Accounting Software: Definition, Types, and Benefits

What is accounting software?

Accounting software, by its most basic definition, is a specialized computer program designed to automate and streamline a company's financial transactions and tasks. Yet, it is more than just a tool for numbers. As businesses have grown and evolved, so too has the demand for more intricate and adaptable financial systems.

At its core, accounting software records and processes accounting transactions within various functional modules such as accounts payable, accounts receivable, payroll, and trial balance. But in today's digital age, the definition has expanded to cover a broad spectrum of features. These can range from simple bookkeeping functionalities for SMEs (small and medium enterprises) to complex, integrated ERP systems used by global corporations that intertwine with other business operations.

Furthermore, the introduction of cloud computing and SaaS (Software-as-a-Service) models has further revolutionized the meaning and reach of accounting software. It's no longer just an on-premise solution but can be a cloud-based system that offers real-time collaboration, data retrieval, and analysis. This software can integrate seamlessly with other tools in a company's tech stack, from CRM (Customer Relationship Management) systems to e-commerce platforms, ensuring that financial data flows smoothly across departments.

Types of accounting software

The digital transformation in the financial realm has resulted in a variety of accounting software solutions tailored to distinct needs. These types range in complexity, scalability, and functionality. Here's a closer look:

Accounting software, by complexity

• Spreadsheets: Before specialized software, many businesses relied heavily on spreadsheet programs like Microsoft Excel. Some small businesses or freelancers still prefer them due to their simplicity and flexibility. They are especially useful for businesses with limited financial transactions.
• Commercial accounting software: Targeted at small to mid-sized businesses, these off-the-shelf software products come with essential financial management functionalities. Examples include Xero, QuickBooks and FreshBooks. They are often easy to use with user-friendly interfaces and dashboards. Designed for business owners, they lack scalability and complexity required by professional accountants.
• Enterprise accounting software or ERP (Enterprise Resource Planning): Designed for large corporations with multifaceted financial needs, ERPs integrate various business operations into one unified system. From accounting and HR to supply chain management and procurement, ERPs like SAP and Oracle provide a holistic view of a business's operations.
• Custom accounting software: For businesses with unique financial processes or those in niche industries, custom-built solutions might be the answer. These are designed from the ground up to cater to the specific requirements of a company, ensuring that every financial nuance is addressed.
• Vertical market systems: These cater to specific industries, offering tools and features tailor-made for particular sectors. For instance, a restaurant might need specialized point-of-sale integration, while a construction company might require project-based accounting functionalities.

Professional software for accounting firms, like Eleven, is an example of a vertical market solution, as it caters to the specific needs of accounting and advisory businesses (multi-company interface, scalability, custom reporting, per-user pricing).

Accounting software, by hosting

• Desktop accounting software: These are software packages that are installed on-premise and are only accessible from a computer with a license. Sage 50, QBO Desktop, MYOB are examples of popular desktop software which is still widely in use across the professional accounting industry, mainly because of its price and ability to handle volumes of transactions.
• SaaS (Software-as-a-Service) accounting solutions: With the cloud revolution, many businesses are turning to SaaS solutions. These web-based tools, such as Xero or Zoho Books, allow for real-time data access, collaboration, and scalability without the need for in-house hardware. They typically operate on a subscription-based model.
• Hybrid solutions: Some businesses require a mix of the above, leading to hybrid solutions that may combine cloud and desktop applications.

Accounting software, by automation type

With the introduction of AI, it makes sense to further classify accounting software according to the technology it uses to streamline repetitive tasks. 

AI-powered solutions: these are represented by new-gen AI-powered tools that allow to leverage generative AI for such tasks as invoice recognition, reporting, or even predictive analytics and forecasting. Within this category, you can also find AI-native apps, like Eleven for accounting firms,  that provide full-cycle bookkeeping automation without add-ons or third-party integrations.

RPA or Robotic Process Automation: software robots or "bots" that usually sit on top of the existing software stack and automate single rule-based tasks in accounting and cross-functional processes. 

