Topic 1: Introduction to Accounting Software

Overview of Accounting Software

Accounting software manages and records the day-to-day financial transactions of an
organization, including fixed asset management, expense management, revenue
management, accounts receivable, accounts payable, sub-ledger accounting, and
reporting and analytics.

A complete accounting system keeps track of an organization’s assets, liabilities,

revenues, and expenses. These transactions then populate the general ledger in real-
time, providing CFOs, treasurers, and Financial Controllers, immediate access to real-
time, accurate financial data. It also allows P&L owners visibility into their performance
at the operational level.

The systematic recording of these financial transactions enables the production of

quarterly and annual financial statements, including balance sheets, income
statements, statements of cash flows, and statements of stockholders’ equity.
Accounting software is a key component of an enterprise resource planning (ERP)
system.

ERP systems unify essential business functions, such as accounting, financial planning
and analysis (FP&A), supply chain, inventory management, and procurement. These
applications are natively integrated with a common user interface and data model,
eliminating the need to move between systems or integrate siloed data to manage
diNerent aspects of your business.

Key Features of Accounting Software

Accounting software is crucial in helping organizations run their day-to-day business
processes. It allows business leaders to keep their finger on the pulse of their company’s
financial health.

1. General ledger (GL) and sub-ledger

Modern accounting software is designed to allow both journal entries and automated
sub-ledger entries to automatically populate the general ledger, allowing CFOs and
controllers to have a real-time view of their financial data.

2. Accounts payable (AP) and accounts receivable (AR)

A complete accounting software solution does more than just basic accounting. It helps
organizations to reduce records redundancy, deliver better budgeting and forecasting,
and enable a thorough and properly categorized expense management. In addition, it
provides seamless integration into banking systems, enables more accurate audits, and
keeps detailed tracking records of all assets and liabilities.

3. Cash management
The cash management capabilities in accounting software provide accurate cash
positions by automatically reconciling cash transactions to bank statements. These
capabilities also enable companies to make timely investing, borrowing, and other cash
decisions with automated cash forecasting based on payables, receivables, payroll sub-
ledgers, and external transactions.

4. Asset management
A modern accounting solution helps you manage the entire financial cycle of assets,
including acquisition, capitalization, depreciation, and retirement. This complete
visibility helps businesses deliver accurate financial statements related to appreciation
and depreciation.

5. Risk management and compliance

The best defense an organization has against fraud and unauthorized user access is
accounting software with built-in security, risk management, and audit controls. These
internal controls and separation of duties (SoD) help give your enterprise a secure, single
source of truth for data.

6. Collections management
Managing collections involving customers is an important accounting software
capability. With comprehensive collections management, it is easier to rank customers,
establish collection strategies, manage collection payments, and initiate late-stage
collections for bankrupt customers.

7. Revenue management
Embedded revenue management capabilities in accounting software automate the
process of using analytics to maximize revenue and profitability.

8. Reporting and analytics

A complete accounting system not only records financial transactions, it also includes
reporting and analytics capabilities. These prebuilt dashboards help finance leaders
make sense of their organization’s financial health and drill down for more detailed
information. These dashboards measure critical financial KPIs in real-time, including
current ratio, quick ratio, debt-to-equity ratio, net working capital, and inventory
turnover—just to name a few.
Accounting software—on-premises (or Desk top) or in the cloud
Since the introduction of accounting software nearly nearly five decades ago, it has
evolved tremendously, from an on-premises deployment model to a cloud-based one.
The first generation of accounting software was deployed on-premises, meaning the
hardware and servers for the software were located in a company’s data center.

Today, there is an increasing demand for cloud-based accounting software. When

accounting software is “in the cloud,” it simply means that the application runs on a
network of remote servers instead of at a company’s location.

The cloud oNers a more aNordable alternative for accounting software that lowers both
operating expenses (OpEx) and capital expenditures (CapEx) because it eliminates the
need for companies to purchase hardware or hire additional IT staN. With no costly
infrastructure to support, resources can be invested toward innovation opportunities,
while employees can focus on more strategic activities instead of managing IT.

Four core operational concepts are driving the move of accounting software from on-
premises to the cloud. They include:

Eliminating Legacy software systems require a lot of maintenance from staN

upkeep and consultants. These systems constantly need bug fixes,
patches, upgrades, and maintenance fees. With cloud-based
accounting software, the heavy lifting of tracking, diagnosing,
installing, and testing fixes shifts from customer to vendor.
Instead of having you work continually to fix the system, the
system continually works for you.

Avoiding expensive On-premises software requires a great deal of time, eNort, and
maintenance money just to keep it running. With cloud-based accounting
software, upgrades, disaster recovery, hardware refreshes, and
backups are all handled as part of the service.

Real-time, Accounting software solutions of the past often were designed to

accurate financial “batch transfer” transactions from subledgers to the general
data ledger. Cloud-based accounting software automatically posts all
transactions to the general ledger, ensuring that the GL always
contains real-time data.
 No more shelfware The old practice of buying extra licenses for future users and
potential projects ends with modern accounting software. With
the cloud-based accounting, companies use the licenses they
need and add more users or products as they grow.

