time. Payroll plays a major role in a company for several reasons...
, and trial balance
Trial balance
A trial balance is a list of all the nominal ledger accounts contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit value...
. It functions as an accounting information system
Accounting information system
An accounting information system is a system of collection, storage and processing of financial and accounting data that is used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology...
. 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 receivableAccounts receivableAccounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
—where the company enters money received - Accounts payableAccounts payableAccounts payable is a file or account sub-ledger that records amounts that a person or company owes to suppliers, but has not paid yet , sometimes referred as trade payables. When an invoice is received, it is added to the file, and then removed when it is paid...
—where the company enters its bills and pays money it owes - General ledgerGeneral ledgerThe main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses. Each General Ledger is divided into debits and credits sections. The left hand...
—the company's "books" - BillingInvoiceAn invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms...
—where the company produces invoices to clients/customers - Stock/InventoryInventoryInventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
—where the company keeps control of its inventory - Purchase OrderPurchase orderA purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services...
—where the company orders inventory - Sales OrderSales OrderThe sales order, sometimes abbreviated as SO, is an order issued by a business to a customer. A sales order may be for products and/or services. Given the wide variety of businesses, this means that the orders can be fulfilled in several ways...
—where the company records customer orders for the supply of inventory - Cash Book—where the company records collection and payment
Non Core Modules
- Debt Collection—where the company tracks attempts to collect overdue bills (sometimes part of accounts receivable)
- Electronic payment processing
- ExpenseExpenseIn common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...
—where employee business-related expenses are entered - Inquiries—where the company looks up information on screen without any edits or additions
- PayrollPayrollIn a company, payroll is the sum of all financial records of salaries for an employee, wages, bonuses and deductions. In accounting, payroll refers to the amount paid to employees for services they provided during a certain period of time. Payroll plays a major role in a company for several reasons...
—where the company tracks salary, wages, and related taxes - Reports—where the company prints out data
- TimesheetTimesheetA timesheet is a method for recording the amount of a worker's time spent on each job.-Use:Originally developed for an employer to determine payroll, timesheets are not just for payroll any more. Timesheets may record the start and end time of tasks, or just the duration. It may contain a...
—where professionals (such as attorneysLawyerA lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person who is practicing law." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain the stability of political...
and consultantConsultantA consultant is a professional who provides professional or expert advice in a particular area such as management, accountancy, the environment, entertainment, technology, law , human resources, marketing, emergency management, food production, medicine, finance, life management, economics, public...
s) record time worked so that it can be billed to clients - Purchase RequisitionPurchase requisitionPurchase Requisition or Purchase Request is a precise document generated by an internal organization or external to notify the purchasing department of items it needs to order, their quantity, and the time frame that will be given in the future. It may also contain the authorization to proceed...
—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.
Personal accounting
Mainly for home users that use accounts payableAccounts payable
Accounts payable is a file or account sub-ledger that records amounts that a person or company owes to suppliers, but has not paid yet , sometimes referred as trade payables. When an invoice is received, it is added to the file, and then removed when it is paid...
type accounting transactions, managing budget
Budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...
s and simple account reconciliation at the inexpensive end of the market.
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
Double-entry bookkeeping system
A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts....
systems seen in many businesses. Some products have considerable functionality but are not considered GAAP
Generally Accepted Accounting Principles
Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...
or IFRS/FASB
Financial Accounting Standards Board
The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...
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 currenciesCurrency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
.
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
Project accounting
Project accounting is the practice of creating financial reports specifically designed to track the financial progress of projects, which can then be used by managers to aid project management....
modules.
Software applications in this market typically include the following features:
- Industry-standard robust databases
- Industry-standard reporting tools
- Tools for configuring or extending the application (eg an SDKSoftware development kitA software development kit is typically a set of software development tools that allows for the creation of applications for a certain software package, software framework, hardware platform, computer system, video game console, operating system, or similar platform.It may be something as simple...
), access to program code.
High end
The most complex and expensive business accounting software is frequently part of an extensive suite of software often known as Enterprise resource planningEnterprise resource planning
Enterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
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 customization 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 customizable 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 customization
- Reduced implementation costs
- Reduced end-user training time and costs
Some important types of vertical accounting software are:
- Banking
- ConstructionConstruction accountingConstruction accounting is a form of project accounting applied to construction projects. See also production accounting. Construction accounting is a vitally necessary form of accounting, especially when multiple contracts come into play. The construction field uses many terms not used in other...
- MedicalMedical softwareIn computers, medical software is a significant branch of software engineering. Many medical devices that monitor or control patients are predominantly controlled by software. Medical devices are frequently regulated and must comply with local and regional laws. In the European Union, these...
- Nonprofit
- Point of Sale (Retail)
- Daycare accounting (a.k.a. Child care management softwareChild care management softwareChild care management software also referred to as child care administrative software or daycare accounting software is a term used to describe a unique category of business software designed specifically for use by child care centers, preschools and similar child oriented facilities...
)
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.History
Bob FrankstonBob Frankston
Robert M. Frankston is the co-creator with Dan Bricklin of the VisiCalc spreadsheet program and the co-founder of Software Arts, the company that developed it....
has noted that his VisiCalc
VisiCalc
VisiCalc was the first spreadsheet program available for personal computers. It is often considered the application that turned the microcomputer from a hobby for computer enthusiasts into a serious business tool...
wasn't an early accounting program and that software that "overly tuned for such function (Javelin
Javelin Software
Javelin Software Corporation was a company in Cambridge, Massachusetts which developed an innovative modeling and data analysis product, also called Javelin, and later Javelin Plus...
, Lotus Improv
Lotus Improv
Lotus Improv was a spreadsheet program from Lotus Development that attempted to re-define the way a spreadsheet should work. Instead of treating the grid as the system for referencing data, Improv made all data exist in named ranges. Operations on the data then referred to these names, rather than...
, etc.) completely failed."
See also
- Accounting
- Comparison of accounting softwareComparison of accounting softwareThe following comparison of accounting software documents the various features and differences between different professional accounting software and personal finance packages.- Free and open source software :- Proprietary software :...
- Double-entry bookkeeping systemDouble-entry bookkeeping systemA double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts....
- E-accountingE-accountingE-accounting is the application of online and Internet technologies to the business accounting function. Similar to e-mail being an electronic version of traditional mail, e-accounting is "electronic enablement" of lawful accounting and traceable accounting processes which were traditionally...
- Enterprise Resource PlanningEnterprise resource planningEnterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
- Investment management
- Tax compliance software