Basic software automation: cloud and desktop apps that follow the logic of an accountant and provide a user-friendly interface for initial data input and output. 

In choosing the right type, businesses should evaluate their size, growth trajectory, industry-specific needs, and budget constraints. It's also crucial to anticipate future needs to ensure the chosen software remains a robust tool as the company evolves.

When it comes to accounting firms, it's crucial to choose software that would scale as the firm and its clients grow, without pressing too much on the profit margins. Balancing technology and profitability is one of the challenges many firms bump into when they start to scale. 

Benefits of adopting accounting software

Accounting software plays a pivotal role in the professional accounting services  landscape. Adopting accounting software can transform the way businesses manage their finances. Here are some additional advantages:

Benefits for accounting firms

• Streamlined processes & productivity: Manual data entry and reconciliations are time-consuming. Accounting software speeds up these processes, allowing high-qualified CPAs to focus on advisory and communications with clients.
• Cost-effectiveness: While there's an initial investment, the efficiency and accuracy gains can lead to significant cost savings in the long run by reducing overheads, eliminating potential penalties from errors, and streamlining financial operations. This is utterly important given the outrageous talent shortage and skyrocketing salary levels in the accounting sector.
• Scalability: As businesses grow, their financial operations become more complex. Cloud accounting software like Eleven can scale with the company, adapting to new challenges and demands without requiring a complete system overhaul.
• Collaborative potential: Gone are the days when financial data was siloed. With cloud solutions, multiple team members, accounting supervisors, and auditors can collaborate in real-time, whether they're in the same office or across the globe. 
• Timely updates and support: Most software providers offer regular updates, ensuring users have the latest features and tools. Additionally, support teams can assist with any challenges or queries.
• Customizable user access: By setting different access levels, firms can ensure that employees, auditors,  and clients see only what they need to.
• Professionalism & reputation: Sending professionally designed invoices, maintaining meticulous financial records, and having the ability to produce financial statements at a moment's notice enhances a business's reputation in the eyes of clients and stakeholders.

Shared benefits

• Improved accuracy and error reduction: Manual accounting processes are prone to human error, which can result in costly mistakes for clients and eventually damage an accounting firm's reputation. The software minimizes these risks by automating calculations and transactions, ensuring data consistency and employee well-being. 
• Data security: Financial data is sensitive. Most accounting software solutions come equipped with robust security features to protect against data breaches, unauthorized access, and potential cyber threats. Such tools are much more reliable than Excel sheets.
• Regulatory compliance: Staying compliant with ever-evolving financial regulations can be challenging. Accounting software can be updated to reflect the latest tax rates, financial regulations, and reporting standards, ensuring businesses remain compliant.
• Seamless integration: With the rise of integrated business solutions, accounting software can seamlessly connect with other tools, such as CRM systems, payment gateways, and e-commerce platforms. This ensures cohesive data flow across different functions.
• Mobility: Many cloud-based accounting software solutions offer mobile applications, allowing business owners and accountants to access financial data, approve transactions, or send invoices on the go.
• Remote access: Many modern software solutions are cloud-based, allowing for access from anywhere. This facilitates remote work and ensures that business owners can review financials at their convenience.
• Paperless operation: Reducing the reliance on physical documents not only aids in organization but is also environmentally friendly. It eliminates the need for bulky filing systems and the risk of misplacing vital paperwork.
• Easy audit preparation: With organized financial data, preparing for internal or external audits becomes less daunting. All necessary information is readily available and easily accessible.

Benefits for accounting firms' clients

• Financial overview: Modern accounting software offers dashboards and reporting tools that provide a real-time snapshot of a company's financial health. This aids in helping clients make informed decisions quickly.
• Insightful forecasting: With built-in analytics tools, businesses can utilize past data to forecast future trends, aiding in budgeting, planning, and setting financial targets.
• Enhanced cash flow management: With real-time data and insights, businesses can better manage and forecast their cash flow, ensuring they can meet financial obligations and plan for future expenses.
• Enhanced customer and vendor relations: With automated invoicing, timely reminders, and organized vendor information, businesses can improve their relationships with both customers and suppliers.

