How the Growth and Evolution of Accounting Software Fits Today’s Business Landscape
The history of accounting has evolved over time to achieve optimum efficiency, improve accuracy, and accommodate the growth of commerce and business around the world. Technological innovations have revolutionised almost every field, and accounting is not an exception! The traditional methods of accounting involving voluminous binders no more attracts businesses today as it fails to vouch for authenticity, data safety and accuracy. Today, we see the adoption of Accounting Software systems that makes the entire process reliable, easy, automated, and friction free.
Accounting software is a fundamental tool to assess the financial health of an organisation. It is generally an application that records the flow of money for internal and external review as well as auditing. Good accounting software not only keeps a tab of the profits and losses of a company but also ensures the businesses meet the legal requirements of a specific region or country. The main objective of using accounting software is to minimise the labour-intensive manual tasks, reduce human error, and to accelerate tax preparation. Companies that are involved in the business are levied huge penalties due to minor accounting errors leading to underpaying sales tax. Hence, many companies are embarking upon the best software development company to develop accounting software to overcome account-related hurdles. When developing an application, the developer needs to include features such as trial balance, payroll. Accounts payable, accounts receivable, etc.
Examples of Accounting Software: Some of the well-known examples of accounting software include Fresh books, Zoho Books, Wave, Zero, Quickbooks, Cash Manager, and Declaree.
Benefits of Investing in Accounting Software
In case you are wondering to know what benefits does accounting software offer to a business, then the following are worth reading as it familiarises you with some of the well-known benefits:
- Greater Insights: Accounting software tracks all successful transactions and offers insights about business financial health. Manually composing these reports is a daunting task. But with the assistance of accounting software, businesses can predict the financial trends and make informed decisions. Hence, smaller companies can easily compete with larger firms by leveraging automation.
- Productivity: The first and foremost benefit of adopting accounting software is an increase in business productivity. As the process is automated, the software collects, analyzes and offers valuable insights that assist businesses in making smarter financial decisions.
- Security: Financial transactions form the core of any business; if they happen to fall in the wrong hands, then everything turns into a tragedy. Many cloud-based accounting applications adopt stringent security measures to keep financial data safe. They employ methods such as document encryption, user authentication, and authorization and offers protection like online-banking institutions.
- Accurate Forecasting: One of the prominent benefits of accounting software is that it analyses the financial trends and patterns, thereby giving a view of financial performance. Without the software, it would instead take quite a long time to get a glimpse of financial patterns. The software provides a clear picture of areas that needs more investment and concurrently displays sections/areas that incur large expenses. Hence the software facilitates to implement smarter strategies by careful analysis of the financial trends and patterns.
- Financial Transparency: Automated systems prevent errors in calculations that arise due to human intervention. As a result of miscalculation, businesses have to bear irreparable losses and thereby leading to a crisis. In the case of accounting software, all the calculations are automated and hence accounts for a higher degree of accuracy.
- Affordability: The accounting and financial systems automate the financial calculations and minimise the administrative burden.
Types of Accounting Software:
Depending on the mode of operation, the accounting software falls into four categories:
Billing and Invoice systems; Payroll management system; Time and expense management systems; and Expense resource planning systems.
Let’s check the essential features of each of the Software Categories.
Billing and Invoice system
- Check writing
- Intimate customers regarding payment dues
- Financial activity documentation
- Prepare documents for authorisation and validation
Payroll Management system
- Calculating employee salaries
- Deposition of salaries
- Production of tax forms & Payslips
Time and Expense Management system
- Expedite billing cycles
- Approve expenses
- Collect payments faster
Enterprise Resource Planning Systems
- Product planning
- Material purchase
- Inventory management and control
History and Evolution of Accounting
The concept of accounting has been in existence ever since the times of human civilisation. From an earlier inconsistent accounting system to modern accounting, there is a drastic transformation. Accounting has been gradually modified and evolved along with human civilisation. Based on the evolutionary data, the history of accounting can be divided into four stages that include Emergent stage (from an early age to 1494 AD), Pre-analytic age (1495-1499), Development (1800-1950) and Modern age (from 1950 onward).
