Accounting software refers to a kind of program software which automatically processes and documents accounting transactions in different functional modules like accounts receivable, accounts payable, inventory, budget, expense, payment, banking and trial balance. It acts as an accounting tool. A number of companies use this software for its accounting functions. This includes business process outsourcing firms, finance companies, hospitals, software development companies, and many others. Most accounting system provide core accounting tools, and a number of add-on modules and tools.
The accounting system helps keep track of financial transactions, report basic information, record changes in financial variables, and generate reports. Accounting system generates different kinds of reports. Some of these are the statement of earnings, profit and loss, summary of operations, accumulated expenses, current assets, long term assets, short term assets, working capital, and financial statement.
The accounting system creates balance sheet accounts basing on the actual or estimated value of the company’s net assets. The balance sheet accounts have information on the difference between assets and liabilities. Accounting system separates assets from liabilities. This helps in determining the net worth of the firm.
The accounting system used in small business finances is specially designed to manage the day to day cash flow. This system will also produce income statements, balance sheet, cash taxes, and bank reconciliation reports. The system used to produce the income statements consists of gross revenue, purchase and sale of existing accounts, and the expense account. In addition to producing monthly reports, this system can also be used to produce annual reports.
Accounting system uses information in the form of tables, graphs, and spreadsheet to store, evaluate, retrieve, summarize, and interpret financial information. Most accounting systems have a data base, workbook and records for organizing the information. There are many accounting software available in the market for keeping the track of the daily sales activities. Accounting software help to a large extent in the preparation of balance sheet, income statement, and the balance sheet.
Most accounting systems used today includes built in control systems for the purpose of generating reliable automatic results. However, some manual calculations are still required for completing the inventory, cost of goods sold, and cost of service sold. For creating monthly and quarterly reports accounting system may be used. Manual computations for calculating the inventory balances, working capital, costs, and other costs are still required by most firms. It is quite possible that the accounting system may be used to generate the financial summary reports.