Accounting software is an application

Accounting software is an application or set of applications that records and processes accounting transactions according to the rules and regulations specified and takes every single transactional entry up to the final books like trial balance, profit and loss accounts and balance sheet automatically. Accounting is a part of life, it is required everywhere be it home, shop, services, companies or government departments. The books containing information about money transactions are compulsory. 

Accounting software makes the task of keeping account books easy. This is done in few ways like software helping a lay man in keeping his books who has no knowledge of accounting rules. Software helping small to large organizations in maintaining books with ease by doing processing and recording on its own and relieving accounts department from repetitive work and another way is to help in analyzing the accounts data for better and profitable decisions and getting alerts for wrong decisions or pitfalls.

Accounting software generally contain modules like accounts receivables, accounts payable, general ledger, billing, inventory, purchase order, sales order, bank book and cash book. These are core modules of accounting software however non core modules may include more options like debt collection or outstanding, payment performance, expenses, payroll etc.

Accounting software can be classified as per their functionality in few categories. Personal accounting software are meant for simple accounting purposes like managing budget, expenses and income for personal accounts. These software also include reports for reconciliation like bank book and expense sheet. Inventory-accounting software is another category of software used with sales and purchase options, few of those have stock option too and use single entry system for accounting. These software are very low in terms of functionality and support only one type of regulation and currency. These software are not designed with GAAP or IFRS compliance and just provide accounting as additional feature with the software

Cost Accounting Software

The good news for small business is that the majority do not need such specialist costing analysis as then proprietor usually has intimate detailed knowledge of all business expenses incurred. Or at least the small business believes he has that knowledge.

In truth it is not until regular bookkeeping records are produced that the small business can stand back and examine the real effect of the business expenses on the profitability of the business. And by virtually taking a third party view of the costs and effect of those expenses on profitability can the financial decision be taken to improve profitability.

Producing accounts on a monthly basis using accounting software suitable for the size and accounting experience of the small business owner is the first step to improving profitability. The second step is to review those accounts and determine just which cost items can be changed.

Costs occur and behave in different ways. Some business expenses may be regarded as fixed costs which others are termed variable or semi variable costs. The impact of sales volume increases or decreases variable costs and the marginal gross profit produced while turnover has little impact on fixed costs in the short and medium timescales.

Having produced a monthly profit and loss account and started the accounting for profit review of the financial figures it is useful to separate the nature of the expenses into those that are fixed and those expenses which are variable costs and those expenses which are semi variable costs.

Fixed costs means the level of expenditure does not vary with normal changes in sales volume in the short and medium term at least. But being fixed does not mean the rice of that expense cannot be reduced by examining both the value for money obtained and whether that cost is necessary in the first place.



Direct costs are perhaps one of the one most influential cost areas in that the lower the direct cost that can be achieved reduces the sales volume required to reach and exceed the beak even point and also puts less pressure on the fixed costs.

Semi variable expenses would be those items which the small business makes definite decisions to buy depending upon the requirements of the products and the level of volume required. Many semi variable costs are dependent upon the management decisions of the small business owner and are a critical area in which the success or failure of the business may depend.

Semi variable costs may include the advertising and promotion costs of the business, perhaps the transport and distribution costs, direct employees and goods or services bought in to support the sales volume.

Each variable cost should be reviewed and a decision made on whether value for money is being obtained. That review should also examine whether the level of support the semi variable costs provide to the achievement of financial success is adequate, improvable or could be dispensed with.

Accounting for profit is the key area in which to examine all costs. Accounting or bookkeeping software can be a useful tool to identify the volume and levels of expense. The nature and performance of each expenditure classification should be subjected to the critical review of the small business owner to generate either a higher or safer financial performance.

Latest Accounting software

To be most effective the self employed accounts should be in a format that can eventually be used by the accounts program to produce the financial information required to complete the tax returns. Since in the UK as in many countries there are several types of tax returns then the accounting software should cope with all variations.

Database accounting software is frequently based upon a chart of accounts which is not necessarily tax return friendly. Accounting template spreadsheets being more fixed in nature do offer an opportunity to be tax friendly.

Facility should be available to distinguish between revenue transactions and the purchase of fixed assets as fixed assets are treated differently for tax purposes being subject to capital allowances which are tax allowances written off against the net taxable profit according to the tax rules as opposed to being able to deduct the whole cost of that asset in the one financial year.

Easy to use by non accountants requiring no previous accounting knowledge and is basically a list of sales and a list of purchases on preset excel spreadsheets. Each workbook is arranged as 12 monthly spreadsheets with preset columns and uses an entry code letter to analyse both sales and expenditure. 

The Self-employed accounting software UK is based upon single entry of transactions and does not produce a balance sheet which is an optional requirement for self employed and therefore not a problem for the vast majority of businesses. DIY Accounting actually recommend clients who are self employed and wish to produce a balance sheet to use their Limited Company accounts package which does produce a balance sheet being based not on single entry but on double entry principles. The small business accounting software is suitable for a single tax year, the latest being 2007-08 and does not cater for accounting periods other than April to April. There are benefits in anyone self employed adopting the standard April to April financial year as this avoids tax allowances from two separate years being a feature of the accounts. When used by small businesses using the cash accounting system the bookkeeping entries to the sales and purchase sheets must be entered according to the dates money is paid or received rather than the dates invoices were issued. At the end of the financial year any invoices not yet entered require to be listed to adjust the final profit and loss account figures. This a major disadvantage if using the vat cash accounting scheme rather than the Accounting Software being reviewed