Various methods of record keeping, and accounting tools have been in existence ever since human civilisations have begun trade. The main reason that can be attributed to the origin of writing systems is to record trade transactions. The first examples of accounting date back to 2000 to 3300BCE. In the 13th century, merchants used to depend on bookkeeping to keep a record of multiple transactions that are financed by bank loans.
Ever since the introduction of double entry booking system in 1458, the accounting systems and procedures made rapid progress. The double entry system is a bookkeeping system which was used to record debit and credit card transactions. In 1494, an Italian mathematician named Luca BartolomesPaciolo invented a system of record keeping which used a memorandum, ledger, and the journal. He wrote many books on accounting, and later he was known as the “Father of accounting and Bookkeeping.”
In the 18th century, inventors started creating machines to perform simple calculations. Even though the machines did not have a memory as computers, they did deliver accurate and efficient results. The first organisation for accountants was established in 1854 in Scotland. The initial organisations at that time included “Glasgow Institute of Accountants and Actuaries” and “Edinburg society of Accountants.” The members of the organisations were called “Chartered Accountants.”
In the early period of the 19th century, Herman Holliath developed a punch card machine to speed up data handling for US census. The punch card machines recorded data by punching a pattern of holes into cards. The history of accounting took giant strides in 1955 when General Electric company purchased to UNIVAC (the Universal automatic computer) for calculating payroll in factories. This is the first instance that a company purchased a computer purely for computing.
The Modern Era Accounting: The modern period of accounting started with the development of EDI to standardise transactions between customers and vendors. Soon, in 1982, two famous companies, such as Ford and General Motors, mandated EDI for their suppliers. IN 1978, the first spreadsheet software Visicalc enabled financial modelling on the computer. It was followed by Peachtree, the first accounting package software for the personal computer. The most popular software QuickBooks was launched in 1998 and dominated the market for day-to-day bookkeeping. Now it is the most popular accounting program in the US.
Evolution of Various Accounting Branches
Due to social, economic and technological developments, different branches of accounting emerged with time. The famous branches include Mechanised accounting and auditing, Tax accounting, Inflation accounting, Human resource accounting, Government accounting, social accounting, and responsibility accounting.
1. Mechanised Accounting and Auditing: Mechanised accounting came into existence due to technological advancement and led to the use of computers in bookkeeping and statistical day to day technical operations. The computers have made it possible to store and process large volumes of data. It has reduced a great deal of stress and labour in managing accounts.
Benefits of Mechanised Accounting
- Maintain an accurate record of transactions
- Simultaneous performance of many operations such as addition, subtraction, computing balances and more.
- Helps perform regular transactions accurately at a rapid pace.
2. Tax Accounting: Tax accounting is mainly concerned with tax returns and payments rather than focussing on the public financial statements. Majority of the income spent by the government on welfare schemes is derived from tax imposition. This mode of accounting systems is important for both taxpayers and receivers.
Tax accounting systems are concerned with income tax, sales tax, property tax, VAT, etc.
Benefits of Tax Accounting
- Familiarity of many business owners
- Assists in tax planning
- Helps in keeping financial situation simple
3. Inflation Accounting: Inflation accounting features a range of accounting models, to correct the problems arising out of historical rise and fall of inflation. The accounting systems offer a glimpse of the firm’s financial position in inflationary times.
Various Accounting Systems Introduced to Face Inflation
- Current cost accounting
- Current purchasing power accounting
- Real replacement cost accounting
- Current perpetual accounting
Benefits of Inflation Accounting
- True and fair balance sheet
- Gives the correct amount of depreciation
- Offers a realistic view of profitability
- Safety of owner’s equity
4. Human Resource Accounting:It involves identifying and measuring data about human resources that involve assigning, budgeting, and the cost of human resources (wages, salaries, and training expenses) in an organisation.
