What are accounting software programs?
Accounting software programmes digitise financial information. These programs can automate many processes, making it easier to track income, expenses, and overall financial health.
Accounting software replaces the traditional way of recording accounting transactions (income and expenses) / financial information in a “Big red book”. They also replace the need to perform the finance function in programmes such as speadsheets which are fantastic for filtering data, however not the optimum platform for day to day bookkeeping and accounting purposes.
Common features of accounting software are invoicing, expense tracking, payroll management, financial reporting, Value Added Tax (VAT) & tax preparation / submission for Making Tax Digital (MTD).
How does accounting software work?
Accounting software works by automating the process of managing financial transactions and records.
One key feature is double entry bookkeeping, where each transaction involves two entries. The software automatically posts both sides of the entry based on the selections you make. This ensures that both sides of the transaction are posted correctly, so you don’t have to worry about reconciling them manually.
The beauty of accounting software is that it simplifies this process, providing accurate and balanced financial records without the need for manual intervention.
There are two main types of accounting software:
| Desktop Accounting Software Also known as on-premises accounting software |
Cloud-based Accounting Software Also known as online accounting software |
|---|---|
| Installation: Installed directly on a computer or local server. | Installation: No installation is required; it is accessed via a web browser. |
| Accessibility: Access is limited to the device/s where the software is installed. | Accessibility: Can be accessed from most devices with an internet connection, providing greater flexibility. |
| Data Storage: Data is stored locally on the computer or server; Can get damaged in events like flooding. | Data Storage: Data is stored on remote servers (the cloud), managed by the software provider |
| Updates: Manual updates are often required, and users need to install new versions themselves | Updates: Automatic updates are provided by the software provider, ensuring users always have the latest version |
| Security: Security depends on the measures taken by the user, such as antivirus software and regular backups. | Security: Typically includes robust security measures, such as encryption and regular backups, managed by the provider. |
Why accounting software is important & how does it help business?
Accounting software is essential to businesses because it enhances accuracy, efficiency, and compliance in financial management. It automates tasks, reduces errors, and provides real-time financial insights, helping businesses make informed decisions.
The software ensures regulatory adherence (MTD in the UK), saves costs by eliminating physical paperwork, and offers scalability to grow with the business.
Additionally, it facilitates collaboration among team members and financial advisors, making financial management more streamlined and effective.
Cloud-based options provide remote access and collaboration, while robust security measures protect sensitive data.
Overall, accounting software simplifies financial processes, making them more manageable and efficient.
For example, a business owner uses accounting software to automatically generate and send invoices, track expenses, and reconcile bank statements, saving time and reducing manual errors while keeping their financial records accurate and up to date.
What can accounting software do?
Accounting software can perform a wide range of tasks to help manage financial activities efficiently.
Core Functions
- Invoicing: Create, send, and track invoices to clients.
- Depending on the software used, different levels of automation can be set up such as the drafting of recurring monthly invoices and sending follow up emails and/or payments requests from overdue customers.
- Expense Tracking: Monitor and categorise expenses, making it easier to manage budgets.
- Can also use third party apps that integrate directly to your accounting software which assist in simplifying the expense management & payment process.
- Financial Reporting: Generate essential reports like balance sheets, income statements, and cash flow statements.
- Cloud-based solutions allow for real time reports to be generated by users.
- Tax Preparation: Assist with tax calculations, filing, and compliance.
- In the UK, this is MTD, which has been implemented by HMRC for VAT and in 2026 will become mandatory for income tax.
Additional Features
- Bank Integrations & Reconciliation: Bring in live bank feeds (transaction lines)
- Helps to ensure the accounting software matches the bank statement balance.
- Match transactions with relevant supplier or sales invoices for completeness & accuracy.
- Inventory Management: Track inventory levels, orders, sales, and deliveries.
- Payroll Management: Handle employee payments, tax deductions, and generate payslips.
- Multi-Currency Support: Manage transactions in different currencies, useful for international businesses.
- Time Tracking: Monitor billable hours for projects and services.
- Budgeting and Forecasting: Plan and predict future financial performance based on historical data.
- Integration: Connect with other business tools like CRM systems, e-commerce platforms, and payment gateways.
Benefits
- Automation: Reduces manual data entry and minimises errors.
- Accessibility: Provides easy access to financial data from anywhere, especially with cloud-based solutions.
- Efficiency: Speeds up financial processes and improves productivity.
- Compliance: Helps ensure adherence to financial regulations and standards.
- Paperless: Eliminates the need for physical paperwork, storing all records digitally.
- Support – Access to accounting software support team & online forums when have queries or would like additional features / functionality on the platform.
Accounting software can significantly streamline financial management, making it easier to keep track of your business’s financial health.
