How to Choose the Right Accounting Software for Your Business
Accounting software packages are available for businesses of every size, from small home-based businesses to multinational corporations. Accounting software is a booming business, which means you have a lot of choices. Except for larger entities that employ their own proprietary accounting software and information technology experts, most businesses need the advice and help of outside consultants to choose, implement, upgrade, and perhaps replace accounting software.
Here are some words of wisdom about accounting software:
Choose your accounting software very carefully. It’s very hard to pull up stakes and switch to another software package. Changing just one module in your accounting software can be difficult.
When evaluating accounting software, consider three main factors:
Security! You need very tight control over all aspects of using the accounting software and who's authorized to make changes in any of the modules of the accounting software.
Online accounting systems that permit remote input and access over the Internet or a local area network with multiple users present special security problems. Think twice before putting your accounting system online.
Know how to mine your data. Although accounting software offers the opportunity to exploit your accounting information (mine the data), you have to ask for the exact type of information you want and insist that it be pulled out of the accounting data.
Give your software your business's personal touch. You need to design your business's specialized reports and make sure that these reports are generated correctly from the accounting database.
Set up internal controls to limit input errors. Data entry errors can be a serious problem in computer-based accounting systems. You can minimize these input errors, but it's next to impossible to eliminate them altogether. Strong internal controls for the verification of data entry are extremely important.
Make sure your accounting software leaves very good audit trails. The lack of good audit trails looks very suspicious to the IRS.
Accounting Glossary
accounting equation
The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).
Accounting Glossary
accounting period
The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.
Accounting Glossary
accounts receivable
An account that records the amounts that customers owe to a business.
Accounting Glossary
adjusting entry
A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.
Accounting Glossary
cash flows
Used to describe the source or sources of cash or how cash is used.
Accounting Glossary
Chart of Accounts
A list of all the accounts used by a business, including what types of transactions go into each account.
Accounting Glossary
debit
An accounting entry that increases an asset or expense account, and decreases a liability or income account.
Accounting Glossary
dividends
A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.
Accounting Glossary
FASB
Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.
Accounting Glossary
Federal Unemployment Tax
In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)
Accounting Glossary
fidelity bonds
A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.
Accounting Glossary
FIFO
First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.
Accounting Glossary
fungible
Describes a product that is interchangeable and virtually indistinguishable from another product.
Accounting Glossary
General Ledger
A summary of all of a business’s accounts and transactions.
Accounting Glossary
IASB
International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.
Accounting Glossary
Journals
The location in which bookkeepers keep records (in chronological order) of daily company transactions.
Accounting Glossary
LIFO
Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.
Accounting Glossary
LLP
Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.
Accounting Glossary
PC
Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.
Accounting Glossary
petty cash
A cash account that businesses keep on hand for unexpected expenses.
Accounting Glossary
revenue
Monies that are collected in the process of selling a company’s goods and services.
Accounting Glossary
salvage value
The amount that an asset is worth after it has been fully depreciated.
Accounting Glossary
statement of cash flows
A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.
Accounting Glossary
transactions
Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.
Accounting Glossary
worker’s compensation insurance
A type of insurance carried by employers that covers its employees in case they are injured on the job.