• Data-backed decision making: With the ability to generate various reports and forecasts, business owners can make decisions rooted in concrete data rather than relying on gut feelings.

• Efficient expense tracking: By categorizing and recording expenses as they occur, businesses can maintain better control over their spending and identify potential areas for cost reduction.

In the digital age, not leveraging accounting software can place businesses at a competitive disadvantage. It's not merely about recording transactions but harnessing financial data as a strategic asset for growth and stability.

Key features to look for in accounting software

The right accounting software features as the backbone of a business's financial operations. However, the multitude of options available can be overwhelming. Here are the key features to prioritize when assessing accounting software for your accounting firm:

• General Ledger: The foundation of any accounting system, a general ledger records all transactions. A scalable general ledger can adapt as a business grows, handling a more considerable amount of data and offering flexibility in how data is organized and reported. For instance, Eleven's General Ledger has a multi-ledger structure which allows you to handle several companies and process transactions in multiple currencies, without performance lags or potential limits. 
• Automated AR (Accounts Receivable) & AP (Accounts Payable): Automation in AR & AP ensures that invoices and bills are managed efficiently. This feature sends automated reminders for outstanding bills or payments, schedules recurring invoices, and tracks payment statuses. It reduces manual input, speeds up the collection/payment process, and minimizes errors.
• Automated bookkeeping: Gone are the days of manual data entry for every transaction. Automated bookkeeping can categorize and record financial data as it comes in, from bank transactions to invoices. This not only saves time but also ensures accuracy and up-to-date financial records.
• Multi-company interface: For businesses that operate multiple entities or subsidiaries, this feature is a must. It allows the management of multiple companies' accounts within a single software platform, streamlining financial oversight, and enabling consolidated reporting. This feature is also important for accounting firms, as it allows them to handle a bunch of clients under one roof, without having to log in and log out or managing a tone of individual client subscriptions.
• Multi-currency support: Global businesses often deal in multiple currencies. This feature allows for transactions in different currencies, automatically calculating exchange rates in real-time. It also adjusts for exchange rate fluctuations, ensuring accurate financial reporting.
• Document Management: An integral feature for the digital age, it allows for the storage, retrieval, and management of financial documents within the software. Be it invoices, receipts, or contracts, everything can be stored systematically, ensuring easy access and compliance.
• Custom reporting & BI (Business Intelligence): While standardized reports cover the basics, custom reporting allows businesses to delve deeper, creating reports tailored to specific needs. Combined with BI tools, it aids in deriving insights from financial data, helping in strategic decision-making.
• Standardized reports: These are preset report templates that cover the most common financial reporting needs like balance sheets, profit and loss statements, cash flow statements, etc. They offer a quick snapshot of a business's financial health without the need for custom configurations.
• Tax Engine: Tax regulations differ across countries and can be complex. A universal tax engine can calculate taxes owed based on various global tax regulations, ensuring compliance regardless of where the business operates. It also updates in real-time to reflect any changes in tax laws.

Wrapping up

Accounting, at its core, serves as the financial heartbeat of a business. By embracing modern accounting software, accounting firms are not only investing in tools that streamline and automate mundane processes but are also equipping their clients with powerful decision-making aides. 

As we've seen, the spectrum of features these software solutions offer is vast — from automated bookkeeping to a scalable general ledger, to in-depth financial analysis tools. These features go beyond mere numbers, providing clarity, foresight, and strategic insights.

Moreover, the benefits of adopting such software can prove transformative. As the business world becomes more digital and interconnected, the reliance on intuitive, fully-featured accounting software will only grow.

In choosing the right software, accounting firms should look beyond immediate needs, considering scalability and adaptability for the future. By doing so, they ensure a foundation that will not only support their current operations but also adapt and grow alongside them. In essence, modern accounting software doesn't just record financial history; it helps shape a business's financial future.