More Efficient Accounting Software Tools - dummies

More Efficient Accounting Software Tools

By Marina Martin

There are now efficient accounting software packages for every size business, from small (say, $5 million annual sales and 20 employees or fewer) to very large ($500 million annual sales and up and 500 employees or more).

It would be possible, although not very likely, that a very small business would keep its books the old-fashioned way — record all transactions and do all the other steps of the bookkeeping cycle with pen and paper and by making handwritten entries.

However, even a small business has a relatively large number of transactions that have to be recorded in journals and accounts, to say nothing about the end-of-period steps in the bookkeeping cycle.

When mainframe computers were introduced in the 1950s and 1960s, one of their very first uses was for accounting chores. However, only large businesses could afford these electronic behemoths. Smaller businesses didn’t use computers for their accounting until some years after personal computers came along in the 1980s. But, as the saying goes, “We’ve come a long way, baby.” A bewildering array of accounting computer software packages is available today.

Developing and marketing accounting software is a booming business. You can go to Google or Yahoo and type “accounting software” in the search field, but be prepared for many, many hits. Except for larger entities that employ their own accounting software and information technology experts, most businesses need the advice and help of outside consultants in choosing, implementing, upgrading, and replacing accounting software.

For owners/managers of small to middle-size businesses, 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 even just one module in your accounting software can be difficult.

  • In evaluating accounting software, you and your accountant should consider three main factors: ease of use, whether it has the particular features and functionality you need, and the likelihood that the vendor will continue in business and be around to update and make improvements in the software.

  • In real estate, the prime concern is “location, location, location.” The watchwords in accounting software are “security, security, security.” You need very tight controls over all aspects of using the accounting software and who is authorized to make changes in any of the modules of the accounting software.

  • Although accounting software offers the opportunity to exploit your accounting information (mine the data), you have to know exactly what to look for. The software does not do this automatically. You have to ask for the exact type of information you want and insist that it be pulled out of the accounting data.

  • Even when using advanced, sophisticated accounting software, a business has to design the specialized reports it needs for its various managers and make sure that these reports are generated correctly from the accounting database.

  • Never forget the “garbage in, garbage out” rule. Data entry errors can be a serious problem in computer-based accounting systems. You can minimize these input errors, but it is next to impossible to eliminate them altogether. Even barcode readers make mistakes, and the barcode tags themselves may have been tampered with. Strong internal controls for the verification of data entry are extremely important.

  • Make sure your accounting software leaves very good audit trails, which you need for management control, for your CPA when auditing your financial statements, and for the IRS when it decides to audit your income tax returns. The lack of good audit trails looks very suspicious to the IRS.