Benefits of Human Resource Accounting
- Helps business to know whether they made the proper investment in human resources in terms of money.
- Plan and execute personnel policies.
- Gives valuable information to investors looking for long-term investments.
5. Government Accounting: In simpler terms, government accounting involves recording and managing of all financial transactions that are incurred by the government that involve both the income and expenditures. It is beneficial to government employees, the general public and the government.
Benefits of Government Accounting
- Provide the requisite financial information and data for budget preparation
- Record government expenses and revenues
- Offers information on allocated expenses and their utilisation.
- Makes auditing simple and economical
6. Social or National Accounting: This method of accounting presents inter-relationships between various sectors of the economy to give a clear picture of the economic conditions. The components of social accounting include Production, Consumption, Capital accumulation, Government transactions, Transactions with the rest of the world forms the important components of social accounting.
Benefits of Social Accounting
- Helps the public to view the good work done by the non-profit organisations directly from the source.
- Insights to management and helps company to review their decisions and help make better ones.
- Improve image of an organisation and help with marketing decisions
7. Responsibility Accounting: Responsibility accounting refers to a company’s internal budgeting and accounting. It helps in control and planning of responsibility centres (decentralised departments and decisions) within the company.
Benefits of Responsibility Accounting:
- Assigning of responsibility
- Improves performance of a company
- Helpful in cost planning
- Assist in decision making
- Helps in better planning for future revenue and costs
Current List of Accounting Software Trends
- Cloud Accounting: Cloud accounting software has colossal benefits; it is a user-friendly, inexpensive way to manage the accounts. They have simple interfaces and can be easily operated across diverse geographies. The software can be easily operated by clients, businesses, colleagues, and team members and offers them with a bountiful of accessibility options.
- DIY Accounting Software: Investing in Do IT Yourself accounting software is an excellent means to keep your financial ledgers up to date. The DIY software offer solutions to organisations with accounting problems and assists the financial teams of business to address complex financial activities. The DIY software helps organisations to stay ahead of the competitors and helps achieve scalable growth.
- Outsourcing: Outsourcing is an excellent means for an organisation to gain long-term benefits. Most businesses would adopt to outsourcing business activities to focus on core tasks and for the effective utilisation of resources.
- Machine Learning: Artificial intelligence (AI) has revolutionised many fields of technology by automating many of the tasks that need human intervention. The machine-powered automated software has made it possible to reduce redundant tasks to a higher degree. Machine learning is an advantage to accountants as it ensures better accuracy, fraud detection, and helps predict historical trends.
- Increase in Dynamic Client Services: Going paperless gives businesses an edge over its competitors and helps retain clients for more extended periods in the coming years. Hence, the offices need to upgrade to accounting software that provides positive, accurate results within a short time.
How Accounting Software Fits Current Business Landscape
Technology is accelerating every workflow in every industry. Numerous functions are automated with advanced software systems. Such systems help in the reduction of manual entry, reduction in human errors, increased efficiency, speed, and accuracy.
Adopting a free and open source Accounting software can be the best fit for all those upcoming businesses who have budget constraint, and all those start-ups who are yet to find a foot. Also, investing in a cloud-based accounting software offers numerous advantages to the businesses. The person in-charge to handle the office accounts can log into client’s system from anywhere and review financial statements, banking information, tax documents without the need to visit the client. Hence, it saves valuable time and improves efficiency. Apart from this, cloud computing has a massive impact on large audit firms. It enables the audit firms to carry the operations globally and facilitate better utilisation of resources. All the data is available on the internet and can be accessed from anywhere. Also, the accounting software contains a dashboard feature that gives a comprehensive detail of what needs to be attended for a client. Invoice Meister, Quickbooks Online, Zoho books, Odoo are some of the top Accounting software solutions listed by GoodFirms. If you are already using one, you can share your feedback with GoodFirms.
Harnessing the power of Accounting Software will facilitate greater capacity to accountants and the businesses.