When you start a business, or even when you expand a business, one of the first things you will think about is keeping up with your money. Whether your business uses bookkeeping or accounting as the money management system, you would be wise to purchase an appropriate accounting software package.
Accounting software packages are much more user-friendly today than they were just a few years ago. The manuals they come with are readable. Technical support is more responsive. Sometimes, you will need for a company representative to install the software. If that happens, the good news is that the company rep will usually teach you how to use the software package as well.
If the business is bigger, then you may have to have some accounting knowledge to use the software. However, there is no "one size fits all" accounting software package. Here are some features of accounting software packages that you may want to consider:
1. Supporting the General Ledger System
The accounting system for most business organizations is based on a chart of accounts. The chart of accounts is a numbered list of the ledger accounts that are impacted by each financial transaction of the business. A computerized chart of accounts makes it easy for the owner of the business to enter each source document as a financial transaction when it happens.
Each element of the accounting system and the accounting equation is represented in the chart of accounts.
2. Financial Reporting
Any accounting software that you purchase should give you the ability to develop financial statements, such as the income statement, balance sheet, and statement of cash flows. Taking the information from the general ledger system, along with the inventory, accounts receivable, and accounts payable systems, makes this possible.
3. Inventory Management Systems
Does your firm sell products or services? If you sell services, then you do not need an accounting software package that includes an inventory module. If you buy software with features you don't need, it makes the software more expensive than it has to be and also makes it harder to learn for you and your employees than it has to be.
A module, for our purposes, is defined as a plug and play part of the software.
Only if you sell products do you need an accounting software package that includes an inventory module. If you sell products, you need to track your inventory so you can know when to order more inventory and how much to order.
4. Payroll Functions
Is this a very small business with a sole proprietor and no employees? Or is it a large SMB (small and medium-sized business) or SME (small and medium-sized enterprises) with hundreds or thousands of employees? If the business is small with no employees, you do not need the payroll function with your accounting software.
Even if you have only a few employees, you will want to consider getting accounting software with the payroll function as there are so many payroll-related items to keep up with. In fact, payroll is so complex that you may even want to outsource your payroll to experts.
If you have employees and you plan to do your payroll yourself or have a payroll clerk do it for your business, you definitely need a payroll module included with your accounting software.
5. Accounting for Accounts Receivable
If you have accounts receivable on your books, that means you extend store credit to your customers and they owe you credit accounts directly. Alternatively, you may extend them credit in the form of a store credit card. Accounts paid with Visa, Mastercard, or another national brand credit card do not count as accounts receivable. If you have accounts receivable, you want to include an accounts receivable module with your accounting software package.
It is very important to keep track of your credit customers and their balances. Losing track will cost you money. You have to know which customers remain creditworthy so you will know who to extend credit to in the future. You also need to manage your accounts receivable. For example, you may want to develop an accounts receivable aging schedule to see how far behind your customers are with their bills. You also have to know whether or not to make an adjustment in your credit policy.
6. Keeping Track of Accounts Payable
Your accounting software package also needs to have the capability to track your accounts payable which is what you owe to your vendors and suppliers. It can help you make sure that your payments to your suppliers go out on time.
7. Creating an Audit Trail
One of the most important tasks an accounting software system can do for a business is to create an audit trail. If anyone other than the owner will be paying bills and receiving payments, an audit trail is important. The accounting software system will allow the owner to see where funds go from point a to b to c.