Accounting Software: Definition, Types, and Benefits

What Is Accounting Software?

Accounting software is a computer program that assists bookkeepers and accountants in recording and reporting a firm's financial transactions. The functionality of accounting software differs from product to product. Larger firms may choose to implement a customized solution that integrates a vast amount of data from many different departments. Small firms often choose an off-the-shelf product.

Understanding Accounting Software

Accounting software is an invaluable resource for modern businesses. Software allows detailed tracking of financial transactions and near-instantaneous reporting and analysis. Before accounting software, these tasks had to be performed by hand, using large transaction journals.

Ad hoc reporting was generally impractical due to the labor involved in consolidating the manual entries. Accounting software automates these tasks, reducing the costs of accounting and allowing better financial decision-making through timely reporting.

Accounting software also allows for the storing of numerous amounts of data without having to take up physical space. This results in companies needing less office space because they no longer need large file rooms to store binders of data. Less office space allows for cost savings.

The ability to easily access accounting information through accounting software makes it easier to complete audits, particularly those that require evaluating information from years prior. This not only assists with internal audits but also assists external groups, such as the Internal Revenue Service (IRS), in case they need to investigate financials for tax purposes.

Accounting Software Choices

There are accounting software packages for all companies, from Intuit's Quickbooks for small to midsize businesses to offerings from Microsoft, SAP, and Oracle for large enterprises. Some of the distinguishing features are functionalities in expense reporting, LIFO and FIFO inventory reporting, point-of-sale integration, batch management, document management, and multi-currency transaction recording.

Also important is where or how the accounting software is deployed: on-premises, hosted as software-as-a-service (SaaS), or in the cloud. There are generic accounting software packages that can be used right away for all types of companies, while other packages require customization for the specific needs of an industry or business. As with other types of software packages, pricing for accounting software can take the form of a flat-rate (e.g., a monthly subscription), time-based, per user-based, and tiered-rates depending on the level of service.

Depending on the accounting software chosen, representatives from the software company may visit a customer's office and demonstrate the accounting software as well as implementing it properly and securely within the firm's accounting department.