The future of accounting software

Accounting software has evolved to meet the demands of a digital world, and the cloud
has been key to this transformation. The cloud has elevated back-oNice accounting
software to a comprehensive, mission-critical, integrated solution designed for
innovation. As companies encounter new disruptive forces and competitive pressures,
these agile, adaptable cloud accounting systems can enable them to achieve financial
strength in the future.
Having a modern, cloud-based accounting software solution helps organizations
compete in a digital economy. These comprehensive solutions include the following
capabilities:

Advanced reporting and Gain a comprehensive view into your organization’s

analytics financial performance and better understand
profitability, costs, and revenue by conducting historical
trend and variance analyses using prebuilt metrics.

Next-generation Modern, cloud-based accounting applications are often

technologies embedded with next-generation technology, such as
artificial intelligence (AI), blockchain, machine learning
(ML), and digital assistants.

Automation
Built-in account reconciliation and transaction
matching allows organizations to dramatically speed
the financial close process.

Lower total cost of

ownership (TCO)
The cloud eliminates the need for businesses to invest
in hardware, maintenance, shelfware, and upgrades.
Extreme scalability As companies grow, their financial management
software must have the ability to rapidly and easily
scale—across markets, geographies, and products. The
data centers of cloud accounting software providers are
engineered in a way that provides unmatched speed,
performance, security, and scale.

Work from anywhere Cloud accounting software allows accountants,

controllers, treasurers, and CFOs to access the
application on any mobile device with an internet
connection, from laptops to smartphones, enabling
finance departments to work securely from anywhere,
anytime, on any device.

Quarterly update cycle

Cloud software comes with automatic quarterly
updates, enabling customers to take advantage of
increased automation and more features.

A complete financial These cloud software the most comprehensive financial

management suite solutions available with applications for core A&F, risk
mgmt, , direct and indirect procurement & project
portfolioprocurement.

Disaster recovery The security protocols embedded in cloud accounting

software are far more extensive and modern than on-
premises systems. Cloud providers regularly back up
your data to servers in multiple locations, reducing the
risk that a fire or natural disaster could compromise
your instance of the system and information.

Compliance standards Today’s organizations need more than a digital version

of bookkeeping with spreadsheets. Beyond just
recording transactions, cloud-based accounting
software helps finance teams maintain their fiduciary
stewardship, reduce accounting errors, shorten
 invoicing cycles, comply with ever-changing tax laws
and regulatory requirements, and optimize cash flow.

Risk management

As money is tracked and managed across the

organization, accounting systems should help protect
critical data against theft, fraud, and other criminal
mischief.

Types of Accounting Software

Accounting software varies in complexity and functionality, catering to diNerent business
needs:
1. Entry-Level Software: Ideal for small businesses or freelancers. These tools
oNer basic features like invoicing and expense tracking. Examples include
FreshBooks and Wave Accounting.
2. Mid-Range Software: Designed for growing businesses with more complex
needs. These applications provide additional features such as inventory
management and project tracking. Examples include QuickBooks and Sage.
3. Enterprise Resource Planning (ERP) Systems: Comprehensive solutions for
large organizations. They integrate accounting with other business functions
such as supply chain management and human resources. Examples include
SAP and Oracle Financials.

Popular Accounting Software Solutions

• QuickBooks: Widely used by small businesses for its ease of use and
comprehensive features.
• Xero: Cloud-based solution known for its user-friendly interface.
• SAP: Enterprise-level software with extensive customization options.
• Oracle: Robust solution for large organizations with complex financial needs

Benefits and Challenges

Accounting software oNers several advantages:
1. Increased Accuracy: Automation reduces the likelihood of human error in data
entry and calculations.
 2. Time E]iciency: Routine tasks such as invoicing and reconciliation are
automated, freeing up time for other activities.
3. Real-Time Data: Access to up-to-date financial information supports better
decision-making.
4. Enhanced Decision-Making: Access to accurate and timely financial
information enables better decision-making.
5. Improved Compliance: Accounting software can help businesses comply with
tax regulations and accounting standards.
6. Scalability: Software can grow with the business, accommodating increased
transaction volumes and additional features as needed.

However, there are challenges:

1. Initial Setup: Implementing accounting software can be time-consuming and
may require training.
2. Data Security: Storing financial data digitally, especially on cloud platforms,
raises concerns about data protection and privacy.
3. Cost: Subscription fees and additional costs for advanced features can be
significant.
4. Integration Issues: Compatibility with other systems and software used by the
business may pose challenges.

Evaluating and Selecting Software

When choosing accounting software, businesses should consider:
1. Business Size and Complexity: The software must match the volume of
transactions and specific business requirements.
2. Budget Constraints: Evaluating the total cost of ownership, including
subscription fees and potential add-ons.
3. Ease of Use: User-friendly interfaces and available support resources.
4. Features and Customization: Ensuring the software includes necessary features
and allows for customization.
5. Compliance and Security: Verifying that the software adheres to regulatory
requirements and oNers strong data security measures.

Practical Exercise
Students will set up an account with a chosen free accounting software tool. This
involves creating an account, completing basic configuration, and exploring the user
interface to familiarize themselves with the software's core functions.

Discussion and Q&A

A discussion on students' experiences with the setup process, addressing any issues
encountered and clarifying questions about software features and selection criteria.